Economic Outlook Luncheon (Added Fee)

In some cases, we can learn about the economy by looking back in time, rather than at contemporaneous developments. Along those lines, this talk 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, as well as highlighting key issues in economic measurement. 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 reorganization of production processes. Third, the share of nails in GDP dropped back from 0.4% 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.