Among economists and other intellectuals, it was widely thought that moving to a bimetallic standard might double the price level, because the market price of gold meant the ratio should have been 30 to 1. According to classical economics and Gresham’s Law (“Bad money drives out good”), silver would drive out gold, putting the United States onto a de facto silver standard.27 To return to the houses that Sloss wrote about: bimetallism would mean, in effect, that each $50,000 house should sell for $100,000. With that expected sales price, the buyer would be eager to sign at $50,000, while the builder would want $100,000. But expectations were muddy because the politics of bimetallism were uncertain and unprecedented. It is easy to see how the buyer and the builder might find it difficult to come to an agreement.
An 1893 article from the Chicago Daily Tribune illustrates how dramatic bimetallism’s effects might be:
If we continue the purchase of silver or make the coinage free at the ratio of 16 to 1 or 20 to 1, we shall practically demonetize gold and drive it out of the country and sink to a silver basis. This would mean to every wage-worker the loss of nearly one-half the purchasing power of his wages—to every bank depositor the loss of nearly one-half the value of his deposit. Free coinage of silver in this country would be the most gigantic fraud and robbery ever perpetrated on a people.28
How, then, is it possible that William Jennings Bryan came close to being elected president of the United States and committing that “fraud and robbery”? Bryan’s popularity came from a sequence of popular narratives about bimetallism that went viral because they seemed to justify, at least to some voters, that bimetallism was legitimate, or, more precisely, that bimetallism at a 16:1 or 20:1 ratio with gold was legit.
We mustn’t assume that the typical American had a deep, or even any, understanding of the monetary system. In the 1890s, most people in the United States were fundamentally confused about bimetallism and the existing monometallic (gold) standard. The confusion came because there were both gold and silver coins in circulation that were freely accepted as of equivalent value even though the gold content of a gold coin was worth in the metals market about twice the market value of a silver dollar. Also, there were paper dollars, the silver certificates, that had inscribed on them, “one silver dollar” and “payable to the bearer on demand.” Isn’t that a silver standard? In fact, however, if one brought 100 silver dollars or $100 worth of silver certificates to a US subtreasury office, then they would freely give 100 gold dollar coins in exchange. They would do this since failing to do so would disrupt the free convertibility of the gold and silver dollars. The key point that many people did not understand is that the US Treasury would not give gold dollars in exchange for metallic silver. If they did that, then the US Treasury would see a vast amount of silver presented for conversion in gold. Anyone could then have done this repeatedly: buy metallic silver on the market, exchange it for gold at the subtreasury, using the gold to buy more silver on the metals market, and repeat the process every day, which would allow one eventually to amass a huge fortune. But the supply of US silver dollars was limited by the US government.
Practically no one paid any attention then to the type of currency they received or spent. In fact, most people didn’t even know how to convert their cash into gold if they wanted to.
Why, then, did narratives of unsound money circulate so strongly? Why did the call for a bimetallic standard become so vehement in the last decade of the nineteenth century? One reason is obvious: the idea was promoted that debtors would see their burden cut in half if they could pay in silver at 16 to 1. That idea must have seemed like a form of salvation to them, and any story suggesting the possibility of such a change would certainly be appealing. Recall, too, that the bimetallism narrative often was framed as revenge for the “Crime of 1873” through which an act of Congress ended the bimetallic standard.
Put these together: Bimetallism was a proposal to make a seemingly subtle and clever change in the backing of the currency that most uninformed people wouldn’t even grasp, like the cryptography behind Bitcoin that very few understand today. So bimetallism was a cool idea, or a “capital idea” as they would say in the 1890s. On top of that, bimetallism might compensate for perceived injustice, the source of much anger. The two together gave bimetallism intense contagion.
The Yellow Brick Road
The peculiar contagion of gold and silver narratives is exemplified by the appearance of a social epidemic surrounding a children’s book by then-obscure author L. Frank Baum. The Wonderful Wizard of Oz was published in May 1900, at the start of the second presidential election campaign between McKinley and Bryan, when bimetallism was again an issue. The book is a children’s story about a young girl named Dorothy, who, with her little dog Toto, is transported to the mysterious Land of Oz. The story is a sort of odyssey, as Dorothy, wearing magical silver slippers and pursued by a witch, follows a yellow brick road to meet the Wizard of Oz. Accompanying her are Toto and three newfound friends: a scarecrow, a tin man, and a lion. In the end, the Wizard of Oz is shown to be a weak little man who is a phony.
Some people read the book as a parable: the yellow brick road is the gold standard, the silver slippers are the Free Silver movement, the Wizard of Oz is President McKinley, and the Cowardly Lion is William Jennings Bryan. Oz itself is the abbreviation for ounce, the usual unit of measurement for gold or silver.
