Friday, November 6, 2015

Recap, II: Economies, 1939 to 1943 as the On-Ramp to 194Q (Learning By Doing Number)

Koxinga: Because Taiwan is rich, and who, in 1950, would have thought it?

What do we make of Henry Luce? One thing we make is the terrible old man of the China Lobby, Madame Chiang's dupe, the patron of Whittaker Chambers, the enabler of McCarthyism. Or you could dig down, notice the Wikipedia article's provocative language in describing Luce's "lifelong partnership" with Briton Haddon. Suddenly one imagines a gay demimonde around Luce, Chambers and Alger Hiss that puts the whole McCarthy era in a framework of an intimacy that dares not declare itself, sordid only in its secrecy, infinitely less consequential than ever supposed. (And how did William F. Buckley go on through the forty years in which his wife appears to have been an invalid and shut in. Once we start inferring and implying there is no end!) 

Or I could talk about politics: about China, and about Chiang's Taiwan, advancing so improbably (at least by comparison with America's Latin American clients) into First World status. Surely that is a vital part of the story of 194Q! If I did, I would talk about family politics, too. Luce, like my maternal grandfather, was born to Presbyterian missionary parents active in China. Luce, however, was born in Penglai, Shandong, my grandfather in England, while his mother was on leave from Xiamen, Fujien. The doctor of Vernon, British Columbia, was thus linked to Xiamen in Fujien the remote, pirate-beset land, far beyond difficult mountains, poor and sea-girt, which produced Koxinga, last Ming loyalist and the conqueror who colonised Taiwan with Hokkien speakers. Shandong, in contrast, plays a central role in China's earliest history. The state of Lu in Shandong is the birthplace of Confucius, and the old implication was that he was born near one of the early capitals of the Shang dynasty. Shandong is older, and more purely Chinese, than even the heartland of the later Shang, never mind of the  latter-day Zhou dynasty that was declining away in Confucius' day, But, that Shandong is on the lower reaches of the Yellow River, where "China's Sorrow" curls like a snake against the mountains of peninsular Shandong, uncertain whether to lunge to the sea to the north or the south of the peninsula. Those mountains, in Confucius' time, were inhabited by barbarians, and so there you have Penglai, close, but not too close, perhaps not close enough, to the heart of the Chinese state. In the end, Luce's friends evacuated to Taiwan and imposed a north Chinese, Mandarin-speaking superstructureon the Fujianese, and the aboriginals before them. So, also, my Grandfather became a Marxist, where Luce was a Republican, and engaged in screaming rows with his mother China that disturbed family harmony and passed into legend.

That's my way of trying to imagine Luce as an insider-outsider-insider, enacting terrible politics out of an alienation he could never acknowledge, because now I am going to talk about Fortue as optimistic and progressive, a voice that deserves revival.  Fortune said that there would not be a depression after the war, that there would not be unemployment and misery, and against the doubters, conjured up a near-future postwar year of full prosperity, a year of televisions and deep freezes, Minute Maid in the fridge and Eggos in the toaster. As it turns out, Fortune was more than right. America had not one, but thirty, more or less, years of "Q." I leave it to economists to explain this, and social critics to unpack its various dark sides. The world is richer than even Luce's Fortune imagined it would be in late 1943, certainly richer than good Communists thought it would be when they argued with their mother's in the Okanagan gloaming of the mid-1950s. Who, again, would have thought that Chiang, of all people, would make Taiwan, of all places, work? 

In 1939, America had a GNP (Gross National Product, as we used to say in my day) of $108 billion. Here's Fortune's old-timey chart

Now here is 1943 (GNP: $192 billion):

As you can see, I keep ineptly cropping in elements of the next bar along. Finally, "194Q," which, as of the writing of this article in late 1943, hasn't happened yet:

Taking one aspect of the graph, of some small interest to me, you can see that "food, beverage and tobacco" production counts for $28.3 billion in 1939 and $34 billion in 1943. (The sector is allowed $37 billion in the utopia of 194Q.) Holding population roughly constant, inasmuch as it did increase in 1939--43, but far less than 20%, you can either deliver some cheap moralising. . . .  
That's the fashionably-dressed face of evil, right there!
And it's not just meat. . . 


