We all know what inflation is. It’s where the money we spend buys a little less each year. In a relatively healthy economy, it’ll be around 2%, year on year. There are various things that influence it, not the least of which is how it is actually calculated!
I want to look at something a little different by way of inflation – because it is a very real economic inflation. It is the amount of work a person has to achieve in order to earn their daily bread.
In days of yore, a wheelwright will have made an entire wheel – hub, spokes and felloes – in a single day. Working from five until eight in the evening, mind you. Doing well, he’d earn five shillings. If you know what it is to make furniture in comparison to ordinary carpentry, wheelwrighting is a skill beyond again. Mind you, a wheelwright would be able to make a sensible job of honest carpentry; it’s that he’d be slower. A good carpenter, whilst lacking the finer skills of the wheelwright, has a deftness in other ways that allows him – or her, in my case – to make a day’s wages.
It was whilst working in England that I heard from chippies – as carpenters are fondly known – that their piece rate, the amount they were paid for a certain amount of work, was roughly the same as it had been thirty years previously in the 1970s. I speak here of the early years of the millennium. Machinery like the circular saw and the battery screwdriver made life swifter and allowed the boss to undercut his competition and so obtain the contract for his firm. The house is the same, the work is the same, the pay is the same. The only problem is that prices of food have increased some four or five fold since the 1970s.
Thus the process underlying this kind of inflation is clear: someone wants a contract and without the kind of relationship that is based both on trust and mutual need (1), the only thing left is price. When all carpenters offer the same quality, the same speed, there is only one thing the client can choose between them: who is the cheapest!
You can see that the skilled carpenter had to use his noggin – his head – to work out how he can still make a sensible living. Machinery is one of the only ways around this, and so it is that the rates for a carpenter could remain at the level of the 1970s and the carpenter be paid in the way a person needed to live in the noughties. It has to be emphasized that this wasn’t four times as much work, albeit it was probably twice the work. Nevertheless, machinery took up the slack.
In highly competitive markets where there really is little that a businessman can do to add real value to his service (even if he had the courage to do so (2)). All he can do is to undercut his competition, and with purchasers looking at the commodity services on offer – where all are providing the bare essentials – what else can they do in a profit-orientated environment?
The only way forward is to be cheaper by means of scale – and the other side of the ‘purchase money’ equation: fewer workers to pay. After all, if you’re spending money, buy a machine. Paying people means that money is wasted – at least, to the boss who thinks that his money is his and his alone. It’s my money, after all.
The result is container ships that can’t dock in US ports because they’re simply too big. Well, they can actually squeeze into one of them, but the port equipment can’t handle ten storeys of containers. Rotterdam, Hamburg and Felixtowe – there are seven more in Europe – are able to, and thus the shipping rates to Europe are considerably lower than they are to the USA.
Which is pretty well the end of the line: the ships can’t get much bigger because they’d bump the bottom. As it is, they are a quarter of a million tons and burn a hundred tons of bunker fuel a day. They have a crew of around thirty.
About as many men as it would take to move a steam engine and five hundred tons of goods a hundred miles in the 1890s.
Because I’m talking inflation not in fiscal, monetary terms, but in terms of equipment. I’ll deal with Moore’s law in the next post on this topic (3).
(1) It is such a relationship between the provider and the consumer that is the key to making a business profitable again.
(2) Adding real value is always what that person can do that few others can. It does take a deal of courage to recognize one’s skills – and in a world populated by people who are ignorant of their own (business) needs, have little use for such embellishments. Making a business profitable is now far from easy to achieve!
(3) Moore’s law is where the a computer’s capacity doubles every eighteen months. Which has led to some extraordinarily odd situations.
You see, the only negotiating handle the shipping companies had was price. After all, if you’re shipping a container, the ultimate commodity – you can put anything in them just as long as it’s safe and within the weight limits – all you can say about the thing is that it needs handling. There is literally nothing special about it.
It is said that there was a time when people were so ashamed of themselves that they clothed the legs of their grand pianos. They couldn’t bear the thought that they had, well, certain things that were to do with legs. Whilst the rumour was stronger than the occurrence, for the Victorians, it was normality to dress their ladies down to the ankle.
But then, we are modern and don’t look at our own society in that kind of way, do we?
In Roman times, the ownership of a slave was common for those who could afford it. This, however, wasn’t the southern American states before the 1900s; there were a wide variety of slaves from house slaves to those working the galleys. The house slave often had a lifestyle more in common with a servant today, albeit that they did not have their liberty. However, they were well fed, well dressed and even had days off.