The Midlands region of England is the area where people first began working out all of the changes brought about by industrialism. It turned out that actually making things in factories was the easy part. Adapting to the economics was much more difficult and, while we have made a lot of progress, we are still trying to get it just right.
What happens is that society itself becomes part of the factory system, and administering it is a lot like running a machine in a factory. In a free-enterprise system, factory owners naturally want to maximize their profit by charging as much as they can for the product while paying their workers as little as possible. But that it where the complications begin. If all factories follow that strategy the workers will not have enough money to buy the products that they, as a whole, are producing. Since it does not make sense to produce goods that are not going to sell, and since factory owners are reluctant to lower prices, they will cut back on production. But that will mean letting go of workers who will then have even less money to buy goods, and the spiral continues until the economy possibly crashes.
That is what happened in the U.S. in 1929. There was a lot of excess productive capacity available after the end of the First World War. It was used to produce a fantastic array of consumer goods, during the bountiful era known as "The Roaring Twenties". But the trouble was that the workers, who were also ultimately the consumers, were not earning enough money to buy all of the goods that were being produced. Factories began cutting back on production of the goods that were just piling up in warehouses, and it spiraled into a devastating crash. The U.S. came close to a similar crash on two other occasions, in 1987 and 2008.
There was also such a thing as paying workers too much. Just ask anyone who lived in England during the late 1970s. When workers are paid too much, the economy just adapts by way of inflation. The money in circulation is a reflection in value of all of the goods and services being produced. If more money is printed and given out, goods will just get more expensive. Workers in one industry would see other workers getting raises by going on strike, and they would follow. It caused a perilous strike-inflation spiral.
Most governments prefer just a little bit of inflation, maybe 2 %, because it acts as a cushion against deflation, which is worse than inflation. Deflation means that prices are dropping, and it doesn't make sense to make anything if the money it brings in will be less than what it cost to make it by the time it is sold.
The philosophy of the Industrial Revolution was simple, to let the machines do the work instead of people. But the implications were unfortunately much more complex. We literally define success as putting people out of work. If it takes six people to do as task, and we find a way to do it with two people, that is considered as making progress. But than what are the four people supposed to do to earn a living?
Clearly, the philosophy of the Industrial Revolution calls for some kind of mutually-supportive socialism since the very objective of the economy comes down to putting people out of work. But then human nature enters the picture in a way that it never did in pre-industrial society. What about incentive? Moving the Industrial Revolution forward requires more ideas. The machines, while decreasing the overall need for workers, still requires knowledgeable people to build and maintain them. But why should anyone bother if they are going to get paid for not working because machines are doing the work for them?
That means that there must be a balance out there somewhere that would fit society just right. But where is that balance between socialism and pure free-enterprise? It comes down to how much workers are paid to produce goods relative to the cost of the goods that they are producing. We saw in the examples above how paying workers either too much or too little can be very dangerous to the economy. This is something that we never had to deal with before the Industrial Revolution came along.
Part of the problem is that we do not have a true market economy. People have bought and sold at markets for thousands of years. But prices were not fixed. What was paid was based on haggling. Prices would thus continuously adapt to demand in traditional marketplaces. But when we set a national-scale market, prices are fixed and often cannot adapt fast enough for best matching of supply and demand. This is especially true as stores and suppliers are naturally reluctant to lower prices because it cuts into profit.
The trouble with finding the best balance between wages and prices is who do we ask? Ten people might have ten different opinions. People who are making money naturally want to keep it that way. Why should they have to pay taxes to support people who will then see no reason to have to work? But then shouldn't people who work hard all day be able to live relatively comfortably on their wages? Shouldn't there be support for those out of work since the very objective of an industrial economy is to put people out of work? Isn't it true that the more difficult it is to live by the rules the more people there will be who don't live by the rules, and lack of social support will only mean more crime and people in prison? How much sense does it make for the government to spend a lot of money to defend the country against potential attack, but the people are on their own if they get sick or injured?
