Why Coke Cost a Nickel for 70 Years (2012) | Hacker News Reader

Why Coke Cost a Nickel for 70 Years (2012)

npr.org

135 pointsx43b95 comments

That's a nice story.

The real reason was the US dollar was on a gold standard during that period of time. In the late 50's to 60's the US begin to issue more currency than their gold holdings were increasing, leading the countries like France withdrawing gold from the US (and apparently, inflation, according to this article), and finally the dissolution of the gold standard in 1971.

Since the US dollar was fixed to gold there was little to no inflation, because the ratio of gold price to goods price is much more stable.

In 1950 - A coke was 5c, median household income $4000[1] per year = 80000 cokes per year.

In 2015 - A coke is $2[2], median household income $50500[3] per year = 25000 cokes per year.

In real terms adjusted by the price of coke, the median household income has fallen by 69%. (for giggles).

1. http://web.stanford.edu/class/polisci120a/immigration/Median...

2. http://www.humuch.com/prices/CocaCola-Bottle-20oz500ml/_____...

3. http://www.mybudget360.com/how-much-do-americans-earn-what-i...

> In real terms adjusted by the price of coke, the median household income has fallen by 69%.

The price of a Coke isn't real terms though. Because at 5c it was artificially constrained as mentioned in the article.

More interesting would be the price of a house, or daily groceries (of equivalent quality) vs. salary.

This is an article about cola. :) It's a comparison for fun.

Ok. Funny :-)

Also, the comparison should probably be made with respect to the after-tax income.

You're not accounting for the size of the portion. The nickel bottle of Coca-Cola was 6oz. Today's standard vending machine bottle is 20oz.

Which gives us 480,000 ounces of coke in 1950 vs 505,000 ounces of coke in 2015. A 5.2% increase in the amount of coke you can buy for a year's salary. (I'm actually kinda surprised the price is that stable.)

It's easier to sell one bigger package than several smaller.

I would not be surprised, if the 505,000 ounces in 20oz packages cost less to produce in 1950 prices, than 480,000 ounces in 6oz packages. (Just one physical package, not three separate).

Plastic bottles instead of glass bottles probably also help. You don't have to be nearly as careful when you handle plastic bottles.

(I /think/ they are also cheaper to produce.)

And considerably lighter. Good for logistics.

It's a set of tradeoffs. The 6oz bottles were (I think) returnable. Even better than recycling, they only needed to be washed/sterilized to re-use. I'm old enough to remember Coke and other brands in returnable bottles up to 16oz.

They were heavy. The transportation costs savings with the lighter plastic bottles (combined with maybe the raw materials savings, and savings not having to transport, handle, wash, and sterilize the emptys) made plastic more economical than returnable glass.

Manufacturing cost for glass bottles almost certainly higher than plastic. You have to melt either sand or recycled crushed glass which takes a lot of energy.

Some jurisdictions do have returnable plastic bottles. They are much heavier than the disposable ones but still lighter than glass.

Interestingly for some reason beer in plastic bottles has never caught on, it's mostly sold in glass bottles and cans.

At Islanders hockey games, beer is sold in plastic bottles with the cap taken off.

This has been a growing trend in many arenas and stadiums in Florida too. I've seen them in at least 5 different venues across the state now.

This is pretty standard for bottled water at music festivals as well.

And then neither has canned water caught on, despite all the hand-wringing about waste from water bottles.

http://www.jwz.org/blog/2015/06/banning-bottled-water-increa...

What I love about that study is that it's confirmation of what should be common sense. People purchase disposable bottles because of the convenience.

This is just my opinion but I don't believe that the first step should be trying to regulate people into better behavior, you have to educate them.

This thread is damn good economics.

I wouldn't be shocked if they make sure it's always about as affordable as it used to be, since they do want everyone drinking it (as opposed to companies like Apple going for status/luxury bucks).

Lesser quality ingredients are also used. Additionally, Coca-cola is mostly water, which means its price will largely be driven by the price of water, which hopefully means that everyone will still be able to drink it.

Your standard 2010s American is also roughly 3x as large as the typical 1950s American, though.

Sounds like you're suggesting that instead of doing a headcount for population growth, we should be looking at biomass. Interesting. This would mace sense for big mac economics and the newly founded field of coke economics.

Your typo ("this would mace sense") is actually quite topical, because MACE stands for "major adverse cardiac events".

