"Once it is admitted that Power may forswear its true reason and end, and as it were, detach itself from society to form far above it a separate body for its oppression, then the whole theory of Power's identity with society breaks down before this simple fact.
"At this point nearly all who have written on the subject look the other way. A Power which is both illegitimate and unjust is off their intellectual beat. This feeling of repugnance, while it is understandable, has to be overcome. For the phenomenon is of too frequent occurrence to give any chance to a theory which does not take account of it.
"It is clear enough how the mistake arose: it was from basing a Science of Power on observations made, as it is history's business to make them, of Powers whose relations with society were of one kind only; what are in fact only its acquired characteristics were thus mistaken for Power's essence. And so the knowledge acquired, while adequate to explain one state of things, was quite useless in dealing with the times of the great divorces between Power and society.
"It is not true that Power vanishes when it forswears its rightful begetter and acts in breach of the office which has been assigned to it. It continues as before to command and to be obeyed: without that, there is no Power--with it, no other attribute is needed."
----Bertrand de Jouvenal, On Power: The Natural History of Its Growth, p. 108
In the 1950s Stanley Milgram showed that conformity to authority comes naturally to a large segment, and likely a majority, of the population. All that is required to confer legitimacy on a Sovereign is an appropriate title or costume. Under laboratory conditions between 30 and 60 percent of the population will be willing to kill another person upon a scientist's command.
De Jouvenal points out that two restraints on European kings limited their exercise of power to a greater degree than modern democracy is limited. These were custom and the Church. Legal doctrines received from the Barbarian Codes and from the Romans left European kings with strictly delineated authority. Moreover, the power of the nobility, the dux, countered the power of the rex. Viewed historically, power seemed limited to historians of the 19th century because the kings never knew unlimited power until the Protestant Reformation, which overthrew custom and created the conditions for the argument of the divine right of kings. At the same time, the argument of popular sovereignty derived unlimited power from the popular will. Thus, the two doctrines of the divine right of kings and popular sovereignty evolved at the same time and considerably extended the possibility of power.
Historians could not anticipate the tragic consequences that would emanate from the unrestrained popular will of Rousseau, Hobbes, Hegel and Marx. Even the arch-capitalist Herbert Spencer was taken by surprise. He had argued that the organic evolution of the state in light of popular sovereignty would be in the direction of reductions in state power rather than more.
America was spared the Rousseauean tragedy because Locke did not claim that the people bestow all liberties on the general will, or that there is a general will at all. Unlike Rousseau and Hobbes, Locke saw only a limited granting of rights to the state. This limitation on state power creates a considerable distance between American and European democracy. Jefferson did not see this difference between the French and American Revolutions. That is one point on which Hamilton and Washington, the Federalists, were right and the Democratic Republicans were wrong. In America, Thomas Paine was exalted. In France, he was imprisoned.
Progressivism is a reassertion of Rousseauean values. The extent of the damage that Progressivism has done has yet to be seen.
Showing posts with label 19th century America. Show all posts
Showing posts with label 19th century America. Show all posts
Tuesday, June 2, 2009
Wednesday, October 15, 2008
David Ames Wells's Recent Economic Changes
David Ames Wells. Recent Economic Changes: And Their Effect on The Production and Distribution of Wealth and The Well-Being of Society. New York: Appleton and Company, 1891. (Original copyrighted in 1889). 493 pages. Out of print.
I was able to obtain a used copy of this book from Amazon.com for a reasonable price but it appears to have been one of the last available at this time. The copy I obtained had been donated to the Cotton Economic Research Library of the University of Texas at Austin in 1969 by Dr. AB Cox. Dr. Cox was a noted marketing professor and was involved in setting New Deal policy concerning cotton. Unfortunately, the copy is so old that several of the pages disintegrated while I was reading them, which is unfortunate.
David Ames Wells, a graduate of Williams College, was editor of the Annual of Scientific Discovery from 1850 to 1866. He was author of books concerning chemistry, geology and natural science. His 1863 Natural Philosophy went through 15 editions. In 1865 Abraham Lincoln appointed him chairman of revenue and in 1866 President Andrew Johnson appointed him special commissioner of the revenue. He started his economics work by supporting high tariffs, but then revised this view in favor of a general laissez-faire philosophy of low tariffs, low taxes, the gold standard and against inflation and free silver. Wells exemplifies the Mugwump movement of post-Civil War America, Republican advocates of efficiency as well as laissez-faire who opposed Republican James Blaine in the 1884 election in favor of Bourbon Democrat Grover Cleveland.
The book is very dull because it seems that readers of that day were not well acquainted with statistical tables. As a result, Wells verbally describes statistics rather than tabulating them. Large sections of the book are devoted to enumeration of various industry data. However, the key ideas are gems.
I suspect that because the book is dull few historians and economists have read it carefully in recent years. However, a careful reading would disabuse many of illusions about the late nineteenth century American economy. In particular, Wells shows that the word "depression" in use at that time referred primarily to profit declines as opposed to shifts in the physical volume of trade. As a result, the widespread claim that the late nineteenth century was characterized by high unemployment is wrong.
This conclusion should not be surprising to any who care to exercise a modicum of common sense because immigration exploded in the post 1873 period, at the very time that the country was supposedly wracked with "depression". Except for the Jews escaping murderous policies in Russia and Poland it is difficult to conjoin the vast immigration with the claims of many historians that the late nineteenth century was a period of poverty and unemployment. A careful reading of Wells shows that this claim is fallacious.
Wells's argument is germane to today as well as to the late nineteenth century. Wells argues that it is primarily anxiety and psychological factors that created labor unrest and a sense of deprivation in the late 19th century. The word "depression" that was used frequently in that period referred to depression of profit rather than of wages or unemployment.
Indeed, workers fared far better between 1860 and 1889 than they have between 1973 and 2008. Real wages were increasing robustly during the former period, but they have declined by nearly 20% since 1971.
Wells starts out by discussing "the unprecedented disturbance and depression of trade, commerce and industry" which began in 1873 and fluctuated through 1889. The fluctuations occurred throughout the civilized world. Wells points out (pp. 4-5) that antecedent to the 1873 depression in England and the US "were enumerated at the time to be 'a rise of prices, great prosperity, large profits, high wages and strikes for higher; large importations, a railway mania, expanded credit, over-trading, over-building and high living.'"
This sounds suspiciously like a monetary inflation brought on by the Civil War greenbacks. However, there were similar bubbles in England and Germany at that time as well. The 1873 depression ended in 1878 or 9 and recommenced in 1882-3. Wells notes that by 1882 (p. 11) there was
"a plethora of capital seeking investment and a low rate of interest; so that the economic disturbance since 1882 has been mainly in the nature of a depression of industry, with a renewed and remarkable decline of prices; with absolutely no decline but rather an increase in the volume of trade and certainly no falling off in production as compared with the figures of 1880 and 1881, which years in the United States and to some extent in other countries were regarded as prosperous."
This raises another question in my mind. If unemployment were high and production low in that period, why were the "robber barons" so eager for combination? Much of the late nineteenth and early twentieth century political debate concerned trusts and business combinations. The Sherman Anti-trust Act was passed in 1884. If business were slow, demand weak and unemployment high, why were firms eager to restrict production? It would seem that production was high but profits low. In that case, can it be possible that unemployment was high, given that production was excessive? How could it be both ways, over-production coupled with high unemployment? It seems to me that much of the discussion about the late nineteenth century economy has been confused by ideology.
Wells traces the transition of iron prices from 1873 to 1880. He notes of 1877 that although there was a decrease in production of pig-iron from 1873 to 1877 of about 1/3 and prices for iron reached an all time low in 1879, by the end of 1879:
"excitement and speculation took the place of the gloom and discouragement with which the American iron-trade had been so familiar scarce one year before, and the business of buying and selling iron became close neighbor to that of gambling in stocks." (p. 13)
But by 1882 there was another reversal due to expanded capacity. In 1885 there was " a meeting of the Bessemer steel rail manufacturers in August 1885, at which meeting a restriction of production for one year to avoid the evils of over-production and ruinous prices was agreed upon. This action was almost immediately followed by beneficial results to the iron-trade...An incident of our industrial history for 1886 was the large number of strikes among workingmen."
All through the 1870s (from 1873 to 1878 or so) there were public discussions about "depression". In 1886 unemployment may have been around one million (p. 18). There was an 1880 population of about 62 million, but Wells doesn't say the size of the work force and I cannot find it on the web. About half the workforce was in agriculture in 1880, and it is likely that many of the unemployed returned to family farms. According to Charles Hirschman and Liz Mogford:
"In 1880 almost half the gainfully employed workers in the United States were engaged in agriculture, and the American industrial economy was on the periphery of the national and world economy. Employing only about one in seven workers, the manufacturing sector in 1880, with few exceptions, consisted of small enterprises."
Hirschman and Mogford point out that in 1880 immigrants were about one third of all workers, and this proportion increased to 40 percent by 1920. The claim that living standards were declining between 1860 and 1913 would seem to require two fantastic assumptions. First, massive numbers of people were coming to America in order to be impoverished. Second, because real hourly wages were increasing, such people would have had to be coming here in order to be paupers.
Wells reports a study of British conditions on p. 19:
"a. That the trade and industry of the country are in a condition which may fairly be described as depressed
b. That by this depression is meant a diminution and in some cases, an absence of profit, with a corresponding diminution of employment for the laboring classes
c. That neither the volume of trade nor the amount of capital invested therein has fallen off, although the latter has in many cases depreciated in value. That the depression above referred to dates from about the year 1875.
Wells argues that a number of potential causes of the "depression" had been noted, to include over-production, excessive competition and many others (p. 20). Despite all the discussion of unemployment and depression, argues Wells (p. 25):
"statistics not only fail to reveal the existence of any great degree of scarcity anywhere, but, on the contrary, prove that those countries in which depression has been and is most severely felt are the very ones in which he desirable commodities of every description--railroads, ships, houses, live-stock, food, clothing, fuel and luxuries, have year by year been accumulating with the greatest rapidity and offered for use or consumption at rates unprecedented for cheapness."
Wells opens the second chapter with a discussion of how the Suez Canal disrupted prior trade patterns and (p. 34):
"revolutionized one of the greatest departments of the world's commerce and business; absolutely destroying an immense amount of what had previously been wealth, and displacing or changing the employment of millions of capital and thousands of men; or, as the London 'Economist' has expressed it 'so altered and so twisted many of the existing modes and channels of business as to create mischief and confusion to an extent sufficient to constitute one great general cause for a universal commercial and industrial depression and disturbance.'"
In other words, technology causes old modes to become obsolete, and this throws people out of work. It would seem that this is partially true. For the twentieth century excelled in a different kind of depression, one where there was no innovation but rather monetary expansion which, when contracted, caused people to be thrown out of work. This may have been at play in the 1873 depression as well.
Wells gives numerous examples of how technology threw maritime and seal fishery workers out of work (pp. 38-9). Likewise, the railroads threw horse carriers out of work (p. 41). Improved transportation compelled "a uniformity of prices" (p. 46) which ended local shortages. 82.2% more pig-iron was produced in 1883 than in 1870 (p. 49), resulting in "an extreme depression of the business". But the cost of railroads was reduced by the depression in steel. In other words, a wealth of production creates a depression.
Wells gives one example after the next of how technology and innovation replaced human labor, resulting in temporary unemployment. But the new high levels of production resulted in new demands for workers as society became wealthier. There were marked increases in production of textiles, coal, copper, agricultural implements, boots, shoes, flour, metals, bottles, jewelry, bank notes, retail, paper sacks, pharmaceuticals, dyes, oils, natural gas, oil, electricity, electric motors and even the Census Bureau:
"On another grade of goods, the facts collected by the agents of the bureau show that one man can now do the work which twenty years ago required ten men."
