We flatter ourselves into thinking that we live in a time of exceptional economic upheaval. The truth is that the present resembles the past. What we learned — and forget — is that a dynamic economy is inherently destructive. But the periodic convulsions often create long-term benefits. That has been true for most of our history.
To be sure, economic change now abounds: the Internet; vast U.S. budget deficits; high private and public debt levels in both affluent and developing nations; the rise of China; growing income and wealth inequality; immigration; an aging population; “globalization” — not just trade in goods and services but also in huge cross-border money flows.
And so on.
The very nature of the economy seems to be shifting, to what we do not know. Our sense of security is shaken. It’s all true. But it has always been true. The same contradictory mix of awe and anxiety applies to most, if not all, previous economic eras. Indeed, by comparison with some, today’s economy seems placid.
A few years ago, a friend gave me a copy of a book called “Recent Economic Changes,” published in 1890 and written by David A. Wells, one of the leading American economists of the late 19th century. Browsing through the book, it’s hard not to be struck by the parallels between then and now. Here’s how Wells opens his almost 500 pages of commentary:
“The economic changes that have occurred during the last quarter of a century — or during the present generation of living men — have unquestionably been more important and varied than during any former corresponding period of the world’s history.”
In Wells’s time, there had been astonishing advances in transportation, communications and manufacturing. Steam had replaced wind as the main energy source for waterborne transportation. The railroad had displaced carriages and wagons. In 1869, the Suez Canal opened; coincidentally, so did the first transcontinental railroad in the United States.
In 1800, it took an average of 42 days for a traveler to go from New York to the then-tiny outpost of Chicago; by the eve of the Civil War, the transit time had dropped to two days, according to the Historical Statistics of the United States, Millennial Edition. Faster trains and more tracks lowered transportation costs. From 1859 to 1890, railroad mileage grew almost 20 times, from 9,021 miles to 166,703 miles.
This was the era when America urbanized and industrialized. In 1860, 4 out of 5 Americans lived in rural areas; by 1900, the population had almost tripled to 76 million, and 40 percent lived in urban areas. Manufacturing exploded. In 1871, the United States produced 6.6 million barrels of beer; by 1900, output was six times as large.
By comparison, many of today’s economic advances seem mild. The rise of great cities was surely more important to daily life than the advent of Facebook or Instagram. For all the amazing, frustrating and infuriating things that digital technology can do, its effects are overshadowed by the social and economic cataclysms of the last half of the 19th century.
Of course, there was a backlash then, just as today. These advances have resulted, wrote Wells, “in the absolute destruction of large amounts of capital through new inventions and discoveries and in the impairment of even greater amounts through extensive reductions in the rates of interest and profits [and] in the discontent of labor and in an increasing antagonism of nations.”
One downside of this progress was chronic instability. There were financial panics or depressions in 1873, 1882, 1893 and 1907, among other years. Labor strife often disintegrated into violent protests when firms cut wages. Some economic dynamism spawned stock-market speculation and fraud.
In the post-World War II era, we thought we were modernizing and improving this raw capitalism. Active monetary and fiscal policy — the government’s use of credit and the federal budget — would smooth business cycles. The social safety net (unemployment insurance, food stamps and the like) would mitigate human suffering caused by unavoidable slumps.
There was a historic break. The old and cruel capitalism was giving way to a new and gentler capitalism. Or was it? The further we get from World War II, the more that the new capitalism seems to resemble the old. Advances in productivity and living standards come in unpredicted spurts; severe business cycles endure; economic inequality increases.
It is an exaggeration to say that the new capitalism has entirely reverted into the old. The social safety net and modern monetary and fiscal policy remain. They make a difference. Few of us would ditch them. Still, the past is slowly catching up with the future.
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