But then the trouble with that is that the economy is complicated. In fact, it is as complicated as we are. The economy is like a 360 degree circle with people inside, looking in all directions, but none seeing the entire circle. Some can see how easing taxes on business will likely enable it to expand, thus creating more jobs. Others can see that not benefiting workers enough will endanger businesses because they will not be able to buy all of the goods that are being produced, which invited a recessionary spiral or an outright crash.
But few people can see the entire big picture of 360 degrees. It comes down to the simple question of which is more important in an economic transaction, the buyer or the seller? Those on the right support the seller, those on the left the buyer. But isn't it like asking which shoe is more important, the left or the right shoe?
It is so difficult to get just the right economic balance because of how we react. The best economic position is in the center, meaning that buyer and seller are of equal importance. But we are almost always too far to the left or right. When we try to correct it, we react by going too far in the opposite direction. Then we correct that by going too far back to the original direction. There is the tendency to think that if a little bit of socialism works well, and it does, then a lot of socialism will work even better, except that it doesn't.
Economics is a complex realm, as opposed to a simple realm. The difference is that, in a complex realm, two opposing statements, such as two economic positions, may both be true. Whereas, in a simple realm, a statement must be either true or false. I define the difference between a religion and a philosophy as religion being the simple realm, either there is a god or there isn't, and philosophy being the complex realm, where two apparently opposing statements may both have merit. Things to do with the universe of inanimate matter are in the simple realm, but things to do with human beings may be in the complex realm. The best in economics, in my opinion, is not to choose between right and left but to find the best way to weave them together.
Industrialism is inevitably associated with secularism. When a person works in the fields, they deal with what God has created all day. When a person works in a factory, they deal with what humans have created all day, and some find it easier not to believe in God. Notice, for example, that America's "Bible Belt" is in the most agricultural region of the country. Charles Darwin was from the Midlands and his theory of adaptation by natural selection very much looks like an industrial process of continuous improvement. Although it does not explain, or really try to explain, how living things began from inanimate matter and I, as a Christian, do not see how it in any way disproves the existence of God.
But humans are designed to believe in something and the Industrial Revolution brought new economics with it. First Capitalism, and then Communism as a reaction against the harshness, unfairness, and destructiveness of early Capitalism. How many people have you known whose "religion" was their political or economic philosophy? Nationalism also became a new substitute for religion. The modern idea of the nation-state is a relatively recent development. It used to be that the religion or the tribe was almost always more important. But how many other people have you known whose nation is their "religion"? The great wars of the Twentieth Century were mostly over these substitutes for religion.
This making a religion out of political-economic philosophies certainly slowed the never-ending search for the most effective balance between the side of the buyer and that of the seller. The industrial nations once had some adhering to Capitalism and some to Communism. The overall trend ever since is that both sides have been moving toward the center, but nations had nuclear missiles pointed at each other over rival economic systems..
Have you ever thought about the effect that an economic system has on the character of people? Free-enterprise is based on competition to bring about the best in products. The trouble with that, once again, lies with human nature. A lot of people cannot compete without being nasty. The result is that, while competition brings about the best in products, it also brings out the nastiness in people. The emphasis on switching to a new brand if it beats it's competitors invites fickleness. The inevitable disparities in wealth between fellow citizens invites coldness to the less-fortunate.
But leftward economics, with the emphasis more on egalitarianism with less inequality, invites resentment. Why should you have the right to have something or be able to do something that I can't?
Which one is worse? It depends, as always, on one's opinion.
The original industrial societies of the west have long since gone on to the next step, that of a service economy. Industrial production, on a large-scale has moved to other countries. But there has to be an industrial economy before there can be a service economy. The wages of the service economy must be supported by the wages of the industrial economy. This means that, in a service economy, both wages and prices will be high while, where the majority of the people are working in manufacturing or agriculture, both wages and prices will be relatively low.
