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History Forum / General / General Topics / December 2004Inequality Of Wealth And The Great Depression
It's pointed out that the great depression was caused by a number of factors. However, one of those was that despite the booms of the 20s the wealth of the world's industrial nations was still concentrated in only a very few hands. Why was this a problem then, indeed the exploitation of workers was nothing compared to the which had existed in the 19th century. Why did this become a probloem in the 20s/30s? > It's pointed out that the great depression was caused by a number of > factors. However, one of those was that despite the booms of the 20s the [quoted text clipped - 5 lines] > > Why did this become a probloem in the 20s/30s? I have no answer for you but consider that WW1 and it's demand for increased industrialisation, followed by a sudden cessation of that demand. Another point is that capitalists do not necessarily know what is best for them or a recovering economy. Unbridled capitalism is not any answer to the needs of the world economy. That's why we have so many more laws, and government institutions which can take what might seem to an industrialist the wrong path. For example, what industrialist wants to provide electricity to match demand? This would mean providing uneconomic power plant which remains unproductive until extreme demand. Only the allowance of free pricing, which would make turning on a light at Thanksgiving financially ruinous would attract investment. What ended the great depression? I see it as a rise in demand, which may well have been coming slowly, sparked by an artificial demand by a politician. Thur >>It's pointed out that the great depression was caused by a number of >>factors. However, one of those was that despite the booms of the 20s the [quoted text clipped - 12 lines] > a recovering economy. > Unbridled capitalism is not any answer to the needs of the world economy. Really? Most of what I see around me comes pretty much from nothing but unbridled capitalism. Perhaps it's somewhat bridled, but the lack of restraint can almost be shown in a physics-like way to maximize the amount of stuff made. Remember, you grandparents were probably more worried about "enough" than anything else. They and all humans before 'em. > That's why we have so many more laws, and government institutions which > can take what might seem to an industrialist the wrong path. > For example, what industrialist wants to provide electricity to match > demand? What industrialist could if he wanted to? There's a legal monopoly on electric production. It may even make sense. > This would mean providing uneconomic power plant which remains unproductive > until extreme demand. Only the allowance of free pricing, which would make > turning on a light at Thanksgiving financially ruinous would attract > investment. There is a difference betwen rent seeking ( making the Thanksgiving light bulb enabling ruinous ) and industrialism. Free pricing just pretty much guarantees that the price will be the lowest possible, for a set of supply values. It doesn't guarantee adequate supply. Rent seeking is withholding supply artificially to drive price up, then releasing production to take advantage of the higher price. If there was true competition, other people would build the plant at a lower price point, relieving demand. Nobody serious questions the theory of price theory, just how it plays out in practice. Business people really do think about competing a lot, and they like to compete. But that competition cannot be the highest value - when elephants battle, the grass gets trampled. So we regulate. And as "verbing weirds language", regulation weirds production. Unfortunately, we as a culture don't see a lot of them seperated, because , well, because we've made it that way. We've done so out of the best of intentions, but the Austrians still pretty much dominate the literature in terms of predicting results. See "Hayek" in Google. I really wish it wre otherwise - it woule tickle me pink to think that strong leaders can simply oppose strong idustrialists, and we'd receive the best of both worlds. But the numbers don't support it. And simply shooting the industrialists is probably about as bad as it gets. > What ended the great depression? WWII. The Beast wanted bodies. We created the Beast out of get-rich-quick and geese that lay golden eggs, and a belief that we knew better, that Laplace left us the keys to the Kingdom. But WII was the assassination of various Positivisms, for which we may be eternally grateful. That the U.K. and USA could decode almost all encrypted traffic by the Axis is in no small part how, and why. > I see it as a rise in demand, which may well have been coming slowly, > sparked > by an artificial demand by a politician. Politicians walk the line between being a scoundrel or a fool. They don't create a lot; the best can lead other people to do so. That's saved us more than once. When it does, it has the spark of the Divine. > Thur -- Les Cargill > x-no-archive: yes > [quoted text clipped - 109 lines] > -- > Les Cargill Well you can have your opinions, but I wont give way to your political line on pricing. > Really? Most of what I see around me comes pretty much > from nothing but unbridled capitalism Yes, really. If you look at the Anti-Trust Laws for example, and the reasons why they were made. Look at the history of Capitalism in USA when there was little law, say 1890 - 1910. Look at the behaviour of capital interests as exposed in ENRON. Look at the behaviour of MicroSoft, as exposed in a number of law suits in the last 10 years or so. Big companies fight to suppress the competition, else they form cartels to control pricing and profit against the spirit of free enterprise. Laws have been made