What can a small nail tell us about 300 years of change?

A lot, said Wellesley College professor Daniel Sichel in his NBER Working Paper No. 29617, “The Price of Nails since 1695: A Window into Economic Change ?”

This week, instead of focusing on the latest technology tool and its implications for our future, let’s look at how lives of humans have changed over the past 9 generations.

Nails illustrate the massive changes in our environment since 1795:

·???????The move from hand to machine made caused about 1/3 of the dramatic drop in the cost of nails

·???????Substitution of lower cost materials

·???????Development of lower cost energy sources (water, steam, electricity)

·???????The changes in building and furniture construction techniques

·???????Globalization including the import of commodity products despite high transportation costs

·???????Specialization by country in product/service segments

·???????Labor specialization

The cost of capital and energy remained relatively stable from 1790 to 1900, then declined. Energy rose after the 1970s energy crisis.

In 1810, nails equaled about 0.4% of GDP. This doesn’t seem like a lot, but today computers and peripherals comprise 0.3% of GDP and the cost of nails is nominal.

The price of nails, according to professor Sichel’s calculations, was stable from 1795 through the first years of the 1800s, then dropped 10-fold from the late 1700s to the mid-20th century. Nails were forged by smiths over a forge until 1820 when machine cut nails became dominant.

?Wire based nails became popular in 1890. Wire nails were cut from long coils of wire and a head added/point formed. Wire nails had half the holding power than forged and cut nails but were dramatically less expensive. Holding power arose from the square shape of forged or cut nails which formed a wedge while wire nails were round. But for many applications, the higher holding power was not needed. Hand forged or cut nails gained holding power when the exposed tips were bent over. As the technology to make steel advanced, nail producers switched from iron to steel in the 1880s.

The drop in the cost of nails allowed a faster, less precise house construction called balloon-frame to become dominant. Balloon-frame used long vertical studs to hold the weight of the house and required more nails than post and beam. Construction equaled 16% of nominal GDP in 1839 but has dropped to less than 7% in 2019. Other uses of nails, including furniture and railroad ties, also benefited from less expensive nails. Early in this period, houses were built with posts and beams carefully cut to fit snugly to minimize the use of expensive nails. Nails were so valuable that they were recycled from old buildings.

The cost of US manufactured nails has increased since 1930, but this is due to globalization of nail production and increased material costs. Imported standard nails have more than a 50% market share currently while US nail manufacturers have largely switched to the production of higher cost specialty nails.

Another key cost reduction came from the development of the nail gun. Nobody really wants a nail; they want two or more pieces of wood or other material nailed together. The technique for nailing was remained basically unchanged until nail guns were developed. Nail guns dramatically lowers the cost of an installed nail.

What does Professor Sichel’s analysis of nails show us:

1.?????The basics of living cost relatively more 300 years ago that it does currently. No surprise about that. This gives us the free time for other activities.

2.?????A market for hand-made items exists as some people perceive the quality of an individual hand-made item to be higher than a machine-made item despite the higher price

3.?????The lower costs of materials, especially as new materials were developed or improved.

4.?????Moving from making items by hand to making them by machine was only part of the dramatic cost difference from industrialization; re-organization of manufacturing increased productivity.

5.?????The smith at a forge took about one minute to produce one nail; now one minute of labor using multiple machines has increased output by a factor of 3,500.

6.?????This dramatic increase in productivity allowed real wages to significantly increase from 1790 to 2018.

Another construction item has been around since Roman times: the screw. But screws were significantly more difficult to make by hand, so screws became more common during industrialization.

Can you imagine figuring out the cost changes in going from a carriage pulled by horses to a train? Or as Professor Sichel muses, going from a Model T to today’s hybrid vehicle? ?Other items such as computing and lighting showed even more dramatic decreases in costs during this period but were significantly harder to document over a 300 year time period. Professor Sichel would still be figuring it out.

Daniel Sichel is the Stanford Calderwood Professor of Economics at Wellesley College. Note: I was an economics major at Wellesley College, but I graduated before Professor Sichel arrived in 2012.

For more information about how Professor Sichel analyzed the price of nails, please visit https://www.nber.org/papers/w29617.