However, the rapid change in the economy was coupled with strikes and industrial revolts, which led to ever greater substitution of capital for labor:
"And one significant illustration of the quickness with which employers carry out this suggestion is afforded by the well-authenticated fact that the strike among the boot and shoe factories of one county in the State of Massachusetts in the year 1885 resulted in increasing the capacity for production by the same factories during the succeeding year of a fully equal product, with a reduction of at least fifteen hundred operatives..."
Wells argues (p. 68-9):
"All investigators substantially agree that the depression of industry in recent years has been experienced with the greatest severity in those countries where machinery has been most extensively adopted, and least in those countries and in those occupations where hand-labor and hand-products have not been materially interfered with or supplanted...There have, moreover been no displacements of labor, or reduction in the cost of labor or of product, in all those industries in civilised countries where machinery has not been introduced or increased."
In chapter three Wells discusses over-production as a cause of "depression" (p. 74):
"Industrial over-production--manifesting itself in excessive competition to effect sales and a reduction of prices below the cost of production...and there appears to be no other means of avoiding such results than that the great producers should come to some understanding among themselves as to the prices they will ask...Society has practically abandoned--and from the very necessity of the case has got to abandon unless it proposes to war against progress and civilization--the prohibition of industrial concentrations and combinations. The world demands abundance of commodities, and demands them cheaply; and experience shows that it can have them only by the employment of great capital upon the most extensive scale...To the producer, the question of importance is, How can competition be restricted to an extent sufficient to prevent its injurious excesses? To the consumer, How can combination be restricted so as to secure its advantages and at the same time curb its abuses."
Wells notes that many businesses over expanded in good years, resulting in overproduction that caused reduced profit. He quotes a miller (p. 79):
"...our ambition has overreached our discretion and judgment. We have all participated in the general steeple-chase for pre-eminence...As our glory increased our profits became smaller..."
"Overproduction led to increased competition" (p. 80).
But (p. 82):
"One universally recognized and, to some persons, perplexing peculiarity of the recent long-continued depression in trade is the circumstance, that while profits have been so largely reduced that, as the common expression goes, it has not paid to do business," the volume of trade throughout the world has not contracted but, measured by quantities rather than by values, has in many departments notably increased."
The result of the enhanced competition was (p. 84):
"an increase (but not necessarily proportional or even universal) in consumption...There is, therefore, nothing inconsistent or mysterious in the maintenance or increase in the volume of the world's business contemporaneously with a depression of trade--in the sens of a reduction of profits--occasioned by an intense competition to dispose of commodities, which have been produced under comparatively new conditions in excess of a satisfactory remunerative demand in the world's markets. And, apart from this, it is now well understood that the aggregate movement and exchange of goods is little if any less in times of the so-called 'depression of grade' than in times of admitted prosperity. Again, if depression of business does not signify less business, it can only signify less profits...If there is a progressive fall of prices without a corresponding fall of wages, profits must fall progressively, and interest also...Now this is exactly what has happened in recent years. Profits and prices of commodities have fallen, but wages have not fallen, except in a few special departments. Consequently, the purchasing power of wages has risen, and this has given to the wage-earning class a greater command over the necessaries and comforts of life, and the purchases of all this great class have supplemented any forced economizing of the employing and well-to-do classes. 'The latter are the ones who make the most noise in the newspapers, and whose frequent bankruptcies fill the public eye. But they are not those whose consumption of commodities most swells the tonnage of the railways and steamships. They occupy the first-class cabin, and their names are the only ones printed in the passenger lists, but the steerage carries more consumers of wheat, sugar, and pork than all the cabins together."
The enhancement of production through technology required (pp. 92-3) "great corporations or stock companies, which are only forms of associated capital organized for effective use...it must also be admitted that the whole tendency of recent economic development is in the direction of limiting the area within which the influence of competition is effective."
Wells notes the familiar importance of scale that was widely noticed in the 19th century:
"Thus, the now well-ascertained and accepted fact, based on long experience, that power is most economically applied when applied on the largest possible scale, is rapidly and inevitably leading to the concentration of manufacturing in the largest establishments, and the gradual extinction of those that are small...and another quarter of a century will not unlikely see all of the numerous companies that at present make up the vast railroad system of the United States consolidate, for sound economic reasons, under a comparatively few organizations or companies."
Wells emphasizes the importance of economies of scale (pp. 99-109). Thus, heavy investment in technology led, in the 19th century, to the need for greater scale. Wells also believed that machinery would replace low wage work in poorer countries (p. 105). Wells did not believe in the possibility of accurate price indexes (his arguments are not surmounted by the price indexes in use today). He goes through a number of commodities, some of which he is certain have falling prices due to improved technology and some of which offer less clear evidence (p. 126). Of these, I found his discussion of oil most interesting, in part because that was the product of Standard Oil, and Ames says (p. 131) that it is the most interesting commodity. He writes (p. 131):
"...the annual product of crude petroleum in the United States--the chief source of supply--increased from 9,893,786 barrels in 1873 to 28,249,597 in 187. The price of crude oil during this period declined from 9.42 cents to 1.59 cents per gallon and of refined oil from 23.59 cents to 6 3/4 cents per gallon. Thus, from our vantage point, Standard Oil had performed a tremendous service to the American public, for which Mr. Rockefeller was reviled and the firm attacked legally.
Wells adds (p. 132): "It is claimed, and without doubt correctly, to be largely due to the fact that the whole business of refining petroleum in the United States and the distribution of its resulting products has gradually passed, since 1873, into the ownership and control of a combination or 'trust'--the Standard Oil Company--which commanding millions of capital has used it most skillfully in promoting consumption , and in devising and adopting a great number of ingenious methods whereby the cost of production has been reduced to an extent that, at the outset, would not have seemed possible..."
Standard Oil's use of capital , penetration of foreign markets, use of capital, construction of pipelines, creation of knowledge, improvement of inputs.
To take a more modest example (Wells goes through about fifty pages of discussion about various products whose cost was reduced sharply between 1820 and 1889), Wells discusses paper and rags on p. 155. He writes that the substitution of pulp from wood, straw and various gasses for pulp from fibers of cotton and rags (which had been used until the 1860s) that the prices of "fair qualities of book-paper have declined since the year of 1872 to the extent of fully fifty per cent, while in the case of ordinary 'news' the decline has been even greater." Between 1880 and 1888 the capital invested in the paper industry had increased by almost 75%, wages had increased from $1.13 to $1.50 per day and "the average value of a pound of paper declined from 6.09 cents in 1880 to 3.95 cents in 1888. With declining prices and increasing wages and capital investment, small wonder that investors complained about "depression". Note as well that the rising wages in the paper industry were coupled with deflation in prices, so workers were double off twice, once because of increasing wages and once because of decreasing prices. No wonder the economists who work for Wall Street interests, like Ben Bernanke and Alan Greenspan, worry endlessly about "deflation". Imagine what the stock market would look like in the 19th century's democratic economy.
Unlike the large range of products whose prices were reduced due to technology (p. 191), all the products that were the result of handicrafts did not decline in price. Morevoer, the "scarcity of gold" did not seem to affect prices. Thus, Wells did not believe that "free silver" was a solution to deflation. This contrasts with the subsequent Keynesian view that money is the source of productivity and wealth. It would seem that Wells's ideas were more successful in the 19th century than Keynes's were in the 20th.
Wells goes on to argue against the theory that "depression" and "deflation" were due to an insufficient amount of gold. This directly contradicts the concerns of today's economists, who believe that deflation is harmful because it reduces business activity. Under the theory of "everyone is stupid except the economists who work for banks and the Fed", today's economists argue that business stops if there is insufficient liquidity, and then a dose of state compulsion is needed. In contrast to today's crackpot theories, Wells watched a healthy economy characterized by an unparalleled degree of innovation. Wells argues (p. 208) that:
"profts have fallen..due, in almost every case, to the severe competition engendered by the desire to effect sales in face of a continued supply of commodities in excess of any current market demand; whle in contravention of the assumption that the supply of gold in recent years has been inadequate to meet the increased deamnds of the world for coinage, etc., the following facts are in the highest degree pertinent, if not wholly conclusive: No one doubts that the amount of gold in the civilized countries of the world has largely increased in recent years...and at the end of 1885 was nearly four times what it was in 1850"
Wells argues (p. 254) that a trimetallic system based on copper, silver and gold is the best coinage for world trade based on the volumes of trade in each country (the more developed the country, the greater the need for an expensive currency).
Wells goes on to describe the extensive amount of protectionism that existed in the nineteenth century. For example, with respect to Russia (p. 290):
"Russia having sought to close her doors against the produce of other countries, they in turn have curtailed their purchases of Russian products; and the shrinkage in the foreign trade of Russia in recent years, and during a period of peace, has accordingly been almost withou precedent in commercial history."
Neither tariffs nor bounties on production for export turn out to be beneficial, according to Wells (p. 291). Wells comments on the reactionary nature of protectionism (p. 316):
"...a review of all the circumstances connected with the multiplication of restrictions on international commerce, which the majority of civilized nations have united in creating in recent years, fully justifies the British Commission and other European authorities in regarding it as a most influential agency in occasioning almost universal economic disturbance. It has been progress backward--progress in the direction of that sentiment of the middle ages, which held that, as commerce benefited one country only as it injured some other, it was the duty of every country to impose the most harassing restrictions on its commercial intercourse. The evidence, furthermore, is overwhelming that, as civilization grows more complex, and the use and perfection of machinery increases, all obstacles placed in the way of the freest interchange of commodities have an increasingly disastrous effect in deranging and destroying industry everywhere. Or, in other words, increased knowledge respecting the forces of Nature, and a wonderful subordination and use of the same having greatly increased and cheapened the abundance of all useful and desirable things, the majority of the world's legislators and statesmen have seemed to have considered it incumbent upon them to neutralize and defeat the beneficent results of such abundance."
Wells notes that the improvement in technology had made expanding population possible, refuting Malthus. Thus (p. 334):
"All the resources of the population of the United States, as they exiisted in 1840, would have been wholly inadequate to sow or harvest the present average annual corn or wheat crops of the country; and even if these two results had been accomplished, the greater proportion of such a cereal product would have been of no value to the cultivator, and must have rotted on the ground for lack of any means of adequate distribution...(p. 338, my favorite) The consumption of beer has increased from 6.68 gallons per capita in 1878 to 8.26 gallons in 1880, 10.18 gallons in 1883 and 12.48 in 1888..."
Moreover (p. 342):
"The facts in regard to the general increase in the deposits of savings-banks and the decrease in pauperism, are also entitled to the highest consideration in this discussion. In the United States the aggregate deposits in such banks were probably about ($1.5 billion) in 1888 as compared with ($759 million) in 1873--'74; an increase of nearly one hundred per cent in fourteen years..."
Despite massive increases in real wages and standards of living during the late nineteenth century labor was filled with discontent in the late nineteenth century because the displacement of labor through machinery was psychologically jarring and because "changes in the character or nature of employments consequent upon the introduction of new methods--machinery or processes--which in turn have tended to lower the grade of labor and impair the independence and restrict the mental development of the laborer" and also "the increase in intelligence or general information on teh part of the masses" (p. 364-5).
Wells points out (p. 366):
"That such phases of human suffering are now, always have been and undoubtedly always will be the inevitable concomitants of the progress of civilization or the transitions of the life of society to a higher and better stage...That it is not within the power of statute enactment to arrest such transitions, even when a large and immediate amount of human suffering can certainly be predicated as tehir consequent except so far as it initiates and favors a return of society toward barbarism...the utlimate result is always an almost immeasurable degree of increased good...Society proffers its highest honors and rewards to its inventors and discoverers; but, as a matter of fact, what each inventor or discovereris unconsciously trying to do is to destroy property, and his measure of success and reward is always proportioned to the degree to which he effects such destruction..."