By no means has all industrial work gone overseas to lower-wage countries. It is more profitable to have large-scale bulk manufacturing done overseas but as demand gets ever-more specialized, industry gets more smaller orders than fewer larger orders. It makes less sense to send smaller, more specialized orders, overseas. In addition, if the cost of fuel is rising it does tend to make everything else more expensive but that is especially true for goods produced far away so that it makes more sense to make them closer.
My economic theory is that the best comes from effectively weaving left and right together in a search for the best of both with the worst of neither. So much that humans do, such as test scores and physical abilities, plot as a bell curve with the greatest number of people being near the center. That means that if economics is a true meritocracy, with equal opportunity for everyone, the economic distribution of wealth should also plot as a bell curve, with the most people being in the middle of the middle class. When the system has gone too far left or right it should show up as a distortion of the bell curve.
We can compare it to the humps of camels. Since charts of human abilities virtually always tend to form a bell curve, that is what the economy of a real meritocracy should look like, with most people in the middle class. This looks like the one hump pf the dromedary, or Arabian camel. But if money is allowed to equal power, so that more money is pulled toward those who are already wealthy outside of meritocracy, the economic distribution will be distorted toward the two humps of the bactrian camel, more rich people but also more poor people, with a diminishing number in the middle.
Having everyone equal generally destroys incentive to work but the peril of inequality is that money inevitably equals power. Those with money and power use it to pull the structure of the economy in their direction, meaning that the rich get richer not by increasing overall production but by the poor getting poorer. But the rich generally depend on the working masses to buy the products that they produce. Pulling the economic structure toward the wealthy brings a temporary increase in their wealth but also invites a recessionary spiral, or even an outright crash, by not leaving enough money in circulation to buy all of the goods and services that are being produced.
The way I see it, economics can be illustrated by the simple method of multiplying two numbers, that sum to ten, in search of the maximum product. One side of the scale represents pure Communism and the other side pure Capitalism. Mild socialism is in the center. If we multiplying 1 x 9, or 9 x 1, we get the undesirable results of either pure Capitalism or pure Communism. 8 x 2 = 16. 7 x 3 = 21. 6 x 4 = 24. It is when we get to the center, 5 x 5 = 25, that we get the best economic results. Since one side represents the seller, and the other the buyer, this shows that the two sides are equal.
Another component of my view of economics is the four workers. Every worker fits into one of the following categories, with knowledge being considered as a product.
1) Those who make things.
2) Those who fix things.
3) Those who move things.
4) Those who run things.
This Model of the Four Workers considers disseminating knowledge as "making" and selling something as "moving" it. But the model could possibly have two more workers added, "making" knowledge, as opposed to material products, as 2, and "Those who sell things" coming after "Those who move things. Security and military are tools of "Those who run things".
The goal should be to emphasize as many workers as possible being as high as possible, with as many as possible actually making what is needed while the lower categories having only as many workers as is really necessary. The trouble with a free-enterprise economy with not enough oversight is that it will tend to "drift" toward more and more workers not actually producing anything. Even when things are produced, things that are really necessary should be emphasized over "artificial" necessities. An example of an artificial necessity is cars. In most societies it is very advantageous to have a car, but only because society has allowed it to be set up that way.
A sign that something is wrong with the economy is spiraling, and this will show as a distortion of the bell curve. For an economy to really be a meritocracy, spirals must be avoided. People can get on an upward spiral, because money tends to equal power and they can use their power to send more money their way, although it is outside the meritocracy on which a free economy is supposed to be based. People can get on a downward spiral because of worsening credit they have to pay more for everything and can never get out of poverty no matter how hard they work. The economy as a whole can get on a recessionary spiral because workers are not being paid enough to be able to afford to buy all of the goods and services that are being produced, factories cut back on production meaning that workers have even less money and the spiral continues.
