9 ms·

>In 1886, a bottle of Coke cost a nickel. It was also a nickel in 1900, 1915, and 1930. In fact, 70 years after the first Coke was sold, you could still buy a b

by travisp 14y ago

>In 1886, a bottle of Coke cost a nickel. It was also a nickel in 1900, 1915, and 1930. In fact, 70 years after the first Coke was sold, you could still buy a bottle for a nickel. Without getting into a huge argument about the causes of inflation, it's really weird that they didn't even mention the word inflation until almost the very end. In 1886, an ounce of gold cost $20.65 and in 1930 an ounce of gold cost $20.65. 70 years after 1886 (1956) it had increased to $34.99 (a 70% increase). But surely a large part of the reason that a Coke cost a nickel for 70 years was that there was no real inflation for a large part of that time, during which time Coca-Cola also had the opportunity to significantly increase production and cost efficiency.

tptacek 14y ago
That doesn't explain why Coke continued to cost a nickel after WWII, when we started having significant inflation. According to the economists interviewed on Planet Money, Coke has the longest known stuck price of a consumer good in modern history. They attribute it to the original mistaken fixed-price bottling contract, Coke's response of pushing the price down with "predatory" marketing of a 5c price point, and the rise of vending machines and their inability to make change until the late 40's. The best part of this story, and I'll just go ahead and spoil it for you: late in this drama, Coke decided they wanted to raise prices, but since vending machines couldn't reliably make change they were stuck with a nickel-denominated price and couldn't double it. So instead, they stocked vending machines with "official blanks"; one in every 8 times you went to a Coke machine for a drink, you got an empty bottle, and had to pay again, which raised the effective price of Coke across all consumers by less than a cent.
- travisp 14y ago
  I agree that some inflation occurred (my original comment noted the inflation that was ultimately experienced near the end of the 70 year period), and I agree that the article contains some interesting information about contracts and vending machines (I did read the article). I just think it's disingenuous to say basically "the price was the same in 1886, 1915 and 1930!" and that they don't remind the reader that the price of many things was essentially the same over that same time period. A less informed reader may be unaware of this and be reading the article from the context of modern inflation, for which a 70 year history of no price change would be much more remarkable.
  - dllthomas 14y ago
    ... the parent pointed out that CPI almost doubled in that period. The fact that the nominal price of gold held steady doesn't show a lack of inflation - that's also the period when the world started pulling huge amounts of gold out of South Africa, which would be expected to drive down the real price of it. Unless coke's secret recipe includes a lot of gold, that's not going to have much relevance.
    - travisp 14y ago
      Measurements of CPI during that time point are of more questionable accuracy, CPI measures many different types of goods (not all go up together), and a doubling of CPI over that many years is relatively low inflation. I didn't disagree there was inflation in any of my comments. Further, the article admits at the very end that increasing inflation was ultimately what forced Coke to raise its prices. Doesn't that imply that the lack of high inflation was part of what enabled Coke to maintain low prices initially?
      - dllthomas 14y ago
        "Measurements of CPI during that time point are of more questionable accuracy" I am not sure what you mean here - "of more questionable accuracy [than CPI measurements today]", or "of more questionable accuracy [than gold in reflecting the cost of producing a coke]"? If the former, I grant it, but not (automatically) that it's enough to make a difference. The latter seems absurd - as I elaborate on a bit below. "CPI measures many different types of goods (not all go up together)" Coke is made out of many different types of goods (in terms of everything it takes to put a bottle on a store shelf), plus labor of people who want to buy many different types of goods. CPI should be expected to track the cost of producing a coke quite a bit better than a single commodity that isn't even involved in the manufacture and which experienced changes in supply that had nothing to do with coke. "[A] doubling of CPI over that many years is relatively low inflation." Relatively low, but not absurdly low, and certainly not completely flat; and note (!) that the end points picked here are not representative. 