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From the NS archive: The cost of living

23 January 1932: Henry Ford, Detroit and the spending power of factory workers.

By New Statesman

The question “What does it cost to live?”, this unnamed author wrote, is meaningless without context. The answer depends not just on where and when you live, but also how. But some answers might be found in a 1932 report published by the International Labour Office. The report was commissioned by Henry Ford, who wished to discover what wage he ought to be paying staff in his European factories so that they might be afforded the equivalent spending power of their Detroit counterparts. The investigation showed that Manchester – the only British place included – had a cost of living of 70-74 per cent of Detroit. Many factors affected this outcome, the author noted. “Clearly these differences of cost have a good deal to do with the extent to which the various countries are protectionist in the matter of goods entering into generally consumption.” Yet the report was still a useful comparison of the relative costs of working-class living in different places at the beginning of 1931.

What does it cost to live? So stated, the question is meaningless; for the answer must depend not only on where you live and when you live, but also on how you live. In a sense, a man can live anywhere and anywhen for a time on a very small money income; for it takes a lot of privation actually to starve him to death. A deficient diet, such as a large part of the German workers are getting to-day, is bound to react on health, on productive efficiency, and on the capacity for living a happy and useful life. But it may be consistent with the commandment in its variant form: “Thou shalt not kill, but need’st not strive officiously to keep alive” – in any sense of the word “alive” that connotes reasonable living. We make use freely of the term “a living wage”; and various persons have drawn up standards of the human and physical needs of labour, and the cost of maintaining them in various times and places. But such standards are bound to be arbitrary; nowhere and nowhen is there such a thing as the cost of living.

Cost of living is, then, a comparative term. It involves comparing costs, either at the same place at different times, or in different places at the same time. The figures published by our Ministry of Labour and by some statistical authority in every developed country are comparisons of the former kind. The Report just published by the International Labour Office, to which we have already made brief reference, is of the latter kind. It is an attempt to compare the cost of living in Detroit with that of certain European towns. But even this cannot be attempted without further definition, for the comparison of costs can be made only if a particular standard of living is taken as a basis. There is no necessary correspondence between, say, middle and working class relative costs of living in two different places (or, for that matter, at two different times); and, even if only working class costs are in question, the results of comparison may differ for, say, skilled and unskilled workers.

In the present inquiry, however, the ILO set out to find the answer to what seemed a reasonably definite question. Mr Henry Ford has factories in many parts of Europe, as well as in the United States. He wanted to find out what wages, paid in each of his European factories, would enable the persons employed in them to enjoy the same standard of living as the workers at Detroit. The cost of living for a typical Ford employee in Detroit was therefore to be taken as a basis – or, in other words, the actual purchasing power in Detroit of a typical Ford wage; and the next step was to discover the comparative wage that would equip a worker with the same purchasing power elsewhere. The result, expressed as a percentage of the Detroit standard, would give a comparison of the cost of living in different places at the actual living standards of the workers in Detroit. That involved, of course, in the first place, assuming a typical Detroit worker; and this was done as the result of a special investigation which preceded the present inquiry. The process used is shown in the Report before us.

Having got its standard Detroit worker, with his standard wage and his standard budget of expenditure – all involving a good deal of assumption – the ILO was in a position to set out in search of the answer to Mr Ford’s question. It was desired to know next how much it would cost, in Manchester, Frankfurt, and a number of other places, to buy exactly the same things as the standard worker was assumed to have bought in Detroit. At once a new difficulty presented itself. It was impossible, in any of the European cities, to buy exactly the same things as in Detroit. There were variations of quality and type in the goods supplied, and often the investigators had to be content with finding the cost of things similar, but not the same. Moreover, it was clear that no person in his senses would buy exactly the same things, or spend his money in the same way, in, say, Detroit and Stamboul, or even in Detroit and Manchester. Wants, as well as costs, differ from place to place, not only in foods, but even more in such things as clothing, fuel, housing, transport, and nearly all the miscellaneous expenses of life.

