Was Liquor Really Cheaper in 1922?

A blog about business and economics.
May 30 2012 10:47 AM

Was Liquor Really Cheaper in 1922?

I'm very much looking forward to the upcoming film adaptation of The Great Gatsby, but I have an economic quibble with the trailer:

The problem here is the assertion in the voiceover that "the liquor was cheaper" in 1922. This is not a line from Gatsby, but rather a repurposed line from Fitzerald's essay "My Lost City" in which he's referring to 1927. That, in turn, raises the question of cheaper than when? In the context of 1927, the answer is probably that he's saying liquor was cheaper than it had been earlier in the Prohibition Era since enforcement got very lax in states like New York where large Catholic and Jewish voting blocs were unsympathetic to the basic cause. But in 1922, Prohibition was brand new and it would be very difficult to see why liquor would be cheaper than in any reasonable reference point.

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Difficult, that is, until we realize that Baz Luhrman's version of Nick Carraway is suffering from money illusion:

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World War I was associated with a major increase in the price level, and upon concluding the war, the U.S. government set about to actually reverse a fair amount of the inflation, causing a fairly severe recession. So it's quite possible that in 1922 the nominal price of liquor was down even as the real price was up. Of course Carraway was in the bond game and thus may have had a fair amount of his income fixed in nominal terms, making him a beneficiary of the general deflation in a way that a wage earner wouldn't have been.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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