...If you know what I mean. And I think you do. And what a cultural artefact, too. Shaving kits as the peak of luxury? Notice that this is an ad in Fortune, not True Romance . . . Also notice the sheer, overwhelmingingly feminity of the American media iin late 1943. Something about women taking a larger role because all the men are away? I think I heard that, somewhere... 

Sorry, enough digression --for one paragraph. Point is, consumption is up in mid-war America, and you can deliver a lecture, or revel in it, either way with a moralising tinge. Another option, he says, as an excuse to get the actual numbers into it, is to be smug about the comparison between America and Britain. . .

“American and British War Efforts” (The Economist, 12 August 1944)

United States

United Kingdom



Government Expenditure
Private Net Investment
Gross National Product

Costs of War

United States

United Kingdom

Resources derived from-
Increased Production
Reduced Consumption
Reduced provision for, or drafts on, capital


-9.1%! That's a lot of shaving kits. In Britain we can, at least on its face, talk about sacrificing personal consumption to fund the war. In America, things are far from being so clear. 

What's actually going on? More charitably, you can take it as an indicator of just how badly off Americans actuallly were in 1939. Here's the headline numbers, which might actually be in my notes somewhere, but which I obtained on the Interwebs from

American Unemployment is. . . 
in 1929: 3.2%
in 1930: 8.9%
in 1931: 16.3%
in 1932: 24.1%
in 1933: 24.9%
in 1934: 21.7%
in 1935: 20.1%
in 1936: 16.9%
in 1937: 14.3%
in 1938: 19.0%
in 1939: 17.2%

It's probably okay to take a jaundiced view of the database behind these statistics, but the trends are noticeable enough. While the New Deal improved things a great deal, the 1938 downturn (which, remember, impacted Britain, too) would have been a disaster in any era other than the one just after the Great Depression put it in perspective. The recovery story usually emphaises "1939," but the 1939 figures are average. There's a whole quarter for the European war to stimulate an American recovery, as European buyers enter the marketto buy guns, butter, and income-generating assets with their smuggled or not-so smuggled money. Taking the summer of 1939 (when, remember, Britain was grappping with full-employment-inflation-is-just-around-the-corner-austerity-now!), our if-only-I-could-reach-back-in-time-and-give-him-a-big-old-hug pessimist, The Economist's New York Correspondent (technically, "From a Correspondent in New York City") is seeing alarming signs. 

Looking at the index of production published early in July, ONYC reads it as misleading. While the index suggests that the economy is stagnating, he believes that the economy is actually getting worse. believes that it is getting worse. Or, I should say, "seems" Crowther's Economist house style is so equivocating that it's hard to tell for sure. Anyway, his point is that, back in the 20s, when the national income was on the order of $80 billion, about 20% was put away in the form of savings (capital for investment.) For the last decade or so, since national income sank to $65b, or as low as $50 in 1932, there has been no such savings. In the earliest phases of recovery, it was natural to look to consumer spending to boost the recovery, but he feels that consumes have consumed as much as they reasonally can, and that the economy must now look to investment. This lack of investment, which might have even led to a decline in net capital stock, is, ONYC supposes, due to lack of capital. A rare letters-page pile on in the next number establishes that ONYC's "lack of capital" theory is ludicrous, but he is probably not wrong to suggest that this lack of investment is 'linked' to “irreducible,” or “permanent” unemployment, as opposed to “cyclic.” (The Economist, 29 July 1939.)

Here's a look at "capital investment," specifically, machine tools --the "information technology" of the 1930s:

 I bet some economics-talking guy has come up with a theory about how labour-substituting machinery investment correlates with the unemployment rate, but it's probably too complicated for us regular folks to understand, and maybe uses weird physical analogies that are hard to grasp themselves. Suffice it to say that, for whatever reason, the 1930s are an era of a slump in employment, consumption and investment in labour-substituting machine tools.