Yes. GDP per capita is a meaningless statistic - what we want to know is GDP per kilogram. Likewise, American productivity as measured per worker is a meaningless statistic, but the productivity of the American worker-kilogram will determine our global competitiveness.

It makes sense when you think about it. Measuring things at the level of an individual implies some sort of "consciousness", but we're learning in neuroscience/philosophy class that consciousness is mostly an illusion. I mean, our brains are made of meat. How can meat be conscious?

Never mind how! If meat can be conscious.. lets just say it can for the moment.. than it stands to reason that more meat can be more conscious. They're growing more, bigger meat all the time! Maybe if their meatbodies get big enough... Nevermind, this is stupid.. yep, you're right... meat can't be conscious... I know I know. I got carried away.

relevant: THEY'RE MADE OUT OF MEAT <http://www.terrybisson.com/page6/page6.html>

Besides, we could solve the world's energy problems by burning idiots - they are renewable, and often contain lots of fat.

This solves the matrix plot hole!

And you're not accounting for the price of the bottle relative to the cost of the water/syrup.

Did they sell 2-liters in 1940? A 2-liter costs less than a 20oz bottle in many cases.

Here is a chart that covers the time period in question. The 1880s was right in the middle of a long period of slow deflation, so a bottle of coke was actually getting slightly more expensive for a period of nearly 30 years:

http://www.economics-charts.com/images/cpi-1800-2005.png

Interesting comparison: inflation is much faster than wage rises.

Some countries have the minimum wage linked to inflation. While that can have some disadvantages as well (in certain short term periods), overall it's probably much better off in the long term for the population.

> [...] overall it's probably much better off in the long term for the population.

[...] if a minimum wage is a good idea in the first place.

When isn't it a good idea to have a minimum wage?

In an environment with little social welfare, a minimum wage will disproportionately negatively affect workers with disability because they can almost never get hired, and do not receive sufficient support from the government. They will be at the mercy of affection or pity from family and friends.

When you are optimizing for employment ratio. Zero minimum wage gives 0% unemployment and creates millions of jobs. Those are some great achievements to have if you're running for reelection.

There is no reason to support a minimum wage if you don't care about quality of life.

There are lots of countries without a minimum wage that still have lots of unemployment.

An official minimum wage is not the only way to create a de facto minimum wage. Welfare subsidies is another. Strong unions is yet another. High contributions to medical insurance and pensions paid by the employer is yet yet another.

There are also others way to create high unemployment: making it very risky and expensive to get rid of mishires or to reduce headcount if the company isn't going so well. Making management more difficult once the headcount reaches a certain level (because of unions or the creation of employee boards mandated by law) -- that leads to companies trying to stay below such ceilings. Others would be salaries/pensions/benefits tied to how long one has worked for the same company -- which discourages moves to other companies (that might fit ones personality or talents better -- or that has better management). The housing market also has an influence: there might be opportunities in a different city but how easy is it to move? It is relatively easy if you rent your house or appartment. Not so easy if you own it, especially if selling it means you realize a loss. Lots of laws and regulations in a country influence the structure of the housing market (how liquid it is, what loan types are available, how many people rent instead of owning, etc.).

>Zero minimum wage gives 0% unemployment and creates millions of jobs.

Sweden has a quite high unemloyment, especially for young people, and Sweden has no minimum wage.

Technically true, but the combination of a generous welfare system and powerful unions means that there is a de facto minimum wage.

No one is going to work for much less than they'll get from unemployment, and just try starting a company paying less than the union collective bargaining rates and see how long it takes before a bunch of thugs harass you out of business.

Someone who doesn't like reality-based economics downvoted you. +1 to compensate.

The unemployment rate is a lot higher amongst MENA immigrants and their children than amongst the natives. This is a general finding and not in any way unique to Sweden. What is close to unique is the sheer number of low-skilled immigrants relative to the native population.

Because it is essentially a law that makes it illegal to hire unskilled labour:

https://www.youtube.com/watch?v=rQj1qlsjVoM

Adam Smith thought it was:

"A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation."

http://www.reddit.com/r/dredmorbius/comments/2311mb/adam_smi...

http://www.reddit.com/r/dredmorbius/comments/1z5vfb/thoughts...

Adam Smith was a genius, and the foundation for much of the field of economics, but not an old-testament prophet or an oracle. His work has been built upon and surpassed by extensive research in the field today.

