The theory of overproduction or underconsumption picked up steam in the 1920s. It was mentioned within days of the stock market crash of October 28–29 1929, in interpreting the crash.27
The real peak of these narratives was in the 1930s. Underconsumption narratives appeared five times as often in ProQuest News & Newspapers in the 1930s as compared with any other decade. The narrative has virtually disappeared from public discourse, and the topic now appears largely in articles about the history of economic thought. But it is worth considering why it had such a strong hold on the popular imagination during the Great Depression, why the narrative epidemic could recur, and the appropriate mutations or environmental changes that would increase contagion. Today, underconsumption sounds like a bland technical phrase, but it had considerable emotional charge during the Great Depression, as it symbolized a deep injustice and collective folly. At the time, it was mostly a popular theory, not an academic theory.
Despite the obvious reality that deflation necessitates wage cuts, an opposing “purchasing power theory of wages” became popular in the 1930s. This theory said that “excessive competition” had forced down wages to such an unfair low level that workers could not afford to consume the output. Thus the Depression could be cured by forcing all employers to raise wages. The economist Gustav Cassel in 1935 called these ideas “charlatan teachings” that “have recently taken a conspicuous place in popular discussion of social economy as well as in political agitation.”28
But the public did not dismiss such charlatan teachings. In the 1932 presidential campaign, Franklin Roosevelt ran against incumbent Herbert Hoover, who had been unsuccessful with deficit spending to restore the economy. Roosevelt gave a speech in which he articulated the already-popular theory of underconsumption. His masterstroke was putting it in the form of a story inspired by Lewis Carroll’s famous children’s book Alice’s Adventures in Wonderland. In that book, a bright and inquisitive little girl named Alice meets many strange creatures that talk in nonsense and self-contradictions. Roosevelt’s version of this story replaced his opponent Hoover with the Jabberwock, a speaker of nonsense:
A puzzled, somewhat skeptical Alice asked the Republican leadership some simple questions.
Will not the printing and selling of more stocks and bonds, the building of new plants and the increase of efficiency produce more goods than we can buy? No, shouted the Jabberwock, the more we produce the more we can buy.
What if we produce a surplus? Oh, we can sell it to foreign consumers.
How can the foreigners buy it? Why we will lend them the money.
Of course, these foreigners will pay us back by sending us their goods? Oh, not at all, says Humpty Dumpty. We sit on a high wall of a Hawley-Smoot Tariff.
How will the foreigners pay off these loans? That is easy. Did you ever hear of a moratorium?29
Roosevelt used this story to point out the folly of Republican policy, with its attempts at economic stimulus, but his campaign did not suggest any solution to the problem. Instead, in his “Alice” speech, he proposed to install investor protections. He also promised not to make the overly optimistic statements that President Hoover had, and he noted that he would not encourage more stock market speculation. Elected in 1932, Roosevelt signed in 1933 the National Industrial Recovery Act, creating the National Recovery Administration, which attempted to enforce fair wages. We discuss the outcome of this experiment in chapter 17.
On the face of it, underconsumption seemed to explain the high unemployment of the Great Depression, but academic economists never seriously embraced the theory, which had never been soundly explained. Often the theory was presented as an adjunct to technological unemployment: underconsumption suddenly became a problem in the 1930s because of the nation’s newfound ability to produce more than it needed. But other accounts of underconsumption make no mention of technology. For example, in 1934, Chester C. Davis, administrator of the Agricultural Adjustment Administration, described how his agency was “redistributing purchasing power to the masses” so as to help them spend more and thereby deal with underconsumption. He explained why he thought technological unemployment had suddenly become so important:
Why does our nation seem to need this supplement to the market mechanism, after 158 years? You have the answer if you will go back into history and consider the gradual concentration of business into great corporations, of farmers into marketing cooperatives, of labor into collective bargaining associations. These have reduced the area of the free market and have increased the power of individuals controlling these concentrations.30
In other words, Davis saw the concentration of business as amplifying the problem of technological unemployment.
The massive unemployment set off serious social problems. For example, in the United States it caused the forced deportation (then called repatriation) of a million workers of Mexican origin. The goal was to free up jobs for “real” Americans.31 The popular narrative supported these deportations, and there was little public protest. Newspaper reports showed photos of happy Mexican Americans waving goodbye at the train station on their way back to their original home to help the Mexican nation.
