Lessons of the Great Depression
Written by Conrad
Wednesday, 03 December 2008
The best way to get a mental grasp about the current financial crisis is to look at a few past recessions and depressions. The most famous being the great depression of the 1930s but equally interesting is a much smaller recession that happened in England following the invention of the spinning jenny.
James Hargraves invented the spinning jenny in 1764. It could spin yarn eight times faster with the same amount of labour. The initial economic impact was that the price of yarn dropped and many yarn spinners lost their jobs. Violent riots ensued, many of the new machines were smashed and Mr Hargraves was forced to flee for his life.
Eventually the demand for yarn grew and because textiles were now significantly cheaper people started to consume more. Wild radical consumerist ideas such as changing your underwear weekly started. A regular change of clothes became possible for the common man. The industrial textile industry of the late 18th century was the fasted growing segment of the economy and was one of the driving forces that lead the UK into the industrial revolution.
What technology does is increase the efficiency with which we can produce more goods and services. If we do not consume more, we have a surplus of labour and people lose their jobs.
The same pattern repeated itself in the early 20th century. There were more new technological inventions in the late 19th and early 20th century than ever before. Combustion engine, production lines, transatlantic flights, radio and many others increased productivity. The biggest increase in output as a result of technological efficiency was the automobile sector where output of automobiles increased ten fold. Tractors and mechanization of farms increased the efficiency of food production.. Between 1923 and 1930 output per labourer increased 25%. However take home pay only increased by 8%.
The first person to predict the coming of the depression in the thirties was Henry Ford. He pointed out that even though technology now enabled factories to produce so much more, the average person could not afford to buy all the goods being manufactured.
In 1933 when throwing his support behind the industrial recover act Henry Ford stated "The factories are not stopped for the lack of money, but the lack of orders. Money loaned at the top means nothing. Money spent at the bottom starts everything." (1)
Eventually the world economies got out of their financial crisis because people started to consume more. Initially it was in the form of a wartime economy. More bombs, tanks, planes were produced, but after the war a new consumerist culture emerged.
The National Industrial Recovery Act instituted by President Roosevelt empowered consumers by ensuring a minimum wage, preventing labour exploitation and actively providing employment in government funded construction projects. Corporations that recognized the power of marketing constantly encouraged new forms of consumption.
For the next 70 years consumption kept up with the ability of technological efficiency to produce more and more stuff.
The relationship between technological efficiency and consumption continued into the 1990s when the economy started to slow down again. In an attempt to reinvigorate the economy large amounts of money were loaned to consumers in an attempt to get them to purchase more. This strategy did not work and 10 years later culminated in the sub prime mortgage crisis. (2).
Today the average worker is approximately 400% more efficient than a worker in the 1950s. In just eleven hours a worker can produce the same amount of goods and services as someone working 40 hours in the 1950s. It also means that 400% more stuff as to be consumed or people will loose their jobs.
The present economic problem is two fold.
Firstly, once adjusted for inflation, wages in North America have barely kept up with inflation. In a global context the situation is much more serious. When jobs are exported to third world countries with minimum labour standards, it creates a labour force that can't afford to buy all the goods and services being produced. This is a virtual identical repeat of the problem that caused the great depression.
Secondly, what we have been consuming is the planet itself. According the UN millennium report 60% of the worlds ecosystems are in substantial decline. According to a study done by Dalhousie University the worlds stock of large fish has decreased by 90%. Even the USA intelligence agency is warning that we will be facing series water shortages by 2025. What got us out of previous depressions and recessions is that people started to consumed more. If current surplus production capacity is balanced with increased consumption our ecological footprint will increase faster than it has ever done before.(3) World leaders are frantically trying to find new ways for consumers to return to their dutiful roles of spending more and more. If they succeed we are going to have a much bigger problem to deal with.
So what is the solution?
One potential solution that was implemented in 1933 by President Roosevelt during the great depression is to reduce the workweek from ten hours a day to eight hours a day. Instead of having a high unemployment rate, the work is shared so that more people can become employed.
Technological efficiency gives us a choice; we can either continue to work just as hard and exponentially consume and grow the economy, or we can translate those gains in efficiency into other more meaningful activities such as child rearing, education, arts and holding elected leaders accountable. It is not surprising to learn that countries that do have lower workweeks such as Norway, Holland and Germany are more egalitarian and have lower crime rates. This might be coincidental, but I suspect that when people have time to invest in other types of work besides trying to endlessly fill up landfills with junk, we create the opportunity for a healthier and wiser society.
In 1933 we changed from a 10 hour day to a 8 hour day. Maybe its now time to change to a 6 hour day.
1) When throwing his support behind the National Industrial Recover act
of 1933, Ford Declared: We've got to stop that gouging process if we want to see all of the people reasonably prosperous. There is only one rule for industrialists and that is: Make the best quality of goods possible at the lowest cost paying the highest wages possible. Nothing can be right in this country until wages are right. The
life of business comes forth from the people in orders. The factories are not stopped for the lack of money, but the lack of orders. Money loaned at the top means nothing. Money spent at the bottom starts everything."
Mass Production, the Stock Market Crash, and the Great Depression by Bernard C. Beaudreau page 113
2) Today many politicians are blaming the financial crisis on the sub prime mortgage failure. It is interesting to note from the time the stock market collapsed in 1929 it took over 4 years before the USA congress was willing to acknowledge that the depression was not a consequence of the stock market failures but rather a consequence fundamentals flaws in the economy itself.
3) It will increase faster than ever before because we are more industrially efficient than ever before.
The quotation is from "Workers of the World, Relax" by Conrad Schmidt (2006)
to watch the video from the Work Less Party, visit