This little story is widely remembered in the United States today as a moral lesson. A search on “I can’t tell a lie” and “Washington” gets 188,000 Google hits, over a third as many as “I can’t tell a lie” by itself. This Washington story is on its way to usurping a basic sentence. Why is it such a contagious story? It must be because it is about the first president of the United States, and it has patriotic appeal. In that context, it is a great narrative; about almost anyone else, it would be nothing. There isn’t much to the story, just that as a child Washington didn’t lie. “I can’t tell a lie” and “Lincoln” gets 102,000 hits on Google, as the equally famous President Lincoln is introduced into the story and sometimes even substituted for Washington. The story, involving two legendary US figures, is part of a constellation of economic narratives about honesty. Those narratives seem to be part of a tradition of honesty, not unique to the United States but maybe stronger than in some other countries, that has likely helped propel the US economy by creating trust in business dealings and by limiting bribery and corruption.
Often, the basic human-interest element of an economic narrative is embodied in somewhat different stories going viral at about the same time. Different versions of the narrative substitute different celebrities who are appropriate for the target audience. For new narratives involving celebrities, there are already familiar narratives about the celebrities in memory, which can enhance contagion.12 The constellation of narratives built around celebrities is self-reinforcing. In extreme cases, the celebrities attain superhuman status, and associated ideas begin to seem natural and obvious. George Washington’s picture is on every one-dollar bill and on every quarter-dollar coin in the United States.
Sometimes, everyday people coin apt or pithy quotes, but those quotes become contagious only after the story is altered to substitute the name of a famous person as the originator of the quote. For example, since the middle of the twentieth century the socialist slogan “From each according to his ability, to each according to his needs” has been attributed to Karl Marx. Actually, those words were emphasized by socialist philosopher Louis Blanc in 1851, when Marx was virtually unknown, and a variation of the phrase appears in the Bible.13 Louis Blanc was more famous than Marx until after 1900, but today he is largely forgotten. Thus the quote became attributed to Marx in the mid-twentieth century, by unknown persons who started a mutated epidemic by attaching a new celebrity to it.
The website Wikiquotes tracks down the origins of famous quotes, and typically the famous person was quoting someone else, if he or she even said it at all. But, no matter: Wikiquotes notwithstanding, the story of the quote’s true source will never go viral because it is not contagious. And contagion is the all-important element: if the narratives are not repeated in human communications, they will be gradually forgotten. Narratives involving celebrities can suddenly lose their contagion if some event discredits the celebrity, whether or not the ideas in the narrative are true or good.
As we’ve seen, the choice of celebrities has patriotic dimensions, as people have a preference for individuals in their own country or their own ethnic group. This preference helps to explain why the epidemic spread of narratives is often not seen or acknowledged. To acknowledge it typically requires admitting its foreign origin. Practically no one has an incentive to present an idea as coming from abroad, except in unusual circumstances. Thus we have the illusion that important ideas came spontaneously to a compatriot, and we see nothing of the idea’s true world epidemic. Beyond celebrities, there are issues of party or regional or religious loyalty.
Patriotism does not mean just flag-waving assertions of loyalty. It is also the feeling that only in our own country does anything important, good or bad, happen. For example, CBS News in the United States has a regular morning feature, “Your World in 90 Seconds,” that purports to tell you very succinctly everything you need to know about today’s news. But the name is inaccurate because the report doesn’t cover the world. Virtually all of the news stories are from the United States (with the exception of tidbits about the British royal family and Vladimir Putin). Maybe the title is accurate for many of the Americans who think that the United States is the world, despite having only 5% of the world’s population.
* * *
We have seen seven key propositions with respect to economic narratives:
Epidemics can be fast or slow, big or small. The timetable and magnitude of epidemics can vary widely.
Important economic narratives may comprise a very small percentage of popular talk. Narratives may be rarely heard and still economically important.
Narrative constellations have more impact than any one narrative. Constellations matter.
The economic impact of narratives may change through time. Changing details matter as narratives evolve over time.
Truth is not enough to stop false narratives. Truth matters, but only if it is in-your-face obvious.
Contagion of economic narratives builds on opportunities for repetition. Reinforcement matters.
Economic narratives thrive on human interest, identity, and patriotism. Human interest, identity, and patriotism matter.
In part III, we use these seven propositions as a framework to look at historically important economic narratives, to identify what we can learn from economic narratives and their consequences in the real world.
Part III
Perennial Economic Narratives
Chapter 9
Recurrence and Mutation
In previous chapters we’ve focused on the elements of narrative economics, exploring how popular stories go viral, morph into epidemics, and influence economic and political events. We illustrated the discussion with several real-world examples, including Frederick Lewis Allen’s insights into the Great Depression, John Maynard Keynes’s analysis of the narrative origins of World War II, the Bitcoin narrative, and the Laffer curve narrative.
