By James Pethokoukis and Dan Sichel

Construction nails are easy to take for granted, but just a few centuries ago they amounted to 0.4 percent of GDP—roughly the same share US households spend on personal computers today! That eye-popping stat comes from a recent paper on the economic history of nails. To find out more how the story of the nail can inform the economic history of the United States, I had the author, Dan Sichel, on 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.”

What follows is a lightly edited transcript of our conversation, including brief portions that were cut from the original podcast. You can download the episode here, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Pethokoukis: There are a number of books out there that attempt to show something about human history through a single item. I think there are books out there about coffee and salt and bread and beer. I think there’s one book about six different types of alcoholic drinks. For your paper, you focused on nails. 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. Bill Nordhaus has done really interesting work on that.

But nails are just a regular manufactured product. They’re not spectacular. They’re not dynamic. They don’t seem to change rapidly. 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.

How far back did you go as far as looking the history of the price and the quality and the changes? How far back are we talking?

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. And so I did some more detailed analysis from 1790 forward to the present, really trying to dig into, what were some of the forces and factors that were behind really dramatic declines in prices of nails that I found?

Now, to find those prices, you just couldn’t go to a database somewhere, I imagine. Was there a database or did you have to dig up a lot of this information by yourself—especially going back to the 1700s and early 1800s?

Yeah, it’s somewhere in between. I did have to do a fair bit of scrounging to find the data, but economic historians had done a lot of that work. And so I pulled from many different sources for different time periods. So my real contribution wasn’t being the first person to find out what it cost to buy a nail in 1697. But rather, it was taking those data on nail prices and combining them with data on nails prices from the successive periods bringing us up to the present and then doing some thoughtful linking to try to deal with changes in quality and so on.

And one of the interesting things about nails is that there really aren’t big changes in quality over time. Some small ones, but not the way there are for computers or something.

For the listeners who are a little familiar with The Wealth of Nations, Adam Smith famously wrote about pin making as a way of talking about specialization and the division of labor. Was that an inspiration at all when you chose the nail?

I chose the nail for a different set of reasons, but I very quickly backed into Adam Smith for just the reason you said. And the description that Adam Smith had of a pin factory and the changes that brought about productivity advancements in the manufacturing of pins, they almost all applied directly to nails as well.

Nails seem like they’re important. It’s tough to build a building, especially back then, without nails. But I was shocked at how important they were, especially as a share of the economy. That may be one of the most stunning numbers that came from your paper.

Yeah, it’s a really interesting fact. I was quite surprised by it when I came across that as well. The earliest I could pull numbers for this was to 1810. Domestic absorption—basically the use of nails in the economy, production, plus exports minus import; so how many nails people are using in the economy—added up to a little bit less than one half percent of GDP: 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, which would’ve been the main use of nails then, was a much bigger share of the economy because there were so many other things that we just weren’t doing because people, back in the late 1700s, would’ve been so focused on just meeting basic needs: food, shelter, clothing, and so on. And so shelter played a much bigger share and, consequently, nails were an important product.

Back in the 1700s, they would burn a building down to get those nails back. You just did not throw nails away.

That’s exactly right. There are accounts of abandoned buildings being burned down so that one could recover the nails because high price, big deal. Even later: 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.

The price of a nail has fallen a lot. Not, like as you mentioned, as much as light. Nails are a little bit different. How much did that price decline and what do we know about that decline?

From late 1700s through about the middle of the 20th century, nail prices fell by a factor of about 10, and that’s compared to prices in a general basket of consumer goods and services—so relative to something like the consumer price index, so looking at real prices. About a factor of 10, which over that time span translates into about 1.5 percent decline in the real price per year. So again, as you said, nothing like computers or lighting, but enough over a period of 150-some-odd years to add up to pretty substantial declines.

As a side note, even though a lot of work has been done on getting data on commodities and trying to figure out inflation rates from 100, 200 years ago, how important is it to look at literature as a way of figuring out how people lived like that? It’s probably not a source economists use much today, but if I was trying to think like an economist in the 1800s or trying today to look back, I would imagine books like that, or maybe Jane Austen novels, may be important to understand living standards.