to restrict this. Prices in a capitalist economy are set up to what the market will bear. Investments are switched to where the best opportunity of returns can be predicted. > If there was true competition, other people > would build the plant at a lower price point, > relieving demand. Well, wrong. I say again, no-one wants to invest in something that starts up at the rarest periods of maximum demand, unless the investment can be rewarded by enormous prices to pay for the downtimes. Capital needs to chase the best returns, not to fit into society. No matter how many tenders are offered to build a power station, none of them will be offered for anything other than a profitable return. Straying back on topic here, during the Depression, capitalists were afraid to reinvest and were waiting for their competitors to get their fingers burnt first. I suspect that the people who had the money and power were not hungry enough for more money and power, and had a shortage of the gambling instinct. Certain products such as electricity, supplied to society which are universally required, and widely needed are suitable for government intervention to protect the people from supply shortages. There is no happy medium in a free market, no plateau where an even supply and a smooth movement of prices can be had. There is always a war, and people can be the victims of such pricing and investment battles. Thur > "Les Cargill" <lcargill@cfl.rr.com> wrote in message <snip> > Well you can have your opinions, but I wont give way to your > political line on pricing. It's not particularly political. Mostly empirical. >>Really? Most of what I see around me comes pretty much >>from nothing but unbridled capitalism > > Yes, really. > If you look at the Anti-Trust Laws for example, and the reasons why > they were made. Sure. Standard Oil dropped the price of kerosene a great deal in a very short amount of time. Other similar "trusts" had similar effect on price. Carnegie himself simply invented the mass production of steel - there simply could not have been enough before. > Look at the history of Capitalism in USA when there was little law, > say 1890 - 1910. Sure. Simplifying the analysis to just the consumer, and just the producer, the optimum is no regulation. We cannot in good concience do that, so consumers pay a "tax" on goods to support the socially perceived good of regulation. It's not at all clear that one set of monopolists (newspapermen ) using those newspapers to put their thumb in the eye of other monopolists is anything other than comical. Seriously, look in detail at the arguments for the Sherman Act. It's almost made of a whole cloth. > Look at the behaviour of capital interests as exposed in ENRON. That's fraud. Fraud has always been against the law. > Look at the behaviour of MicroSoft, as exposed in a number of > law suits in the last 10 years or so. I have. I pretty much thought antitrust a good thing before I did :) > Big companies fight to suppress the competition, else they form cartels > to control pricing and profit against the spirit of free enterprise. > Laws have been made to restrict this. That's "price fixing" and actually a seperate part of the (admittedly USAian ) code. > Prices in a capitalist economy are set up to what the market will bear. > Investments are switched to where the best opportunity of returns [quoted text clipped - 8 lines] > rarest periods of maximum demand, unless the investment can be > rewarded by enormous prices to pay for the downtimes. But once there were generating capacities available, people would charge less for generating less, and the loads could pretty well balance by price across all generation stations. This is how it's done today, almost on an automatic basis. Once people figure out the engineering of it, they can usually be pretty well trusted to deliver what's needed. Of course, criminal behavior is still just that. > Capital needs to chase the best returns, not to fit into society. But since the best returns to capital represent the summed purchasing decision of that selfsame society, what are we to conclude? We have to except public goods, but electricty isn't one of those. There are "public goods" aspects to generation station construction, but the electricity itself isn't a public good. At least in non-California parts of the U.S., we usually have excess capacity. Ditto the Hydro in Quebec. That's okay - it's guardband production that's somewhat subsidized. We'll trade cheap*est* for "cheap enough and plenty of it". Not having enough capacity creates huge costs, very quickly. > No matter how many tenders are offered to build a power station, > none of them will be offered for anything other than a profitable return. Right. But the generating folks also know they do not want panicked customers, so it is in their enlightened self interest to be accurate in projecting demand. > Straying back on topic here, during the Depression, capitalists were > afraid to reinvest and were waiting for their competitors to get their > fingers burnt first. I suspect that the people who had the money and > power were not hungry enough for more money and power, and > had a shortage of the gambling instinct. No, there just wasn't enough money to allow anything to happen. That's deflation. > Certain products such as electricity, supplied to society which are > universally required, and widely needed are suitable for government > intervention to protect the people from supply shortages. There is no > happy medium in a free market, no plateau where an even supply and a > smooth movement of prices can be had. I'm afraid the Chicago board of trade would provide significant levels of counter evidence to this claim. For example: I do not think that there's ever been a supply shortage of tobacco, except possibly during the Civil War. > There is always a