I mean, I'd be quite happy to trot out sources like Is there consensus among American labor economists? Survey results on forty propositions (Whaples, 1996) -- or another of the similarly titled papers in that series -- to illustrate there's a scientific consensus against the minimum wage, but worry that it's a mere two decades out of date. :P

I'm hesitant to say, this but...

Consensus amongst economists, is like saying consensus amongst weathermen. You need look no further than recent history. If the past 10 years (or longer if you please) have taught us anything, its that economists can be dangerously wrong. Especially if the issues are at all political.

Yeah, especially pop-economics and economists that the politicians trot out to promote their latest policies, or the guys trying to forecast the future of some part or another of the economy. And overall economic conditions change a bunch, all the time. Hence the aforementioned hesitance. Unfortunately good consensus surveys only come out every so often and then you have trouble looking them up if you aren't somewhere with JSTOR, so.

But, that said, economists in general have been pretty consistent on a few basic principles. Supply and demand, the impact of price controls thereupon, et cetera. And if you think through enough of that you might begin to think that the EITC is a better vehicle to help out the working poor than a minimum wage (since it doesn't cause unemployment or promote unnecessary investment in automation to further damage employment unnecessarily...) It's been known to happen, anyway.

My reasons for mentioning Smith:

1. He's almost always grossly misrepresented in modern discourse, and little of that gets beyond the virtually wholly fabricated "invisible hand" metaphor.[1] As this passage shows, and the entire section (from which I've both quoted from at length and greatly condensed in my previous links) makes abundantly clear, Smith isn't the cut-throat capitalist he's made out to be.

2. Yes, the field of economics has in fact "moved on" from Smith. Though I'd argue that in only some cases has it actually improved on him. Failing to understand Smith's own arguments is a principle failing of much of economics.

3. Smith argues his points at (great) length and with ample examples. There remain some errors (I find Graeber's argument for the origins of money as credit more persuasive, for example). But the whole chapter on wages of labour contains much of value even 239 years after its writing.

________________________________

Notes:

1. Gavin Kennedy's scholarship on this topic is excellent http://econjwatch.org/articles/adam-smith-and-the-invisible-...

It's also a frequent topic at his blog, "Adam Smith's Lost Legacy" http://adamsmithslostlegacy.blogspot.com/2015/06/adam-smiths...

Much of the modern revival can be specifically pinned on Paul Samuelson, in whose landmark textbook it's prominently featured:

http://adamsmithslostlegacy.blogspot.com/2010/04/paul-samuel...

http://adamsmithslostlegacy.blogspot.com/2012/01/pay-attenti...

And, as a comment at the latter notes, the IH metaphor is explicitly called out as a description of an unknown mechansism:

[I]n The History of Astronomy (written before 1758) Smith speaks of the invisible hand,"to which ignorants refer to explain natural phenomena otherwise unexplainable:

"Fire burns, and water refreshes; heavy bodies descend, and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters"

Smith, A., 1980, The Glasgow edition of the Works and Correspondence of Adam Smith, 7 vol., Oxford University Press, vol. III, p. 49

2. For The How Damned Thing: https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...

Stripping that quote of all historical respect we have for Adam Smith, and answering head on: a guaranteed basic income seems like a much better way to reach these goals than to outlaw employment below a certain threshold of income.

I'm rather in favour if a government as employer of last resort. One option is to then resell that labour, at a loss in cases, to qualified businesses.

We're already subsidizing labour, but without consideration to net social benefit. That at least should change.

> One option is to then resell that labour, at a loss in cases, to qualified businesses.

Sounds like a recipe for corruption to me.

That's the whole point of inflation. Remember, wages are 'sticky' in that workers don't like getting their pay cut. So economists invented a way to rob them while giving them nominal wage raises!

Inflation makes adjustment to relative wages much easier (i.e., having some jobs decline in wages and others increase).

That is such a good thing that it (probably) outweighs the negatives. It does seem like it should be a low and relatively constant and predictable inflation, though.

I don't feel like you're deserving the downvotes you're getting. Printing money is indeed theft or taxes, depending on your bias, because it dilutes your cash savings.

Since the US dollar was fixed to gold there was little to no inflation, because the ratio of gold price to goods price is much more stable.

This is true only in some sense on average. There was in fact both very significant inflation and deflation, but they evened out over the long term. People thus could use gold-backed money for savings. It still was a worse asset than bonds to save in, even if you account for sovereign defaults in that era.

