A McDonald’s burger that cost just 20 cents a few decades ago now costs around $5. Putting astronauts on the moon that cost $25 billion a few decades ago now costs almost $160 billion.
It seems like everything is more expensive these days. It seems like our earnings don’t match the prices we’re expected to pay these days. It seems like yesterday’s prices are a bargain compared to today’s. But, for most cases, this isn’t true. It is rather, at best, an illusion.
We define prices by money; which doesn't have a constant value. As prices go up over time, the value of money goes down. Therefore, the prices we pay aren’t an accurate guide to the real cost of things.
A better way to understand the real worth of things is to measure it against something that doesn’t change — time. Time, in terms of real productivity, is determined by hours and minutes of work. Which is why, Benjamin Franklin famously said, ‘Time is money.’
Hence, the real price of what we buy will make more sense if we marked it, not against money, but against the length of time we have to work in order to earn the money for it. Henry David Thoreau sums it up well, ‘The cost of a thing is the amount of what I will call life.’ Productivity determines the value of our time, i.e. our wages.
So, if we convert prices into hours and minutes of work, the cost of just about everything we consume today hasn’t actually gone up, but gone down; some to the point of a bargain.
Numbers from the U.S Bureau of Labor Statistics, Department of Housing and Urban Development, Motion Picture Association of America, Hertz Corporation and Retail and Consumer Reports help calculate the evolution of change, from the 70s till now.
The time taken to buy eggs has gone down by 45%. The time taken to buy an air conditioner has gone down from 45 hours to 23 hours. The time taken to provide a three-square-meal has gone down from 2 hours and 22 minutes to 1 hour and 45 minutes. The time taken to buy a movie ticket has gone down from 28 minutes to 19 minutes. The time taken to buy a house with a 5% down payment has gone down by 9 months of work. The time spent on the job to rent a car has gone down by 37%. The time taken to buy a colour TV has gone down from 1 months’ work to 3 days’ work. The time taken to buy a microwave oven has gone down from 97 hours to 15 hours. Be it food, clothing, petrol, electricity, cinema tickets, laundry, phone calls, housing or the likes, it now takes us less time to afford them than ever before.
We’re better off as a result of our wages; which, as a result of productivity, has gone up faster than prices. Thanks to the companies and industries that employ us. But, economists Michael Cox and Richard Alm point in ‘The Myths of Rich and Poor’ that, capitalism’s critics wrongly believe the economy benefits the wealthy at the expense of the poor. They explain that economic progress emerges from a system of price discrimination; against the wealthy, not against the working class. While the rich take advantage of the masses in most economics systems; under capitalism, it is the masses that benefit at the expense of the rich. The rich, who pay for most early fixed costs, making things available to the masses; know that real money doesn’t lie in selling to the rich, but bringing products within the reach of the masses.
Therefore, without the rich, fewer things would get to the rest of us. There is relentless competition between companies and industries on price and quality. And those who benefit from such competition are people; who get the best of both worlds, improved products for less effort. People get better value, more for money and more money for time. What were once luxuries have now become everyday necessities. As a result of which, many new industries and jobs have been created. Which explains real capitalism.
With our hourly output rising over time, the cost of production has fallen, pushing wages up. The idea of working less to buy more explains why we can afford to consume so much more than before.
Despite getting and spending more, many of us see a world only of rising prices. But fail to recognise and appreciate how much further each hour of our work can get. By simply marking the real cost of our consumption against ‘time’ instead of ‘money’, we can free ourselves from price illusions.