The Great Depression wasn\’t just about lack of demand you know

As Tyler notes:

Multi-factor productivity in agriculture skyrockets in the mid-1930s, not earlier.

Yes, there was a fall in demand. Yes, there was the dust bowl. But all those unemployed were not from solely those two: there was also a massive structural change going on.

The replacement of the horse and mule with the first really viable tractors simply meant that there were fewer jobs available. Lots of people simply had to go and find something else to do.

Analagous to what happened to the industrial North of the UK in more recent decades. Then and there it was the productivity of labour in agriculture that soared, for us it was the productivity of labour in manufaturing.

Huge, wrenching, changes thus ensue and no, there isn\’t a Keynesian solution to such. Hayek perhaps, but not Keynes.

7 thoughts on “The Great Depression wasn\’t just about lack of demand you know”

  1. Er, people are queueing at soup kitchens, and there’s a lack of “demand” for food? Sorry? Did I hear that correctly?

    There was a lack of production of goods which could be traded (via intermediate money) for food. No lack of demand for it.

    There may come a utopian day when mankind can easily produce more goods and services than we all want… and we will then cut back our working hours to balance. Until then, anyone claiming anything about overproduction is talking pants.

  2. Many Americans seem to believe that history started in 1492, some that it started in 1776.
    Britain’s population grew by a factor of six times between 1600 and 1900 AD by which time it was importing a minority of the food it needed. It has grown by more than 50% since then – we are still importing a minority of the food we eat, despite massive increases in food consumption per head. I think that suggests that agricultural productivity at any number of factors skyrocketed on more than occasion somewhat earlier than the 1930s.
    If you are suggesting that unemployment in the north is due to improvements in productivity in manufacturing then I beg to differ. The sharp rise in unemployment in the north in the late 60s and 70s resulted from the imposition of national pay scales that ignored the higher cost of transporting to customers goods made in the north than from factories down south, the understandable resistance to pay cuts in order to enable their employers to match Korean costs when Korea built massive steel plants and shipyards using low-paid labour and well-meaning introduction of redundancy pay that deterred employers from hiring labour if they feared (not even expected) a downturn in demand in the foreseeable future. A massive rise in productivity would have resulted in less unemployment (e.g. Japan, Silicon Valley)

  3. “Er, people are queueing at soup kitchens, and there’s a lack of “demand” for food? Sorry? Did I hear that correctly?”

    No you didn’t. It was the lack of demand for labour, (not food,) because of technological advances, which increased levels of unemployment.

  4. @John 77 : The imposition of national wage rates was a tiny influence. Vast changes occurred becuase of the rise of manufacturing in developing nations, (including low wages) and also because of the increase in robotic and automated manufacture. Just look at the car industry.

    Transport costs are (still) a tiny influence. Hence, Far Eastern imports are not thus inhibited.

    @John 77 “A massive rise in productivity would have resulted in less unemployment (e.g. Japan, Silicon Valley)”

    Except that the industrial North did not ahve the skills of Japan or Silicon Valley. How many miners were computer whizzes?

  5. Hmm. Probably a significant factor is that hoary cliche “entrepreneuralism”. Or, how people react to not having work. The problem in fact is that people based in a protestant work ethic aren’t very good at adapting. Because they think of “work” rather than “production” or “selling”.

    If you have a free market mind, if you haven’t got any money, you think, “hmm, what can I produce/sell to get some money?”. Unfortunately large parts of the proleteriat tend to think, “I have no money, I need a job”. And the idea is that jobs are provided by somebody else, such as a benificent factory owner, or the government, or something. But when a fundamental industry has vanished, like mining, there aren’t any “jobs” and nobody to provide any “jobs” so everyone just sits around complaining about how somebody is supposed to supply them with a job.

    It’s a fundamental approach to economics that most of us don’t think about or even think of thinking about. This presumption that one should be rewarded for “work”. But work doesn’t matter. It’s production you get “rewarded” for, by making something and trading it.

    I think this is a significant factor regionally. If you compare derided Essex Man in his white van; well, he is (stereotypically) descended from a long line of petty capitalists; the costermongers of the London area. Finding something to sell, which may be goods or may be labour, is in his blood, to a significant degree. As a society, with a work-ethic orientation, we deride this in popular culture as “Del Boy” rather than celebrating it. So anyway, if he’s got no business, he creates some.

    In the old industrial areas, the populations had moved from being agricultural serfs (work provided by a landowner) to industrial serfs (work provided by a factory owner). So when the factory owners disappeared, there was much less White Van Man spirit of petty capitalism. Which is why these areas have trouble regenerating themselves, and end up being Soviet Boroughs. The government provides “jobs” but there is little actual production going on.

    It’s probably a signfiicant influence on the economic fortunes of particular regions. Very bad influence, Calvinism and its work ethic.

  6. @ Nick
    The national wage was not a one-effect that went away the next day – it was a permanent change to the cost structure that reduce the return on capital on every factory in the formerly low-wage-cost areas of the country and so affected every decision on which factory to close in an economic downturn and where to expand production or build a new factory in an upturn so it has had a gradual cumulative effect on unemployment rates, both directly and indirectly on the service industries for which the factories or their workers were customers.
    “Transport costs are (still) a tiny influence” A Scania lorry does 8.6 mpg, so the cost of transporting a lorryload of goods from Newcastle to London is over £300 (£207 fuel, £100 driver) as a single trip – but if you include the return trip (hopefully carrying raw materials, rather than empty) then the pure transport cost differential is £600 or £1200 if the lorries return empty. That excludes the higher cost of sub-contracting local distribution instead of doing it in-house, extra warehousing costs (double-handling and the cost of renting an southern warehouse). Your Far East comparison does not apply because the TUC does not control Chinese wage rates (despite all the demands from the AFL-CIO) and container ships have much lower costs per ton than lorries. Modern lorries are much more efficient than those 20 or 40 years ago so I am understating the impact that you ignorantly dismiss as “tiny”.
    “How many miners were computer whizzes?” I’ve no idea – not many were given the opportunity to find out. But they were willing to work – I talked to a couple of directors of Every Ready after they had opened a battery plant at Tanfield Lea in County Durham and they were very very enthusiastic about the workforce despite the need to retrain them. I understand Nissan’s Sunderland plant was praised for having the highest productivity of any car plant in the UK
    A rise in productivity gave Sunderland & Doxford several extra years of life after all the other local shipyards closed down.

Leave a Reply

Your email address will not be published. Required fields are marked *