Buying Time

How real prices have declined over the years--and why we work less to purchase more.

Americans often put off buying a new computer or cellular phone--not necessarily because we can't afford one but because we're expecting prices to fall. In a conversation about some trendy new gadget, someone's apt to say, "I'm waiting until the price comes down before I buy one." Such a statement shows that declining prices are commonplace, and that many of us are aware of that fact.

Even so, falling prices aren't what Americans usually see. We often lament that the cost of living keeps going up, that it's harder and harder to stretch a paycheck. The hand-wringing about rising prices shows that Americans--even those who wait for bargains--are failing
to recognize one of the basic economic realities of our times. Just about everything we buy gets cheaper and cheaper when expressed in prices that really matter: the amount of work time required to make a purchase.

For the overwhelming majority of goods and services, real prices fall. That's the history of American capitalism in a nutshell. In 1908, Henry Ford offered his first Model T for $850--the equivalent of more than two years' wages for an average factory worker at the time. Given that cost, it's not surprising that the automaker found a limited market, selling a mere 2,500 cars in the first year. Today, autos are more affordable: An average worker has to toil only about eight months to buy Ford's latest best seller, the Taurus.

Even better, modern consumers are getting a lot more for their money. The cars we drive are incomparably superior to a crank-starting, bumpy-riding Model T. They're more comfortable, with roomier interiors, air conditioning, power seats, and adjustable steering columns. They include such extras as power windows, sunroofs, tinted glass, cruise control, and compact disc players. They're safer, equipped with impact-absorbing "crumple zones" and antilock brakes. They last longer and require less maintenance, with some models traveling 100,000 miles before the first tune-up.

With some important, complicated exceptions such as medical care and college educations (which we'll discuss later), declining real prices are the rule. When long-distance telephone service first became available in 1915, a three-minute call from New York to San Francisco cost $20.70. Only the rich could pay the toll for ringing up friends and family. Earning an average hourly wage of less than 23 cents, the typical factory worker of the day would have had to labor more than 90 hours to make a call. Today, of course, nearly all of us are "rich" enough to afford long-distance calls. A three-minute coast-to-coast connection costs less than 50 cents, or a scant two minutes of work at the average wage.

In 1919, earning enough to buy a three-pound chicken required two hours, 37 minutes of work. Today, it's down to 14 minutes--cheap enough to make quaint Herbert Hoover's famous nirvana of "a chicken in every pot." A fuzzy, 12-inch color television required three months of work in 1954. Now, 25-inch models with crystal-clear pictures and remote control take just three days on the job. A 1970 IBM mainframe sold for $4.7 million, a price only a government or big corporation could pay. The average worker would have to work an entire lifetime--actually, several lifetimes--to pay for enough power to do a million calculations a second. Today, personal computers capable of operating 13 times faster than that IBM mainframe sell for less than $1,000. In average work time, the cost of today's computing is down to 19 minutes for a million calculations per second--a price likely to continue falling.

As we enter the 21st century, Americans take for granted our ability to afford the trappings of the world's most envied middle-class lifestyle. It's the result of the decline of real prices in a dynamic economy, played out over and over. Most goods and services go through a cycle of falling prices and improving quality as companies ratchet up to large-scale production, as markets expand, as competition arrives in the marketplace, and as goods and services move from luxuries to everyday conveniences. The falling real cost of living shows up in such everyday necessities as housing, food, gasoline, and electricity. It also applies to manufactured goods--clothing, home appliances, and the modern age's myriad electronic marvels. Year after year, it takes less work time to afford entertainment and services--movies, haircuts, airline tickets, dry cleaning, and the like.

Time Is Money

The best way to measure the cost of goods and services is in terms of a standard that doesn't change--time at work, or real prices. Ultimately, the real cost of living isn't measured in dollars and cents but in the hours and minutes we must work to live. As Henry David Thoreau put it in Walden, "The cost of a thing is the amount which is required to be exchanged for it, immediately or in the long run."

The shortcoming of money prices lies in their inability to take into account what we can afford. A pair of stockings cost just 25 cents a century ago. This sounds wonderful until we learn that the average worker of the era earned only 14.8 cents an hour. So paying for the stockings took 1 hour, 41 minutes of work. Today, a pair requires only about 18 minutes of work. Put another way, stockings cost the worker a century ago the equivalent of $22, whereas now a worker pays only about $4.00. If contemporary Americans had to work as hard as their forebears did for everyday products, they'd be in a continual state of sticker shock --$67 scissors, $913 baby carriages, $2,222 bicycles, $1,202 telephones.

In appraising our nation's cost of living, it's best to focus on what the average American can afford. The calculations of the work time needed to buy goods and services in this article use the average hourly wage for production and nonsupervisory workers in manufacturing. A century ago this figure was less than 15 cents an hour. By 1997, it had risen to a record $13.18, a livable wage but nothing worthy of Lifestyles of the Rich and Famous. What's most important about this wage is that it represents what's earned by the great bulk of American society.

In calculating the cost of living in terms of time on the job, a good place to start is with the basics--food and shelter. For example, the cost of a half-gallon of milk fell from 39 minutes in 1919 to 16 minutes in 1950 to 10 minutes in 1975 to seven minutes in 1997. A sample of a dozen staples--a market basket big enough to provide three square meals a day--costs only 1.6 hours, down from 9.5 hours in 1919 and 3.5 hours in 1950.

There's no doubt that buying a home costs a lot more than it once did in nominal dollars. In 1920, the median price of a new house was $4,700. Forty years ago, as America moved to the suburbs, a typical family paid $14,500 for a new house. Today, the median price is $140,000--and, by all accounts, rising. Housing inflation has outstripped the rise in wages, so the comfort of a roof overhead must be getting more expensive, right? Not really. Today's homes are more expensive, but they're also a lot bigger, so for comparison purposes their price must be expressed in cost per square foot. By that measure, the work-time cost of new homes fell from 7.8 hours in 1920 to 6.5 hours in 1956 and five hours in 1970.

From 1970 to 1996, the work-time cost of a square foot of housing rose by more than one half-hour. It's a mistake, however, to jump to the conclusion that the trend toward greater value in housing ended a generation ago. These days, we're getting more home for our money. Today's new homes are more likely to come with central heat and air conditioning, major kitchen appliances, a garage, an extra bathroom or two, ample insulation, storm windows, and many other extras. The basic price of today's new homes includes these amenities, so it's impossible to calculate exactly what's happened to the real cost of housing. But it's a safe bet that the added features more than offset an extra 10 percent of work time. What's more, families have continued to get smaller over the past quarter century. Taking into account the shrinkage in average household size, an individual's housing cost, expressed in work time, is actually 6 percent cheaper today than in 1970.

Most of what's in our homes is getting cheaper, too. Over just the past 27 years, consumers have benefited from work-time declines of 60 percent for dishwashers, 56 percent for vacuum cleaners, 40 percent for refrigerators, and 39 percent for lawn mowers. The cost of a twin mattress and box spring fell from 161 hours in 1929 to 78 hours in 1957, 42 hours in 1970, and 24 hours in 1997. A window-style air conditioner now costs less than four hours of work for each 1,000 BTUs, down from 7.5 hours in 1970 and more than 40 hours when first introduced in 1952.

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