Yep, money is not a store of value. They have us right where they want us.

"They" don't have us anywhere, money is not supposed to be a store of value, it's a medium of exchange. Assets are stores of value.

then what's the point of a savings account? to get screwed over?

A savings account is nothing more than a loan from you to the bank.

Savings accounts are for short term liquidity, not long term stores of value. Long term, look to bonds, stocks, and other asset classes. Money is for spending, not storing.

> then what's the point of a savings account?

A savings account isn't cash, its an immediately-callable loan from the account holder to a financial institution; for the account holder, it provides an asset with very good liquidity (but perhaps marginally worse than that provided by a checking account), essentially zero risk, but poor returns (but perhaps marginally better than that provided by a checking account). Its a way of meeting short-term spending needs (but perhaps slightly longer term than that met by a checking account).

Demand deposit accounts (both checking and savings) in general are, like cash, basically for short-term spending, but where the bank provides some benefits (actual storage, along with access mechanisms more convenient for many uses than pulling physical bills out of a storage locker).

http://www.moneychimp.com/articles/econ/inflation_calculator...

Inflation 1900-1972 : 2.3%

Inflation 2000-2014 : 2.24%

Gold had nothing to do with it. The value of the US currency has always been a based on trust.

In practice the US government did not exchange gold for dollar bills anyway.

The Zerohedge theories of gold just doesn't work.

> In real terms adjusted by the price of coke, the median household income has fallen by 69%. (for giggles).

Not necessarily that far-out: since the core CPI that goes into inflationary figures is measured using things like the cost of a loaf of bread, I always thought it'd be nice to be able to flip that around, and see historical economic charts measured in loaf-of-bread-units. It would also allow for easy cross-comparison between figures from different countries.

(To go actually far-out, though, wouldn't it be interesting to have a salary and a bank account denominated directly in inflation-compensated purchasing-power, such that if you got paid 1 BreadBuck, it would buy you exactly one loaf of bread today, tomorrow, or twenty years from now?)

re: your parenthetical, this Planet Money episode (http://www.npr.org/sections/money/2010/10/04/130329523/how-f...), describes Brazil's real, which was introduced as essentially that - an inflation-proof currency, replacing the cruzeiro, which was destroyed by hyper-inflation.

In 1900 A coke was 5c, average income $438 per year = 8760 cokes per year.

So in coke terms wages shot up 1900 to 1950. Or coke was just cheap then.

http://usa.usembassy.de/etexts/his/e_prices1.htm

>$1.00 at the beginning of 1900 had the same purchasing power as $5.38 at the end of 1972.

I wouldn't call 2.3% Annualized Inflation Rate "little to no."

>$1.00 at the beginning of 1990 had the same purchasing power as $1.86 at the end of 2014.

What's interesting is that in the past 25 years we have a similar AIR. 2.5%.

72-1990 may have just been an anomaly, especially if you see that 1972-1980 alone had a AIR of 8.6%. I think a lot of the gold standard weirdos are purposely being disingenuous by ignoring the big economic issues of the 70s and 80s to play up their pet theory.(war spending/war debt, oil crisis, government overspending/massive deficit spending, manufacturing leaving, savings and loan scandal, 1980s recession, etc)

If the gold standard is the only that that can bring out sub 3% inflation then you're simply wrong as we've been in the 2's since the 90's. I don't think many younger people on the internet really appreciate how crazy the 70s and 80s were. The loan my dad got on our house when I was a kid is like 3x or almost 4x my interest rate, which is insane. Clearly things have stabilized since then while we're still not on any precious metal backed currency. I think you guys are missing the forest for the trees here.

Calculator here:

http://www.moneychimp.com/articles/econ/inflation_calculator...

When people bemoan how things were cheaper back in an earlier time, they are often forgetting to take into account:

CPI Inflation (when adjusted for inflation, these 'cheap' things are often as expensive as they are today) this is seen with the movie ticket example http://greyenlightenment.com/debunking-the-gold-standard/ Maybe some things are a little more expensive, but it pretty much all evens-out.

Improved Utility (you get a better product despite the higher nominal price)

New products (your dollar buys things that didn't even exist even as early as generation ago)

Expenditures such as food & energy constitutes a smaller percentage of income than generations ago.

I question things like "Improved Utility"

Sure things have more buttons now. But are they better?