Now to look at another story from 1939, on “Earnings and Social Income in the United States:” (The Economist, 15 July 1939). I typed this in to my notes very quickly, so you're getting a mix-up of my phrasing (well, in character, but it's a pretty thin veil) and The Economist's. Anyway, point is, thanks to the Social Security Act, America is obtaining for the first time in its history a detailed and scientific information about the material life of its people. The average insured industrial wage has been revealed to be £205 for men, £105 for women. This leaves out agricultural and domestic wages, not covered, and wages of over £600, not covered by employer. Yet it is striking just how low the average wage covered is. As many as a quarter received less than £60/year, one third between 60 and 200, and a fifth between 300 and 600. “It is a permissible surmise that, if a comparison could be made, British workpeople as a whole would be found to be no worse off than their opposite numbers in the States, and perhaps better off in the lowest wage group.” 

No-one would call the Britain of 1939 a worker's utopia, yet poor Americans were worse off than poor Americans. Americans are buying steak above ceiling price because they can, and they, although this probably doesn't include many readers of Fortune or even Aviation, haven't exactly eaten a lot of good steak in their life. (Though they probably have eaten a lot of bad, when old Bessie couldn't fetch a buyer.)

Though rural poverty in an idealised family farm where they can't sell the old cow is far, far short of the worst I can conjure up. Since I can't for the life of me find one of my Tobe "slum" ads, I'll let this stand in. 

That's reality, and this is an ad, but I think that it is a fair ad in its representation of what it takes to win an Army-Navy "E," and so win the war.

It turns out that it's not just shaving kits. People can also get their hands on very nice sweaters. Americans are earning, and spending. They are also working . Per The Economist  (“Target for Tomorrow” reporting on the Federal Reserve Bulletin, it is supposed that by the end of the first year of peace ("194Q"), when employment has fallen away from wartime highs, the American GNP will reach $170 billion, implying an end-of-the-day productivity gain of 10%. It is typical of Geoffrey Crowther that he puts his finger on the need for demand to take up all this production, and concludes that it simply must fall short. From his perspective, if private consumption must be $113 billion, Government $30 billion, leaving, $27 billion to be made up in demand for private capital goods, it is inescapable that there must be exports, leading to British immiseration. (Concretely, the paper Bulletin allows for a net export of $2 billion.

Crowther is, of course, wrong. Domestic consumption most certainly will absorb America's new GNP.  

Just to explain to regular readers of the American media circa 1943, the last column reference to "Negroes" refers to a group of Americans of part-African extraction, striking for their dark skin and some other physiognomic eccentricities. Notoriously camera-shy, they live in large numbers in areas where no-one goes, including employers.
Traditionally, the explanation for this is that Americans want to buy new things, but the role of housing (and mink coats) is not well tethered to the "me want high tech" narrative. It's also unclear just how Crowther gets to be so fatuous, other than the fact that he was born with his head up his ass. For confirmation of this that does not rely on partisan economic arguments, I am infinitely grateful for his piece about contact dermatitis in which he cavalier dismisses all the silly people who tell him he's got B.O. The unexamined predicate, it seems obvious enough from 2015, is that Crowther just can't imagine the great unwashed getting a share of the income generated by the productivity gains. But that can't be right, can it? I think I'm going to need to look at his favourite whipping boys, the coal miners.

Another factor is taxes:

It's not really part of the remit of this blog, but the outbreak of "how soon tax relief" talk at the end of the war reveals the limits of the rentier class's patience with deficit reduction. If taxes go down, there will be even more money sloshing around in the economy, leading of course to inflation, unemployment, depression. 

Finally, what is part of the remit of this blog, technological change. To put it clearly, I think that our narrative of technological change is weak, and that we need to look at the labour shortage situation which existed in 1943
I wish my company would run these ads, instead of leaving up signs that say that the deli hot special will be available an  hour after we've had to close the deli for lack of staff. I wonder how long Harvey's stayed in denial?

as an explanation for these productivity gains:
Learning by doing, guys, learning by doing. : 

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