1930 CPI is the start of the depression; inflation in the 1920s was higher than anything we've seen since (says wolfram alpha) and the price of coke did not move. To the general, implied counterfactual - "would Coke have raised it's prices sooner if there were much higher inflation?" - I think we have to answer "of course", but that doesn't necessarily mean that unusually low inflation was a significant part of it. Earlier periods have experienced less inflation, but coke's price lasted an unusually long time.
- martswite 14y ago
  How did Coke get away with loading blanks into machines? Doesn't that break some kind of law? Genuinely interested in how they managed to make that fly.
  - icebraining 14y ago
    According to the Planet Money podcast, the idea was never implemented.
- icebraining 14y ago
  So instead, they stocked vending machines with "official blanks" In the podcast[1] they say that idea "never saw the light of day". [1]: http://www.npr.org/blogs/money/2012/11/13/165046113/episode-416-why-the-price-of-coke-didnt-change-for-70-years http://www.npr.org/blogs/money/2012/11/13/165046113/episode-...
  - tptacek 14y ago
    Doh! Just re-listened. You're right. I missed that part the first time, and had instead heard "they abandoned the plan", and figured they might have actually done this for awhile. It's still the best part of the story. Followed by the request for a 7.5c coin.
    - craigyk 14y ago
      Followed by the observation, that for a 2 liter, the price per ounce is still remarkably close to the original price
  - sk5t 14y ago
    Maybe folks were kinder to vending machines back then, but if I put in my last nickel and received a blank, that blank would have been used to thrash the heck out of the machine.
    - caf 14y ago
      Maybe they should have raised the cost to 10c, and advertised that you get a bonus, second Coke 3 in 4 times.
      - deleted 14y ago
        [deleted]
- lostlogin 14y ago
  Longest known stuck price. It used be be standard here to ask for $20 of petrol. That is all fine, but if you forget and do that now that petrol is expensive, you have to refill about a day later. Turns out equating an amount of petrol by a variable that continually changes (ie goes up) isn't such a good idea.
kokey 14y ago
I also think this may be an example of increases in production and distribution efficiency being roughly on par with inflation. I think a similar thing happened with coin operated video games.
- adambyrtek 14y ago
  Don't you think that prohibitive cost of upgrading all those machines would have been much more likely explanation than the assertion that efficiency was, for some unknown reason, exactly in line with inflation?
talmand 14y ago
I have to agree that a significant amount of price increases in a product like Coca-Cola is probably due to inflation. As an example, I was curious so I looked up US inflation and there's a chart showing historical inflation from 1650 to 2000. It shows inflation being a wild rollercoaster of positive and negative inflation all the way up to 1950, which probably balances things out over time. From that point forward inflation was still a wild rollercoaster, but only in the positive inflation side. Well, there does appear to a small turn down into the negative for a brief moment. A discussion on why the ups and downs before 1950 and why only positive inflation after 1950 is beyond my area of expertise. But part of me does wonder on the accuracy of the chart because it shows several spikes much higher than the highest level of inflation past 1950. I'm assuming those are due to wars.
- rmah 14y ago
  The difference is that until fairly recently, no nation had a coherent monetary policy. One of the reasons is that economics did not really understand what money was until fairly recently. For a long time, people looked at money primarily as an asset that could be used for trade. Because of this, they viewed precious metals such as gold and silver as having intrinsic value. When they do not. Today, we understand that the primary backing of money is trust. Trust in gold, trust in governments, trust in economies.
  - glhaynes 14y ago
