The effects of the Standard of Living by the Industrial Revolution
The Industrial Revolution is a time in history that has undergone major debate and continues to be under great scrutiny, especially now when most of society views capitalism and capitalists as inherently evil and bad. In the typical high-school history class and textbook, pictures are displayed that depict the Industrial Revolution as a terribly dark, Charles Dickens-like era where people were worked to death by the entrepreneurs and capitalists of the time. While no one will deny that the conditions of the working class and poor were awful, no one ever stops to think about what the alternative was for these people.
Today, the debate on the standard of living during the Industrial Revolution is less about whether or not the Industrial Revolution made people better off, but when did the standard of living rise? One group, the pessimists, argues that the living standards of ordinary people fell, while another group, the optimists, believes that living standards rose.
“The defenders, or optimists, saw nineteenth-century England as the birthplace of a consumer revolution that made more and more consumer goods available to ordinary people with each passing year. The ideological underpinnings of the debate eventually faded, probably because, as T. S. Ashton pointed out in 1948, the industrial revolution meant the difference between the grinding poverty that had characterized most of human history and the affluence of the modern industrialized nations. No economist today seriously disputes the fact that the industrial revolution began the transformation that has led to extraordinarily high (compared with the rest of human history) living standards for ordinary people throughout the market industrial economies.”(Clark Nardinelli, Industrial Revolution and the Standard of Living).
Before the Industrial Revolution and the expansion of mass-producing factories in the cities, there were two options for people: 1) make a profitable living in agriculture or 2) purchase or inherit tools for a skilled trade. These are very limiting options. Farming is hard work, and even if one is a good farmer, there still is a risk that the crop will fail or animals will die, and then where do you go? Tools for a trade were very expensive, and even if a person had the skill to excel in a trade, he still had to find the money to purchase the tools needed to begin. Factories in the cities made room for people that did not fit in the previous two options, and it meant there was a place for them to go to save money to start their own business or fall back on if their business failed.
The Industrial Revolution was in a time and a result of the free market. People who worked in factories were not forced by employers to work there but rather by the poor living conditions they faced if they did not work there. For those who will wave photographs of barefoot children working in dirty factories whilst screaming these are the kinds of conditions factories forced people into, yes unfortunately those were the conditions. But what can you expect from an extremely poor society? In a time when society is very poor, people are going to be working in very poor conditions. It’s ridiculous to assume otherwise. But because industrial capitalism was aimed at mass production for the common man, and the factories provided work for people who otherwise would be destitute or dead, slowly the conditions, wages, and the overall standard of living of society rose to heights not ever seen before.
“According to estimates by economist N. F. R. Crafts, British income per person (in 1970 U.S. dollars) rose from about $400 in 1760 to $430 in 1800, to $500 in 1830, and then jumped to $800 in 1860. (For many centuries before the industrial revolution, in contrast, periods of falling income offset periods of rising income.) Crafts’ estimates indicate slow growth lasting from 1760 to 1830 followed by higher growth beginning sometime between 1830 and 1860. For this doubling of real income per person between 1760 and 1860 not to have made the lowest-income people better off, the share of income going to the lowest 65 percent of the population would have had to fall by half for them to be worse off after all that growth. It did not. In 1760, the lowest 65 percent received about 29 percent of total income in Britain; in 1860, their share was down only four percentage points to 25 percent. So the lowest 65 percent were substantially better off, with an increase in average real income of more than 70 percent.”(Clark Nardinelli, Industrial Revolution and the Standard of Living)
How the facts of history are twisted
In politics, it doesn’t matter what the facts are or how true or false they may be, but what people believe. Nearly 100 years after presidents Hoover and Roosevelt were in office, politicians still reference the New Deal as a great model and base for future government plans, and they can say it without the public laughing in their face.
We have seen how the facts about the Industrial Revolution have been emotionally twisted to enrage an unsuspecting public. If such an important time in the world’s history has been debased and changed to fit the current narrative, we must assume that every other important moment in history has also been skewed in this way.
