It was a bitter end to a few frenzied weeks. Worked up into a mob, throngs descended into the center of the city and ransacked the place. Shops were broken into, buildings damaged, railroad beds shredded and upturned, with a towering crescendo of violence leading to an open melee right in the middle of the berg. When it was over, four lay dead or dying, another twenty-five to fifty seriously wounded.
The following day, soldiers, nearly three thousand strong, descended upon the town. Martial law having already been declared, now it would be enforced at times with ruthless dedication. Within five more days, more soldiers had arrived making Scranton, Pennsylvania, for a while, the most heavily guarded place on Earth.
The Great Strike of 1877 hadn’t been the first, but it would be the last big one for the rest of what became known as the Gilded Age. Those August 2nd troops were from the exhausted, footsore Pennsylvania National Guard’s 1st Division heading home from quelling unrest in Pittsburgh the week prior, diverted to Scranton along the way. They, and the multitudes of federal regulars who followed them, would remain in and around the city for several months.
Wage cuts had been the proximate cause. On July 24, 1877, the Lackawanna Coal & Rail Company announced it was reducing pay rates by 10%. It was actually the second time in as many months. The Delaware, Lackawanna & Western Company followed suit, a 10% cut on top of a 15% decrease a few months before. Two thousand rail workers in all kinds of jobs walked off, just as thousands had already done across the region.
They were soon joined by miners, the pivotal animus of that particular struggle.
American labor had suffered such indignity for years by 1877. By then, it had finally reached its boiling point. What became known as the Long Depression had shown up around 1872 and continued to destroy vitality across all regions and industries; not just in the US, globally, too.
Gripped by devastating depression, this was how economic adjustments worked. Hardly much about this was known back then. The first real modern depression had manifested barely fifty years before, it wasn’t really certain how these things got started or kept themselves going.
In 1886, the US Commissioner of Labor’s 1st Annual Report stipulated that the awful downturn of the 1870’s had “stimulated the study of panics and depressions to a greater extent than any preceding period.” As you might expect given no template to follow nor valid framework available to interpret such outcomes, blame for the economic disaster was often assigned based upon who one’s enemies might be.
The Bankers’ Magazine said it had been their nemesis the Grangers agitating for silver and loose money. The mining and railroad industry trade groups unsurprisingly fingered a combination of high taxes and trade unions. The New York magazine Nation in 1876 had wondered if all this marvelous new industrial technology might have played a key role, in that the production and application of them combined might have gone too far in advance “of the tastes and habits of the people in every country.”
Another group sought out for retribution had been the Radical Republicans of Reconstruction. They had been busily working, in an economic sense, to reform the post-Confederacy South through free market reforms (ironically enforced by federal troops). By the middle of the 1870’s, a decade after the Civil War’s end, “Northerners were becoming less concerned about southern racism and more concerned with their financial well-being.”
One self-taught, small “e” economist offered an intriguing opinion. On September 18, 1877, Henry George began to write out his thoughts on what truly had become the dominant topic of the time. Though the end of Reconstruction might have preoccupied future historians and their views about what Americans had utmost on their collected minds back then, it was actually the basic stuff much closer to home – just as it is in our own day.
George started out intending to write a magazine article. Born in 1839 in Philadelphia, his trial and error career had taken him all over the continent where he observed, up close, the real economy of the actual daily worker. Miners, in particular.
What he ended up creating was a detailed manuscript called Progress and Poverty published in 1879. Obscure and relatively unknown today, it remains, to the very best of my knowledge, the best-selling economics book of all time. According to the Dallas Federal Reserve, by the late 1890’s it had even outsold every other English-language work except the Bible.
Though failing as a politician (running for Mayor of New York City twice, he lost both times but managed more votes than a young Theodore Roosevelt in the 1886 election), George remained a widely celebrated and prolific writer. Summing up his views in an article published in the magazine Once A Week, in March 1894, just as another even more terrible depression had been unleashed, he said:
“So the first step toward determining the causes of business depression is to see what business depression really is. By business depression we mean a lessening in rapidity and volume of the exchanges by which, in our highly specialized industrial system, commodities pass into the hands of consumers. This lessening of exchanges, which from the side of the merchant or manufacturer we call business depression, is evidently not due to any scarcity of the things that merchants or manufacturers have to exchange. From that point of view there seems, indeed, a plethora of such things. Nor is it due to any lessening in the desire of consumers for them. On the contrary, seasons of business depression are seasons of bitter want on the part of large numbers, of want so intense and general that charity is called on to prevent actual starvation from need of things that manufacturers and merchants have to sell.”
