Lately economists have been comparing today\u2019s digital revolution to the first industrial revolution (1790-1860) and the second (1870-1930).\u00a0 This granular, micro-economic analysis is a welcome respite from the absurdly abstract macro parlor games played by Keynesians and their adversaries.\u00a0 Three economists have weighed in:<\/p>\n
Economists and Historians Debate the Gilded Age<\/b><\/p>\n
Amidst their disagreements, these economist concur on two things: \u00a0A) They all fret about the increase in inequality that has accompanied the digital revolution. B) \u00a0They agree that the aforementioned \u201csecond industrial revolution\u201d of the late 19th<\/sup> century greatly improved living standards.\u00a0 What is fascinating to me is that most historians take a far darker view of the \u201cgilded age\u201d of the late 19th<\/sup> century when, they argue, a vast increase in economic inequality\u2014a yawning gap between colluding capitalists and ordinary workers\u2014threatened American democracy.\u00a0 Let\u2019s let the historians speak for themselves:<\/p>\n In his classic expose, The Robber Barons<\/b>, Matthew Josephson wrote that over-investment in the 1890s was to be expected in a \u201cscheme of distribution which brought to a few men incomes of from ten to twenty millions per annum, while even the skilled among the underlying population enjoyed a purchasing power of no more than $500 a year\u2014and this by no means stable….[in 1890] Jay Gould\u2019s income was approximately ten millions of dollars per year.\u201d<\/p>\n In The Monied Metropolis<\/b>, Harvard historian Sven Beckert spotlights the conspicuous over-consumption of Manhattan\u2019s haute bourgeoisie<\/i>, including extravagant balls such as the 1897 party that Cornelia Martin threw for 700 of her closest friends, who showed up at the Waldorf Astoria wearing costumes of historic figures.\u00a0 No less than 50 celebrants came as Marie Antoinette.\u00a0 The Park Avenue Armory at 68th<\/sup> Street, now a popular venue for over-priced antique shows, was built by Manhattan\u2019s capitalist elite as a fortified castle that could, if necessary, hold off New York\u2019s working class rabble.<\/p>\n Journalist Jack Beatty unambiguously begins his book, The Age of Betrayal: The Triumph of Money in America, 1865-1900 <\/b>\u00a0by announcing \u201cThis book tells the saddest story: How, having redeemed democracy in the Civil War, America betrayed it in the Gilded Age.\u201d\u00a0 He agrees with popular economist Henry George that America had a government \u201cby the corporations, of the corporations, and for the corporations.\u201d<\/p>\n In Standing at Armageddon<\/b>, Princeton historian Nell Irvin Painter notes that \u201cfrom the 1870s to the 1910s (and beyond) some Americans feared that a society in which the privileged wielded enormous power to further own interests could not at the same time function as a democracy in which all were created equal.\u201d<\/p>\n Clearly there is a weird disconnect between historians\u2019 hand-wringing about\u00a0 the first \u201cGilded Age\u201d and economists\u2019 judgment that the living standards of the average American improved dramatically.\u00a0 Perhaps, a century from now, there will be similar disagreement about whether the benefits of the Internet ultimately outweighed rising income inequality.<\/p>\n The Free Stuff Problem<\/b><\/p>\n One huge problem in assessing the benefits of the Internet is that, in economics, something does not exist unless someone buys it.\u00a0 But much of what is available on the web is free\u2014books, music, maps, news, stock charts, games, etc. etc.\u00a0 \u00a0In emerging markets, users of the WattsApp service that Facebook just acquired can get two years of texting (text, photos, video) for just $1.00.\u00a0 \u00a0Economists are well aware of the problem but ultimately end up ignoring it.\u00a0 So we are told that the median income of American males has not increased since 1973 even though their living standards have, in many respects, improved dramatically.<\/p>\n Let\u2019s Get the History Right<\/b><\/p>\n The aforementioned economists forget that the first \u201cindustrial revolution\u201d was not all about technology.\u00a0 Initially it involved increasing specialization of production (using traditional technology), made possible in the late 18th<\/sup> century by the expansion of the market.\u00a0 Adam Smith described how pin production became much more efficient when it was broken into separate steps performed by specialized workers. \u00a0In the U.S., specialization transformed the shoe industry without the aid of much new technology.\u00a0 The industry shifted from an artisanal craft where one cordwainer made the whole shoe to a \u201cputting out system\u201d where some people made the \u201cuppers,\u201d some made the sole, and still other workmen assembled the final product.<\/p>\n Brynjolfsson<\/b> and McAfee<\/b> think the steam engine initiated and drove the \u201cFirst Machine Age.\u201d Wrong, at least for the U.S.\u00a0\u00a0 The first wave of industrialization in New England and the mid-Atlantic Region, between 1790 and 1830, had little to do with steam engines.\u00a0 Mechanization of textile production\u00a0 — spinning thread, weaving \u00a0cloth, and then finishing and dying the cloth \u2013 transformed the industry at a time when textiles were the most important manufactured product in international trade.\u00a0 High-tech textile mills used water power, not steam engines.\u00a0 The most sophisticated mills were constructed in Massachusetts by the \u201cBoston Associates\u201d\u2014Boston Brahmins who made their first fortunes in international trade, stole textile manufacturing secrets from Britain, and built large integrated textile mills on the Charles and Merrimac Rivers.\u00a0 (Come on guys, the Lowell Historical Site is only 38 miles from MIT.\u00a0 You should know this stuff.) \u00a0The machinery in these water-powered factories required advanced mechanical engineering.<\/p>\n Most other \u201chigh tech\u201d Northeastern factories used water power in the first third of the 19th<\/sup> century.\u00a0\u00a0In this period of American history steam engines were mainly used\u00a0 not in factories but on steamboats.\u00a0 Relatively light, high \u2013 pressure steam engines powered boats on the Mississippi and other western rivers.\u00a0 Unfortunately they had an annoying tendency to blow up.\u00a0 After 1830 steam engines gradually became more important in factories, and they were also used on railroads which began to proliferate in the 1830s. But the first railroads were used by passengers.\u00a0 Until the 1850s most freight was moved on wagons, barges, canals and sailing ships.<\/p>\n The Second Industrial Revolution\u00a0(1870-1930): A Protracted Affair<\/b><\/p>\n If the \u201cfirst industrial revolution\u201d (1790-1860\u00a0 in the U.S.) involved the mechanization of textiles and other manufacturing using water power, gradual introduction of steam engines, and development of railroads, the second industrial revolution involved a diverse collection of new technologies, including telephony, electricity, automobiles, modern chemistry, movies, and radio.\u00a0 It took a long time for new technologies to transform the broader economy.\u00a0 Electric lights began to appear in major cities in the 1880s, but as late as the 1920s manufacturing productivity was being driven by construction of modern factories that used electric motors rather than steam power.\u00a0 (Electric motors scattered along the assembly line were more flexible than a centralized steam engine.) \u00a0Automobiles were developed in the 1890s but Ford\u2019s Model T was not introduced until 1907 and autos did not really transform the lives of middle class Americans\u00a0until the 1920s.<\/p>\n Copyright Thomas Doerflinger 2014.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" Lately economists have been comparing today\u2019s digital revolution to the first industrial revolution (1790-1860) and the second (1870-1930).\u00a0 This granular, micro-economic analysis is a welcome respite from the absurdly abstract macro parlor games played by Keynesians and their adversaries.\u00a0 Three … Continue reading