# Why is it necessary to adjust for inflation?

Reading about Avatar’s BO in USA Today, it says Avatar is going to move into no. 1 all time but if you adjust for inflation Gone With The Wind is still champ. 1 billion something for GWTW compared to \$594 million for Avatar. Why the adjustment?

Because the purchasing power of a single dollar has changed over the years, which is what they’re actually trying to measure. It isn’t how much money the movies made, but how much value they made.

Like, just making up numbers here, think of it in terms of man-hours needed to buy the tickets:

Gone With the Wind made \$1,000,000 and the average person was paid \$1/hour an hour, so people “spent” 1,000,000 hours of their time.

Avatar made \$10,000,000 and the average person was paid \$100/hour, so people “spent” 100,000 hours of their time.

Changing the performance metric impacts the perception of how well the movie did. That’s what adjusting for inflation is trying to do. It’s trying to compensate for how much harder it was for old movies to reach those dollar figures.

The value of a dollar isn’t constant over time. This inflation calculator tells me that \$1 in 1939 is the equivalent of about \$14 today, so if you don’t make the adjustment, you’re comparing two different things.

because prices change?

why it matters for movie comparisons? it really doesn’t - they’re just relating the popularity of Avatar to the popularity of movies past. The inflation-adjusted box office revenue is one way of doing it. Another would be to examine the number of tickets sold for each movie. Both are replete with problems and potentials for poor analysis, but they’re just ways to pseudo-quantify how successful films are in different eras and periods.

If instead, they measured asses in seats, there would not have to be an adjustment.

However, to be fair, as a % of the population, Gone With The Wind kicks Avatars ass. On the gripping hand, there was no TV or Internet back in those days, so more people went to the movies on a regular basis.

This conflates dollars per man-hour and dollars per shopping basket, which do not change at the same rate. (Perhaps they’re close enough for describing change during the 70-odd years since GWTW, but I’ve wondered about prices over the centuries, and you have to be very careful to check whether a source uses “purchasing” power or “earning” power.)

It’s not because prices change (though they do, both for inflationary and non-inflationary reasons), but because the value of the currency used to express the prices has fallen.

For an analogy, consider comparing a Japanese movie that made 500 million yen to a British movie that made 50 million pounds. Any meaningful comparison must take the currency exchange rate into account.

Even more simply: Movie A sells 100 seats at \$5 a seat. It makes \$500. Movie B sells 80 seats at \$10 a seat. It makes \$800.

Which movie is more popular?

Unless we’re taking into account 1939 asses vs. the inflated 2010s.

Guffaw!

My mother bought a \$40,000 house in 1963. I have \$400,000 house now. Whose house is worth more?

Does it matter that her house would sell for \$800,000 or more today?

If they only counted them, there wouldn’t, but if they measured them, there would.