As we hear today more stories of hours-long waits in food distribution lines across the country, a powerful point to ponder. In other words, the problem wasn’t overproduction or underconsumption, rather some artificial obstruction in the way of otherwise perfectly natural maybe even finely balanced processes; as Henry George wrote it, “this lessening of exchanges came from some impediment in the machinery of exchange.”
George had already identified this “impediment” in 1877’s Progress and Poverty and it is just what had made him so famous. Land. “Idle acres mean idle hands, and idle hands mean a lessening of purchasing power on the part of the great body of consumers…”
To counteract this evil, George had proposed, and became the sponsor of, a great movement toward the “Single Tax.” Owning land rather than strictly what was on it, that was the problem. No socialist, what was recommended was renting land as our “common inheritance” with rents paid, at high rates, to the government. Whatever one might be able to do with that land while being rented, those profits were kept by the person doing all the producing.
Thus, George reasoned, there wouldn’t be this incentive toward “idle lands.” And a big part of the benefits of the Single Tax, this rent on land, would be the removal of presumably all taxes on labor and production. Taken to its farther ends, it would also have led to more widespread free trade and the further removal, if not complete elimination, of trade restrictions.
The common theme throughout the depressions he had lived through was, for Henry George, always the same:
“Try a mental experiment: Picture, in imagination, the farmer at the plow, the miner in the ore vein, the railroad train on its rushing way, the steamer crossing the ocean, the great factory with its whirring wheels and thousand operatives, builders erecting a house, linemen stringing a telegraph wire, a salesman selling goods, a bookkeeper casting up accounts, a bootblack polishing the boots of a customer. Make any such picture in imagination and then by mental exclusion withdraw from it, item by item, all that belongs to land. What will be left?”
An apt description of the nineteenth century early industrializing economy, perhaps, but one reason why the name Henry George has been lost to the pages of history is that, over time, as technology and innovation have evolved in unpredictable ways, it has become easier and easier to withdraw acts by mental exclusion and be left with explanations other than “idle land” for economic setbacks.
This was, in fact, a defect shared with early Marxists who decried what became known as Georgism. Karl Marx, writing to Friedrich Engels, complained, “The whole thing is...simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.”
What both Marx and George failed to grasp was the unlimited reach of human ingenuity. Sure, it made good sense to look at the industrializing economy of that time period, as it progressed out and away from the dirty, landbound agrarian simplicity of feudal ages before then, and believe that land itself – and the scarcity of land – was predominant driving force in economic progress and poverty (progress’s underside).
The idea lasted well into the 20th century, too, with Economists like Alvin Hansen and his “secular stagnation” theory of the Great Depression stating that the US and global economy was running out of land to expand into (along with a population slowdown and what Hansen claimed had been a dearth of innovation).
In the modern service-oriented economy, predicated on information technology most of all, land simply cannot be the limiting factor. And it’s not ingenuity, either, with both Hansen and Marx wrongly assuming that, from each’s historical perspective, the Industrial Revolution would be the final big contribution from capitalism. Waiting for its “end stage” has kept many a political observer in the dark.
What had kept George in the spotlight was his simple equation linking depression with labor. Intuitively, without need for bloated academic studies, workers very well understood that part of it. What hadn’t been adequately surmised was the “why”; and, in George’s case, he got much of that correct, too.
As he stated, “this lessening of exchanges came from some impediment in the machinery of exchange.” But what impediment? Not population. Certainly not innovation. The constraints of land scarcity prove less paramount as the decades of the modern information economy get more and more established – and take on more and more virtual rather than physical tangibility.
What we have all witnessed over the last dozen years is no less profound and unsettling than that which vexed Henry George at the tail end of the nineteenth century’s Long Depression. If anything has changed then to now it’s only the format by which the oppressive economic forces of deflation manifest themselves onto labor.
