Adam Smith: also right about watches
In Book One of the Wealth of Nations, Adam Smith writes:
The diminution of price has . . . been most remarkable in those manufactures of which the materials are the coarse metals. A better movement of a watch, that about the middle of the last century could have been bought for twenty pounds, may now perhaps be had for twenty shillings.
He is looking at a particular industry to verify his claim that there had been sustained productivity movements over time. And it also functions as a nice argument in two economic history debates: whether sustained productivity improvements came first with the Industrial Revolution; and whether productivity was centred around a few key industries (coal, cotton) or was a more general phenom.
A new paper from Morgan Kelly and Cormac Ó Gráda, entitled "Adam Smith, Watch Prices, and the Industrial Revolution" (pdf) looks into the values people gave to the police when their watches were stolen, and finds that prices trended down steadily, consistent with rising productivity. Indeed, assuming quality trended up too, the numbers they get are pretty close to Smith's.
To test whether watch prices had been falling steadily and steeply since the late seventeenth century we use the records of over 3,200 criminal trials at the Old Bailey court in London from 1685 to 1810. Owners of stolen goods gave the value of the items they had lost, and, because watches were frequently stolen, we can reliably track how their value changed through time.
Contemporaries divided watches into two categories, utilitarian silver or metal watches; and more expensive gold ones. Adjusting for inflation, the price of each type of watch falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century.
If we assume modest rises in the quality in silver watches, so that a watch at the 75th percentile in the 1710s was equivalent to one of median quality in the 1770s, we find an annual fall in real prices of 2 per cent or 87 per cent over a century, not far from what Adam Smith suggests.
Most of the cost of a silver watch was the labour involved in cutting, filing and assembling the parts, so we can gauge the rise of labour productivity in watch making by comparing how the price of a watch fell relative to nominal wages. During the period 1680–1810 real wages were roughly constant so this rise in labour productivity is similar to the fall in real prices of watches.
I find the whole area very interesting and fruitful. And, as ever, it's nice to see Smith's educated conjectures backed up by hard data.
