David R. Henderson  

Bryson on U.S. Standard of Living in 1927

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The first book I read on my current vacation at my cottage is Bill Bryson's One Summer, subtitled America, 1927. It's his story about various events in the United States in 1927. I've been a fan of his travel writing; my favorite is his book on Australia, In a Sunburned Country, which I read twice after visiting Australia. I also did a favorable review of his At Home: A Short History of Private Life. Here's one paragraph from that review:

Bryson has pulled off a marvelous feat. He devotes almost every chapter to a room in his Victorian house in England. He then considers why the room is the way it is and what preceded it. In doing so, he produces an important economic history, only some of which will be familiar to economic historians and almost all of which will be unfamiliar to pretty much everyone else. A large percent of it is important, and the reasons are two: (1) you get to pinch yourself, realizing just how wealthy you are; and (2) you get a better understanding than you'll get from any high-school or college history textbook about the economic progress that made you wealthy. Not surprisingly, given that I'm an economist and Bryson isn't, I have a few criticisms of places where he misleads by commission or omission. But At Home's net effect on readers is likely to be a huge increase in understanding and appreciation of how we got to where we are.

Back to One Summer. I highly recommend it. It's vintage Bryson: interesting, informative, and entertaining. One of my favorite sections is on the eugenics movement of the time, a movement that had attracted some heavy hitters in American public life: more on that in a subsequent post.

Some of the economics is iffy: hey, he's a travel writer, not an economist. But here is a beautiful paragraph that give the reader a sense of how well off Americans were in 1927:

To a foreign visitor arriving in America for the first time in 1927, the most striking thing was how staggeringly well-off it was. Americans were the most comfortable people in the world. American homes shone with sleek appliances and consumer durables--refrigerators, radios, telephones, electric fans, electric razors--that would not become standard in other countries for a generation or more. Of the nation's 26.8 million households, 11 million had a phonograph, 10 million had a car, 17.5 million had a telephone. Every year, America added more new phones (781,000 in 1926) than Britain possessed in total.

He then goes off the rails a little with a mercantilist touch mixed in with his documentation of Americans' holdings of consumer durables, writing:
Forty-two percent of all that was produced in the world was produced in the United States. America made 80 percent of the world's movies and 85 percent of its cars. Kansas alone had more cars than France. At a time when gold reserves were the basic marker of national wealth, [DRH note: I trust that Econlog readers will see what's wrong with this previous clause] America held half the world's supply, or as much as all the rest of the world put together.


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COMMENTS (8 to date)
ThomasH writes:

We should forgive him the gold remark if like the other paragraph cited he was trying to see the US as foreigners in 1927 would have seen it. THEY would have been impressed by the gold reserves and (mistakenly) taken it as a "marker" of national wealth. It would have been out of place for him to point out the mistake even if he recognized it.

Ben writes:

Just, FYI, you might not want to make the assumption that "I trust that Econlog readers will see what's wrong with this previous clause". I, for one, am not an economist, have no training in economics, and read the blog because I'm trying to learn by osmosis – diffusion of knowledge from high concentration to low concentration. :-> I'm curious to hear the inside chatter of economics – what is hotly debated and why, what is settled even though non-economists might not realize it, etc. So I have no idea what is wrong with that clause. :->

R Richard Schweitzer writes:

Could that possibly infer a "a marker for comparisons of national wealth?"

David R. Henderson writes:

@Ben,
So I have no idea what is wrong with that clause. :->
That’s why I linked to the Mercantilism article.

Andrew_FL writes:

Weren't "we" holding a lot of gold to help Britain restore the pound to pre-war parity?

ThomasH writes:

@Ben

Let me take a crack at being a little didactic. The "mercantilism" is well explained by the link, although I, too, did not stop to go to it on first reading.

In a way it not totally wrong to see foreign exchange reserves as a "marker," a correlate of national wealth any more than having a large holding of cash and very liquid assets is a probably a correlate of personal wealth. The mistake comes if one thinks that correlation is causation and that the causation runs from liquid wealth/foreign exchange reserves to national/ personal wealth when it is the other way.

Although often it is dangerous to use a single person or firm as an analog for a country it this case I think it is helpful. Think about Scrooge McDuck. Doubtless his vast accumulation of gold coins does "mark" his great wealth, but the accumulation per se does not produce any income (although apparently he does enjoy "swimming" in it.) He would probably become wealthier if he used some, maybe most, of those coins to invest in some kind of productive asset. If he did that, the correlation between his total wealth and would fall even as he became wealthier.

For a nation or a national government it would be an ever bigger mistake to have an objective of trying to accumulate as much foreign exchange as possible. In part it would be a mistake for the same reason that it would be for Scrooge McDuck: foreign exchange reserves do not produce much revenue and they could probably be better invested in roads and bridges and airports and early childhood education. (Of course it is possible they could be poorly invested so that the government would be better off having the foreign exchange reserves just as Scrooge McDuck would not become wealthier if he invested his gold coins in a money loosing business.)

But there is an even more important reason why it is a mistake to try to accumulate as much foreign exchange as possible -- a "mercantilist" policy. Many ways governments may try to accumulate foreign exchange are directly harmful, they reduce national income and national wealth, not increase it. The best example, the one that the early economists who argued against mercantilism ,argued against was restricting imports (and to a lesser extent subsidizing exports). [Why import restrictions are usually a bad idea and the exceptions is the field of international trade and I will not say any more about that here.]

Even if the government (generally it is a national monetary authority or central band, not the national treasury) just buys foreign exchange from exporters without restricting imports is still not costless; the government had to tax someone to be able to buy the foreign exchange and usually real life taxes have costs [This is not the place to explain why this is so or any of the exceptions; that is the field of public fiance and environmental economics.][Still less is this the place to discuss the "costs" of accumulating foreign exchange by money creation by the central bank; that gets us into macroeconomics.]

Stepping back, the problem with trying to accumulate as much foreign exchange as possible is that foreign exchange is not itself useful except as a way to achieve some more basic objective. And it is always a mistake to try to maximize an intermediate goal instead of the real ultimate goal. A government that wants to maximize the wealth of its citizens (or even its own power) will need to peruse multiple intermediate goals, never to maximize any one of them.

This has been a "central planing" flavored kind of explanation and there is also a valid "libertarian" explanation, but I'm not the best person to do it; that would be Dave Henderson if he had time.

I hope this helps specifically with your question about gold as a marker of wealth as well as your broader goal of picking up economics by osmosis.

Shane L writes:

I believe it was in his At Home that he described the difficulty of getting hot water into upstairs baths in big houses of the past. I thought that was fascinating. Anyone who lives upstairs and has hot running water today would have needed a small army of servants running up and down with buckets of water to take a shower or bath in the past.

David R. Henderson writes:

@Shane L,
You just caught me on my "once every two or three days" check-in. Yes, you remember correctly. Indeed, for those interested, I highlighted this story in my review of the book linked to above.

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