In the old days, faced with “some impediment in the machinery of exchange” the logical choice facing the business owner was to cut wage rates in addition to the number of workers. A double whammy.
And while labor unions met a hard defeat after the 1877 strike, they would return especially in the early 20thcentury with hard-fought, necessary victories. Among them, when faced with a downturn, wage rates weren’t so easily adjusted downward (what economists call wage friction). That hadn’t spared the labor market from its subservience, rather it has instead meant near exclusive emphasis on layoffs and furloughs (as we found out during the Great Depression).
Something as simple as a hiring freeze.
As John Maynard Keynes wrote in 1923, “the depression of 1921-22 did not reverse or even greatly diminish the relative advantage gained by the working classes over the middle class during the previous years.” But, as we all know, the next depression absolutely would.
It could only have been one thing which distinguished the worst depressions, those leading to widespread labor disruption and therefore social and political unrest while at times, such as the 1930’s, complete upheaval. Again Keynes:
“The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment."
In 1894, Henry George had tried to argue against “monetary regulation” as that key impediment.
“Every business man sees that business depression comes from lack of purchasing power on the part of would-be consumers, or, as our colloquial phrase is, from their lack of money. But money is only an intermediary performing in exchanges the same office that poker chips do in a game. In the last analysis it is a labor certificate. The great mass of consumers obtain money by exchanging their labor or the proceeds of their labor for money, and with it purchasing commodities. Thus what they really pay for commodities with is labor.”
They may only ever be tokens, or poker chips, but money is the oxygen which makes economic efficiency at all possible. What George wrote was absolutely true; workers pay for goods starting with their own labor exertion. But in the transit between being paid for work and paying for what’s consumed, belittling the paramount role of the poker chips was a huge mistake.
A mistake that countless regimes have made and continue to make – even as the symptoms, as Keynes ably described them, are obviously all around. For one thing, the poker chips aren’t merely applicable to the two sides of labor (earning income and then spending income as consumers). Rather, businesses are, in the end, far more susceptible to monetary conditions (and perceptions) by way of how a modern economy truly works.
A flame deprived of much of its oxygen, it won’t burn very bright nor strong. It can still burn at minimal output, but that’s not the same thing for a system dependent upon the efficient exchange starting with labor and capital (and, to some extent, land). If there simply aren’t enough tokens, “this lessening of exchanges came from some impediment in the machinery of exchange.”
And while Henry George saw this as a matter of “money regulation” history has shown that it has rarely been that. Included within “history” is recent history.
The economic emergency facing the global economy in 2021 is not COVID. Overreactive governments arbitrarily imposing their authority, sure, that’s a big problem. The economic damage, however, has already been done; twice. In each case, as consistent with depression economics, the labor market has suffered.
As it has suffered, unrest and disarray become more the operative state in political and social factors. Some things never change.
While the unemployment rate had dropped to a 50-year low during 2019, the labor force participation rate had “achieved” something similar; which meant the two major employment measures directly opposed one another. The inflation which should have accompanied the unemployment rate view never materialized, therefore joining the disinflationary (or deflation) evidence already including everything from bond yields to productivity.
Now another great deflationary shock unleashed in March 2020. On top of the other one not yet solved, a second from which the same symptoms have already arrived. The unemployment rate falls while the participation rate barely improves for an even lower number.
More immediate, initial jobless claims halfway into November, eight months after the initial shock and dislocation, continue to be above weekly rates that previous to this year would’ve been record highs.
Following the absolute peak (record) reached in October 1981, it had taken only about the same eight months for the level of initial jobless claims to recover back all the way to the prior “normal” levels. Following the 2008-09 Great “Recession”, it would take five years – a relatively sobering demonstration for how the labor market had never really recovered from it at all.
Which course does it sound like we’re currently following? More to the current point, and our future worries, what had distinguished 2008-09’s “great” “recession” from the rather nasty one in 1981-82? The answer wasn’t “idle land”, but it was, and remained, a true and rather obvious - once you stop looking to central banks for answers - “impediment in the machinery of exchange.”