The book did not garner critical acclaim, but it was a best seller, and became contagious. By 1902 it was a “musical extravaganza” onstage. Its success went meteoric with the release of the movie The Wizard of Oz, starring Judy Garland, in 1939. (The film version changed the silver slippers into ruby slippers to take full advantage of the relatively new color film.) Interest was renewed again in 1972 with an animated Journey Back to Oz with the voice of Garland’s daughter, Liza Minnelli. The best-selling 1995 novel Wicked: The Life and Times of the Wicked Witch of the West by Gregory Maguire led to a Broadway musical, Wicked: The Untold Story of the Witches of Oz, which has been running continuously on Broadway since 2003, as of 2018 the sixth-longest-running Broadway musical ever.29 There are other examples too, including a 2013 movie Oz: The Great and Powerful and a future Oz TV series under development in 2019 by Legendary Entertainment. The success of the Oz constellation might be a vestige, barely recognizable, of a gold-silver narrative that went viral over a century ago.
The End of the Gold Standard
The Bryan proposal to lower the precious-metal value of the US dollar was an extremely emotional issue in the 1890s. It was so because of a narrative that economic historians Barry Eichengreen and Peter Temin call the “mentality of the gold standard” and the “rhetoric of morality and rectitude” that the gold standard represented.30
By the 1930s, with the help of John Maynard Keynes, the narrative had changed owing to the sense that unemployment was at catastrophic levels. An article by Mark Sullivan in the Hartford Courant in November 1933, around the time of the devaluation of the US dollar from 1/20.67 ounce of gold to 1/35 ounce of gold and the suspension of convertibility, explained how the new narrative about the gold standard in the 1930s differed from that of earlier years. The difference was partly a matter of new words. Sullivan quotes Talleyrand, Napoleon’s chief diplomat, that “the business of statesmanship is to invent new terms for institutions which under their old names have become odious to the public.”31 The supporters of the devaluation apparently understood this. By the 1930s, the new word devaluation had massively replaced the negative-sounding debasement and inflation. Devaluation refers to a constructive action of enlightened governments, while debasement and inflation connote a moral failing.
Other countries had already suspended convertibility of currency to gold coin before the United States did so in a series of steps in 1933–34. On the advice of eminent economists such as Keynes, the United Kingdom had suspended the gold standard in 1931. The final end of the gold standard occurred in 1971 in the United States under President Richard Nixon,
with the switch to a floating dollar. The public accepted the end of the gold standard, and economic dislocations were few.
The gold standard narrative is certainly not prominent today. President Trump tested the waters by advocating for it, but the public reaction was largely neutral. However, the fascination with narratives about money certainly lives on, as our running Bitcoin example illustrates. It seems likely that the future will bring new mutations of the money narratives, which will arouse a segment of the public, and which will affect future economic developments.
In these first three chapters describing perennial narratives, we have seen how narratives can affect confidence in others’ confidence, the desire to engage in conspicuous consumption, and beliefs about monetary institutions. In the next two chapters we consider recurring narratives about the advance of dramatic new technologies that had the potential make human skills obsolete and that forced people to think about fundamentally changing standards of living and working.
Chapter 13
Labor-Saving Machines Replace Many Jobs
Concerns that inventions of new machines that are powered by water, wind, horse, or steam, or that use human power more efficiently, might replace workers and cause massive unemployment have an extremely long history. These perennial narratives are reappearing with modification in the twenty-first century and could become important problems damaging confidence, as they did in the past.
In this chapter, we consider a number of technology narratives, often using the terms labor-saving machinery or technological unemployment, that went epidemic and then faded (Figure 13.1), including the Luddite event in 1811, the Swing Riots in 1830, the depression scare of 1873–79, the depression of 1893–97, and the extended Great Depression of 1930–41.
From Ancient Times to the Swing Riots
Talk of automatic machinery replacing human muscle power goes back to the ancient world. The Iliad, Homer’s eighth-century BCE epic, describes a driverless vehicle, the tripod of Hephaestus, that navigates on its own. Homer refers to the vehicle as “automatic.”1 Aristotle, around 350 BCE, raised the possibility of machines replacing humans:
For if every instrument could accomplish its own work, obeying or anticipating the will of others, like the statues of Daedalus, or the tripods of Hephaestus, which, says the poet, “of their own accord entered the assembly of the Gods”; if, in like manner, the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants, nor masters slaves.2
FIGURE 13.1. Frequency of Appearance of Labor-Saving Machinery and Technological Unemployment in Books, 1800–2008
Narratives of losing one’s job to a machine have a long history, with mutations creating different epidemics. Source: Google Ngrams, no smoothing.
The statues of Daedalus were said to be able to walk or run, like modern-day robots. Hero of Alexandria in the first century BCE wrote a book, Automata, describing how to make a programmable tripod of Hephaestus, as well as a coin-operated vending machine and other remarkable devices. Water-powered mills began grinding grain into flour by the first century BCE. So the idea of machines replacing jobs was in place long before the start of the Common Era, along with fears of unemployment.
Searching eighteenth-century newspapers, we find evidence of great interest in how technological advances are changing the economy, but without much alarm about technology’s effects on jobs. The term industrial revolution does not come up at all in a search of eighteenth-century newspapers—historians introduced that term later on. But by the nineteenth century, concerns about technology-based unemployment took center stage. The narrative was particularly contagious during economic depressions when many were unemployed.
