Prices
At the turn of the last century, Montgomery Ward was the largest mail-order retailer in the United States. It was one of the few ways the 40% of Americans living in small towns or on the farm could buy the products of modern industry.
Comparing the prices charged in the Montgomery Ward catalog with prices today — both expressed as a multiple of the average hourly wage — provides an index of how much our productivity in making the goods consumed back in 1895 has multiplied.
Consider a one-speed bicycle, costing $65 if ordered from Montgomery Ward in 1895. The price of a bicycle measured in “nominal” dollars has more than doubled over the past century (as a result of inflation). But the bicycle today is much less expensive in terms of the only measure that truly counts, its “real” price: the work and sweat needed to earn its cost. It took perhaps 260 hours’ worth of the average American worker’s production in 1895 to mount up to enough money to buy a one-speed bicycle. Today a bicycle costs 1/36 as much in labor time today as it did back then. On the bicycle standard — measuring wealth by counting up how many bicycles it can buy — the average American worker today is some 36 times richer than his counterpart in 1895.
Other commodities tell their — different — stories. A six-volume set of (cheaply made) novels by Horatio Alger costs 1/35 as much in this labor-wage-metric now as it did a century ago. A 100-piece dinner set from Crate and Barrel today costs 1/12 as much in labor time as a set from Montgomery Ward used to. A cushioned office chair has become 12 1/2 times cheaper.
But there are other goods with less of a productivity multiple: a multiple of less than 5 for a solid gold locket, a productivity multiple of only a little more than two for a Steinway piano, and a productivity multiple of 0.8 for a sterling silver teaspoon: it costs more hours to earn the money to buy a silver teaspoon today than it took back in 1895.
A farm household ordering a few silver implements back in 1895 was presumably seeking flatware that would not corrode rapidly. They did not know how to mix chromium atoms with iron and carbon atoms to make corrosion-resistant flatware. We do. Thus our everyday utensils are made of stainless steel: our silver is reserved for when (and who) wants to set a glittering table. For those who think that the important characteristic is that it is made up of silver, it is indeed 25% more expensive now than it was back then when you could pick the silver up off of the ground in Nevada. But for those who think that the important characteristics is that it does not rust, a teaspoon today costs only one-fiftieth as much in terms of labor time as it did a century ago.
Or consider the Encyclopaedia Britannica. Today its print version costs $1,250 — in labor hours one quarter as much as it cost back in 1895. But the Encyclopaedia Britannica CD 2000 costs $49.95 — a drop in labor-time price of a factor of 100, if the CD is taken as an equivalent product. And the Concise Columbia Electronic Encyclopedia can be accessed over the internet for free.
The answer to the question “how much wealthier are we today than our counterparts of a century ago?” depends on which set of commodities you view as central and important. If you care only about personal services — having a butler around to answer the door and polish your silver spoons — then you would find little difference in national average wealth between 1895 and 1990: an hour of a butler’s time then cost about an hour’s worth of the time of an average worker. But suppose you care about your ability to buy mass-produced manufactured goods — then the multiple is 36.
“Cornucopia: Increasing Wealth in the Twentieth Century” by J. Bradford DeLong