war, and people can be the victims of such pricing > and investment battles. Generally, victimhood is the result of people with guns exercising some political agenda. Normally, price goes up, capacity goes up, all other constraints aside. Of course any real-world situation cna contain constraints that cause this to not be the *only* truth, but it's a good starting model. The rest is mostly engineering. > Thur -- Les Cargill > It's pointed out that the great depression was caused by a number of > factors. However, one of those was that despite the booms of the 20s the [quoted text clipped - 5 lines] > > Why did this become a probloem in the 20s/30s? I don't think that inequality of wealth had much to do with it. The primary cause was the rabid speculation in stock, which created a great deal of "phantom" wealth. Exactly like the dot com boom of the late 1990s, by the way. This caused 2 problems. First, if you owned overpriced stock, your wealth was largely illusory. Yet you could get credit on this phantom wealth and become indebted. No problem, until the phantom wealth is reduced to its actual value. And the problem with any speculative market is that there *will* come a day of reckoning. And on that day, those who have paid way too much (and not gotten out of the market) *will* get hammered. And this day of reckoning will happen no matter how unequally wealth is "distributed". This also creates an illusory "collapse". An adjustment to actual value appears to be a collapse in price. Second, the collapse of the stock market created an immediate cash flow problem for banks (and by extension, businesses). As people's phantom wealth disappeared, lenders became undersecured (i.e., they had insufficient collateral to secure their outstanding loans). This caused them to call in loans and to stop loaning any new money. Exactly the worst thing in an economic downturn. Additional factors conspired to turn a harsh, but fairly routine economic slowdown (the business cycle, remember) into a full scale depression: 1. The reduction in money supply caused by hoarding of money and the gold standard. This made it difficult for struggling businesse to obtain additional money. (Remember that hoarding is not the same as saving. If I save money, that money is loaned to others and put to work; if I hoard it, it simply sits in my mattress doing nothing.) It also led to the collapse of many banks. 2. The Smoot-Hawley Tariff -- a bad piece of protectionist legislation, even by the admittedly low standards of protectionist legislation. While this didn't cause the Depression, it certainly exacerbated it. 3. Massive defaults on reparation loans by Germany. This left banks undersecured and caused a ripple of bank closings. 4. Minimal safety nets. Deposits in banks weren't insured, which meant that the bank's customers bore all the risk of a collapse. There were comparatively limited welfare programs, which meant starvation (or at lease severe dislocation) for folks who lost their jobs. 5. Agricultural production surpluses. Agricultural prices collapsed as farmers flooded the markets with far more agricultural products than were needed. As we learn in ECON 101, surpluses lead to price decreases, and the farmers found themselves unable to make enough money to survive. Or to make their mortgage payments. This caused foreclosures and more banking crises as banks wound up with land they couldn't sell at a decent price. None of these factors appear to me to be dependent on unequal wealth distribution. --Ty >Subject: Inequality Of Wealth And The Great Depression >From: "Representative Trantis" a@a.com [quoted text clipped - 10 lines] > >Why did this become a probloem in the 20s/30s? I'm not as cognizant about Britain/Europe in the 19th industrial revolution, though Marx & Riccardo certainly are--and so I'll conveniently skip why there (supposedly) weren't revolts then. The Pinkertons (anti strike police) & bosses triumphed in the U.S. Our Civil War & the expansions of The Manifest Destiny & Reconstruction & Gilded Age & Laissez faire & Railroad development etal surely set the stage for the "down-cycle" of the GREAT DEPRESSION of the 1930s (and the inter-mittent "panics") And pardon all my divergences & indirections herein, but I must hold the overall phenomena from my narrowish subjective, conditioned, brainwashed perspectives & interpretations of realities: In other words, we are discussing "history," not necessarily the "objective reality," whatever that is: Reasons for The Great Depression in the U.S.A. The Federal Reserve increases interest rates, rather than loosens 'em up (my how such has changed ! ) The Republicans were the stereotypical mossback, tight-fisted Republicans, and the populists & Democrats were for looser money The rural poor economic populists & Democrats were also often unfortunately the KKK racist types too My grandfather was thus a Republican A Jewish pencil factory manager in my Atlanta area, Leo Frank, circa 1915, was lynched, being accused of rape-murder. There are several books about it. Farmers have "over-production" & thus over-supply, perhaps because of improvements in farm implement technology--aha Over-speculation in the U.S. stock market, via ten percent (or whatever) margin (today margin requirement is fifty percent) in the U.S.