The defining event was a protest in 1811 in the United Kingdom by a group that claimed a mythical man, Ludd, as their spiritual leader. The mutation that renewed the old narrative and made it so virulent in 1811 was a new kind of power loom that was eliminating weavers’ jobs. The word Luddite continued to appear regularly in newspapers in following years and today remains a synonym for a person who resists technological progress.
In 1830, the Swing Riots in Britain were a response to the loss of farm jobs that occurred when the new mechanical thresher entered widespread use. The rioters’ spiritual leader was the imaginary “Captain Swing,” and again rioters destroyed the machinery. Certainly the decline in agricultural employment due to mechanization was widely noted. It was a frightening change for the people in the advanced countries undergoing the fastest mechanization. Living on and working the land was an ancient tradition, and now workers had to do something entirely new to earn their keep, and the new jobs probably required moving to crowded urban areas. In describing their fears, they did not use the words technological unemployment, computers, or artificial intelligence, but they did have their own terms for the phenomenon, including labor-saving, as in labor-saving appliances, labor-saving devices, labor-saving inventions, labor-saving machines, and labor-saving processes.
Depression Narratives of the 1870s
In the depression of 1873–79, a particularly strong depression in the United States and Europe, concern that labor-saving inventions were at least partly to blame for high unemployment took center stage in the popular consciousness, likely worsening the depression. In the United States, this depression is typically attributed to financial speculation leading to the banking panic of 1873, but the fear-inducing narrative about a long-term loss of jobs and job prospects due to labor-saving inventions may help to explain why the depression went global. Certainly the depression of the 1870s was accompanied by farmers’ accelerated adoption of labor-saving machinery, along with more workers destroying machines and hired farm laborers threatening violence.3 Underneath the violence was widespread concern about the outlook for the common laborer.
In the middle of that depression, the famous 1876 Centennial Exhibition in Philadelphia, a celebration of one hundred years of US independence, turned out to be more a testimony to labor-saving machinery than a remembrance of the American Revolution. The exhibition did display some of George Washington’s personal items, but not much more about history. Instead, it presented examples of modern industry from twenty countries. The visitor’s guide describes one of the most dramatic exhibits in the gigantic Machinery Hall:
In the centre of this building is located a 1400 horse-power Corliss engine, capable of driving (if required) the entire shafting necessary to run all the machinery exhibits. This engine has a 40-inch cylinder with 120-inch stroke, and was constructed for this especial service. It will be run when required, but it is expected that the engines on exhibition will do a portion of the work of driving the shafting. The main lines of shafting are at a height of 18 feet above the floor, and extend almost the entire length of the building; countershafts extend from the aisles into the avenues at necessary points.4
The exhibition also gave reason for alarm regarding jobs in agriculture:
Among the most extensive and interesting exhibits will be the agricultural machines in active operation, comprising everything used on the farm or plantation, in tillage, harvesting, or preparation for market; manufactured foods of all kinds, and all varieties of fish, with the improved appliances for fish-culture.5
Though impressive, the Centennial Exhibition’s technological exhibits led to fears about jobs and about the horrible human effects of unemployment. The Philadelphia Inquirer in 1876 wrote:
Want of employment leads to discouragement, hopelessness and despair. It overflows almshouses, charitable institutions, prison houses and penitentiaries. It degrades manhood. It ruins families. Misery, crime and suicide follow in its wake. It supplies ready victims for the gallows.… To-day one man does what would have been the work of a hundred, fifty years ago. The steam-power of seven tons of coal is sufficient to make 33,000 miles of cotton thread in ten hours, while, without machinery, this would equal the hand labor of 70,000 women! Consumption does not keep pace with the production b
y machinery. Markets become glutted.6
As a result of these fears, in 1879 Senator George Frisbie Hoar of Massachusetts set up a committee to “enquire and report as to the extent to which labor-saving processes have entered into production and distribution of products to the displacement of manual labor.”7
However, by 1879, a counternarrative had already developed: labor-saving processes will increase the number of jobs, not decrease them. One editorial in the Daily American, dismissing the worries about replacement of labor by machines, noted,
The whole tendency of labor-saving processes is towards the elevation of the laboring classes, and if the change is accompanied by some hardship, so is every step in the progress of the human race.8
This editorial sounds very much like arguments made today to reassure workers regarding their fear of job loss, but the overall discussion of labor-saving machinery during the depression of the 1870s suggests that such arguments were not persuasive.
Henry George’s 1879 best seller, Progress and Poverty, faced these issues head on. The book held that the immense technological advances of the time were creating inequality and increasing the number of people who lived in poverty. The book asserted:
For, if labor-saving inventions went on until perfection was attained, and the necessity of labor in the production of wealth was entirely done away with, then everything that the earth could yield could be obtained without labor, and the margin of cultivation would be extended to zero. Wages would be nothing, and interest would be nothing, while rent would take everything. For the owners of land, being enabled without labor to obtain all the wealth that could be procured from nature, there would be no use for either labor or capital, and no possible way in which either could compel any share of wealth produced. And no matter how small population might be, if any body [sic] but the land owners continued to exist, it would be at the whim or by the mercy of the land owners—they would be maintained either for the amusement of land owners, or, as paupers, by their bounty.9
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