    Good post. This might be a slight derail, but: I wonder if part of the problem with getting people to accept this is the use of the value-laden word "trust". Many people immediately react to this concept with horror: they don't "trust" the government in the same way they trust their spouse or their parents. I wonder if economists would do better to replace "trust" with "future expectations" or something like that. [Edit: when presenting to mainstream audiences.]
    - craigyk 14y ago
      naw, trust is fine. trust is pretty specific in this context
Symmetry 14y ago
The price of gold might have remained constant, but that's hardly the binding factor here. All inflation is measured with respect to a basket of goods and if you choose "an ounce of gold" as your basket of goods then under a gold standard you'll get 0 inflation by definition. But the relevant basket of goods here is the inputs in materials and labor that go into a bottle of Coke, and that ought to be fairly close to the CPI, which rose from 27 to 50.2[1] from 1886 to 1930. Now, of course, I presume they found ways to economize and automate but it's still rather impressive that they could hold the product price down over that timeframe. [1] According to estimates from the Minneapolis Fed http://www.minneapolisfed.org/community_education/teacher/calc/hist1800.cfm http://www.minneapolisfed.org/community_education/teacher/ca...?
- stonemetal 14y ago
  Perhaps they shrunk the size of the product to match? I know Hershey resized their chocolate bars to keep the price paid per bar constant for a while.
  - mhaymo 14y ago
    This was covered by the story. They didn't do that. In fact, they made efforts to discourage individual shops from doing it.
  - sageikosa 14y ago
    Hence why the 4-lb. bag of sugar seems to have become the norm around where I live, and what used to be a pound of coffee in a can is now around 11 oz.
    - philwelch 14y ago
      And a pint of Haagen-Dazs ice cream is slightly less than a pint.
      - rmc 14y ago
        Maybe they are using metric units like 500ml? A (UK Imperial) pint is 568ml. I don't know what a US Customary pint is. (Fun fact: UK and US customary/imperial units aren't the same! Every country used to have it's own system. That's why the metric system was invented)
mtgx 14y ago
Basing dollars on gold is most definitely the reason why the price stayed the same, and why it started rapidly rising afterwards.
- tptacek 14y ago
  Except that if you actually look into the story that's almost definitely not what happened. The operators of Coke were dismissive of bottling and sold unrestricted bottling rights for a pittance, then, to keep prices down to prevent themselves from getting squeezed on the value chain by bottlers, they launched a nationwide advertising campaign to fix the price at a nickel, and finally their sales shifted from fountains to vending machines during at time at which a nickel was the only viable price point for the vending machine technology we had.
eco 14y ago
They discuss inflation more and talk about a lot of other stuff in the longer version of this story. http://www.npr.org/blogs/money/2012/11/13/165046113/episode-416-why-the-price-of-coke-didnt-change-for-70-years http://www.npr.org/blogs/money/2012/11/13/165046113/episode-... One interesting thing they didn't include in the short version for Morning Edition was that Coke experimented with the idea of something called the Single Coin Plan to resolve the nickels-only vending machine problem by leaving every ninth bottle in the vending machine empty. If you got the empty bottle when you paid, tough luck. On average this increased the price by .625 cents. Clever idea but I think they realized this would just infuriate their customers.
wintersFright 14y ago
Another thing to consider is that a 'dollar' was consistent in name only over that period. until 1900: A dollar represented a weight of gold and silver 1900: $20.67 / oz gold 1933: $35 / oz gold (internationally only, domestically it was just a piece of paper) 1971: (outside of the 70 year range) USD represents only the full faith and credit of the USG So observing that a coke cost a nickel throughout that period is interesting - but the dollar isn't really a static denominator of value over time that it might appear to be. Certainly using basket of goods is necessary after 1971 because since 1971 a dollar is nothing more than an idea in people's heads. It has no guaranteed exchangability for something (real) from the currency issuer, it's value is only derived from what other people are willing to exchange it for that day. The fixed price syrup story is interesting though - just goes to show how a different mindset on the inflation risks of the currency were back then.

