Finding the present somewhat tedious, SLL decided to rummage through the historical attic. We found all sorts of interesting facts, some of which seem contrary to received wisdom. Our advice is to trust the experts, no matter what the historical record purportedly says.
Thousands of books have been written about the Civil War; if there’s an authoritative history of the period that followed we couldn’t find it. Of course, that time, known as the Industrial Revolution, is a dark chapter and it’s understandable why nobody would want to write about it. After extensive rummaging we found a few facts that can only be dismissed as anomalous oddities. The trend growth rate of both the economy and incomes was the highest in U.S. history, with the 1870s and 1880s marking the apex. Somehow this was achieved while the federal, state and local governments’ combined spending was less than 5 percent of the GDP. They did spend money on the railroads, but curiously, the only transcontinental railroad that didn’t go bankrupt was James Hill’s Great Northern, the one line that received no subsidies or land grants.
In addition to crisscrossing the country with railroads, the Industrial Revolution gave us a number of advancements that, while they don’t hold a candle to our Internet, are still of some minor significance, including mass production, automobiles, airplanes, telephones, elevators and the skyscrapers they made possible, the McCormick reaper and the mechanization of agriculture, standardized petroleum distillation, epic philanthropy, breakneck progress in chemistry, medicine, biology, zoology, botany and physics, the phonograph, the motion picture projector and the light bulb. The inventor of the last three, Thomas Edison, had 1093 U.S. patents and unbelievably, no Ivy League degrees. He had three months of formal education and was home schooled by his mother.
Of course the period had its booms and busts. Researchers are still unable to determine how the economy recovered from its busts without quantitative easing, deficit spending, unemployment insurance, safety nets, TARP, TALF, HAMP and the rest of our enlightened acronyms, but somehow it did. It’s a mystery, but capital poured into this country from around the world, especially after the gold standard was reinstated in 1879, although there was no SEC, CFTC, FINRA, SIPC or FDIC to protect it. Some have argued that the gold standard was responsible for the rising real value of the dollar that characterized the period—a dollar bought more in 1912 than 1879—but there’s a gold nut in every crowd. By the way, a dollar in 2014 buys what a few pennies did in 1912. Another mystery—labor poured in as well, although there was no Department of Labor, Fair Labor Standards Act or minimum wage to protect it. Millions of immigrants encountered widespread discrimination and exploitation with no welfare state benefits, and attempts at unionization were often met with armed force, but still they came.
Yet another mystery—houses were built and bought without Fannie Mae, Ginnie Mae, Freddie Mac, the FHA or the FHLBs, and people operated under the delusion they were to live in, not speculative investments. One aspect of that time surely garners the approval of most of us, and certainly Warren Buffet and President Obama—tax equity. Both John D. Rockefeller and his secretary paid income taxes at the same rate—zero. Some anti-tax curmudgeons have argued that the lack of income taxes had something to do with those millions of immigrants suffering steerage to come to our shores, but the rest of us know better. Regrettably, with limited wherewithal, the government couldn’t do many of the things we now expect it to do. That would include waging war. The Spanish-American War was an odd-lot skirmish compared to World Wars I and II, Korea, Vietnam, Afghanistan and Iraq.
This dark time drew to a close in 1913, with the passage of the income tax and the Federal Reserve Act. The 1920s and 1930s offered a laboratory test that demonstrated the superiority of these innovations. Both decades opened with economic downturns, debt contraction and deflation. In the twenties, President Harding and Treasury Secretary Andrew Mellon reduced federal spending, tax rates, and the budget deficit, and believing that debt could be reduced and savings promoted by higher interest rates, didn’t fight the market as interest rates rose. The contraction was over in a year. In the thirties, President Hoover and then President Roosevelt, providing the playbook for Presidents Bush and Obama, increased spending, set up new regulatory bodies, ran deficits, pressured the Federal Reserve for lower interest rates, and raised taxes. Roosevelt, like Obama, excoriated businesspeople for not paying enough taxes or investing enough in the economy. At the end of the decade the unemployment rate was still in double digits, but the value of the new macroeconomic methods had been proved. That’s why we know the twenties as the Great Depression and the next decade as the Roaring Thirties.
Every year, the high and the mighty descend on Davos, Switzerland. Since the financial crises, the number one item on the agenda has been to consider cures for the world economy, which seems to have lost its get up and go. The phrase “secular stagnation” gets tossed around a lot. Fortunately, the Davos worthies have learned the lessons of the past. Every proposal includes more spending and debt, more central bank play money, increased regulation, new agencies and new duties for the ones we already have, more transfer payments from the rich to the poor—with a cut for the bureaucrats—and, just coincidentally, more power for the high and the mighty. Neither: Leave Us Alone, nor: Get the Hell Out Of The Way has been on the agenda, but everybody knows those remedies, straight out of the benighted Industrial Revolution, would just make our problems worse.
This is a reprise, with some revisions, of an article that originally appeared on Straight Line Logic on January 31, 2012, on the predecessor platform to its current WordPress platform.
A GOLD STANDARD NOVEL