Working Paper: NBER ID: w29617
Authors: Daniel E. Sichel
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.
Keywords: nails; economic change; manufacturing; productivity; historical prices
JEL Codes: E01; E30; N11; N12; N61; N62; O14; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multifactor productivity growth in nail manufacturing (O49) | decline in real nail prices (Q31) |
| declining material prices (Q31) | decline in real nail prices (Q31) |
| decline in real nail prices (Q31) | decrease in the share of nails in GDP (E20) |
| rising material prices (P22) | increase in real nail prices (E31) |
| shift towards specialty nails (L84) | increase in real nail prices (E31) |
| introduction of nail guns (N60) | mitigate increase in real nail prices (E31) |