The dial telephone also played an important part in narratives about unemployment and the associated underconsumption. The older telephone, which had no dial, required a caller to pick up the phone receiver and connect to a telephone operator, who said, “Number please?” The caller had to tell the operator to make the connection. The dial telephone, which required no contact with an operator, was not invented during the Great Depression; in fact, the first patent for a dial telephone dates to 1892. The transition from the non-dial telephone to the dial telephone took many decades. However, during the Great Depression, there rose a narrative focus on the loss of telephone operators’ jobs, and the transition to dial telephones was troubled by moral qualms that by adopting the dial phone one was complicit in destroying a job. For example, the US Senate in Washington, DC, replaced its non-dial phones with dial telephones in 1930, the first year of the Great Depression. Three weeks after their installation, Senator Carter Glass introduced a resolution to have them torn out and replaced with the older phones. Noting that operators’ jobs would be lost, he expressed true moral indignation against the new phones:
I ask unanimous consent to take from the table Senate resolution 74 directing the sergeant at arms to have these abominable dial telephones taken out on the Senate side … I object to being transformed into one of the employes of the telephone company without compensation.32
His resolution passed, and the dial phones were removed. It is hard to imagine that such a resolution would have passed if the nation had not been experiencing high unemployment. This story fed a contagious economic narrative that helped augment the atmosphere of fear associated with the contraction in aggregate demand during the Great Depression.
The loss of jobs to robots (that is, automation) became a major explanation of the Great Depression, and, hence, a perceived major cause of it. An article in the Los Angeles Times in 1931 was one of many that explained this idea:
Whenever a man is replaced by a machine a consumer is lost; for the man is deprived of the means of paying for what he consumes. The greater the number of Robots employed, the less is the demand for what they produce for men cannot consume what they cannot pay for.
This condition is inescapable. No political panaceas can alleviate this purely human distress.33
Even if the man hasn’t lost his job yet, he will consume less owing to the prospect or possibility of losing his job. The US presidential candidate who lost to Herbert Hoover in 1928, Al Smith, wrote in the Boston Globe in 1931:
We know now that much unemployment can be directly traced to the growing use of machinery intended to replace man power.… The human psychology of it is simple and understandable to everybody. A man who is not sure of his job will not spend his money. He will rather hoard it and it is difficult to blame him for so doing as against the day of want.34<
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Albert Einstein, the world’s most celebrated physicist, believed this narrative in 1933, at the very bottom of the Great Depression, saying the Great Depression was the result of technical progress:
According to my conviction it cannot be doubted that the severe economic depression is to be traced back for the most part to internal economic causes; the improvement in the apparatus of production through technical invention and organization has decreased the need for human labor, and thereby caused the elimination of a part of labor from the economic circuit, and thereby caused a progressive decrease in the purchasing power of the consumers.35
By that time, people had begun to label labor-saving inventions as “robots,” even if there were no mechanical men to be seen. One article in the Los Angeles Times in early 1931, about a year into the Great Depression, said that robots then were already the “equivalent of 80 million hand-workers in the United States alone,” while the male labor force was only 40 million.36
A Word Is Born: Technocracy
By 1932, the bottom of the stock market decline, the US stock market had lost over 80% of its 1929 value in less than three years. We have to ask: Why did people value the market at such a low level? A big part of the answer was a narrative that went viral: modern industry could now produce more goods than people would ever want to buy, leading to an inevitable and persistent surplus.
This new narrative became associated with two new words that left ordinary people out of the economic picture: technocracy, a society that is commanded by technicians, and technocrat, one of these now-powerful technicians. These words weren’t new to the 1930s. They had been used occasionally in the 1920s to refer to a theory that the government should be run by scientists who could assure world peace. Thorstein Veblen had written a book, The Engineers and the Price System, during the previous depression, 1920–21, that envisioned a world run by a “soviet of technicians.” But the words took on a new meaning with the explosion and duration of unemployment by the early 1930s. A Columbia University group with revolutionary pretensions called itself “Technocracy.” Led by engineer Howard Scott, it was composed of scientists from across the United States. By 1933, Scott was as famous as movie stars of that day.
The technocracy movement created its own jargon and proposed a new kind of money, electric dollars. As explained in a 1933 book, The A B C of Technocracy, written under the supervision of Howard Scott and published under the pseudonym Frank Arkright, electric dollars represented units of energy. The name Arkright appears to have been inspired by the life of Richard Arkwright, the inventor of the spinning frame, a water-powered spinning machine that displaced jobs and resulted in antimachinery riots in 1779. The Arkright book and its ideas went viral, particularly with the idea that modern science would soon transform the economy, even eliminating money as we know it. The story has many similarities to the Bitcoin story, right down to the use of a pseudonym, Frank Arkright, like Satoshi Nakamoto.