by travisp 14y ago

tptacek 14y ago

That doesn't explain why Coke continued to cost a nickel after WWII, when we started having significant inflation. According to the economists interviewed on Planet Money, Coke has the longest known stuck price of a consumer good in modern history. They attribute it to the original mistaken fixed-price bottling contract, Coke's response of pushing the price down with "predatory" marketing of a 5c price point, and the rise of vending machines and their inability to make change until the late 40's. The best part of this story, and I'll just go ahead and spoil it for you: late in this drama, Coke decided they wanted to raise prices, but since vending machines couldn't reliably make change they were stuck with a nickel-denominated price and couldn't double it. So instead, they stocked vending machines with "official blanks"; one in every 8 times you went to a Coke machine for a drink, you got an empty bottle, and had to pay again, which raised the effective price of Coke across all consumers by less than a cent.

travisp 14y ago
I agree that some inflation occurred (my original comment noted the inflation that was ultimately experienced near the end of the 70 year period), and I agree that the article contains some interesting information about contracts and vending machines (I did read the article). I just think it's disingenuous to say basically "the price was the same in 1886, 1915 and 1930!" and that they don't remind the reader that the price of many things was essentially the same over that same time period. A less informed reader may be unaware of this and be reading the article from the context of modern inflation, for which a 70 year history of no price change would be much more remarkable.
- dllthomas 14y ago
  ... the parent pointed out that CPI almost doubled in that period. The fact that the nominal price of gold held steady doesn't show a lack of inflation - that's also the period when the world started pulling huge amounts of gold out of South Africa, which would be expected to drive down the real price of it. Unless coke's secret recipe includes a lot of gold, that's not going to have much relevance.
  - travisp 14y ago
    Measurements of CPI during that time point are of more questionable accuracy, CPI measures many different types of goods (not all go up together), and a doubling of CPI over that many years is relatively low inflation. I didn't disagree there was inflation in any of my comments. Further, the article admits at the very end that increasing inflation was ultimately what forced Coke to raise its prices. Doesn't that imply that the lack of high inflation was part of what enabled Coke to maintain low prices initially?
    - dllthomas 14y ago
      "Measurements of CPI during that time point are of more questionable accuracy" I am not sure what you mean here - "of more questionable accuracy [than CPI measurements today]", or "of more questionable accuracy [than gold in reflecting the cost of producing a coke]"? If the former, I grant it, but not (automatically) that it's enough to make a difference. The latter seems absurd - as I elaborate on a bit below. "CPI measures many different types of goods (not all go up together)" Coke is made out of many different types of goods (in terms of everything it takes to put a bottle on a store shelf), plus labor of people who want to buy many different types of goods. CPI should be expected to track the cost of producing a coke quite a bit better than a single commodity that isn't even involved in the manufacture and which experienced changes in supply that had nothing to do with coke. "[A] doubling of CPI over that many years is relatively low inflation." Relatively low, but not absurdly low, and certainly not completely flat; and note (!) that the end points picked here are not representative. 1930 CPI is the start of the depression; inflation in the 1920s was higher than anything we've seen since (says wolfram alpha) and the price of coke did not move. To the general, implied counterfactual - "would Coke have raised it's prices sooner if there were much higher inflation?" - I think we have to answer "of course", but that doesn't necessarily mean that unusually low inflation was a significant part of it. Earlier periods have experienced less inflation, but coke's price lasted an unusually long time.
martswite 14y ago
How did Coke get away with loading blanks into machines? Doesn't that break some kind of law? Genuinely interested in how they managed to make that fly.
- icebraining 14y ago
  According to the Planet Money podcast, the idea was never implemented.
icebraining 14y ago
So instead, they stocked vending machines with "official blanks" In the podcast[1] they say that idea "never saw the light of day". [1]: http://www.npr.org/blogs/money/2012/11/13/165046113/episode-416-why-the-price-of-coke-didnt-change-for-70-years http://www.npr.org/blogs/money/2012/11/13/165046113/episode-...
- tptacek 14y ago
  Doh! Just re-listened. You're right. I missed that part the first time, and had instead heard "they abandoned the plan", and figured they might have actually done this for awhile. It's still the best part of the story. Followed by the request for a 7.5c coin.
  - craigyk 14y ago
    Followed by the observation, that for a 2 liter, the price per ounce is still remarkably close to the original price
- sk5t 14y ago
  Maybe folks were kinder to vending machines back then, but if I put in my last nickel and received a blank, that blank would have been used to thrash the heck out of the machine.
  - caf 14y ago
    Maybe they should have raised the cost to 10c, and advertised that you get a bonus, second Coke 3 in 4 times.
    - deleted 14y ago
      [deleted]
lostlogin 14y ago
Longest known stuck price. It used be be standard here to ask for $20 of petrol. That is all fine, but if you forget and do that now that petrol is expensive, you have to refill about a day later. Turns out equating an amount of petrol by a variable that continually changes (ie goes up) isn't such a good idea.

kokey 14y ago

I also think this may be an example of increases in production and distribution efficiency being roughly on par with inflation. I think a similar thing happened with coin operated video games.

adambyrtek 14y ago
Don't you think that prohibitive cost of upgrading all those machines would have been much more likely explanation than the assertion that efficiency was, for some unknown reason, exactly in line with inflation?

talmand 14y ago

I have to agree that a significant amount of price increases in a product like Coca-Cola is probably due to inflation. As an example, I was curious so I looked up US inflation and there's a chart showing historical inflation from 1650 to 2000. It shows inflation being a wild rollercoaster of positive and negative inflation all the way up to 1950, which probably balances things out over time. From that point forward inflation was still a wild rollercoaster, but only in the positive inflation side. Well, there does appear to a small turn down into the negative for a brief moment. A discussion on why the ups and downs before 1950 and why only positive inflation after 1950 is beyond my area of expertise. But part of me does wonder on the accuracy of the chart because it shows several spikes much higher than the highest level of inflation past 1950. I'm assuming those are due to wars.

