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Saturday July 6th 2019Tim Candler9

 

     In the 1920's here in the USA, productivity was way up thanks to electricity running the machines of mass production, employing thousands and thousand of people. There was great excitement about the internal combustion engine and even though the roads were appalling, cars and trucks were quickly replacing mules and horses, this freed up almost one quarter of agricultural land that no longer had to be devoted to feeding mules and horses. The crash of 1929 had nothing to do with the internal combustion engine or electricity, there was lots of stuff but no one was buying it, and profits tumbled. In 1920's nations got together and declared that the time had come to put an end to tariffs, and one of the reasons they decided to do this had to do with World War I reparations. Countries that owed money didn't have gold to transfer and those who were owed money wanted to be paid. Under the various modifications to the Gold Standard that occurred through the 1920's it was thought that ending tariffs would go someway to enabling debtors to pay their debts in goods and services, but this would mean a flood of cheap goods and services that would do the home industries of nations owed money no favors, and most nations had no intention of letting that happen. Then in the 1930 and again in 1934  members of the political class here in the United States decided they were going to try and do something about what came to be called The Great Depression.

 

Past

      There were a number of theories. One was raise tariffs to protect home industry, another was to readdress the modifications that had been made to the Gold Standard, another was to do nothing and let it sort itself out, and still another was to get the hell off the Gold Standard, this argument had a new understanding of what money was. Just printing money that was entirely divorced from the value of gold made huge sense to this new idea of money. It would boost demand which would reinvigorate industry but to avoid people having to use wheelbarrows to take home their pay, the supply of money and inflation would be controlled through things like interest rates.  Senator Smoot and Representative Hawley went all in on the tariff idea, in 1930 their bill raised tariffs on over 20,000 imported items, and it's been generally argued that this badly exacerbated he Great World Wide Depression. And the idea of people carrying their wages around in wheelbarrows was such that in 1934 the USA went back on the Gold Standard, which resulted in the very opposite of an inflationary spiral which is a deflationary deflation. In short the decisions taken in the 1930's were worse than doing nothing, and everybody had to wait for the Government to start spending all sorts of money in order to fight the Second World War, this raised demand which got the economy running usefully again. Far be it from me to nag, but productivity in manufacture, or making stuff as cheaply as possible, is increasingly dominated by replacing labor with robots fueled by electricity. Raising the price of goods with something like a tariff, serves to hasten the process driving productivity, and these processes don't have much to do with employing more and more people to work in factories.

 

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