I think that’s a really interesting observation, and I think a broad read of literature from the earlier period can point economists or other researchers to interesting questions: Here’s something that was really different in that earlier time.

I came at it a little bit differently as I started with the numbers and the economics and then thought, “Boy, if there’s a product whose price fell by a factor of 10, that’s a really big deal.” And again, falling from nearly half a percentage point of GDP to a de minimis share—that’s a really big deal. And maybe that’s reflected in popular accounts of how people thought about and talked about nails in these earlier periods. And so that then drew me to look for examples more broadly in literature. And I should do a word search in Jane Austen and see where nails appear in Jane Austen.

We saw a decline in price, but what else changed about nails that helps explain that decline in price?

One of the things about nails that makes them so perfect for this is that their form really didn’t change so much. So if you want to track prices of computers over the last 50 years or you want to track the price of lighting over the last 200 years, you have to deal with the fact that the product delivering what you want, either computation or light, changed a lot. And for nails, they 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.

To come back to Adam Smith, starting with the organizational changes of how production was set up and the specialization of labor involved in the production of nails back in the 18th century, and then we get a 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.

One of things you wrote was that the technology-affecting factors other than automation were of crucial importance in the 19th century. I think when people think of technology, that’s all they think of: automation, machines doing what a human can do, but more of it. What does that mean exactly?

The automation is clearly important because the shift from hand production to factory production and so on clearly was a big deal. But there’s more going on than just that. There’s the shift in power sources, which is related to automation but not exactly the same thing. Electricity is a much better power source for manufacturing than is water power. And a great example of how a shift in power source can lead to big changes in productivity, aside from the direct automation effects, comes from the economic historian Paul David, who talked about the transition from steam to electricity.

And with steam power or with water power, you have a single source of power, either a water wheel or a steam engine. And then you have to transmit that power through a factory, typically through a series of belts. And that’s not a very efficient way to transmit power through a factory. When you’re using electricity, you can have a small motor on each machine wherever you want in the factory. And then you can optimize the factory for materials handling rather than for power transmission. And so we get a different style of factory, and it turns out that those changes in the organizational production end up being very important as well as just, here’s something that a person used to do and now a machine can do it.

Sometimes it takes a long time for these new technologies to be used. That’s one point from that paper. Once we figure out a new way of do things, everybody still has to be convinced that’s a good way of doing things. Then if you’ve already invested in the factory doing it the old way, you may not do it in the new way for some time.

That’s absolutely right. Paul David did that work specifically to talk about the time lags from when the basic technology of electricity was available to how long it took until it was really widely used and began to show up in productivity statistics. He was using that as an analogy for why computers didn’t immediately boost productivity back in the 1980s when personal computers and so on were spreading. Same thing for nails, though, for exactly the reason that you said.

If somebody had a water-powered factory for making nails, that was there, it was running, they had made all of the investments and it probably made sense to continue using that. One of the data sources I used was 1850s and 1870s census extracts where I could track individual companies that were making nails and see how they were organizing production. And in the 1870s, there was still one water-powered plant that was making nails. Mostly steam, but there was still one that was hanging on and presumably making enough money to continue doing that.

What is balloon frame construction and how did nails come into play?

It’s a fancy term for just the current style of how houses get built. It’s also known sometimes as “stick construction” or just the usual thing of having a house built with two-by-four studs in the walls that are supporting the weight of the house. That became a standard style of construction during the 19th century. Prior to that, 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 balloon frame or the stick construction is great, 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.

Why was there a shift to wire nails even though they were more expensive?

Again, a really interesting question. So this was the late 19th century. During most of the 19th century, nails were so-called “cut nails” where a rolled sheet of iron or steel would get hit by a blade to cut wedge-shaped nails out of that sheet of steel or iron. Wire nails, of course, are made by taking a spool of wire, cutting an appropriate length off, and then putting a head and a tip on it.