Returns to capital fall with innovation but returns to labor increase with innovation (p. 370) "law" attributed to Bastiat.
This is an interesting claim, because in the last 35 years or so returns to capital have risen while returns to labor have been reduced. Presumably, this is attendant upon a reduction in innovation as firms have found it more convenient to relocate and seek lower labor costs than to innovate.
In the nineteenth century, despite complaints of depression in 1873, 1882 and in the 1890s, notes Wells, depression DID NOT mean unemployment. That is a common error that many historians and economists make. DEPRESSION DID NOT MEAN UNEMPLOYMENT IN THE LATE NINETEENTH CENTURY. IT MEANT DEPRESSION OF PROFITS.
Thus, Wells writes (pp. 373-4):
the number of persons who ahve been displaced during recent years by new and more effective methods of production and distribution and have thereby been deprived of occupation and have suffered, does not appear to have been so great as is popularly supposed; a conclusion that finds support in the fact that, notwithstanding trade generally throughout the world has been notably depressed since 1873, through a continued decline in prices, reduction of profits and depreciation of property, the volume of trade--or the number of things produced, moved, sold and consumed--on which the majority of those who are the recipients of wages and salaries depend for occupation, has all this time continually increased, and in the aggregate has probably been little if any less than it would have been if the times ahd been considered prosperous. In the United States there is little evidence thus far that labor has been disturbed or depressed to any great extent from this cause. But there is undoubtedly a feeling of apprehension among the masses that the opportunities for employment through various causes--continued large immigration, absorption of the public lands, as well as machinery improvements--are less favorable than formerly, and tend to be still further restricted; and this apprehension finds expression in opposition to Chinese immigration, to the importation of foreign labor on contract, to the increase in the number of apprentices, and in the endeavor to restrict the participation of various employments to membership of certain societies...The annual investigation by the managers of 'Bradstreet's Journal' into the condition of the industries of the country for 1887, indicated that in March of that year 400,000 more industrial employes were at work than in 1885..."
and (p. 379):
"Wages, speaking generally, have not fallen but have increased; and, except in Germany, there is little indication of a tendency to increase the hours of labor or encroach upon the reservation of Sunday...The extent and rapidity of the increase in consumption of all useful and desirable commodities and services which follows every increase in the ability of the masses to consume, is one of the most wonderful of modern economic phenonmena; and the one thing which, more than any other, augments their ability to consume, is the reduction in the price of commodities, or rather the reduction in the amount of human effort or toil requisite to obtain them, which the recent improvements in the work of production and distribution have effected. Better living, contingent on a reduction of effort necessary to insure a comfortable subsistence, induces familiarity with better things; constitutes the surest foundation for he elevation of the standard of popular intelligence and culture, and creates an increasing desire for services. "
Wells notes the tendency of labor to transmute from manufacturing to services or what he calls "incorporeal functions--that is, as artists, teachers and others who minister to taste and comfort in a way that can hardly be called material--to increase disporportionately to those engaged in the production of the great staples; and that, therefore, the production of these latter is not likely to increase as rapidly as heretofore."
Wells concludeds his chapter on labor by noting (p. 394):
"All this evidence, therfore, seems to lead to the conclusion that there is little foundation for the belief largely entertained by the amsses and which has been inculcateed by many sincere and humane persons, who have undertaken to counsel and direct them, that the amount of remunerative work to be done in the world is a fixed quantity and that the fewer there are to do it the more each one will get; when the real truth is that work as it were breeds work; that the amount to be done is not limited; that tthe more there is done the more there will be to do; and that the continued increasing material abundance which follows all new methods for effecting greater production and distribution is the true and permanent foundation for increasing general prosperity."
Wells notes (p.396) that "subordination to routine and method is an essential element in all systematized occupations" and that much of worker discontent flowed from restriction of independence attendant upon industrialization. He argues that most occupations are not so routinized as the manufacture of boots and shoes (p. 397-8). He also argues that greater scale leads to greater corporate social responsibility (p. 399):
"Experience also shows that the larger the scale on which he capitalistic production and distribution is carried on, 'the less it can countenance the petty devices for swindling and pilfering,' and the neglect and disregard of the health, safety and comfort of operatives, which so generally characterize industrial enterprises on a small scale; or, in other words, the maintenance of a high standard of industrial and commercial morality is coming to be recognized by the managers of all great enterprises as a means of saving time and avoiding trouble, and therefore as an undoubted and important element of profit. And it is to these facts--the natural and necessary growth of what has been termed the 'capitalistic system'--that a recent English writer on the condition of the working classes largely attributes the suppresssion of the truck (store) system, the enactment of laws limiting the hours of labor, the acquiescence in the existence and power of trade-unions, and the incerasing attention to sanitary regulations; reforms that have reformed away the worst features of the condition of labor as it existed thirty or forty years ago in Great Britain. The larger the concern, the greater usually the steadiness of employment and the more influential the public opinion of the employed."
Wells argues (p. 404):
"There is, therefore, unquestionably in these facts an explanation in no small part of what to many has seemed one of the greatest puzzles of the time--namely, that with undoubtedly greater and increasing abundance and chepanes of most desirable things, popular discontent with the existing economic condition of affairs does not seem to diminish, but rather to greatly increase. And out of such discontent, which is not based on anything akin to actual and unavoidable poverty, has originated a feeling that the new conditions of abundance should be further equalized by some other methods than intelligent individual effort, self-denial and a natural, progressive material and social development (the actuality of which is proved by all experience); and that the state could, if it would, make all men prosperous; and therefore should, in some way not yet clearly defined by anybody, arbitrarily intervene and effect it. And this feeling so far as it assumes definitenss of idea and purpose, consitutes what is called socialism."
From 1860 to 1885 purchasing power increased 26.44% per dollar (i.e., there was 26.44% deflation). In discussing the deflation of the late nineteenth century, Wells observes:
"Why is it that wages of manual labor have been constantly rising in recent yers, while all other prices have been concurrently falling? or, to put it differently, why is it that over-production, while cheapening the product, should not also cheapen the work that produces it? The answer is, that the price of the products of labor is not governed by the price of labor, or wages, but that wages, or earnings, are results of production, and not conditions precedent. Wages, as a rule, are paid out of product. If production is small, no employer can afford to pay high wages; but if, on the contrary it is large, and measured in terms of labor is of low cost--which conditions are eminently characteristic of the modern methods of production--the employer is not only enable to pay high wages but will, in fact be obliged to do so in order to obtain what is really the cheapest (in the sense of the most efficient) labor. The world has not yet come to recognize it, but it is nevertheless an economic axiom that the invariable concomitant of high wages and the skilled use of machinery is a low cost of production and a large consumption."
But (p. 418):
"while the remuneration of labor has enormously increased during recent years, the return to capital has not been in any way proportionate, and is apparently growing smaller and smaller. For this economic phenomenon there can be but one general explanation; and that is, that regarding labor and capital as commodities, or better, as instrumentalities employed in the work of production and distribution, capital has become relatively more abundant than labor, and has accumulated faster than it can be profitably invested...
(p. 420)"Again, as capital increases and competition between its owners for its profitable investment becomes more intense, and as modern methods can bring all the unemployed capital of the world within a few hours of the world's great centers for financial supply, the rate of profit, or interest to be obtained by the investor or lender, from this cause, also necessarily tends to shrink toward a minimum. Such a minimum will be reached when the returns for the use of capital become insufficient to induce individuals to save it"
Thus, through a process of creative destruction, capital continually reduces its own returns.
This process was aborted through institution of the Federal Reserve Bank in 1913.
I was able to obtain a used copy of this book from Amazon.com for a reasonable price but it appears to have been one of the last available at this time. The copy I obtained had been donated to the Cotton Economic Research Library of the University of Texas at Austin in 1969 by Dr. AB Cox. Dr. Cox was a noted marketing professor and was involved in setting New Deal policy concerning cotton. Unfortunately, the copy is so old that several of the pages disintegrated while I was reading them, which is unfortunate.
David Ames Wells, a graduate of Williams College, was editor of the Annual of Scientific Discovery from 1850 to 1866. He was author of books concerning chemistry, geology and natural science. His 1863 Natural Philosophy went through 15 editions. In 1865 Abraham Lincoln appointed him chairman of revenue and in 1866 President Andrew Johnson appointed him special commissioner of the revenue. He started his economics work by supporting high tariffs, but then revised this view in favor of a general laissez-faire philosophy of low tariffs, low taxes, the gold standard and against inflation and free silver. Wells exemplifies the Mugwump movement of post-Civil War America, Republican advocates of efficiency as well as laissez-faire who opposed Republican James Blaine in the 1884 election in favor of Bourbon Democrat Grover Cleveland.
The book is very dull because it seems that readers of that day were not well acquainted with statistical tables. As a result, Wells verbally describes statistics rather than tabulating them. Large sections of the book are devoted to enumeration of various industry data. However, the key ideas are gems.
I suspect that because the book is dull few historians and economists have read it carefully in recent years. However, a careful reading would disabuse many of illusions about the late nineteenth century American economy. In particular, Wells shows that the word "depression" in use at that time referred primarily to profit declines as opposed to shifts in the physical volume of trade. As a result, the widespread claim that the late nineteenth century was characterized by high unemployment is wrong.
This conclusion should not be surprising to any who care to exercise a modicum of common sense because immigration exploded in the post 1873 period, at the very time that the country was supposedly wracked with "depression". Except for the Jews escaping murderous policies in Russia and Poland it is difficult to conjoin the vast immigration with the claims of many historians that the late nineteenth century was a period of poverty and unemployment. A careful reading of Wells shows that this claim is fallacious.
Wells's argument is germane to today as well as to the late nineteenth century. Wells argues that it is primarily anxiety and psychological factors that created labor unrest and a sense of deprivation in the late 19th century. The word "depression" that was used frequently in that period referred to depression of profit rather than of wages or unemployment.
Indeed, workers fared far better between 1860 and 1889 than they have between 1973 and 2008. Real wages were increasing robustly during the former period, but they have declined by nearly 20% since 1971.
Wells starts out by discussing "the unprecedented disturbance and depression of trade, commerce and industry" which began in 1873 and fluctuated through 1889. The fluctuations occurred throughout the civilized world. Wells points out (pp. 4-5) that antecedent to the 1873 depression in England and the US "were enumerated at the time to be 'a rise of prices, great prosperity, large profits, high wages and strikes for higher; large importations, a railway mania, expanded credit, over-trading, over-building and high living.'"
This sounds suspiciously like a monetary inflation brought on by the Civil War greenbacks. However, there were similar bubbles in England and Germany at that time as well. The 1873 depression ended in 1878 or 9 and recommenced in 1882-3. Wells notes that by 1882 (p. 11) there was
"a plethora of capital seeking investment and a low rate of interest; so that the economic disturbance since 1882 has been mainly in the nature of a depression of industry, with a renewed and remarkable decline of prices; with absolutely no decline but rather an increase in the volume of trade and certainly no falling off in production as compared with the figures of 1880 and 1881, which years in the United States and to some extent in other countries were regarded as prosperous."
This raises another question in my mind. If unemployment were high and production low in that period, why were the "robber barons" so eager for combination? Much of the late nineteenth and early twentieth century political debate concerned trusts and business combinations. The Sherman Anti-trust Act was passed in 1884. If business were slow, demand weak and unemployment high, why were firms eager to restrict production? It would seem that production was high but profits low. In that case, can it be possible that unemployment was high, given that production was excessive? How could it be both ways, over-production coupled with high unemployment? It seems to me that much of the discussion about the late nineteenth century economy has been confused by ideology.