The economy was strengthened by the Industrial Revolution and the standard of living rose like no one had seen before. Improved wages, working conditions, and more jobs for the working class were all created without government intervention and funding. Thirty years later, America experienced the greatest depression it has yet known, and at a time when the government implemented the most programs and policies ever at once. The success that the free market had with the Industrial Revolution seemed to be completely forgotten.
The end of the Industrial Revolution and the Beginning of the Great Depression
In 1929 the stock market crashed and what is known as the Great Depression began. President Herbert Hoover was in office and is claimed to be one of the most free-market-leaning presidents ever. With the success of the free market in the Industrial Revolution, this crash in the market should have recovered very quickly under Hoover’s policies. However, Hoover abandoned free market policies long before 1929 and firmly believed the economy needed a “guiding hand.” It was because of his interventions that the market was prohibited from recovering and prolonged the depression for more than a decade.
“Before the massive government intervention of the 1930s, all recessions were short-lived. The severe depression of 1921 was over so rapidly, for example, that Secretary of Commerce Herbert Hoover, despite his interventionist inclinations, was not able to convince President Harding to intervene rapidly enough; by the time Harding was persuaded to intervene, the depression was almost over. . . . When the stock market crash arrived in October 1929, Herbert Hoover, now the president, intervened so rapidly and so massively that the market adjustment process was paralyzed, and the Hoover-Roosevelt New Deal policies managed to bring about a permanent and massive depression.”(Murray N. Rothbard, America’s Great Depression)
The goal of Hoover’s government programs, and later president Roosevelt’s, was always to fix or heal a certain part of the market. The biggest mistake made right at the beginning was treating each sector of the market as an individually sealed-off industry that didn’t affect and was not affected by other industries.
The first major government intervention Hoover made was in 1930 with the introduction of the Smoot-Hawley Tariffs, which raised tariffs on 25,000 products by an average of 59%. The goal of the tariffs was to stop unemployment rates rising by making it expensive for people to purchase imports from foreign countries. It sounds like a good idea: make America have to hire their own people to produce products that are cheaper than importing them. The problem was that foreign countries respond by putting their own taxes on American products. Exporting went way down, and in less than five months after the Smoot-Hawley tariffs were instated, unemployment reached double digits for the first time in the Depression. It was the exact opposite result intended, and the unemployment rate did not drop below double digits for the rest of the decade.
Another policy Hoover instated was the High Wages Policy in 1930. With the problem of unemployment not being resolved and the prices of goods and services going up, this new policy was designed to help the working class not lose their jobs or have their wages cut. Hoover called all big business representatives together and told them to not cut wages and keep them stable. Economists noted that if the key to prosperity is to keep wages high, why not double or triple the wage rates? Why be stingy? Following the governments’ logic, tripling wages would mean prosperity would grow. The reason this would fail miserably is that hardly anyone would be employed. Just keeping wages stable during a depression is akin to giving someone a raise. The big businesses kept their word and did not cut wages, but smaller businesses could not afford to keep wages the same and had to let people go entirely. Unemployment skyrocketed. It is likely, that if given the choice people would rather have a smaller wage than no wage at all. Unfortunately, that idea never crossed Hoover’s mind.
Hoover realized after another failed intervention, that businesses were in need of help staying afloat since the majority of them were going bankrupt. But rather than remove previous policies, he instated the Reconstruction Finance Corporation. It supplied failing businesses with emergency low-interest loans and later lent to the states for unemployment relief and public works projects.
With three new government policies instated and failing quicker than imagined, one would hope Hoover would stop going down this doomed path. Historian Paul Johnson is quoted saying, “The businesses Hoover hoped to save either went bankrupt in the end, after fearful agonies, or were burdened throughout the 1930s with a crushing load of debt.” Under Hoover, the president claimed to have held the most free market policies, more public works funds were expanded in 4 years than the previous 20, the Federal government subsidized shipbuilding when shipping suffered a decline due to the shrinking of international trade caused by the Smoot-Hawley tariffs, and the modest income tax rate of 1929 saw major increases in 1932, with the top marginal rate increased from 25% to 63%.
