Buying Time

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

W. Michael Cox & Richard Alm from the August/September 1998 issue

(Page 3 of 3)

As the economist Joseph Schumpeter wrote in his great Capitalism, Socialism, and Democracy (1943), "Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort." Using the wealthy to pull the rest of us along is a very effective redistribution mechanism. No government-sponsored welfare system could deliver anywhere near the benefits that free markets routinely confer on American consumers.

Attention, Bargain Shoppers

The Ford Taurus sells for 70 percent less than the Model T did. That's not the end of the good news on America's highways and byways. Drivers may grumble when they pull into a service station, but a gallon of gasoline required just 5.4 minutes of work in 1997, compared with 6.6 minutes in 1970, three years before the Arab oil embargo caused prices to surge. If we consider the 60 percent increase in average miles per gallon since 1970, the work time to drive a typical car 100 miles has been nearly halved over the past quarter-century--from 49 minutes in 1970 to 28 minutes today. The price of an automobile tire has risen from $13 in the 1930s to about $75 today. However, today's steel-belted radials last more than 42,000 miles, a big increase from the 16,000 miles for the nylon tires of the 1950s or the 2,000 miles for the cotton-lined tires of the early 1920s. Based on work time per 1,000 miles, tires are now cheaper than ever.

Much of today's consumption centers on leisure. What helps make the good times good is the declining real cost of life's pleasures--little and big. The price of a movie declined from 28 work minutes in 1970 to 19 minutes in 1997. Compared with a generation ago, each 1,000 miles of air travel now requires 61 hours less work. A seven-day Caribbean cruise slipped from 51 hours in 1972 to 45 hours in 1997. It's even getting cheaper to look our best: Work time for dry cleaning a dress is half what it was in 1946, and a woman's haircut is down 27 percent since 1950. Soft contact lenses have plummeted from more than 95 hours' wages in 1971 to less than four today--and the latest versions can be worn longer.

We're a nation on the go, grabbing fast food and snacks. Americans may be eating more of these foods because they're getting cheaper. Buying a large pepperoni pizza costs an eighth less work time than in 1958--and today we can get it delivered to our door. The price of a 6.5-ounce bottle of Coca-Cola has declined from 5.5 minutes in 1920 to 3.5 minutes in 1970 and 1.5 minutes today. In 1940 Californians paid 30 cents--nearly half an hour's wages--for the McDonald brothers' first burger, containing just one-eighth pound of ground beef. Today's one-fifth-pound Big Mac costs $1.89, the equivalent of just 8.6 minutes' work. The price of a Hershey's chocolate bar has risen from 10 cents to 45 cents over the past 23 years; still, its price in work time is a mere 2 minutes, one-tenth of what it cost at the turn of the century.

For many newer products, even money prices are falling, so the consumer gets a double shot of the power of free enterprise. A hand-held calculator too bulky to fit easily into a pocket or purse sold for $120 in 1972. A quarter-century later, true pocket calculators sell for $10--cheaper than a slide rule was in 1952. In terms of time on the job, the calculator's price plummeted from 31 hours in 1972 to 46 minutes today, less time than it takes for lunch. Videocassette recorders entered the mainstream market at $985 in 1978. Twenty years later, VCRs offering surer picture tracking, on-screen programming, and other features cost less than $200. VCRs now sell for 15 work hours, or almost 90 percent less than in 1978. Cellular phones sold for $4,195 in 1984; they're available for $120 or less today. Over the past 13 years, the work time required to buy a cell phone has declined 98 percent. Better yet, the phones are often free for the price of monthly service, which itself has fallen to about half what it was a decade ago.

Over the past generation, the sticker prices for microwave ovens, camcorders, and many other items have fallen in nominal dollars as well as time costs. It took an average worker more than 176 hours on the job to buy a microwave oven in 1967; now it's 15 hours. Dear Old Dad had to work 57 hours in 1960 to buy a camera to take home movies--a Bell & Howell model that used Kodak film (which needed to be developed at additional cost) and required a specialized projector and screen. Today, 42 hours of work will buy a camcorder that preserves our memories on a handy cassette that slips into the family VCR.

Of course, Americans do work longer to buy some goods and services. For instance, paying for medical care and higher education requires more hours of work than it used to. Tuition and fees at public colleges, where about 80 percent of students enroll, have doubled in work time since the mid-1970s. Inflation has been even steeper at America's private institutions. But simple straight-up comparisons are misleading. Few of us would deny that medical care is better than it used to be: The past quarter-century has brought a wealth of new diagnostic tools and drugs to treat ailments that range from cancer to depression. With college tuition, the increased costs reflect the increased value the economy puts on a sheepskin: Workers with a bachelor's degree earn an average of $16,504 a year more than high school graduates today, up from $10,488 more in 1979.

Extended Forecast: Sunny

Falling real prices bring the good life within the grasp of Main Street America. Prices cannot continue to tumble forever, of course. We won't be earning enough in a morning of work to buy a Taurus on our lunch break, and the bill for a coast-to-coast phone call will probably never sink to zero.

In fact, most of the good news on real prices comes early on, then slows as products permeate the marketplace. In minutes of work, prices for oranges fell 63 percent from 1919 to 1938. It took another 60 years to match that decline. The work time required to buy a pack of Wrigley's chewing gum fell an average of 7 percent a year in the first two decades of the 20th century but less than 2 percent a year after 1920. The real price of a gallon of gasoline halved in the 21 years from 1920 to 1941; it took another 45 years to equal that reduction. As markets mature, it simply becomes more difficult to wring new efficiencies out of the production process, and companies aren't able to cut prices as much.

Even so, consumers will still benefit as new products come onto the market, starting out with high prices that are bound to come down. Within a free enterprise system, the future will continue to bring new generations of products that will repeat the pattern of falling prices. Later this year, for example, manufacturers will begin offering high-definition television, a technology that promises to deliver super-sharp images into American living rooms. When HDTV sets hit the market, they will cost as much as a good used car--about $5,000 to $10,000. Within a few years, the televisions will doubtlessly sell for a quarter or even one-tenth of that in nominal dollars. The hours of work required to own one, of course, will fall even faster.

Working less for what we consume helps explain the gains in Americans' well-being in the 20th century. It's only because the real cost of living has been going down decade by decade that everyday Americans can, on average, own bigger houses, drive more and better cars, cram their dwellings with every imaginable appliance and electronic gizmo, indulge in luxuries once reserved for the upper crust, and enjoy more leisure activities. Today, nearly every household possesses a wide range of modern conveniences that, when introduced, were the province of the rich. The personal computer and the cellular phone, both gadgets of relatively recent vintage, are rapidly heading toward the same universal consumption the country earlier achieved with electricity and telephones.

The true test of an economic system is how productive it is with its resources. None is more precious than people's time. The majority of us aren't born with big bank accounts, but we are born with time. Time is the real currency of life, and the value of our time--what we can acquire for its exchange--is our most important asset. Capitalism has consistently raised the value of our hours and minutes, making most goods and services affordable for the average worker.