Wells traces the transition of iron prices from 1873 to 1880. He notes of 1877 that although there was a decrease in production of pig-iron from 1873 to 1877 of about 1/3 and prices for iron reached an all time low in 1879, by the end of 1879:
"excitement and speculation took the place of the gloom and discouragement with which the American iron-trade had been so familiar scarce one year before, and the business of buying and selling iron became close neighbor to that of gambling in stocks." (p. 13)
But by 1882 there was another reversal due to expanded capacity. In 1885 there was " a meeting of the Bessemer steel rail manufacturers in August 1885, at which meeting a restriction of production for one year to avoid the evils of over-production and ruinous prices was agreed upon. This action was almost immediately followed by beneficial results to the iron-trade...An incident of our industrial history for 1886 was the large number of strikes among workingmen."
All through the 1870s (from 1873 to 1878 or so) there were public discussions about "depression". In 1886 unemployment may have been around one million (p. 18). There was an 1880 population of about 62 million, but Wells doesn't say the size of the work force and I cannot find it on the web. About half the workforce was in agriculture in 1880, and it is likely that many of the unemployed returned to family farms. According to Charles Hirschman and Liz Mogford:
"In 1880 almost half the gainfully employed workers in the United States were engaged in agriculture, and the American industrial economy was on the periphery of the national and world economy. Employing only about one in seven workers, the manufacturing sector in 1880, with few exceptions, consisted of small enterprises."
Hirschman and Mogford point out that in 1880 immigrants were about one third of all workers, and this proportion increased to 40 percent by 1920. The claim that living standards were declining between 1860 and 1913 would seem to require two fantastic assumptions. First, massive numbers of people were coming to America in order to be impoverished. Second, because real hourly wages were increasing, such people would have had to be coming here in order to be paupers.
Wells reports a study of British conditions on p. 19:
"a. That the trade and industry of the country are in a condition which may fairly be described as depressed
b. That by this depression is meant a diminution and in some cases, an absence of profit, with a corresponding diminution of employment for the laboring classes
c. That neither the volume of trade nor the amount of capital invested therein has fallen off, although the latter has in many cases depreciated in value. That the depression above referred to dates from about the year 1875.
Wells argues that a number of potential causes of the "depression" had been noted, to include over-production, excessive competition and many others (p. 20). Despite all the discussion of unemployment and depression, argues Wells (p. 25):
"statistics not only fail to reveal the existence of any great degree of scarcity anywhere, but, on the contrary, prove that those countries in which depression has been and is most severely felt are the very ones in which he desirable commodities of every description--railroads, ships, houses, live-stock, food, clothing, fuel and luxuries, have year by year been accumulating with the greatest rapidity and offered for use or consumption at rates unprecedented for cheapness."
Wells opens the second chapter with a discussion of how the Suez Canal disrupted prior trade patterns and (p. 34):
"revolutionized one of the greatest departments of the world's commerce and business; absolutely destroying an immense amount of what had previously been wealth, and displacing or changing the employment of millions of capital and thousands of men; or, as the London 'Economist' has expressed it 'so altered and so twisted many of the existing modes and channels of business as to create mischief and confusion to an extent sufficient to constitute one great general cause for a universal commercial and industrial depression and disturbance.'"
In other words, technology causes old modes to become obsolete, and this throws people out of work. It would seem that this is partially true. For the twentieth century excelled in a different kind of depression, one where there was no innovation but rather monetary expansion which, when contracted, caused people to be thrown out of work. This may have been at play in the 1873 depression as well.
Wells gives numerous examples of how technology threw maritime and seal fishery workers out of work (pp. 38-9). Likewise, the railroads threw horse carriers out of work (p. 41). Improved transportation compelled "a uniformity of prices" (p. 46) which ended local shortages. 82.2% more pig-iron was produced in 1883 than in 1870 (p. 49), resulting in "an extreme depression of the business". But the cost of railroads was reduced by the depression in steel. In other words, a wealth of production creates a depression.
Wells gives one example after the next of how technology and innovation replaced human labor, resulting in temporary unemployment. But the new high levels of production resulted in new demands for workers as society became wealthier. There were marked increases in production of textiles, coal, copper, agricultural implements, boots, shoes, flour, metals, bottles, jewelry, bank notes, retail, paper sacks, pharmaceuticals, dyes, oils, natural gas, oil, electricity, electric motors and even the Census Bureau:
"On another grade of goods, the facts collected by the agents of the bureau show that one man can now do the work which twenty years ago required ten men."
However, the rapid change in the economy was coupled with strikes and industrial revolts, which led to ever greater substitution of capital for labor:
"And one significant illustration of the quickness with which employers carry out this suggestion is afforded by the well-authenticated fact that the strike among the boot and shoe factories of one county in the State of Massachusetts in the year 1885 resulted in increasing the capacity for production by the same factories during the succeeding year of a fully equal product, with a reduction of at least fifteen hundred operatives..."
Wells argues (p. 68-9):
"All investigators substantially agree that the depression of industry in recent years has been experienced with the greatest severity in those countries where machinery has been most extensively adopted, and least in those countries and in those occupations where hand-labor and hand-products have not been materially interfered with or supplanted...There have, moreover been no displacements of labor, or reduction in the cost of labor or of product, in all those industries in civilised countries where machinery has not been introduced or increased."
In chapter three Wells discusses over-production as a cause of "depression" (p. 74):
"Industrial over-production--manifesting itself in excessive competition to effect sales and a reduction of prices below the cost of production...and there appears to be no other means of avoiding such results than that the great producers should come to some understanding among themselves as to the prices they will ask...Society has practically abandoned--and from the very necessity of the case has got to abandon unless it proposes to war against progress and civilization--the prohibition of industrial concentrations and combinations. The world demands abundance of commodities, and demands them cheaply; and experience shows that it can have them only by the employment of great capital upon the most extensive scale...To the producer, the question of importance is, How can competition be restricted to an extent sufficient to prevent its injurious excesses? To the consumer, How can combination be restricted so as to secure its advantages and at the same time curb its abuses."
Wells notes that many businesses over expanded in good years, resulting in overproduction that caused reduced profit. He quotes a miller (p. 79):
"...our ambition has overreached our discretion and judgment. We have all participated in the general steeple-chase for pre-eminence...As our glory increased our profits became smaller..."
"Overproduction led to increased competition" (p. 80).
But (p. 82):
"One universally recognized and, to some persons, perplexing peculiarity of the recent long-continued depression in trade is the circumstance, that while profits have been so largely reduced that, as the common expression goes, it has not paid to do business," the volume of trade throughout the world has not contracted but, measured by quantities rather than by values, has in many departments notably increased."
The result of the enhanced competition was (p. 84):
"an increase (but not necessarily proportional or even universal) in consumption...There is, therefore, nothing inconsistent or mysterious in the maintenance or increase in the volume of the world's business contemporaneously with a depression of trade--in the sens of a reduction of profits--occasioned by an intense competition to dispose of commodities, which have been produced under comparatively new conditions in excess of a satisfactory remunerative demand in the world's markets. And, apart from this, it is now well understood that the aggregate movement and exchange of goods is little if any less in times of the so-called 'depression of grade' than in times of admitted prosperity. Again, if depression of business does not signify less business, it can only signify less profits...If there is a progressive fall of prices without a corresponding fall of wages, profits must fall progressively, and interest also...Now this is exactly what has happened in recent years. Profits and prices of commodities have fallen, but wages have not fallen, except in a few special departments. Consequently, the purchasing power of wages has risen, and this has given to the wage-earning class a greater command over the necessaries and comforts of life, and the purchases of all this great class have supplemented any forced economizing of the employing and well-to-do classes. 'The latter are the ones who make the most noise in the newspapers, and whose frequent bankruptcies fill the public eye. But they are not those whose consumption of commodities most swells the tonnage of the railways and steamships. They occupy the first-class cabin, and their names are the only ones printed in the passenger lists, but the steerage carries more consumers of wheat, sugar, and pork than all the cabins together."
The enhancement of production through technology required (pp. 92-3) "great corporations or stock companies, which are only forms of associated capital organized for effective use...it must also be admitted that the whole tendency of recent economic development is in the direction of limiting the area within which the influence of competition is effective."
Wells notes the familiar importance of scale that was widely noticed in the 19th century:
"Thus, the now well-ascertained and accepted fact, based on long experience, that power is most economically applied when applied on the largest possible scale, is rapidly and inevitably leading to the concentration of manufacturing in the largest establishments, and the gradual extinction of those that are small...and another quarter of a century will not unlikely see all of the numerous companies that at present make up the vast railroad system of the United States consolidate, for sound economic reasons, under a comparatively few organizations or companies."
Wells emphasizes the importance of economies of scale (pp. 99-109). Thus, heavy investment in technology led, in the 19th century, to the need for greater scale. Wells also believed that machinery would replace low wage work in poorer countries (p. 105). Wells did not believe in the possibility of accurate price indexes (his arguments are not surmounted by the price indexes in use today). He goes through a number of commodities, some of which he is certain have falling prices due to improved technology and some of which offer less clear evidence (p. 126). Of these, I found his discussion of oil most interesting, in part because that was the product of Standard Oil, and Ames says (p. 131) that it is the most interesting commodity. He writes (p. 131):
"...the annual product of crude petroleum in the United States--the chief source of supply--increased from 9,893,786 barrels in 1873 to 28,249,597 in 187. The price of crude oil during this period declined from 9.42 cents to 1.59 cents per gallon and of refined oil from 23.59 cents to 6 3/4 cents per gallon. Thus, from our vantage point, Standard Oil had performed a tremendous service to the American public, for which Mr. Rockefeller was reviled and the firm attacked legally.
Wells adds (p. 132): "It is claimed, and without doubt correctly, to be largely due to the fact that the whole business of refining petroleum in the United States and the distribution of its resulting products has gradually passed, since 1873, into the ownership and control of a combination or 'trust'--the Standard Oil Company--which commanding millions of capital has used it most skillfully in promoting consumption , and in devising and adopting a great number of ingenious methods whereby the cost of production has been reduced to an extent that, at the outset, would not have seemed possible..."
Standard Oil's use of capital , penetration of foreign markets, use of capital, construction of pipelines, creation of knowledge, improvement of inputs.
To take a more modest example (Wells goes through about fifty pages of discussion about various products whose cost was reduced sharply between 1820 and 1889), Wells discusses paper and rags on p. 155. He writes that the substitution of pulp from wood, straw and various gasses for pulp from fibers of cotton and rags (which had been used until the 1860s) that the prices of "fair qualities of book-paper have declined since the year of 1872 to the extent of fully fifty per cent, while in the case of ordinary 'news' the decline has been even greater." Between 1880 and 1888 the capital invested in the paper industry had increased by almost 75%, wages had increased from $1.13 to $1.50 per day and "the average value of a pound of paper declined from 6.09 cents in 1880 to 3.95 cents in 1888. With declining prices and increasing wages and capital investment, small wonder that investors complained about "depression". Note as well that the rising wages in the paper industry were coupled with deflation in prices, so workers were double off twice, once because of increasing wages and once because of decreasing prices. No wonder the economists who work for Wall Street interests, like Ben Bernanke and Alan Greenspan, worry endlessly about "deflation". Imagine what the stock market would look like in the 19th century's democratic economy.
Unlike the large range of products whose prices were reduced due to technology (p. 191), all the products that were the result of handicrafts did not decline in price. Morevoer, the "scarcity of gold" did not seem to affect prices. Thus, Wells did not believe that "free silver" was a solution to deflation. This contrasts with the subsequent Keynesian view that money is the source of productivity and wealth. It would seem that Wells's ideas were more successful in the 19th century than Keynes's were in the 20th.