In this part of the book, we consider nine of the most important narrative constellations. These perennial narratives won’t completely go away, and they pop up in many mutated forms. They touch on some of the most important themes in the air today: the idea that machines will replace all workers and cause mass unemployment, that a return to the gold standard would provide greater monetary stability, that real estate and stock markets hold special value, and that businesses or labor unions are evil. These ever-shifting and ever-renewing narratives affect economic behavior by changing the popular understanding of the economy, by altering public perceptions of economic reality, by creating new ideas about what is meaningful and important and moral, or by suggesting new scripts for individual behavior.
The chapters in this part demonstrate these perennial narratives’ overarching and ever-shifting influence on society today, explaining how many of the challenges that we tend to attribute to discrete contemporary forces are in fact influenced profoundly by narratives—stories that took root generations and even centuries ago but that reappear in newly configured expressions. Engaging with these examples challenges the way we think about the economy, from large-scale phenomena such as depressions and wars, through major economic forces such as the stock market and real estate, through socially sustaining institutions such as work and technology.
As we’ve seen, a disease epidemic, such as influenza, measles, or mumps, can recur after a mutation changes its contagiousness. Disease epidemics tend to recur after a mutation overcomes acquired immunity, though sometimes the mutation is a result of a change in environmental conditions that increase the disease’s contagion. With influenza, for example, there are regularly recurring epidemics and occasional massive and dangerous epidemics, depending on subtle differences in the viral genome or environmental conditions. Thus the 1918 flu pandemic, often called the Spanish flu, cost more lives than World War I did. The Spanish flu in epidemiology mirrors the trajectory of the Great Depression of the 1930s in economics, except that narratives rather than viruses carried the “disease” of the Great Depressio
n. In both cases, the virulence was especially intense and surprising. So, before we move into the details of perennial economic narratives, it is helpful to detail the ways in which these two essential mechanisms—recurrence and mutation—define and inform economic narratives.
How Economic Narratives Mutate
Just as mutations in influenza may spark a new contagion of a disease with manifestations similar to those of previous outbreaks, so too do economic narratives mutate. But we must be careful in separating the threads of similarity and difference. Typically, when a narrative reappears, say in another country or a few decades later, the mutated narrative tends to have features different from those of the original narrative—a different celebrity, different visual images, a different punch line. For example, in chapter 12 we discuss the gold standard narrative and the bimetallism narrative, which have some deep similarity to the Bitcoin narrative but with William Jennings Bryan substituted for Satoshi Nakamoto. The next new money narrative will have yet another celebrity’s name. Just as Bryan is mostly forgotten today, Nakamoto will likely be mostly forgotten in the future. Someone who creates a highly successful new electronic currency in the future will best craft a contagious story about it, as by attaching a popular celebrity’s name to it. This variation may be necessary for contagion.
A mutation in a narrative can also occur when some event transpires to change associations of the narrative. For example, some public event may underscore that a narrative is or is not politically correct. People of course hesitate to repeat stories that would now associate them with such a scandalous event.1
Mutations in a narrative or in the environment surrounding the narrative may cause it to become an economic narrative by tying it better to economic decisions. A mutation may also occur that increases contagion but twists the story so that it ceases to be the same economic narrative. It may then morph into some different moral or lesson afterward. For example, as we shall see below, a narrative about labor-saving machines replacing jobs (chapter 13) created a sense of fear during the Great Depression of the 1930s, but the same narrative mutated (chapter 14) to create a sense of opportunity during the dot-com boom of the 1990s. These cases can be confusing to those who study a narrative, for some key words in the narrative may come up in searches for a much longer span of time than the period when they had a specific economic interpretation.
Narratives may be relevant to economic events even if the timing of the narrative’s appearance does not coincide with the event. When it goes epidemic, a narrative may inspire a latent fear, such as a fear that technology will someday replace one’s job, which may result eventually in changes in economic behavior years later when some other narrative or news creates a sense that the feared replacement is imminent.
How Economic Narratives Recur
The mutations that cause the recurrence of narratives can be random accidents, but more likely creative people, including professional marketing experts, politicians, phishers, and just plain social media enthusiasts, have been involved in some element of their design. The creative types know that the older narratives proved their potential by going viral long ago but are no longer contagious. The celebrity attached to the original narrative may be forgotten or discredited. The narrative may have been co-epidemic with another lost narrative. Thus the creative people must try to link it to some extant epidemic.
