The price of nails since 1695

 If your friends and relatives wonder why economists write about the things we do, this interesting paper should reassure them that someone is minding the economics store and thinking deeply about prices...

THE PRICE OF NAILS SINCE 1695: A WINDOW INTO ECONOMIC CHANGE by Daniel E. Sichel

NBER Working Paper 29617, http://www.nber.org/papers/w29617

Abstract: This paper focuses on the price of nails since 1695 and the proximate source of changes in those prices. Why nails? They are a basic manufactured product whose form and quality have changed relatively little over the last three centuries, yet the process for producing them has changed dramatically. Accordingly, nails provide a useful prism through which to examine a wide range of economic and technological developments that touch on multiple areas of both micro- and macroeconomics. Several conclusions emerge. First, from the late 1700s to the mid 20th century real nail prices fell by a factor of about 10 relative to overall consumer prices. These declines had important effects on downstream industries, most notably construction. Second, while declining materials prices contribute to reductions in nail prices, the largest proximate source of the decline during this period was multifactor productivity growth in nail manufacturing, highlighting the role of the specialization of labor and re-organization of production processes. Third, the share of nails in GDP dropped back from 0.4 percent of GDP in 1810—comparable to today’s share of household purchases of personal computers—to a de minimis share more recently; accordingly, nails played a bigger role in American life in that earlier period. Finally, real nail prices have increased since the mid 20th century, reflecting in part an upturn in materials prices and a shift toward specialty nails in the wake of import competition, though the introduction of nail guns partly offset these increases for the price of installed nails.

"nails are ideal for this analysis because there has been relatively little change in the product itself (unlike the production of computing power or lighting), thereby greatly simplifying the task of adjusting for changes in quality over time.

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" In 1810 (the earliest year for which I could assemble necessary data), the use of nails in the US (measured as production plus imports minus exports) was about 0.4 percent of nominal GDP as shown in Figure 1. To put this share into perspective, in 2019 household purchases of personal computers and peripheral equipment amounted to roughly 0.3 percent of GDP and household purchases of air travel amounted to about 0.5 percent. That is, back in the 1700s and early 1800s, nails were about as important in the economy as computers or air travel purchased by consumers are today. "