The economy as a whole can also get on an inflationary spiral because workers are being paid more than their labor is really worth and, as prices rise, they are given pay raises to keep up but this only keeps the destructive spiral going. Unions in the 1970s kept getting pay raises for workers. But it got so that millions of industrial workers were getting paid more than their labor was really worth, according to the Law of Supply and Demand, and the result was inflation. It was no coincidence that inflation and the number of people working in industry both peaked in the same year, which was 1979.
People moving for economic opportunity forms another spiral. When people leave one place because of declining fortunes, those remaining still have to pay the taxes to support an infrastructure that was intended for more people. That prompts still more to leave and thus continues the downward spiral. When people move to a place, it is the most enterprising and dynamic people who are usually the ones to move, and that creates an upward spiral that draws in still more people, until rising prices slows the trend according to the Law of Supply and Demand.
Another spiral involves buildings. A large building is more efficient than a small one. But that is true only if the building can be completely occupied. If it can't, the tenants that are there have to pay to support a building that was intended for more people or businesses. That prompts some to leave, continuing the downward spiral.
These spirals counteract the principles on which the free economy is to operate, that of meritocracy and supply and demand. I thus see avoidance of a spiral as a primary economic goal. There will be movement from one place to another, according to supply and demand, but the basic operation of the economy is distorted in a negative way by this spiral effect.
Yet another destructive spiral is people warning that there is going to be a recession. When people hear that there is a recession on the way, they may curtail their spending to save money. But then that lack of consumer spending is what brings about the recession, and it turns out to be self-fulfilling.
One of the most notorious spirals is the investor bubble. People with money to invest see the price of some commodity rising, and figure that they can make money by buying now and selling later, after the price has risen appreciably. The trouble is that other people, maybe many other people, are thinking the same way. This causes the price to continue to rise, but not because of the genuine Law of Supply and Demand. It is an artificial bubble that, sooner of later (hopefully sooner) is going to burst, and a lot of people may lose a lot of money. The loss may be enough to have a serious effect on the entire economy.
Among the profound changes brought about by the Industrial Revolution was our concept of time. An agricultural society lives by the calendar. Crops must be planted and harvested at the right time of year but the time of day is not important. Industrial societies, in contrast, live by the clock rather than the calendar. Workers have to be at the factory in time to start their shift, but the time of year was generally unimportant.
A new order of things means displacement for the old order. Bristol had long been England's most important port but the new larger ships that were made possible by the development of the steam engine did not maneuver easily into Bristol's Avon River. Liverpool became the new most important port, and a canal gave Manchester access to the sea. It actually depended on Britain's relations with Europe. When relations were less-than-friendly, Liverpool was the most important port because it faced away from Europe. But if relations were friendly, then Southampton had the advantage because it faced toward Europe.
Birmingham was only a town when the Industrial Revolution began, but it outgrew all of the older cities around it. This was because a new property order was necessary and it was easier just to build a new city around it then to change the property order in existing cities. This can be seen in that the two largest cities on the Great Lakes are Toronto and Chicago, both of which had their downtown erased by cataclysmic fires. But this turned out to be "creative destruction" in the long term, because it provided a chance to start the property order over. The greatest example of the periodic necessity of starting the property order over is Paris. Without the extensive Nineteenth-Century renovation of Napoleon III, it certainly wouldn't be the city that it is today.
But the most profound change to society was certainly the new class system that replaced Feudalism. It was hierarchical, just as Feudalism was, but the factory owners were the new upper class over the vast majority of people who were commoners. The upper class wanted to keep the privileges for themselves and, in my opinion, did what they could to keep the commoners down.
When democracy became widespread the upper class mostly supported rightward economic policies, trying to convince voters that we would all be better off if the lower classes defer to the wealthy. This brought about Marxism, or Communism, which was originally intended for England. I don't think that England, with it's background of the Protestant individualism which brought about the Industrial Revolution in the first place, was ever really suitable for Communism but I am sure that Karl Marx never imagined that his economic theory would be enshrined first in Russia.
Anyway, the Midlands is where people first began sorting out all of the implications and economics of the new industrial society. If only it was as simple as actually making the goods in the factories.
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