Recurrent economic narratives tend to have an international scope, partly because people in the news media long ago learned that they should observe the news in foreign countries, for what is viral in one country can often be made contagious in another. But like contagious disease epidemics, at any given time the narrative epidemics tend to be stronger in some countries than in others. In addition, narrative epidemics are more similar in countries that share a language or borders. The examples in this book come mostly from the United States, the country in which I have lived my life and the country about which I have the best intuition and knowledge. Also, the United States has long documented its business cycle history. The National Bureau of Economic Research (NBER) maintains a chronicle of business cycle expansions and contractions back to the year 1854.
Some critics might argue that institutional changes in the United States have been so profound and transformative that there is practically nothing useful to be learned from distant history. However, the events and reactions of 50, 100, and 150 years ago are surprisingly similar to what we see and experience today. In today’s narratives, we see the echoes of these historical periods. Remember the story about the huckster who offers a coin toss bet with the words “Heads I win, tails you lose” and the sucker who took the bet? That little gem of a narrative has been in circulation since 1847 (and perhaps earlier). At that time, it was sometimes attached to stories of the Whig Party, Zachary Taylor (twelfth president of the United States), or Richard Cobden, the foremost nineteenth-century advocate of free markets, whom we are unlikely to think about today. In the mid-nineteenth century, people weren’t telling exactly the same stories with the same interpretations that we see today, but the themes are surprisingly similar over time.
Big Economic Events, Big Narrative Lessons
The biggest economic events in the United States since 1854 as defined by the NBER include the following. We return to these events frequently in later chapters.
A depression from 1857 to 1859, followed by the secession of southern states in 1860–61 and the US Civil War (1861–65). The Civil War was the most lethal war in US history, responsible for more US fatalities than all other US wars combined.2
A depression from 1873 to 1879 that led to the publication of the best-selling economics book of all time in the United States, Henry George’s Progress and Poverty (1879), which accused the unrestrained free-market system of producing worsening inequality.
A depression in the 1890s comprising two NBER contractions, 1893–94 and 1895–97. The extended depression, during which unemployment always exceeded 8%, ran from 1893 to 1899. This depression coincided with an aggressive phase in US history, with the United States launching the Spanish-American War and the Philippine War.
A series of three short contractions from 1907 to 1914, starting with the Panic of 1907, which ended only with the heroic advances made by J. P. Morgan and other bankers. These events led to the creation of the Federal Reserve System to prevent such banking crises in the future. These contractions were followed by World War I, which began in 1914.
A brief but extreme depression from 1920 to 1921 that included the sharpest deflation ever experienced in the United States.
The Great Depression after the 1929 stock market crash, which morphed into a worldwide depression. In the United States the extended depression ran from 1930 to 1941, with unemployment uniformly exceeding 8%. The Great Depression took its name from the 1934 Lionel Robbins book with that title. It comprised two NBER contractions, 1929–33 and 1937–38. The worldwide depression immediately preceded World War II.
A severe recession in 1973–75, associated with a war in the Middle East and an oil embargo. Economist Otto Eckstein called this period the “Great Recession” in his 1978 book with that title, inviting comparison with the Great Depression.
A severe recession from 1980 to 1982, comprising two NBER contractions, a short contraction within the year 1980 and, soon after, another contraction 1981–82, associated with a war in the Middle East. At the time, this recession was called the “Great Recession,” again inviting comparisons with the Great Depression.3
A severe recession from 2007 to 2009, also named the “Great Recession,” once again inviting comparisons with the Great Depression, and this time the name really went viral and has stuck to this day.
These recessions and depressions are narratives in themselves, active in producing subsequent events. Thought in any economic downturn tends to emphasize the last large downturn, with attention also paid to the record-holder. In the United States and much of the world the record-holder is, of course, the Great Depression.
Usually, economic historians who attempt to identify the causes of recessions and depressions list events that were contemporary with the downturns: bank failures, strikes, acts of government, gold discoveries, crop failures, stock market events, and so on. Such information is useful, but our goal is to consider these depressions and recessions in terms of the prominent narratives and narrative constellations that likely helped bring them about or increase their severity. Ultimately, however, we can give no final proof of causality because these events are so deeply complicated, and multiple narratives are involved. But the cumulative influence of narratives in the gestation of these very serious economic events is beyond circumstantial.
The first step in our task is organizing and classifying some of the major economic narratives and the mutations that allowed them to recur over long intervals of time. The remaining chapters in this part describe nine perennial economic narratives, along with some of their mutations and recurrences. Most readers will recognize these narratives in their most recent forms but not in their older forms:
Panic versus confidence
Narrative Economics Page 13