Agatha Christie and Baumol's Cost Disease

While there are several things to pick over, there are a couple of very useful but not widely understood topics in Why Agatha Christie could afford a maid and a nanny but not a car by Timothy B. Lee.

The first item is has to do with understanding income comparisons over time. He sets up the issue with reference to the household economy of Agatha Christie in 1919.  

Agatha Christie’s autobiography, published posthumously in 1977, provides a fascinating window into the economic life of middle-class Britons a century ago. The year was 1919, the Great War had just ended, and Christie’s husband Archie had just been demobilized as an officer in the British military.

The couple’s annual income was around around £700 ($50,000 in today’s dollars)—£500 ($36,000) from his salary and another £200 ($14,000) in passive income.

They rented a fourth-floor walk-up apartment in London with four bedrooms, two sitting rooms, and a “nice outlook on green.” The rent was £90 for a year ($530 per month in today’s dollars). To keep it tidy, they hired a live-in maid for £36 ($2,600) per year, which Christie described as “an enormous sum in those days.”

The couple was expecting their first child, a girl, and they hired a nurse to look after her. Still, Christie didn’t consider herself wealthy.

“Looking back, it seems to me extraordinary that we should have contemplated having both a nurse and a servant,” Christie wrote. “But they were considered essentials of life in those days, and were the last things we would have thought of dispensing with. To have committed the extravagance of a car, for instance, would never have entered our minds. Only the rich had cars.”

In 1919, Ford’s Model T cost  £170—around $12,000 in 2022 dollars. So a car was worth about three months of income for the Christie family—but almost five years of income for their maid!

By modern standards, these numbers seem totally out of whack. An American family today with a household income of $50,000 might have one or even two cars. But they definitely wouldn’t have a live-in maid or nanny. Even if it were legal today to offer someone a job that paid $2,600 per year, nobody would take it.

This is a well known historical and economic phenomenon.  And challenge.  

Would you rather be a middle income American today or a Pharaoh in 3,000 BC Egypt?  A middle income American today earning some $50,000 is run-of-the-mill, nothing stands out.  But Pharaoh?  Woof.  Gold and lapis lazuli and dancing girls and servants at your beck and call!

And then the differences begin to sink in.  No healthcare.  No aspirin for aches and pains.  No dental care.  Servants, yes, but effectively slaves.  No technologies.  No soap or shampoo. Vanishingly few people of knowledge.  Almost every specific aspect of existence was more miserable.  

A full accounting reveals that if you value longevity, health, knowledge, and productivity, there are no circumstances under which you would be better off as Pharaoh.  Or even middle class in America in 1950.

The economic change from the old order pre-WWI to post-WWII was a social change as much as an economic and technological change.

Before WWI there were large masses living very close to absolute poverty.  Provide food, shelter, and a uniform and the servants were far better off than they otherwise would be.  Actual salaries could be very low.  That whole Edwardian life-style disappeared after WWI and was ancient history by the end of WWII.  Servants could not be had for love or money, making the landed gentry life far more expensive than it had been.  

Salaries rose above poverty in part due to whole society productivity improvement but also because of the catastrophic loss of men in their prime working years who died during the war, perhaps 6% of the total labor force.  Demand for labor increased (with industrialization) and supply shrank (due to the war).  People at the margin of productivity (and poverty) enjoyed rising income and more labor choices.

Thus was the country gentry life effectively extirpated.    

Lee then focuses on the additional cause,  Baumol's cost disease.  Or, as he rightly points, what should be known as Baumol's wage bonus.  Back to comparison's.  Would you rather be a low productivity and poor person in a highly productive society or an untalented person in a poor country?  

Again, you would want to be the poor person in a highly productive country.

Back in the 1960s, the economist William Baumol observed that it took exactly as much labor to play a string quartet in 1965 as it did in 1865—in economics jargon, violinists hadn’t gotten any more productive. Yet the wages of a professional violinist in 1965 were a lot higher than in 1865.

The basic reason for this is that workers in other industries were getting more productive, and that gave musicians bargaining power. If an orchestra didn’t pay musicians in line with economy-wide norms, it would constantly lose talent as its musicians decided to become plumbers or accountants instead. So over time, the incomes of professional musicians have risen.

Today economists call this phenomenon “Baumol's cost disease,” and they see it as one of the most important forces driving the price trends in my chart above. I think it’s unfortunate that this bit of economics jargon is framed in negative terms. From my perspective as a parent, it might be a bummer that child care costs are rising. But my daughter’s nanny probably doesn’t see it that way—the Baumol effect means her income goes up.

Rising productivity in one industry not only drives higher wages in that industry, it puts upward pressure on wages across the economy. When you put it that way, the phenomenon doesn’t seem so much like a “disease.” It might be better if we talked about the “Baumol bonus” workers get when other workers become more productive.

While not directly related, Baumol's cost disease is not infrequently connected with the Dutch Disease, hence the negative connotation.  

This is the explanation for how Agatha Christie went from an average modern income supporting a servant based luxury life-style to a high income life without servants (or rather a life where servants were no longer affordable.  Baumol's cost disease is indeed just a phenomenon which tells us that the economy is becoming more productive and that productivity improves everyone's lives.