The New Deal and the economic myth of President Roosevelt
“The biggest economic myth of the twentieth century is the notion that President Franklin D. Roosevelt’s unprecedented peacetime economic interventions “got us out of the Great Depression” and thereby “saved capitalism” from itself. This tale was repeated frequently during the 1990s by the former Speaker of the U.S. House of Representatives, Newt Gingrich (R-Ga.), who said that FDR “did bring us out of the Depression” and was therefore “the greatest figure of the twentieth century.” Virtually every U.S. history book repeats this falsehood, despite readily-available evidence to the contrary. In reality, FDR’s economic policies made the Great Depression much worse; caused it to last much longer than it otherwise would have; and established interventionist precedents that have been a drag on economic prosperity and a threat to liberty to this day.”(JOHN V. DENSON, chapter 15, Reassessing the Presidency)
President Roosevelt, credited with saving America from the Great Depression, was the inventor of the program called the New Deal. Like Hoover’s many interventions, the New Deal was a series of programs that continued to look at sectors of the market individually, throwing money at random places where things were falling apart the quickest, and not looking at the market as an intertwined web. “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started” (Rexford Tugwell – advisor to Roosevelt).
A major part of the New Deal that wreaked havoc on the American people was Roosevelt’s National Industrial Recovery Act which established the National Recovery Administration. This allowed industries to draft production codes for themselves to better even out the competition, and if a business didn’t comply it could be penalized. The codes established minimum wages, minimum prices, hours of production, production methods, etc. Each industry had its codes set by the largest competitors, which left smaller businesses scrambling to adjust to them. Roosevelt’s claim to justify this was that businesses needed stability, not competition. If you would like to read about the effects of no competition in the market, you can read about it here.
A great example of the disastrous effects of the codes was the tire industry. The big businesses of the tire industry during the 1930s were Goodyear, Goodrich, and Firestone. In turn, they had the most influence on the codes. They made the tire prices go up and established a price minimum, and since they were the largest tire companies, they had the most service stations all over the country. The only way the small tire businesses could compete was by competitive tire prices, but they were not allowed to do that because of the codes they had zero influence on.
“The NRA was administered by a former Army general, Hugh Johnson, who adopted more than seven hundred industry codes and employed thousands of code-enforcement police. It was empowered to enforce minimum prices, but not maximum prices. Prices were not legally permitted to fall below “costs of production,” even if weak consumer demand would necessitate such pricing (temporarily) on the free market. Moreover, what counted as allowable “costs of production” for pricing purposes was determined arbitrarily by government bureaucrats in an unholy collaboration with industry executives.”(JOHN V. DENSON, chapter 15, Reassessing the Presidency)
The codes were basically one giant monopoly scheme, which was government enforced to the big industries’ delight. They knew they would benefit from so-called “fair competition” and in turn would likely make campaign contributions to Roosevelt. “In short, the NRA—and the New Deal in general—was a giant shakedown operation” (John V. Denson).
So, on the one hand, you have Hoover and Roosevelt trying to keep wages high for the people (the new high minimum wage of the time was 90% of what the average wage was before the depression), and on the other hand, you have them making prices stay high by setting minimum price laws. How exactly was this a recipe for prosperity?
One defining part of the Great Depression was the lack of food for people to buy. But it wasn’t necessarily the result of lack of food being grown. Another part of the New Deal was the Agricultural Adjustment Act which was designed to help the farmers because they are not getting high enough prices for their crops. How do you raise the price of crops? By the destruction of crops and acreage limitation. As many as 2 million tenant farmers and shareholders lost jobs due to this new government policy. To show just how much food was destroyed to raise prices for the farmers, the Department of Agricultural study constructs four sample diets that a country may have: liberal, moderate, minimum, and emergency. It was found that the U.S. was not producing enough food to sustain its population at the minimum (sustenance) diet. At a time when millions of people are having trouble feeding themselves and their families, the government is supporting and paying farmers to burn the crops in their fields and slaughter their animals. All in the name of raising prices and protecting the farmers.