--craziness (and such over-speculation/debacle happens again in the 1990s ) Increasing urbanization, immigrants and farmers leave from their traditional places, and crowd into cities "on top" of each other The U.S. immigration quota/restriction law of 1920s seeks to restrict eastern Europeans from U.S. (mine had already come over from Warsaw & Brest-Litovsk circa 1912-1914 The flapper era 1920s "liberalize" the folkways, mores, customs, traditions, and taboos But circa 1919-1934 Prohibition's unintended consequences are widespread corruption, law-breaking & cynicism attitude; and therefore less social cohesion Droughts & dust bowls dislocate farmers, The Okies leave Oklahoma for the greener pastures of Claifornia, see Steinbeck's classic novel, THE GRAPES OF WRATH &/or the Henry Fonda starring movie The lowering demands for finished factory goods has "reverse multiplier" or ugly domino effects The Russian Revolution results in chaos, insecurity, totalitarianism, mass death/liquidation, fear, loathing, dislocation, interference in traditional supply/demand marketplace stabilities, and reverberates elsewhere to the disasterous, doomed liberalistic, chaotic GERMAN WEIMAR REPUBLIC PERHAPS the punishment or financial mal-treatment of post-war I Germany results in their internal inflation, recriminations, persecution-feeling (paranoia) No thanks to the British-French leaders of the League of Nations and to the right wing Republicans who took America into "isolation" away from Wilsonian idealism-intervention of the League of Nations The post WW I Palmer raids in the U.S. manifest our own paranoia and our peoples fears of anarchy, communism, socialism, radicalism--see Sacco & Vanzetti hurting U.S. WW I veterans hold "bonus march" in early1920s or 1930s(?), Ike ordered by MacArthur to control vets and put down veterans President Herbert Hoover's economic reform measures are deemed inadequate FDR trashes the "malfactors" of great wealth and wins Presidency, circa 1932 Hell, I can't directly answer the Trantis question, but I know there are somebodies in the n.g. who know why the people didn't revolt in the nineteenth century et cetera, though the stages were being set for the 20th century's uphevals & changes <snip> > Hell, I can't directly answer the Trantis question, but I know there are > somebodies in the n.g. Ty's list looks best, so far. It'd actually make a fine outline for a book... > who know why the people didn't revolt in the nineteenth > century et cetera, though the stages were being set for the 20th century's > uphevals & changes Ah, but they did. Just not as much, or as violently as in Britain. Latter half of the 19th was dominated by Pax Bismarckia, and there was active and vigorous export of people to America in Europe, hence the "Golden Age" . People in America were too busy claiming free land to revolt too much. The movie "Far and Away" sorta paints the picture. People were a lot more stoic about thier lot in life, though. -- Les Cargill >Subject: Re: Inequality Of Wealth And The Great Depression >From: Les Cargill lcargill@cfl.rr.com [quoted text clipped - 32 lines] >-- >Les Cargill ok, let's narrow it down some here's some perceptions to try to get to the nub of the trantis challenge in the nineteenth century europe is continually developing away from feudalism pol-econ-soc structure the industrial revolution begins (when? what centuries?) "exploitation" and/or very harsh factory-industrial phenomena are evidenced by (what?) the french revolution is much about over-throwing the vestiges of feudalism (?) child labor (as perhaps in india, china, etal today) exist in western europe? there is slavery in the americas to do the scut work your (probably) counter-comments, please > It's pointed out that the great depression was caused by a number of > factors. However, one of those was that despite the booms of the 20s the > wealth of the world's industrial nations was still concentrated in only a > very few hands. I think you'll find that the concentration of wealth did nothing to enhance the business cycle. In fact, the concentration of wealth in Morgan's hands led to the prevention of a couple of similar crashes earlier in the century. Morgan had enough name and financial power to acheive liquidity during panics. 1929 was about the nasty effects of the democratization of capital, an almost insane dependence on leverege to make a big splashes in a short time, and general illiquidity. It's little more than the hubris of "get rich quick". Concentration of wealth bothers people for what amount to impractical reasons. The bother is still real, but railing about it doesn't generally accomplish much. > Why was this a problem then, indeed the exploitation of workers was nothing > compared to the which had existed in the 19th century. In truth, the workers could have walked away from those jobs at any time. "Exploitation" is a Marxist term, and Marxism is deprecated utterly. The workers look a lot like people who accepted higher payment for that work than they'd get for the alternatives. There may have been "company store" costs to that, but they apparently accepted them by not voting with their feet. > Why did this become a probloem in the 20s/30s? You have to seperate the crash from the Depression. They're related, but not particularly cause and effect. My opinion is that deflation and inflation were not understood at all in a modern manufacturing context at the time (or were not understood by the right people). If this balance is to be understood, it didn't happen until well into the Reagan Administration. There might have been *an* understanding post-WWII, but it's hard to say. When there are no cash flows, and government policy is to further restrict money supply, the result is a Depression, spun on the hub of deflation. What's really frightening is that even the experiments in Keynsianism up to WWII were inadequate to really fix things. The world economy found a new footing in war. The lesson of the 20th Century is told over and over again: Prohibition, Communism, Fascism, Hooverist money policy, Vietnam, Korea and the fall of the Shah all demonstrate clearly that allowing personal values to color public policy can be a disaster, and that furious activity is no substitute for understanding. Unfortunately, understanding takes a while. -- Les Cargill |
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