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The chief interest for most readers of the Report, though not for Mr Henry Ford, obviously lies in the use which can be made of the results of the inquiry as a measure of relative costs of living in different places. It will be made use of in this way, and, subject to cautions, it is reasonable so to use it. But it is necessary to understand that the results need not have worked out the same if, instead of Mr Ford’s employees in Detroit, some other body of workers in some other place had been taken as the standard group. If, for example, the ILO had set out to consider the cost in Detroit and in other places studied of buying the same things as a typical miner buys in Merthyr Tydfil, there might have been a good deal of difference in the results arrived at. As a general comparison of costs of living, the Report is valid only within very wide limits of possible error. Or, rather, no general comparison can ever be valid except within wide limits; and we ought to be thankful to Mr Ford and the ILO for carrying us a good deal farther towards a broad basis of comparison than we have ever been carried before.

With these cautions well in mind, it is reasonable to use the Report for a purpose not directly envisaged in the inquiry – a comparison of the relative costs of working-class living in different places at the beginning of 1931. The thing most likely to strike the reader here is the low position of Manchester in the scale of European costs. Manchester is the only British city included, and has to be taken as representative; but Cork is there, with a much higher cost of living, 85 per cent of the Detroit cost, as against Manchester’s 70 to 74. Below Manchester are Barcelona (about 58), Antwerp (61-65), Stamboul (about 65), Warsaw (about 67), and Rotterdam (65-68). Above it are, besides Cork, Marseilles (75-81), Paris (80-87), Helsinki (83), Berlin (88-90), Copenhagen (83-91), Frankfurt (85-93), Stockholm (99-104), and, of course, Detroit (100). Holland, Belgium, Spain, Poland and Turkey below Great Britain; France, Germany, and the Scandinavian countries, as well as the United States, above. Clearly these differences of cost have a good deal, to do with the extent to which the various countries are protectionist in the matter of goods entering into general consumption. Manchester will hardly tell the same story in a year’s time if we resort to a general protective tariff. Nor would it tell quite the same story to-day, for the inquiry was made while we were still buying imports with sterling at par. Since we went off gold our costs have not risen much – as yet – but they have not fallen in relation to the further fall in world prices.

Of course, a comparison of costs of living has nothing to do with a comparison of wages. It does nothing to tell us how much the workers in any of these places actually have to spend. But it should help in checking the estimates of comparative real wages in various countries already issued from time to time by the ILO. There is no doubt that real wages and money wages, however reckoned, are a great deal lower in Manchester than in Detroit, and a good deal higher in Manchester than in Berlin or Paris or Warsaw or Antwerp, or even Rotterdam. How Manchester compares with the Scandinavian cities it is not so easy to say; but the available figures suggest that there is not much difference in real wages between Great Britain, Denmark and Sweden, though previous comparisons may need to be modified in the light of the new information about relative living costs.

Nor, again, does the inquiry enable the reader to draw any conclusion about the relative costs of production in different cities; for that depends, not on the cost of living, but on the wage-rates paid, in relation to the efficiency of labour and of the use made of labour by the employer. High costs of living only affect costs of production to the extent to which they cause money wages to rise. And, now that so many countries are off gold, there is, further, the difference between the internal and external values of their currencies to be taken into account as a factor affecting relative costs of production for purposes of international competition in the world market.

In fine, we must not make too much of, or found too much upon, the present Report. But it is exceedingly interesting to discover that, despite all that has been said about the unduly large spread between our wholesale and retail prices, our costs of living, within the limits of this special investigation, work out so low in comparison with those in the countries which are our chief competitors. It looks as if either our retail prices are not relatively higher than other countries’, or, if they are, the direct benefits of Free Trade to the consumer as such must still be very great. Some people, indeed, want to see our prices rise, in order to lower real wages. But no one has yet shown that this could possibly help to lower our costs of production. One effect of this Report is to remind us that we still enjoy the advantages of living in a cheap country.

Read more from the NS archive here. A selection of pieces spanning the New Statesman’s history has recently been published as Statesmanship (Weidenfeld & Nicolson)

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