rmah 14y ago
The difference is that until fairly recently, no nation had a coherent monetary policy. One of the reasons is that economics did not really understand what money was until fairly recently. For a long time, people looked at money primarily as an asset that could be used for trade. Because of this, they viewed precious metals such as gold and silver as having intrinsic value. When they do not. Today, we understand that the primary backing of money is trust. Trust in gold, trust in governments, trust in economies.
- glhaynes 14y ago
  Good post. This might be a slight derail, but: I wonder if part of the problem with getting people to accept this is the use of the value-laden word "trust". Many people immediately react to this concept with horror: they don't "trust" the government in the same way they trust their spouse or their parents. I wonder if economists would do better to replace "trust" with "future expectations" or something like that. [Edit: when presenting to mainstream audiences.]
  - craigyk 14y ago
    naw, trust is fine. trust is pretty specific in this context

Symmetry 14y ago

The price of gold might have remained constant, but that's hardly the binding factor here. All inflation is measured with respect to a basket of goods and if you choose "an ounce of gold" as your basket of goods then under a gold standard you'll get 0 inflation by definition. But the relevant basket of goods here is the inputs in materials and labor that go into a bottle of Coke, and that ought to be fairly close to the CPI, which rose from 27 to 50.2[1] from 1886 to 1930. Now, of course, I presume they found ways to economize and automate but it's still rather impressive that they could hold the product price down over that timeframe. [1] According to estimates from the Minneapolis Fed http://www.minneapolisfed.org/community_education/teacher/calc/hist1800.cfm http://www.minneapolisfed.org/community_education/teacher/ca...?

stonemetal 14y ago
Perhaps they shrunk the size of the product to match? I know Hershey resized their chocolate bars to keep the price paid per bar constant for a while.
- mhaymo 14y ago
  This was covered by the story. They didn't do that. In fact, they made efforts to discourage individual shops from doing it.
- sageikosa 14y ago
  Hence why the 4-lb. bag of sugar seems to have become the norm around where I live, and what used to be a pound of coffee in a can is now around 11 oz.
  - philwelch 14y ago
    And a pint of Haagen-Dazs ice cream is slightly less than a pint.
    - rmc 14y ago
      Maybe they are using metric units like 500ml? A (UK Imperial) pint is 568ml. I don't know what a US Customary pint is. (Fun fact: UK and US customary/imperial units aren't the same! Every country used to have it's own system. That's why the metric system was invented)

mtgx 14y ago

Basing dollars on gold is most definitely the reason why the price stayed the same, and why it started rapidly rising afterwards.

tptacek 14y ago
Except that if you actually look into the story that's almost definitely not what happened. The operators of Coke were dismissive of bottling and sold unrestricted bottling rights for a pittance, then, to keep prices down to prevent themselves from getting squeezed on the value chain by bottlers, they launched a nationwide advertising campaign to fix the price at a nickel, and finally their sales shifted from fountains to vending machines during at time at which a nickel was the only viable price point for the vending machine technology we had.

eco 14y ago

They discuss inflation more and talk about a lot of other stuff in the longer version of this story. http://www.npr.org/blogs/money/2012/11/13/165046113/episode-416-why-the-price-of-coke-didnt-change-for-70-years http://www.npr.org/blogs/money/2012/11/13/165046113/episode-... One interesting thing they didn't include in the short version for Morning Edition was that Coke experimented with the idea of something called the Single Coin Plan to resolve the nickels-only vending machine problem by leaving every ninth bottle in the vending machine empty. If you got the empty bottle when you paid, tough luck. On average this increased the price by .625 cents. Clever idea but I think they realized this would just infuriate their customers.

wintersFright 14y ago

Another thing to consider is that a 'dollar' was consistent in name only over that period. until 1900: A dollar represented a weight of gold and silver 1900: $20.67 / oz gold 1933: $35 / oz gold (internationally only, domestically it was just a piece of paper) 1971: (outside of the 70 year range) USD represents only the full faith and credit of the USG So observing that a coke cost a nickel throughout that period is interesting - but the dollar isn't really a static denominator of value over time that it might appear to be. Certainly using basket of goods is necessary after 1971 because since 1971 a dollar is nothing more than an idea in people's heads. It has no guaranteed exchangability for something (real) from the currency issuer, it's value is only derived from what other people are willing to exchange it for that day. The fixed price syrup story is interesting though - just goes to show how a different mindset on the inflation risks of the currency were back then.