By James
Pethokoukis and Dan Sichel

Construction nails are cheap and common today, but before the Industrial Revolution, they were labor-intensive to manufacture. And while the production processes of nails have evolved over the centuries, the final product hasn’t changed much. This continuity makes the nail an excellent product to track over time, and economist Dan Sichel did exactly that. To find out more about how the story of the nail can inform the economic history of the United States, Dan Sichel joined for a recent episode of “Political Economy.”

Dan is a professor of economics at Wellesley College in Massachusetts and the author of “The Price of Nails since 1695: A Window into Economic Change.”

Below is an abbreviated transcript of our conversation. You can read our full discussion here. You can also subscribe to my podcast on Apple Podcasts or Stitcher, or download the podcast on Ricochet.

Pethokoukis: What
is the advantage to looking at economic change throughout centuries or more
through the very common nail?

Sichel: The really common nail, Jim, provides a great window into thinking about the broad scope of economic change in a couple of really interesting dimensions. One is that when we think about innovation and we think about change over time and technological progress and advances in manufacturing, we often think about the really dynamic, high-tech products. We might think about lighting or about computation. But nails are just a regular manufactured product. A nail produced 300 years ago or even 2000 years ago wouldn’t look very different from one today.

So it provides a really interesting window to think about everyday
common products: the role of innovation, the effects of innovation, how changes
in manufacturing processes in just simple products feed through to all
different dimensions of the economy. I pulled prices on nails back to 1695. And
the really interesting period starts about 100 years later when there’s the
shift from the way nails have been made for centuries, a blacksmith making
nails one at a time by hand, to the beginning of automation in the process of
nail making.

How important
were nails in the economy a couple centuries ago?

The earliest I could pull numbers for this was to 1810. Domestic
absorption—basically how many nails people are using in the economy—added up to
about 0.4% of GDP, which really is astonishing. If we think about that in a
modern context, that would be about the same share of GDP as household
purchases of computers or household purchases of air travel.

Nails were a really big deal in that earlier period. Of
course, construction was a much bigger share of the economy. There are accounts
of abandoned buildings being burned down so that one could recover the nails. In
the paper I pulled a passage from Little
House on the Prairie, which was written in the 20th century but describes
life on the frontier in the 1870s. And even then, there’s this lovely passage
about how precious nails were at that time. And again, you didn’t want to waste
a nail because they were expensive and hard to come by.

How much did
that price decline and what caused that decline?

From late 1700s through about the middle of the 20th
century, nail prices fell by a factor of about 10, looking at real prices,
which over that time span translates into about 1.5 percent decline in the real
price per year. If you want to track the price of lighting over the last 200
years, you have to deal with the fact that the product changed a lot. But nails
really didn’t change very much. So we get a pretty clean read, and what we find
is that there were very dramatic changes in the manufacturing process.

With the transition to factory production, we get
increasing automation; we get a shift from hand-forged nails to cut nails that
could be made with machines; we get a transition, ultimately then late in the
19th century, to wire nails; we get a shift in the power sources used, going
from hand power to water power to steam power to electric power. And so all of
these things together contributed to the very large advances in productivity
and production of nails, which then showed through the big declines in their
prices.

What were the
implications of these price declines?

Prior to the 19th century, the style of construction more
typically in the US would’ve been post and beam, where you’d have very large,
massive posts in corners of the building and then beams that would run across
the tops of those posts. And that’s what would support the weight of the
structure. The current style of how houses get built with two-by-four studs in
the walls that are supporting the weight of the house became standard style of
construction during the 19th century, but it uses a lot of nails.

And so in a time period where nails are really expensive,
you wouldn’t want to do that because the nails would be too expensive. And so
people did post and beam, even though you had to cut mortise and tenon joints
and do all kinds of other time-consuming things to make the post and beam work.
But once nails are cheap enough, then the balloon frame construction makes a
lot of sense. And that, I think, it’s just a wonderful example of how changes
in the price of a very simple product can have very significant downstream
effects and affect, in this case, the whole style of home construction in the
US.

Did this
paper change your view of innovation or clarify anything?

I think the main thing that it clarified for me is that
it’s important to look at simple products as well as complex products. I have
done a lot of price measurement research and have often looked at high-tech
products: computers, cell phones, and things where there’s really dramatic
change. And it’s really important to think hard about the right statistical
techniques to use to capture that.

But the thing the nails work highlighted for me is the
really important changes in everyday simple products and that those also are
very important for understanding the evolution of the economy, the evolution of
trade, and the effect that developments in one product can have on downstream
industries. I also think, coming back to your earlier point about literature
and how the world’s changed, it also provides a really interesting window into
just how much the world has changed since, say, the late 1700s when nails were
nearly half a percent of the economy.

James Pethokoukis is the Dewitt Wallace Fellow at the American Enterprise Institute, where he writes and edits the AEIdeas blog and hosts a weekly podcast, “Political Economy with James Pethokoukis.” Dan Sichel is a professor of economics at Wellesley College in Massachusetts and the author of “The Price of Nails since 1695: A Window into Economic Change.”

The post 5 Questions for Dan Sichel on the Economic History of Nails appeared first on American Enterprise Institute – AEI.