Prices Are People: A Short History of Working and Spending Money

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Introducing the 2012 Atlantic Money Report, a month-long project on why things cost what they do

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In the mid-twentieth-century vernacular, the word "bread" means money. But in most years before the twentieth century, people spent so much of their figurative dough on literal dough that bread was functionally synonymous with cash. As late as the 1850s, the typical British family spent 80% of its income on food, Bill Bryson wrote in his entertaining domestic history At Home. The majority of that 80%? It went to bread.

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The last 150 years have experienced all sorts of tumultuous economic revolutions. But the revolution in food and agriculture was perhaps the most important to the family budget. At the end of the 19th century, more than 40% of families lived on farms. By 1950, the farm economy had fallen to a tenth of the labor force. Oh, but the decline wasn't nearly done. This year, farmers account for less than 2% of all workers.

In a century's time, farming has gone from the dominant occupation in the United States to a job whose share of employment equals Tennessee's share of the national population.

And yet, we're not all starving. In fact, most Americans are better fed than our ancestors could possibly be and we're paying less for it. Today we spend as much on home-cooked food as we do on home-used utilities (see the graph below). The price of feeding ourselves has gone way down in the last century. But the price of heating ourselves -- and driving ourselves, and housing ourselves, and educating ourselves, and insuring ourselves, and treating ourselves with health care -- hasn't gone down. It's gone up.

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Over the next month, we're putting together a special report, the Money Report, about how and why we spend what we do. Economics is so often the economist-eye view of the world. We're out to recreate the consumer-eye view of the world. We're interested in what things cost, why they cost that much, and why they're getting more expensive and less expensive. If you've got awesome and surprising stories about prices, costs and the flow of money, leave us a tip in the comment section. 

To kick things off, we'd like to very briefly introduce one of the themes of the Money Report: Prices are people.

PRICES ARE PEOPLE

Across the 20th century, the labor force has shifted from farmers and foresters to manufacturers and then to professional and service workers. In 1900, we spent much of our manpower growing food and feeding ourselves. By 1950, the major economic industries were manufacturing and construction. But today's labor economy revolves around services, not products. Service industries grew from 31 percent of all workers in 1900 to 78 percent in 1999, the BLS reports.

Here's a snapshot of the employment story since 1939. It's all interesting, but let's focus on the time between 1975 and today. In the time that our education/medical sector has quadrupled, and our business service sector has increased by the same four-fold rate, total manufacturing jobs have fallen. As multinational companies have made better use of global supply chains, manufacturing and other so-called tradable occupations have been in decline. But retail jobs have increased because selling cars and food and furniture is still a face-to-face business that's hard to do anywhere except at the point of sale.

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Economist Stephen Rose, writing for The Atlantic this month, surveyed that same half-century period between 1947 and 2007. But instead of looking at people, he looked at prices. It's the same story. Rose reports that spending on items that could be manufactured or produced globally -- food/drink and clothing -- fell the most. But the categories with the largest employment gains in the graph above -- education and health care -- also saw the largest gains in consumer spending in the graph below. Whether spending followed our employment, or employment followed our spending, both have moved in the same direction -- away from appliances and food toward local specialized services.

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There is more to prices than employment figures, of course. Productivity and technology matter. Scarcity matters. Demand matters. But labor is such an important cost that at the broadest level, it can appear almost determinative.

Across the economy we can see that items that require fewer and fewer American workers per completion (think: socks) get cheaper, while services that can't find similar ways to replace American workers (think: health care, education, government) don't get cheaper at all. In fact, they often get more expensive.

This isn't bad news, necessarily. A rich economy that needs fewer people to make things can put those people to work doing other important things. We should want workers to move into new industries that serve our needs. But too many workers serving a need leads in one direction for prices: Up. It is only a small exaggeration to say that prices, for lack of a matter word, are people.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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