On a per pound basis, wire nails were more expensive when they were first introduced. But wire nails are thinner and skinnier than a cut nail and so on a per nail basis, they’re actually less expensive because they can be manufactured in a continuous process and with a less complex set of. And so really on a per nail basis, the price was lower and they pretty quickly came to dominate the market for nails.

I wonder how many more economists we would have if this was people’s first introduction to economics. It’s such a fascinating paper. So we had this long-term decline in nail prices but then it stopped. Why did it stop and when did it stop?

It stopped in about the 1930s. So you could think of the golden age of nail manufacturing or golden age of nail productivity running from late 1700s through about the 1930s, mid 20th century. And then a number of things happened. One is there was an uptick in materials prices. So starting mid-20th century, there was a general uptrend in commodity prices absolutely involving steel: a key input to making nails. That was one contributing factor.

There’s another likely important factor that gets a bit deep into the weeds of price measurement. But starting in the mid-20th century, the production of standard common nails, the thing you’d buy in a one-pound box at Home Depot really shifted overseas. And so rather than being domestically produced, those really became largely imported goods. And so really in the US today, and really this process started in the 1950s and then progressed on, the really basic nails that you get at Home Depot really aren’t very much produced in the US.

The folks at the Bureau of Labor Statistics who track these prices had a problem because they want to track with the Producer Price Index nail prices produced by US producers, but the US producers disappear. So they had to start tracking a broader category, and the nail companies in the US that continued to make nails started making specialty nails and high-tech nails for specialized, high-stress applications. And it is likely the case that the price of those specialty nails is rising faster than were the prices of just common nails being imported from overseas. And so we have a little bit of an issue of what actually is priced. So some of that price increase from the 1950s really reflects material prices going up. Some of it probably reflects challenges that the statisticians faced in putting together a consistent price index.

Of course, that’s also a story about the American economy, too, where maybe we still do some manufacturing but it becomes higher value-added manufacturing. I’m not sure if that was your intent telling that story, but that’s the first thing I thought of.

Yeah. So it really is part of my intent in telling that story, because I think nails touch on so many different interesting aspects of the evolution of the American economy, and that basic manufactured goods started to be produced in countries other than the US. We started importing them. And nails are a canonical example of that. It happened earlier for nails than for many other products because, by the 1950s, the basic technology of making simple wire nails was pretty well understood and not really terribly complicated or sophisticated.

But then we do bring in a final technological leap: the nail gun. How did that affect your work and your conclusions?

Again, nails touch on so many different dimensions of the evolution of the economy. So in the 1980s, nail guns became a thing. And nail guns are really interesting, because if you want to think about what people are concerned with or interested in, it is the price of an installed nail, rather than just literally the price of a nail that you could hold in your hand.

Because they so much speed up the rate at which nails can be installed and can be put in place, it turns out that nail guns significantly reduce the cost of an installed nail. So we did see in the mid-20th century this increase in the price of nails, but a decent chunk of that was offset, at least in the construction trades, by the advent of nail guns that held down the price of installed nails. A construction worker using a nail gun could get a lot more nails installed in an hour than could a construction worker using a conventional hammer.

Doing this paper, which is so interesting and so much of it is really very readable for the layman, did you learn something about innovation? Did it change your view of innovation? Did it 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.

Dan, that was wonderful. Thanks for coming on the podcast.

Absolutely. Delighted to join you, thanks for having me.

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.”

Learn more: Is the Tech Sector Too Concentrated? My Long-Read Q&A with Mark Muro | Why artificial intelligence is harder than we think: My long-read Q&A with Melanie Mitchell | Venture capital, Silicon Valley, and the future of startups: My long-read Q&A with Sebastian Mallaby

Weekly analysis from AEI’s Economic Policy Studies scholars

Thank you for your submission.

American Enterprise Institute 1789 Massachusetts Avenue, NW Washington, DC 20036