Wells goes on to argue against the theory that "depression" and "deflation" were due to an insufficient amount of gold. This directly contradicts the concerns of today's economists, who believe that deflation is harmful because it reduces business activity. Under the theory of "everyone is stupid except the economists who work for banks and the Fed", today's economists argue that business stops if there is insufficient liquidity, and then a dose of state compulsion is needed. In contrast to today's crackpot theories, Wells watched a healthy economy characterized by an unparalleled degree of innovation. Wells argues (p. 208) that:
"profts have fallen..due, in almost every case, to the severe competition engendered by the desire to effect sales in face of a continued supply of commodities in excess of any current market demand; whle in contravention of the assumption that the supply of gold in recent years has been inadequate to meet the increased deamnds of the world for coinage, etc., the following facts are in the highest degree pertinent, if not wholly conclusive: No one doubts that the amount of gold in the civilized countries of the world has largely increased in recent years...and at the end of 1885 was nearly four times what it was in 1850"
Wells argues (p. 254) that a trimetallic system based on copper, silver and gold is the best coinage for world trade based on the volumes of trade in each country (the more developed the country, the greater the need for an expensive currency).
Wells goes on to describe the extensive amount of protectionism that existed in the nineteenth century. For example, with respect to Russia (p. 290):
"Russia having sought to close her doors against the produce of other countries, they in turn have curtailed their purchases of Russian products; and the shrinkage in the foreign trade of Russia in recent years, and during a period of peace, has accordingly been almost withou precedent in commercial history."
Neither tariffs nor bounties on production for export turn out to be beneficial, according to Wells (p. 291). Wells comments on the reactionary nature of protectionism (p. 316):
"...a review of all the circumstances connected with the multiplication of restrictions on international commerce, which the majority of civilized nations have united in creating in recent years, fully justifies the British Commission and other European authorities in regarding it as a most influential agency in occasioning almost universal economic disturbance. It has been progress backward--progress in the direction of that sentiment of the middle ages, which held that, as commerce benefited one country only as it injured some other, it was the duty of every country to impose the most harassing restrictions on its commercial intercourse. The evidence, furthermore, is overwhelming that, as civilization grows more complex, and the use and perfection of machinery increases, all obstacles placed in the way of the freest interchange of commodities have an increasingly disastrous effect in deranging and destroying industry everywhere. Or, in other words, increased knowledge respecting the forces of Nature, and a wonderful subordination and use of the same having greatly increased and cheapened the abundance of all useful and desirable things, the majority of the world's legislators and statesmen have seemed to have considered it incumbent upon them to neutralize and defeat the beneficent results of such abundance."
Wells notes that the improvement in technology had made expanding population possible, refuting Malthus. Thus (p. 334):
"All the resources of the population of the United States, as they exiisted in 1840, would have been wholly inadequate to sow or harvest the present average annual corn or wheat crops of the country; and even if these two results had been accomplished, the greater proportion of such a cereal product would have been of no value to the cultivator, and must have rotted on the ground for lack of any means of adequate distribution...(p. 338, my favorite) The consumption of beer has increased from 6.68 gallons per capita in 1878 to 8.26 gallons in 1880, 10.18 gallons in 1883 and 12.48 in 1888..."
Moreover (p. 342):
"The facts in regard to the general increase in the deposits of savings-banks and the decrease in pauperism, are also entitled to the highest consideration in this discussion. In the United States the aggregate deposits in such banks were probably about ($1.5 billion) in 1888 as compared with ($759 million) in 1873--'74; an increase of nearly one hundred per cent in fourteen years..."
Despite massive increases in real wages and standards of living during the late nineteenth century labor was filled with discontent in the late nineteenth century because the displacement of labor through machinery was psychologically jarring and because "changes in the character or nature of employments consequent upon the introduction of new methods--machinery or processes--which in turn have tended to lower the grade of labor and impair the independence and restrict the mental development of the laborer" and also "the increase in intelligence or general information on teh part of the masses" (p. 364-5).
Wells points out (p. 366):
"That such phases of human suffering are now, always have been and undoubtedly always will be the inevitable concomitants of the progress of civilization or the transitions of the life of society to a higher and better stage...That it is not within the power of statute enactment to arrest such transitions, even when a large and immediate amount of human suffering can certainly be predicated as tehir consequent except so far as it initiates and favors a return of society toward barbarism...the utlimate result is always an almost immeasurable degree of increased good...Society proffers its highest honors and rewards to its inventors and discoverers; but, as a matter of fact, what each inventor or discovereris unconsciously trying to do is to destroy property, and his measure of success and reward is always proportioned to the degree to which he effects such destruction..."
Returns to capital fall with innovation but returns to labor increase with innovation (p. 370) "law" attributed to Bastiat.
This is an interesting claim, because in the last 35 years or so returns to capital have risen while returns to labor have been reduced. Presumably, this is attendant upon a reduction in innovation as firms have found it more convenient to relocate and seek lower labor costs than to innovate.
In the nineteenth century, despite complaints of depression in 1873, 1882 and in the 1890s, notes Wells, depression DID NOT mean unemployment. That is a common error that many historians and economists make. DEPRESSION DID NOT MEAN UNEMPLOYMENT IN THE LATE NINETEENTH CENTURY. IT MEANT DEPRESSION OF PROFITS.
Thus, Wells writes (pp. 373-4):
the number of persons who ahve been displaced during recent years by new and more effective methods of production and distribution and have thereby been deprived of occupation and have suffered, does not appear to have been so great as is popularly supposed; a conclusion that finds support in the fact that, notwithstanding trade generally throughout the world has been notably depressed since 1873, through a continued decline in prices, reduction of profits and depreciation of property, the volume of trade--or the number of things produced, moved, sold and consumed--on which the majority of those who are the recipients of wages and salaries depend for occupation, has all this time continually increased, and in the aggregate has probably been little if any less than it would have been if the times ahd been considered prosperous. In the United States there is little evidence thus far that labor has been disturbed or depressed to any great extent from this cause. But there is undoubtedly a feeling of apprehension among the masses that the opportunities for employment through various causes--continued large immigration, absorption of the public lands, as well as machinery improvements--are less favorable than formerly, and tend to be still further restricted; and this apprehension finds expression in opposition to Chinese immigration, to the importation of foreign labor on contract, to the increase in the number of apprentices, and in the endeavor to restrict the participation of various employments to membership of certain societies...The annual investigation by the managers of 'Bradstreet's Journal' into the condition of the industries of the country for 1887, indicated that in March of that year 400,000 more industrial employes were at work than in 1885..."
and (p. 379):
"Wages, speaking generally, have not fallen but have increased; and, except in Germany, there is little indication of a tendency to increase the hours of labor or encroach upon the reservation of Sunday...The extent and rapidity of the increase in consumption of all useful and desirable commodities and services which follows every increase in the ability of the masses to consume, is one of the most wonderful of modern economic phenonmena; and the one thing which, more than any other, augments their ability to consume, is the reduction in the price of commodities, or rather the reduction in the amount of human effort or toil requisite to obtain them, which the recent improvements in the work of production and distribution have effected. Better living, contingent on a reduction of effort necessary to insure a comfortable subsistence, induces familiarity with better things; constitutes the surest foundation for he elevation of the standard of popular intelligence and culture, and creates an increasing desire for services. "
Wells notes the tendency of labor to transmute from manufacturing to services or what he calls "incorporeal functions--that is, as artists, teachers and others who minister to taste and comfort in a way that can hardly be called material--to increase disporportionately to those engaged in the production of the great staples; and that, therefore, the production of these latter is not likely to increase as rapidly as heretofore."
Wells concludeds his chapter on labor by noting (p. 394):
"All this evidence, therfore, seems to lead to the conclusion that there is little foundation for the belief largely entertained by the amsses and which has been inculcateed by many sincere and humane persons, who have undertaken to counsel and direct them, that the amount of remunerative work to be done in the world is a fixed quantity and that the fewer there are to do it the more each one will get; when the real truth is that work as it were breeds work; that the amount to be done is not limited; that tthe more there is done the more there will be to do; and that the continued increasing material abundance which follows all new methods for effecting greater production and distribution is the true and permanent foundation for increasing general prosperity."
Wells notes (p.396) that "subordination to routine and method is an essential element in all systematized occupations" and that much of worker discontent flowed from restriction of independence attendant upon industrialization. He argues that most occupations are not so routinized as the manufacture of boots and shoes (p. 397-8). He also argues that greater scale leads to greater corporate social responsibility (p. 399):
"Experience also shows that the larger the scale on which he capitalistic production and distribution is carried on, 'the less it can countenance the petty devices for swindling and pilfering,' and the neglect and disregard of the health, safety and comfort of operatives, which so generally characterize industrial enterprises on a small scale; or, in other words, the maintenance of a high standard of industrial and commercial morality is coming to be recognized by the managers of all great enterprises as a means of saving time and avoiding trouble, and therefore as an undoubted and important element of profit. And it is to these facts--the natural and necessary growth of what has been termed the 'capitalistic system'--that a recent English writer on the condition of the working classes largely attributes the suppresssion of the truck (store) system, the enactment of laws limiting the hours of labor, the acquiescence in the existence and power of trade-unions, and the incerasing attention to sanitary regulations; reforms that have reformed away the worst features of the condition of labor as it existed thirty or forty years ago in Great Britain. The larger the concern, the greater usually the steadiness of employment and the more influential the public opinion of the employed."
Wells argues (p. 404):
"There is, therefore, unquestionably in these facts an explanation in no small part of what to many has seemed one of the greatest puzzles of the time--namely, that with undoubtedly greater and increasing abundance and chepanes of most desirable things, popular discontent with the existing economic condition of affairs does not seem to diminish, but rather to greatly increase. And out of such discontent, which is not based on anything akin to actual and unavoidable poverty, has originated a feeling that the new conditions of abundance should be further equalized by some other methods than intelligent individual effort, self-denial and a natural, progressive material and social development (the actuality of which is proved by all experience); and that the state could, if it would, make all men prosperous; and therefore should, in some way not yet clearly defined by anybody, arbitrarily intervene and effect it. And this feeling so far as it assumes definitenss of idea and purpose, consitutes what is called socialism."
From 1860 to 1885 purchasing power increased 26.44% per dollar (i.e., there was 26.44% deflation). In discussing the deflation of the late nineteenth century, Wells observes:
"Why is it that wages of manual labor have been constantly rising in recent yers, while all other prices have been concurrently falling? or, to put it differently, why is it that over-production, while cheapening the product, should not also cheapen the work that produces it? The answer is, that the price of the products of labor is not governed by the price of labor, or wages, but that wages, or earnings, are results of production, and not conditions precedent. Wages, as a rule, are paid out of product. If production is small, no employer can afford to pay high wages; but if, on the contrary it is large, and measured in terms of labor is of low cost--which conditions are eminently characteristic of the modern methods of production--the employer is not only enable to pay high wages but will, in fact be obliged to do so in order to obtain what is really the cheapest (in the sense of the most efficient) labor. The world has not yet come to recognize it, but it is nevertheless an economic axiom that the invariable concomitant of high wages and the skilled use of machinery is a low cost of production and a large consumption."
But (p. 418):
"while the remuneration of labor has enormously increased during recent years, the return to capital has not been in any way proportionate, and is apparently growing smaller and smaller. For this economic phenomenon there can be but one general explanation; and that is, that regarding labor and capital as commodities, or better, as instrumentalities employed in the work of production and distribution, capital has become relatively more abundant than labor, and has accumulated faster than it can be profitably invested...