A washing machine from the 60s lasted 20-30 years. A washing machine from the 2010s lasts 5-7 years.

(On the flip side, pretty much any car from 2010s will last 15 years, whereas a ford from the 60s might last 5)

The 60s washing machine likely uses 4x the water and energy of the 2010 washing machine though. While it may not outweigh the total cost to create a new washing machine every 5-7 years, it's a direct improvement for the consumer.

Top google result:

http://www.landtechnik-alt.uni-bonn.de/ifl_research/ht_7/huw...

I'd swap my smartphone for affordable education, housing and healthcare any day.

I wouldn't swap healthcare of today with healthcare from the 60s, though.

Would you? Can't you get better education (though without the diploma) out of your smartphone than you could out of almost all universities in the sixties? Isn't wikipedia more correct than most textbooks from that day? Isn't pubmed better? Isn't it easy to find lots of scanned textbooks from helpful servers in Iran, Turkey, China, etc.? Much easier than finding good textbooks in a university library back in the day?

>Can't you get better education (though without the diploma) out of your smartphone than you could out of almost all universities in the sixties?

So you're saying that you'd rather no degree and a few notches on your coursera belt than a degree from a prestigious university from the 1960s?

Are you nuts?

>Can't you get better education (though without the diploma) out of your smartphone than you could out of almost all universities in the sixties?

Even if you ignore diploma, networking, and signaling, I still think the answer is no.

1920's housing wouldn't be too terrible I guess but 1920's healthcare? Yeah, I'll take the smartphone. I'll also take being a minority today than back then, but I'm assuming like most HN'ers you're a white male, so you should be ok.

Not to mention, many western nations get healthcare right, we just don't. That's a political issue much more than a economic one.

Even Pepsi had a jingle based on the nickel price for a 6oz bottle of Coca-Cola:

Pepsi-Cola hits the spot, 12 full ounces, that’s a lot, Twice as much for a nickel too, Pepsi-Cola is the Drink for you!

Awesome story. I wonder if the same kind of things have happened for other brands. Coke was also pretty clever advertising 5 cents a bottle to lock the price, brilliant plan to neutralize a bad move in the past.

> At one point, the head of Coca-Cola asked President Eisenhower for help. (They were hunting buddies.)

That line tells you everything you need to know about how big business gets what it wants from government.

I wonder... what would have happened if they fixed the price at 1c, forcing the bottlers out of business, then renegotiated the contract i.e. void the contract and we'll stop advertising it as 1c. The fountain stuff could have kept Coke in business then it is a war of attrition?

Coke couldn't fix the puce, Coke advertised it. People were free to sell it as they pleased. I imagine if Coke advertised the product at 1c stores would disregard the advertising and it would be a pointless waste of money from Coke in that they would lose all control as no-one would now expect to pay the advertised price.

They are kind of fixing the price now. I see small cans of coke (250 ml) with a large logo stating: "Maximum price $2." [1]

I'm guessing you could legally sell these cans for whatever you want, but consumers would probably not like to pay more for something that has its "maximum" price stated in the design of the can.

[1] http://ausfoodnews.com.au/2014/08/11/coca-cola-launches-smal...

Arizona Iced Tea (used to?) have a prominent $0.99 price on the label and I occasionally saw it for sale at gas stations for substantially above that price, on a percentage basis, e.g. $1.69.

For those interested, fixing the price is called "resale price maintenance," and fixing it at an unsustainable low level to force someone's hand is called "predatory pricing," and it happens.

Imagine how expensive coke would be without the US corn subsidy.

Mexican Coke isn't any more significantly expensive than US Coke.

355ml glass bottle in mex costs 6 pesos, or 0.30usd, while the plastic bottle version at half a liter goes the same price. cans can go as much as 10 pesos in vending machines. 2L plastic is around 25 pesos or $1.50USD. I don't buy soda so my numbers may be off by 10%.

It wouldn't be more expensive. Coke uses HFCS because of the corn subsidy. If that went away, they'd surely revert to sugar.

In that case we'd probably just import real sugar. Agricultural handouts lead to more agricultural handouts.

And less dead poor people! But we don't care about those. Your hipster sugar is more important.

I support giving poor people any amount of money (or food, I guess?) directly. I don't support messing up the commodities market (and numerous other things as a result) for the alleged purpose of feeding them HFCS.

Did you infer "hipster" from the italics?

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