“The main cause of the Depression, FDR and his advisers believed, was low prices. The Depression did not cause low prices and wages, then contended; low prices and wages caused the Depression. Therefore, the “obvious solution” to the Depression was government-mandated price and wage increases (to ostensibly increase “purchasing power”), which is what the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act attempted to do.”(JOHN V. DENSON, chapter 15, Reassessing the Presidency)
The result of the government looking at each market sector like a sealed section left the government flipping back and forth like a gymnastics competitor, scrambling to help the farmers, then the unemployed, then the big businesses, then back to the poor, and so on and so forth. They raised the minimum wage, only to then raise food prices and burn crops, leaving millions of people unemployed due to big business codes and no farms to work on. Don’t think for a second that all the programs in Roosevelt’s New Deal were purely to help the unemployed, the farmers, etc. Roosevelt also spent huge amounts of money in Western states in the Works Progress Administration, when it was the South that needed the money horribly. This was only due to the fact that he knew his vote was safe in the South but it was in the West that his vote wasn’t secure.
When President Roosevelt came into office, he issued more executive orders than any president following him in the 20th century. Under Roosevelt, the government intervened with the market more than ever before, creating massive unemployment and disruption in all areas of life, and yet he is the one credited with getting the country out of the depression.
The end of the Great Depression
The war claimed to have ended the Great Depression. And that is true in a sense. However, politicians don’t understand what about the war that lifted the country out of depression, and now believe that war is the way to correct every recession and depression. A terrible mistake.
War fixes unemployment almost instantly. Roosevelt lifted millions of men out of destitution and unemployment and put them into uniforms, and consumer goods production was replaced by the production of military goods. He turned from Dr. New Deal into Dr. Win the War. WW2 mean the end of the New Deal, and surprisingly, after the war ended the government budget was cut by ⅔, an enormous cut. This also meant the end of military jobs for millions of men.
Economic historian Robert Gordon is quoted saying, “In the summer of 1945, the belief was fairly widely held in Washington that unemployment would be a serious problem during the winter of 1945-46.”
Economist Alvin Hansen stated, “When the war is over, the government can’t just disband the army, close down munitions factories, stop building ships, and remove economic controls.” That is exactly what the government did, and 1946 was the single greatest year for the private economy in all of American history. When the government steps back at a time when the economy seems to be crashing, the market is always able to step up and recover quickly. The adoption of presidents Hoover and Roosevelt’s government programs and the New Deal directly coincided with the persistence of the Great Depression through the 1930s, and it was the abandonment of all those policies and the government budget that coincided with the quick recovery of the 1940s.
“It was not until 1947, when the wartime economic controls ended and government spending and employment levels fell dramatically, that prosperity was restored. Federal government expenditures fell from $98.4 billion in 1945 to $33 billion by 1948, the first full year of genuine recovery. Keynesian economists expected a two-thirds reduction in government spending to lead to another depression, and they were dead wrong. With the price controls and rationing schemes of the war years out of the way and with the dramatic reduction in government spending, the private economy quickly blossomed. Private-sector production increased by almost one-third in 1946 alone, as private investment boomed for the first time in eighteen years and corporate share prices soared.”(JOHN V. DENSON, chapter 15, Reassessing the Presidency)
The lack of government intervention and policies during the Industrial Revolution was not the cause of low standards of living for millions of people, but what grew the economy to new heights and rose the standard of living to that only previously enjoyed by kings. 30 years later, is was the introduction of government policies and programs one after the other which created the longest depression in American history. The success of the free market and the Industrial Revolution was nearly destroyed, and it wasn’t until the government was cut back and free market policies reinstated, that the economy was strengthened once again.