(p. 420)"Again, as capital increases and competition between its owners for its profitable investment becomes more intense, and as modern methods can bring all the unemployed capital of the world within a few hours of the world's great centers for financial supply, the rate of profit, or interest to be obtained by the investor or lender, from this cause, also necessarily tends to shrink toward a minimum. Such a minimum will be reached when the returns for the use of capital become insufficient to induce individuals to save it"
Thus, through a process of creative destruction, capital continually reduces its own returns.
This process was aborted through institution of the Federal Reserve Bank in 1913.
Monday, May 26, 2008
The Search for Order
Robert H. Wiebe. The Search for Order 1877-1920. New York: Hill and Wang, 1967. 333 pages. (Newer edition available from Amazon.com for $12.60, used from $3.00).
Perhaps the most scintillating paragraph in Robert Wiebe's Search for Order is on pages 279-80. Inadvertently, Wiebe suggests a rationale for Franklin D. Roosevelt's New Deal in the context of Democratic Party strategy circa 1920. Although Wilson won in 1916:
"Two developments nullified his advantage. Beneath a facade of victories, the organization of the Democratic party had improved only slightly during the previous decade. After capitalizing upon the Republican divisions around 1912, Democrats had been unable either to integrate their party or to secure its finances. Even the election of 1916 had depended upon transitory factors: an immediate return on New Freedom legislation, an impression of friendliness to progressive latecomers, and an image of peace. Without an enduring base such as Republicans enjoyed, the Democrats could hold their majority only by an uninterrupted flow of benefits distributed with the utmost skill. War disrupted the makeshift pattern of success, and a rapid deterioration followed. The loss of both houses of Congress in 1918 presaged an approaching disaster."
The institutionalization of redistribution of wealth via New Deal ideology beginning 12 years later, in 1932, led to a 50-60 year Democratic ascendancy that paralleled the Republican ascendancy from 1860-1932.
Robert H. Wiebe is a masterful historian who combines intellectual, political and business history in this wonderfully written book. This book serves as a good backdrop to Nancy Cohen's recent Reconstruction of American Liberalism 1864-1914 which I previously reviewed. While Cohen emphasizes the Mugwumps and academic antecedents to Progressivism, Wiebe emphasizes Populist and Social Gospel influences.
Progressivism was in large part, as Cohen argues, an assertion of professional interests in fields like law, medicine and academia. It is this thread of professional interest that links the Mugwumps, Progressives, New Deal Democrats and post-World War II liberals. As well, big business appealed to government to protect it from competitive forces in the late 19th century, and this state-government alliance can be traced through American statism's various transformations. This insight flatly contradicts the popular conception of the New Deal as antipathetic to the feelings of business executives. Indeed, Alfred Sloan and other leading executives of the 1930s fought aspects of the New Deal. However, this was necessary for Roosevelt to implement the radically pro-business inflationary program that he established in 1932 and that has in recent decades resulted in the flattening of real wages and inflation of asset values.
In his final chapter entitled "Doorway to the Twenties" Wiebe notes that following World War I:
"A bureaucratic orientation now defined a basic part of the nation's discourse. The values of continuity and regularity, functionality and rationality, administration and management set the form of problems and outlined their alternative solutions. A few recognized the fact and accepted it. 'There will be no withdrawal from these experiments' (Republican) Elihu Root announced in 1916, referring specifically to the regulatory commissions. 'We shall go on; we shall expand them, whether we approve theoretically or not; because such agencies furnish protection..."
Wiebe notes that the new bureaucracies were ineffective in fighting the 1918influenza epidemic (pp.296-8):
"Although medical science could not meet the emergency, millions of educated Americans dutifully awaited the doctor's word, donning the same masks and cleansing the same foods in a remarkable display of coordinated faith..."
In other words, while Progressivism failed to produce outcomes that worked in improving social welfare, it did succeed in establishing a high degree of social control and in subsidizing big business:
"In particular, national progressivism had been predicated upon the existence of the modern corporation and its myriad relationships with the rest of American society. Chronologically, psychologically, this network had come first."
And, of course, big business welcomed the governmental subsidies:
"Somewhat more slowly, private leaders had come to believe that they also could not function without the assistance of the government, increasingly the national government. Only the government could ensure the stability and continuity essential to their welfare. Its expert services, its legal authority and its scope had become indispensable components of any intelligent plan for order. And what they sought could no longer be accomplished by seizing and bribing. The nineteenth-century formula of direct control--taking an office for yourself or your agent, buying a favor or an official--now had very little relevance to the primary goals of society's most influential men, whether in business, agriculture, labor or the professions. They required long-range, predictable cooperation through administrative devices that would bend with a changing world. Nor were they thinking about a mere neutralization of the government, the automatic reaction many had given to the fist flurries of reform. They wanted a powerful government, but one whose authority stood at their disposal; a strong, responsive government through which they could manage their own affairs in their own way..."
(p. 298)"...Government bureaucrats looked to the private groups in their bailiwick as a natural constituency, men with whom they must develop good relations and from whom they expected regular support. These groups reciprocated, looking in turn to the bureaus for essential services and acting as their lobbies--just as long as the effective power of decision remained in private hands...In the twentieth (century), the national government parcelled an increasing amount of its power to private groups; and these then exercised it through the national government itself. Progressive legislation sketched the outlines for that new system."
This transformation was assisted by World War I.
Wiebe begins this masterful book with a discussion of the depression of the 1870s:
"...it was a strange depression. The longest in the nation's history, in human terms it proved one of the mildest. The same falling prices that deterred investors facilitated commerce..."
America in the 1870s was still largely rural. Island communities "moved by the rhythms of agriculture", and (p. 4) "If there was an American philosophy in the seventies it was a corrupted version of Scottish common-sense doctrines, taking as given every man's ability to know that God had ordained modesty in woman, rectitude in men, and thrift, sobriety and hard work in both...small-town America took its stand against 'the credit system, the fashion system,and every other system tending to prodigality and bankruptcy.." The railroads disrupted this agricultural, rural world by heightening expectations and increasing income inequality. The Granger laws, passed mainly in the Midwest, were an attempt to address resentment toward wealthy railroad owners by setting rates and regulating business conduct.
Railroads such as the Atchison, Topeka and Santa Fe, the Great Northern, the Southern Pacific and Northern Pacific united the nation and created a unitary market but (p.12) "America in the late 19th century was a society without a core."
The expansion of markets was not matched by expansion of business expertise. In banking, for instance (p. 21):
"A few institutions in the major cities experienced a phenomenal growth during the eighties in part from the demand for commercial banking facilities...Yet the apparent leaders, like their industrial counterparts, presided over vast mechanisms that had developed beyond their control...With intuitive methods for gauging the business cycle and rule-of-thumb measures for evaluating credit risks, they relied on stabs of shrewdness, not long-range wisdom, in conducting their affairs. Bankers at all levels strained to comprehend an increasingly complex, impersonal operation."
The difficulties business had in competing led to (p. 23):
"The classic sequence from tooth-and-claw competition to gentlemen's agreements to pools to trusts to holding companies...new techniques for cooperation rather than supplanting the old joined them to form a more intricate mosaic of business practice...the more complex the consolidation, the greater the internal confusion it tended to bring."
Wiebe writes (p. 25) that finance became an important field around 1890 and that JP Morgan guided many other financiers through the late 19th century: "Led by JP Morgan, whose imaginative policies in railroad cooperation had already won him fame during the eighties, a handful of financiers, almost all of them private investment bankers, took charge of the new surplus....Morgan enjoyed such respect that a caravan of domestic followers gladly marched to his beat."
As well, "the continuous need for credit as a matter of course made industrial executives vulnerable to bankers' direction...companies were showing interest in the benefits of an enforced peace." Nevertheless, in the 1890s 40% of the American railroad mileage had gone into receivership (p. 26). The investment banking community took over the railroads, reorganized them, and appointed managers who looked to Wall Street "for strategic guidance".
The expansion of markets led, according to Wiebe, to the end of the "island community" (p. 44). The growth of big business and the apparent concentration of wealth led scholar Richard T. Ely and evangelical minister Josiah Strong to argue for a social role for religion. Henry Demarest Lloyd attacked Standard Oil and moved into more radical causes, calling himself "a socialist-anarchist-communist-individualist-collectivist-co-operative-aristocratic-democrat". Lloyd's rhetoric sounded suspiciously like Herbert Croly's, 20 years later (p. 64) : " The new religion--man the redeemer...this divinity of democracy--the creative will of the people which is to be substituted for the old God." And Henry George argued for a 'single tax'. There was a sense of crisis, that "great corporations were stifling opportunity". There was a strong desire for self determination and community autonomy. There were, asserts Wiebe, Christian capitalists as well as Christian socialists. Edward Bellamy's Looking Backward was a Utopian novel, set in the year 2000, when society would be rationally designed and peace and goodwill would reign. Investment banks were abolished in Bellamy's world, and everyone would retire in middle age. All industry was to be run by the state. Everyone lives in small communities held together by fraternal cooperation.
The rural feeling of the threat of big business coupled with the fear of immigration and labor violence and strikes led to populism and the Populist or People's Party (p. 84):
"All of the community movements assumed that a natural, local society required the destruction of unnatural, national powers. As the Populist platform suggested, government would again become a function of men's everyday lives only after a direct democracy had dissolved a distant, corrupt government; technology would serve the communities only after nationalization had removed an oligarchy of railroad, telegraph, and telephone companies; power would belong to the people only after a silver currency, a decentralized postal savings system and subtreasury notes had replaced Wall Street and the national banks.."
By the early 1890s the Populist Party had captured 15% of the popular vote. Its downfall was its support for Democratic Party candidate William Jennings Bryan in 1896. When his free silver candidacy lost, the Populist Party lost credibility. In 1896 the Republicans became the party of sound money, of gold, and the Democrats became the party of silver, of inflation. A few Democrats, among them Woodrow Wilson, broke off from the Democratic Party in 1896 and fielded their own Gold Democratic candidate. Corporate America felt threatened by Bryan (they did not conceive of the advantages inflation offered them until after Lord Keynes wrote in the 1930s).
Along with a number of other authors in this field, Wiebe points out that the late nineteenth century saw a "revolution in values" (chapter nine) in that the expansion of markets shifted Americans' perceptions of wealth. In the day of the "island economies" of small town America, the relationship between morals and economic was perceived to have been that godliness and ethics led to economic prosperity. But in the expanded marketplace of big business, the relationship between morality and economic activity seemed to have been severed (p. 133):
"Now a perverted world was enabling men to perpetrate monstrous hoaxes in the name of the old morality. It had been natural enough to account for business success and nature in terms of individual virtue and vice; it was quite another matter to permit the corporations ill gotten profits because the Supreme Court adjudged them 'persons' within the meaning of the Fourteenth Amendment...No just God had given Rockefeller his money, whatever the man said. Yet for those who had customarily thought of wealth as a token of grace, re-arguing the case brought only frustration...From the seventies through the First World War, the nature of social change dominated their inquiries...With few exceptions the individual, who absorbed earlier and later generations, received only perfunctory attention."
In the 1870s and 1880s, economists believed in the wages fund theory and many combined it with social Darwinism. Some advocates of social Darwinism, such as Andrew Carnegie, argued for philanthropy. Wiebe, a product of mid-twentieth century statism, is somewhat sarcastic and condescending about the ideas of Sumner and David A. Wells, which are more viable and elastic than those of Keynes.
One response, the Social Gospel of Reverend Washington Gladden in his book Applied Christianity, was to argue for a boycott of monopolies and for employers to love employees. Another response was utopianism. In Looking Backward Bellamy argued for "the principle of fraternal co-operation...the only true science of wealth production" and a "people's economy supervised by an immaterial government". As well, Henry Demarest Lloyd argued for "cooperation to replace competition, nationalization under under an invisible government, a classless society living by the Golden rule." As a practical matter, Bellamy stated that he favored the nationalization of industry.
