There are many well-known examples of extraordinary technology gains over time, like computing power and lighting. But a growing economy also involves technological changes and improvements in a wide array of what seem like, at least today, to be ordinary products. Daniel Sichel considers “The Price of Nails since 1695: A Window into Economic Change,” in the Winter 2022 issue of the Journal of Economic Perspectives (36:1, 125-50).
(Full disclosure: I’ve been the Managing Editor of JEP since 1986, and so may be predisposed to believing that the articles are of broad interest. This article, like all articles in JEP back to the first issue, have been freely available online for more than a decades now, compliments of the American Economic Association.)
For gains in computing power, it’s of course well-known that productivity growth has taken off with in the last 60 years or so in what is often referred to as “Moore’s law,” the roughly accurate empirical prediction made back in the 1960s that the number of components packed on a computer chip would double about every two years, implying a sharp fall in computing costs and a correspondingly sharp rise in the uses of this technology.
In a 2007 paper, William D. Nordhaus wrote about “Two Centuries of Productivity Growth
in Computing,” going back to the computing machines of the early 19th century. As one example, Nordhaus writes:
The first calculator to enjoy large sales was the “arithmometer,” designed and built by Thomas de Colmar, patented in 1820. This device used levers rather than keys to enter numbers, slowing data entry. It could perform all four arithmetic operations, although the techniques are today somewhat mysterious. The device was as big as an upright piano, unwieldy, and used largely for number crunching by insurance companies and scientists. Contemporaneous records indicate that 500 were produced by 1865, so although it is often called a “commercial success,” it was probably unprofitable.
According to the calculations from Nordhaus, “there has been a phenomenal increase in computer power over the twentieth century. Depending upon the standard used, computer performance has improved since manual computing by a factor between 1.7 trillion and 76 trillion.”
The production of light is another area of historically dramatic gains. Again, the seminal work here was done by William Nordhaus in a 1997 paper, “Do Real Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not.” For a flavor of this paper, consider this table: in particular, the final column measures the lumens of light produced by a the equivalent of a watt of electricity or a BTU of energy over time.
Nordhaus writes: “This finding implies that the growth in the frontier volume of lighting has been underestimated by a factor of between nine hundred and sixteen hundred since the beginning of the industrial age.”
Back in 1997, one might have assumed that the rise of the compact fluorescent bulb was the apotheosis of gains in lighting technology. But LED lighting was already on the way. Indeed, Roland Haitz proposed what has come be called “Haitz’s Law” back in 2000 “which predicts that for every 10 years, the cost per lumen falls by a factor of 10 and the amount of light generated per LED package increases by a factor of 20.” Since then, the gains in cost and quality of LED lighting have largely driven the coil-shaped compact fluorescent light bulbs out of the market, and the efficiency gains in lighting that can be customized and programmed for desired uses has continued to march ahead.
The productivity gains in production of nails are not nearly as large as in computing or lighting, but from a certain perspective they are just as remarkable. After all, the methods of producing computing power or lighting would look like magic two centuries ago, but a modern nail would be readily recognizable to those using nails 200-300 years ago. If the product remains essentially the same, how much room can there be for productivity gains?
The changes can be real and substantial. As Sichel explains, hand-forged nails were common from Roman times up to the 1820s. There was then a shift in the 19th century to cut nails, “made by a bladed machine that cuts nails from thin strips of iron or steel,” which were produced with water and then steam then electrical power. By the 1880s these nails had shifted from iron to steel. At about this time, there was a shift to wire nails, “made by cutting each nail from a coil of drawn wire, sharpening a tip, and adding a head,” which were much lighter and thus changed the cost-effectiveness of shipping nails over longer distances.
Sichel collects a wide range of data on nails, and on the transitions between different kind of nails over time, and suggests that the real price of nails didn’t change much during the 1700s and 1800s, but then started a substantial decline, falling by roughly a factor of 10 from about 1800 up through the 1930s.
After that, the rise in the price of US nails represents a different story: imported nails took over the low-price end of the US nail market starting back in 1950s, while US nail producers focused instead on higher-priced nails for specialized used–which lead to the higher prices for US-produced nails in the figure.
The change here is dramatic. Nails used to be precious. In the 1700s, abandoned buildings were sometimes burned down to facilitate recovering the nails that had been used in their construction. Circa 1810, according to Sichel’s calculations, nails were about 0.4% of US GDP: “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.”
Of course, the changes with nails did not happen in a vacuum, but instead were closely related to other technology-related changes in materials, energy sources, machines used in manufacturing, the skills of worker, and so on. This interdependence with other technological changes also holds true about the productivity gains and cost decreases in computing and lighting, too. Indeed, Sichel points out that even thought the price of nails themselves stopped declining, the price of an installed nail dropped dramatically in recent decades with the invention of the pneumatic nail gun.