According to The A B C of Technocracy, the US economy had an installed capacity of a billion horsepower. It also stated that one horsepower equals ten men’s labor and that running the machinery for the ten laborers required only two eight-hour days a week. Thus the book gave credence to the idea that the rising unemployment of the Great Depression was the beginning of an alarming new permanent condition. The conclusions reached by one report were disturbing indeed:
The situation we are now facing is entirely without precedent in human history, because up to less than 100 years ago the human body was the most efficient machine for energy conversion on earth. The advent of technology makes all findings based on human labor irrelevant because the rate of energy conversion of the modern machine is many thousand times that of man. Up to the year 1890 the movement of the social body in terms of energy production might be compared to the progress of an ox cart. Since 1890, by comparison, it has attained the speed of an aeroplane and is constantly accelerating.37
The idea that the world would now belong to the technicians who designed and ran the machinery was naturally frightening to those who did not deem themselves capable of becoming scientists—that is, most people—and it must have resulted in a hesitation to spend, invest, and hire, which worsened and prolonged the Great Depression.
The New York Times in 1933 described some amazement at the strength of the technocracy fad:
The sensational nature of the technocratic case caused a mass movement that was almost hysterical. Many of those who read Scott’s prediction that there would be 20,000,000 unemployed within two years unless something were done along lines set forth by him, vague as these were, looked to the imminent collapse of our industrial and economic system. Business contracts were even held up because of the fear engendered by technocracy.38
The technological unemployment narrative appears to have saturated the population by sometime in the 1930s. Afterward, references to it did not need to use the phrase technological unemployment because everyone understood the concept. For example, a long 1936 New York Times article deploring the tragic effects of long-term unemployment on the human spirit and on family relations did not refer to any theory of unemployment beyond stating that the unemployed people described “have been superannuated less by age than by newly invented machines.”39
The Narrative Turns to World War II
Though the technological unemployment narrative faded after 1935 (as revealed by Google Ngrams), it did not go away completely. Instead, it continued to exert some influence in the run-up to World War II, until new narrative constellations about the war became contagious.
Many historians point to massive unemployment in Germany to explain the accession to power of the Nazi Party and Adolf Hitler in the election of 1933, the worst year of the Depression. But rarely mentioned today is the fact that a Nazi Party official promised that year to make it illegal in Germany to replace men with machines.40
Charlie Chaplin’s 1936 movie Modern Times marks a narrative that was so powerful that it remains in collective memory today. The movie contained a hilarious scene41 in which a company adopts a new technology that allows it to streamline the workers’ lunch hour by having robotic hands feed the employee his lunch. When Charlie Chaplin is fed his lunch, the machine malfunctions and speeds up to such a rate that it creates a terrible mess. Not coincidentally, the story was contagious at a time of high concern with labor-saving machines.
Searching for mention of robots in the news during World War II, we find some examples. Early in the war a Yale scientist, Clark Hull, was working toward eventually developing armies of robot soldiers.42 But the account of his efforts sounded far-off and far-fetched. The “robot bombs” and “robot planes” used by the Nazis later in the war were reported to be ineffective.43 Instead, the news was filled with narratives of great heroism by real human soldiers.
To go viral again, the labor-saving machines narrative needed a new twist after World War II, a twist that could seem to reinforce the newly rediscovered appreciation of human intelligence, and, ultimately, of the human brain. The narrative turned to the new “electronic brains”—that is, computers. The phrase electronic brain has a beautiful epidemic curve peaking around 1960, which is indicative of a constellation of machines narratives then that we explore in the next chapter.
Chapter 14
Automation and Artificial Intelligence Replace Almost All Jobs
The narrative of technological unemployment as causing a problem for the indefinite future did not disappear with World War II. In fact, it repeatedly mutated and took on a different sort of virulence, often associated with the terms automation or artificial intelligence, as Figure 14.1 shows. There were at least four post–World War II narratives about artificial intelligence, peaking, respectively, in the 1960s, 1980s and 1990s, and 2010s. As of this writing, the artificial intelligence narrative of the 2010s looks to be heading even higher.
Each time, the narrative suggested that the world was only just now reaching a frightening major turning point when
the machines take over. Because Rossum’s Universal Robots (described in the preceding chapter) could talk, they represented a form of artificial intelligence, but there was no story regarding how such intelligence might be achieved. The robots were like the talking animals in children’s stories. But the idea of automation and artificial intelligence repeatedly gained new epidemic proportions as the ideas took on new concreteness.
Fears of automation were likely associated with fears of an impending depression. A year-end 1945 Fortune public opinion survey conducted by Elmo Roper asked the US public:
Do you expect we probably will have a widespread depression within ten years or so after the war is over or do you think we probably will be able to avoid it?
FIGURE 14.1. Percentage of Articles Containing the Words Automation and Artificial Intelligence in News and Newspapers, 1900–2019
The automation and artificial intelligence narratives have recurred several times, with variations in the story each time. Source: Author’s calculations from ProQuest News & Newspapers.
The results:
Per cent
Have a depression
48.9
Probably avoid it
40.9
Don’t know
10.21
So about half the US population “expected” a depression after World War II. Most likely, their answers reflected their still-strong memories of the Great Depression and post–World War I narratives that we have discussed rather than any clear forecast.
Narrative Economics Page 22