The utopianism of Bellamy and Gladden led to a combination of philosophical idealism and biology. Franklin H. Giddings and Brand Whitlock used biological metaphors to describe society and cities. They emphasized progress in stages. In 1883 Lester F. Ward (p. 141) argued that society had evolved in four stages.The academic Richard T. Ely argued that society would evolve through seven stages "to reach its destiny in industrial integration, essentially a Christian cooperative commonwealth." Wiebe states that following Comte, the most popular number of stages was three.
In the end, argues Wiebe, a bureaucratic mentality prevailed. The bureaucratic approach emphasized "recognizable, everyday problems" (p. 147) and eliminated biological analogies, relying instead on mechanical metaphors. This approach emphasized "scientific method", relying on statistics and a belief that "society was a vast tissue of reciprocal activity" (p. 147). Rather than discuss human psychology and focused instead on behavior (p. 149):
"Now education implied the guidance of behavior in harmony with social processes."
According to Wiebe (p.149),
"the bureaucratic orientation did not reach its peak of success until the nineteen twenties...By degrees the philosophy of urban political reform had moved from simple moral principles guaranteed by the proper forms of government to complex procedural principles advanced by the proper administration of government...A similar transformation occurred in social work. The original settlement workers had entered the slums and served the poor as moral acts. Over time...they became immersed in the endless, interrelated problems of a whole city's life."
Wiebe adds Arthur Bentley's bureaucratic analysis of government, The Process of Government, Frederick W. Taylor's scientific management and John Dewey's combination of pragmatism with a bureaucratic "theory that made individuals the plastic stuff of society."
It is evident from Wiebe's description of Dewey that modern "liberalism" (more accurately termed social democracy) is a betrayal of Dewey's ideas, particularly of his pragmatism:
"Throughout his writings ran a limitless faith in the scientific method as the means for freeing people of all ages to learn through exploration and through social experience."
But Dewey's ideas, while elegant, failed to anticipate the dominant impulse of interest groups and their extraction of rents from the state. The idea that social democratic institutions have led to rationality is laughable. Yet, instead of remaining loyal to the pragmatic impulse of William James, which would require a reassessment of failed ideology, today's social democrats ("liberals" or "progressives") continue to chant a rote commitment to failed ideas.
There is certainly a link between the bureaucratic ideas of Taylor and the classical liberalism of William Graham Sumner (p. 156):
"In a certain sense, bureaucratic thought reverted to the visions of the original classical theory, substituting an internally derived dynamic--a social process-for the externally justified balance of a John Fiske or a William Graham Sumner. Both theories, at least, sought to create unity out of diversity...the acknowledgment of society's inevitable pluralism raised difficulties that would plague bureaucratic through for years to come."
Advocates of Progressivism (which is the early twentieth century manifestation of Wiebe's bureaucratic approach) such as Walter Lippmann and Walter Weyl saw consumerism as the ultimate outcome of the bureaucratic society (p. 158).
Progressivism led to a" a strikingly different conception of government" which involved the replacement of economic with political criteria (p. 160):
"Trained, professional servants would staff a government broadly and continuously involved in society's operations. In order to meet problems as they arose, these officials should hold multiple mandates, ones that perforce would blur the conventional distinctions among executive, legislature and judiciary. Above them stood the public men, a unique and indispensible leader. Although learned enough to comprehend the details of a modern, specialized government, he was much more than an expert among experts. His vision encompassed the entire nation...Corps of servants received his general directives and translated them into their particular areas ...As the nation's leader, the public man would be an educator-extraordinary...In time, after a 'long tutelage in public affairs', the electorate would come to participate directly in certain aspects of government through the initiative, referendum and recall...The theory was immediately and persistently attacked as undemocratic...In fact the theory was not as boldly authoritarian as it sometimes appeared...The latitude he enjoyed in administration existed only because no one could predict the course of a fluid society...the theory purported to describe government by science not by men...As all citizens became rational, they would naturally arrive at the same general answers. Experts, of course, would always know more in their particualar fields, and the public man would always see the whole more clearly; but national rationality would assure consensus on the big issues, the matters of principle."
Wiebe articuately describes the essence of Progressivism. In chapter 7, "Progressivism arrives", he describes the roots of Progressivism in estern urban centers and some midwestern and southern agrarian states. The Progressives believed that a "patchwork government could no longer manager the range of urban problems" (p. 167). Mainstream business interests supported Progressivism (p. 167) "well-to-do merchants, manufacturers and bankers who sought more dependable and rewarding relations with government were moving to the vanguard of urban reform." This was accomplished in establishing utility regulation (p. 168), the secret ballot, the shortened ballot, and increasing the number of appointed governmental posts and the introduction of government budgeting. Their establishment of settlement houses led to an interest in child labor laws. Wiebe emphasizes (p. 169) the Progressives' fixation on improvement of government administration. They envisioned flexible, authority staffed by qualified experts in areas like housing regulation, early childhood education, conservation and public health. The Progressives emphasized efficiency.
In attempting to implement their ideas they linked themselves to businessmen and political bosses (p. 174).
Wiebe makes an important point (p. 174):
"It was the expert who benefited most from the new framework of politics...The more complex the competition for power, the more organizational leaders relied on experts to decipher and to prescribe...Only the professional administrator, the doctor, the social worker, the achitect, the economist could show the way...professors like Frank Goodnow, Leo Rowe and Edmund James were telling the National Municipal League what urban reforms it really wanted"
At the same time, businessmen began to institute systematizedpolitical contributions and lobbying slightly before 1900 as a concomitant of Progressivism:
"The political implications of the desire for continuity turned big businessmen into political innovators, and campaigning was one of the first areas affected. Particularly after 1896, such magnates as John McCall of New York Life Insurance, Henry H. Rogers of Standard Oil and Edward Harriman began both to contribute kmore consistently and to grant funds for a party rather than a man."
The contradiction inherent in Progressive reform, namely, its claim to rationality while at the same time encouraging a larger scale, more rationalized corruption, were apparent from the beginning.
The Search for Order is a fine historical work and anyone who reads it will be richer.
Perhaps the most scintillating paragraph in Robert Wiebe's Search for Order is on pages 279-80. Inadvertently, Wiebe suggests a rationale for Franklin D. Roosevelt's New Deal in the context of Democratic Party strategy circa 1920. Although Wilson won in 1916:
"Two developments nullified his advantage. Beneath a facade of victories, the organization of the Democratic party had improved only slightly during the previous decade. After capitalizing upon the Republican divisions around 1912, Democrats had been unable either to integrate their party or to secure its finances. Even the election of 1916 had depended upon transitory factors: an immediate return on New Freedom legislation, an impression of friendliness to progressive latecomers, and an image of peace. Without an enduring base such as Republicans enjoyed, the Democrats could hold their majority only by an uninterrupted flow of benefits distributed with the utmost skill. War disrupted the makeshift pattern of success, and a rapid deterioration followed. The loss of both houses of Congress in 1918 presaged an approaching disaster."
The institutionalization of redistribution of wealth via New Deal ideology beginning 12 years later, in 1932, led to a 50-60 year Democratic ascendancy that paralleled the Republican ascendancy from 1860-1932.
Robert H. Wiebe is a masterful historian who combines intellectual, political and business history in this wonderfully written book. This book serves as a good backdrop to Nancy Cohen's recent Reconstruction of American Liberalism 1864-1914 which I previously reviewed. While Cohen emphasizes the Mugwumps and academic antecedents to Progressivism, Wiebe emphasizes Populist and Social Gospel influences.
Progressivism was in large part, as Cohen argues, an assertion of professional interests in fields like law, medicine and academia. It is this thread of professional interest that links the Mugwumps, Progressives, New Deal Democrats and post-World War II liberals. As well, big business appealed to government to protect it from competitive forces in the late 19th century, and this state-government alliance can be traced through American statism's various transformations. This insight flatly contradicts the popular conception of the New Deal as antipathetic to the feelings of business executives. Indeed, Alfred Sloan and other leading executives of the 1930s fought aspects of the New Deal. However, this was necessary for Roosevelt to implement the radically pro-business inflationary program that he established in 1932 and that has in recent decades resulted in the flattening of real wages and inflation of asset values.
In his final chapter entitled "Doorway to the Twenties" Wiebe notes that following World War I:
"A bureaucratic orientation now defined a basic part of the nation's discourse. The values of continuity and regularity, functionality and rationality, administration and management set the form of problems and outlined their alternative solutions. A few recognized the fact and accepted it. 'There will be no withdrawal from these experiments' (Republican) Elihu Root announced in 1916, referring specifically to the regulatory commissions. 'We shall go on; we shall expand them, whether we approve theoretically or not; because such agencies furnish protection..."
Wiebe notes that the new bureaucracies were ineffective in fighting the 1918influenza epidemic (pp.296-8):
"Although medical science could not meet the emergency, millions of educated Americans dutifully awaited the doctor's word, donning the same masks and cleansing the same foods in a remarkable display of coordinated faith..."
In other words, while Progressivism failed to produce outcomes that worked in improving social welfare, it did succeed in establishing a high degree of social control and in subsidizing big business:
"In particular, national progressivism had been predicated upon the existence of the modern corporation and its myriad relationships with the rest of American society. Chronologically, psychologically, this network had come first."
And, of course, big business welcomed the governmental subsidies:
"Somewhat more slowly, private leaders had come to believe that they also could not function without the assistance of the government, increasingly the national government. Only the government could ensure the stability and continuity essential to their welfare. Its expert services, its legal authority and its scope had become indispensable components of any intelligent plan for order. And what they sought could no longer be accomplished by seizing and bribing. The nineteenth-century formula of direct control--taking an office for yourself or your agent, buying a favor or an official--now had very little relevance to the primary goals of society's most influential men, whether in business, agriculture, labor or the professions. They required long-range, predictable cooperation through administrative devices that would bend with a changing world. Nor were they thinking about a mere neutralization of the government, the automatic reaction many had given to the fist flurries of reform. They wanted a powerful government, but one whose authority stood at their disposal; a strong, responsive government through which they could manage their own affairs in their own way..."
(p. 298)"...Government bureaucrats looked to the private groups in their bailiwick as a natural constituency, men with whom they must develop good relations and from whom they expected regular support. These groups reciprocated, looking in turn to the bureaus for essential services and acting as their lobbies--just as long as the effective power of decision remained in private hands...In the twentieth (century), the national government parcelled an increasing amount of its power to private groups; and these then exercised it through the national government itself. Progressive legislation sketched the outlines for that new system."
This transformation was assisted by World War I.
Wiebe begins this masterful book with a discussion of the depression of the 1870s:
"...it was a strange depression. The longest in the nation's history, in human terms it proved one of the mildest. The same falling prices that deterred investors facilitated commerce..."
America in the 1870s was still largely rural. Island communities "moved by the rhythms of agriculture", and (p. 4) "If there was an American philosophy in the seventies it was a corrupted version of Scottish common-sense doctrines, taking as given every man's ability to know that God had ordained modesty in woman, rectitude in men, and thrift, sobriety and hard work in both...small-town America took its stand against 'the credit system, the fashion system,and every other system tending to prodigality and bankruptcy.." The railroads disrupted this agricultural, rural world by heightening expectations and increasing income inequality. The Granger laws, passed mainly in the Midwest, were an attempt to address resentment toward wealthy railroad owners by setting rates and regulating business conduct.
Railroads such as the Atchison, Topeka and Santa Fe, the Great Northern, the Southern Pacific and Northern Pacific united the nation and created a unitary market but (p.12) "America in the late 19th century was a society without a core."
The expansion of markets was not matched by expansion of business expertise. In banking, for instance (p. 21):
"A few institutions in the major cities experienced a phenomenal growth during the eighties in part from the demand for commercial banking facilities...Yet the apparent leaders, like their industrial counterparts, presided over vast mechanisms that had developed beyond their control...With intuitive methods for gauging the business cycle and rule-of-thumb measures for evaluating credit risks, they relied on stabs of shrewdness, not long-range wisdom, in conducting their affairs. Bankers at all levels strained to comprehend an increasingly complex, impersonal operation."
The difficulties business had in competing led to (p. 23):
"The classic sequence from tooth-and-claw competition to gentlemen's agreements to pools to trusts to holding companies...new techniques for cooperation rather than supplanting the old joined them to form a more intricate mosaic of business practice...the more complex the consolidation, the greater the internal confusion it tended to bring."
Wiebe writes (p. 25) that finance became an important field around 1890 and that JP Morgan guided many other financiers through the late 19th century: "Led by JP Morgan, whose imaginative policies in railroad cooperation had already won him fame during the eighties, a handful of financiers, almost all of them private investment bankers, took charge of the new surplus....Morgan enjoyed such respect that a caravan of domestic followers gladly marched to his beat."
As well, "the continuous need for credit as a matter of course made industrial executives vulnerable to bankers' direction...companies were showing interest in the benefits of an enforced peace." Nevertheless, in the 1890s 40% of the American railroad mileage had gone into receivership (p. 26). The investment banking community took over the railroads, reorganized them, and appointed managers who looked to Wall Street "for strategic guidance".
The expansion of markets led, according to Wiebe, to the end of the "island community" (p. 44). The growth of big business and the apparent concentration of wealth led scholar Richard T. Ely and evangelical minister Josiah Strong to argue for a social role for religion. Henry Demarest Lloyd attacked Standard Oil and moved into more radical causes, calling himself "a socialist-anarchist-communist-individualist-collectivist-co-operative-aristocratic-democrat". Lloyd's rhetoric sounded suspiciously like Herbert Croly's, 20 years later (p. 64) : " The new religion--man the redeemer...this divinity of democracy--the creative will of the people which is to be substituted for the old God." And Henry George argued for a 'single tax'. There was a sense of crisis, that "great corporations were stifling opportunity". There was a strong desire for self determination and community autonomy. There were, asserts Wiebe, Christian capitalists as well as Christian socialists. Edward Bellamy's Looking Backward was a Utopian novel, set in the year 2000, when society would be rationally designed and peace and goodwill would reign. Investment banks were abolished in Bellamy's world, and everyone would retire in middle age. All industry was to be run by the state. Everyone lives in small communities held together by fraternal cooperation.
The rural feeling of the threat of big business coupled with the fear of immigration and labor violence and strikes led to populism and the Populist or People's Party (p. 84):
"All of the community movements assumed that a natural, local society required the destruction of unnatural, national powers. As the Populist platform suggested, government would again become a function of men's everyday lives only after a direct democracy had dissolved a distant, corrupt government; technology would serve the communities only after nationalization had removed an oligarchy of railroad, telegraph, and telephone companies; power would belong to the people only after a silver currency, a decentralized postal savings system and subtreasury notes had replaced Wall Street and the national banks.."
By the early 1890s the Populist Party had captured 15% of the popular vote. Its downfall was its support for Democratic Party candidate William Jennings Bryan in 1896. When his free silver candidacy lost, the Populist Party lost credibility. In 1896 the Republicans became the party of sound money, of gold, and the Democrats became the party of silver, of inflation. A few Democrats, among them Woodrow Wilson, broke off from the Democratic Party in 1896 and fielded their own Gold Democratic candidate. Corporate America felt threatened by Bryan (they did not conceive of the advantages inflation offered them until after Lord Keynes wrote in the 1930s).
Along with a number of other authors in this field, Wiebe points out that the late nineteenth century saw a "revolution in values" (chapter nine) in that the expansion of markets shifted Americans' perceptions of wealth. In the day of the "island economies" of small town America, the relationship between morals and economic was perceived to have been that godliness and ethics led to economic prosperity. But in the expanded marketplace of big business, the relationship between morality and economic activity seemed to have been severed (p. 133):
"Now a perverted world was enabling men to perpetrate monstrous hoaxes in the name of the old morality. It had been natural enough to account for business success and nature in terms of individual virtue and vice; it was quite another matter to permit the corporations ill gotten profits because the Supreme Court adjudged them 'persons' within the meaning of the Fourteenth Amendment...No just God had given Rockefeller his money, whatever the man said. Yet for those who had customarily thought of wealth as a token of grace, re-arguing the case brought only frustration...From the seventies through the First World War, the nature of social change dominated their inquiries...With few exceptions the individual, who absorbed earlier and later generations, received only perfunctory attention."
In the 1870s and 1880s, economists believed in the wages fund theory and many combined it with social Darwinism. Some advocates of social Darwinism, such as Andrew Carnegie, argued for philanthropy. Wiebe, a product of mid-twentieth century statism, is somewhat sarcastic and condescending about the ideas of Sumner and David A. Wells, which are more viable and elastic than those of Keynes.
One response, the Social Gospel of Reverend Washington Gladden in his book Applied Christianity, was to argue for a boycott of monopolies and for employers to love employees. Another response was utopianism. In Looking Backward Bellamy argued for "the principle of fraternal co-operation...the only true science of wealth production" and a "people's economy supervised by an immaterial government". As well, Henry Demarest Lloyd argued for "cooperation to replace competition, nationalization under under an invisible government, a classless society living by the Golden rule." As a practical matter, Bellamy stated that he favored the nationalization of industry.
The utopianism of Bellamy and Gladden led to a combination of philosophical idealism and biology. Franklin H. Giddings and Brand Whitlock used biological metaphors to describe society and cities. They emphasized progress in stages. In 1883 Lester F. Ward (p. 141) argued that society had evolved in four stages.The academic Richard T. Ely argued that society would evolve through seven stages "to reach its destiny in industrial integration, essentially a Christian cooperative commonwealth." Wiebe states that following Comte, the most popular number of stages was three.
In the end, argues Wiebe, a bureaucratic mentality prevailed. The bureaucratic approach emphasized "recognizable, everyday problems" (p. 147) and eliminated biological analogies, relying instead on mechanical metaphors. This approach emphasized "scientific method", relying on statistics and a belief that "society was a vast tissue of reciprocal activity" (p. 147). Rather than discuss human psychology and focused instead on behavior (p. 149):
"Now education implied the guidance of behavior in harmony with social processes."
According to Wiebe (p.149),
"the bureaucratic orientation did not reach its peak of success until the nineteen twenties...By degrees the philosophy of urban political reform had moved from simple moral principles guaranteed by the proper forms of government to complex procedural principles advanced by the proper administration of government...A similar transformation occurred in social work. The original settlement workers had entered the slums and served the poor as moral acts. Over time...they became immersed in the endless, interrelated problems of a whole city's life."
Wiebe adds Arthur Bentley's bureaucratic analysis of government, The Process of Government, Frederick W. Taylor's scientific management and John Dewey's combination of pragmatism with a bureaucratic "theory that made individuals the plastic stuff of society."
It is evident from Wiebe's description of Dewey that modern "liberalism" (more accurately termed social democracy) is a betrayal of Dewey's ideas, particularly of his pragmatism:
"Throughout his writings ran a limitless faith in the scientific method as the means for freeing people of all ages to learn through exploration and through social experience."
But Dewey's ideas, while elegant, failed to anticipate the dominant impulse of interest groups and their extraction of rents from the state. The idea that social democratic institutions have led to rationality is laughable. Yet, instead of remaining loyal to the pragmatic impulse of William James, which would require a reassessment of failed ideology, today's social democrats ("liberals" or "progressives") continue to chant a rote commitment to failed ideas.
There is certainly a link between the bureaucratic ideas of Taylor and the classical liberalism of William Graham Sumner (p. 156):
"In a certain sense, bureaucratic thought reverted to the visions of the original classical theory, substituting an internally derived dynamic--a social process-for the externally justified balance of a John Fiske or a William Graham Sumner. Both theories, at least, sought to create unity out of diversity...the acknowledgment of society's inevitable pluralism raised difficulties that would plague bureaucratic through for years to come."
Advocates of Progressivism (which is the early twentieth century manifestation of Wiebe's bureaucratic approach) such as Walter Lippmann and Walter Weyl saw consumerism as the ultimate outcome of the bureaucratic society (p. 158).
Progressivism led to a" a strikingly different conception of government" which involved the replacement of economic with political criteria (p. 160):
"Trained, professional servants would staff a government broadly and continuously involved in society's operations. In order to meet problems as they arose, these officials should hold multiple mandates, ones that perforce would blur the conventional distinctions among executive, legislature and judiciary. Above them stood the public men, a unique and indispensible leader. Although learned enough to comprehend the details of a modern, specialized government, he was much more than an expert among experts. His vision encompassed the entire nation...Corps of servants received his general directives and translated them into their particular areas ...As the nation's leader, the public man would be an educator-extraordinary...In time, after a 'long tutelage in public affairs', the electorate would come to participate directly in certain aspects of government through the initiative, referendum and recall...The theory was immediately and persistently attacked as undemocratic...In fact the theory was not as boldly authoritarian as it sometimes appeared...The latitude he enjoyed in administration existed only because no one could predict the course of a fluid society...the theory purported to describe government by science not by men...As all citizens became rational, they would naturally arrive at the same general answers. Experts, of course, would always know more in their particualar fields, and the public man would always see the whole more clearly; but national rationality would assure consensus on the big issues, the matters of principle."
Wiebe articuately describes the essence of Progressivism. In chapter 7, "Progressivism arrives", he describes the roots of Progressivism in estern urban centers and some midwestern and southern agrarian states. The Progressives believed that a "patchwork government could no longer manager the range of urban problems" (p. 167). Mainstream business interests supported Progressivism (p. 167) "well-to-do merchants, manufacturers and bankers who sought more dependable and rewarding relations with government were moving to the vanguard of urban reform." This was accomplished in establishing utility regulation (p. 168), the secret ballot, the shortened ballot, and increasing the number of appointed governmental posts and the introduction of government budgeting. Their establishment of settlement houses led to an interest in child labor laws. Wiebe emphasizes (p. 169) the Progressives' fixation on improvement of government administration. They envisioned flexible, authority staffed by qualified experts in areas like housing regulation, early childhood education, conservation and public health. The Progressives emphasized efficiency.
In attempting to implement their ideas they linked themselves to businessmen and political bosses (p. 174).
Wiebe makes an important point (p. 174):
"It was the expert who benefited most from the new framework of politics...The more complex the competition for power, the more organizational leaders relied on experts to decipher and to prescribe...Only the professional administrator, the doctor, the social worker, the achitect, the economist could show the way...professors like Frank Goodnow, Leo Rowe and Edmund James were telling the National Municipal League what urban reforms it really wanted"
At the same time, businessmen began to institute systematizedpolitical contributions and lobbying slightly before 1900 as a concomitant of Progressivism:
"The political implications of the desire for continuity turned big businessmen into political innovators, and campaigning was one of the first areas affected. Particularly after 1896, such magnates as John McCall of New York Life Insurance, Henry H. Rogers of Standard Oil and Edward Harriman began both to contribute kmore consistently and to grant funds for a party rather than a man."
The contradiction inherent in Progressive reform, namely, its claim to rationality while at the same time encouraging a larger scale, more rationalized corruption, were apparent from the beginning.
The Search for Order is a fine historical work and anyone who reads it will be richer.
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