Global Economy, Great Depression and the General Theory

The history of economic theory through the 18^th to the 20^th century is punctuated by several  important works which would prove important in influencing intellectual discussion with great consequence for better or worse through time.

Gold was very important to the backbone of economies, gold backed currency was central to classical economic policy as it was a ‘sound money’.

The gold rush of 1849 marked the first global interest in prospecting for gold, whilst several rushes had already taken place all over America, this interest led to rushes in Australia, South Africa and Wales among others. A gold rush is whereby workers migrate to areas that had seen a large discovery of gold. Overall only few saw huge riches but because the world’s money supply was based on gold, this was an economic stimulus that had far reaching effects both nationally; with immigration leading to the permanent inhabitation of new regions. And globally with the stimulation of global trade and investment.

 1844 saw Britain’s Sir Robert Peel pass the Bank Charter Act. This nationalised the nation’s money supply by ensuring that only the Bank of England could issue new banknotes, and only when they were backed by gold or in cases of debt whereby the government retained and used the right to suspend this clause of the act several times in financial crises. This allowed for the managed expansion of paper currency whilst ensuring there would be far less worry of inflation due to the far more regulated nature of the printing of banknotes.

In the 1880’s the world was hit by a global economic depression. This has been attributed to exhaustion of the goldmines in California and Australia and the hoarding of gold by India and China by Alfred Marshal.

Quantity theory of money states that money supply has a direct, proportional relationship with price level. Therefore in this context a tighter money supply means there will be fewer transactions and therefore cause unemployment thus the economic crisis as this occurs on a global scale.

Monetary policy: Interest Rates.

Interest rates are set through the issue of government bonds (gilts).

The more gilts that are issued, the higher the rate of interest.

However the ability to issue bonds depends on legitimacy of government and confidence in economic policy. In times of economic crisis where there is a deficit of money a government will acquire bonds to stimulate their economies. Due to the trust based nature of bonds, those countries will offer them at far higher interest rates than normal, making a substantial profit due to the desperate nature of the country in question.

Fiscal policy: This is the use of government expenditure and taxation to influence the economy.

The Classical approach is to regulate only the bond market and subsequently interest rates. This is due to the preference for a ‘balanced budget’ approach which is the idea that there must be balance between government spending and taxation.

However Keynesians think it more important to use fiscal policy to regulate aggregate demand. Aggregate demand is the total demand for all final goods and services in the economy at a given time and price level.

A management or increase of aggregate demand is achieved through government spending i.e. the issuing of bonds and specific taxation with the function of controlling the spending habits of different groups, for example in encouraging the poor to spend more i.e. taxing goods over income. Whereas the rich taxed on an income basis as they invest rather than spend.

To manage aggregate demand (Y) three factors must be taken into account:

Household Spending (C)
Private Investment (I)
Government Spending (G)

Thus Y= C+I+G

However there are several problems with such methods as identified by Galbraith and Hayek:

·        Inflation and ‘stagflation’ (the latter being where inflation is high whilst economic growth slows and unemployment remains high).

·        There is an increased role of the state as mentioned, this is argued to result in a decline of freedom as the government completely controls monetary policy.

·        Further to the aforementioned point, central government planning undermines democracy in the fact that it relies on a technocratic elite of economists and statisticians not subject to the General Will. Thus their policies can simply be technically correct but devoid of real benefits which simply pander to public ignorance.

·        A destruction of profitability in private instituations such as medicine.

·        An orientation towards arms spending and militarism. (Large job creation but little public benefit).

·        A complete collapse of rational expectations i.e. frozen wages and stagflation.

·        Protectionism which stifles innovation, investment whilst increasing the bureaucracy and compounding social issues such as racism.

·        Cheap credit asset inflation leading to bank failures which consequently lead to a credit shortage and thus universal bankruptcy with the possibility of a currency collapse and social collapse known as a ‘credit crunch.’ Such as in Ireland and Greece. 

The more active states practised neo-mercantilism in the 1800’s, a form of protectionism that encourages exports and discourages imports. It also controls the movement of capital and centralises currency decisions to a central government with the aim of more effective monetary and fiscal policies by increasing the level of foreign reserves held by the government. (Foreign reserves are foreign currency deposits and bonds held by monetary authorities such as central banks)

This would lead to state spending and social democracy with the extension of voting rights.

Socialsim, social democrats and trade unions would appear with the first socialist party governments appearing in 1880s Germany.

Nation building, imperialism whilst partly political in nature are founded on a neo-mercantilist basis. A particular example of this is the Protectionism movement in England with Imperial protection and tax tariffs to promote the integration of the British Empire which can be seen from President Lincoln onwards in the USA and in the EU now.

The 1920s:

The 20^th Century was turbulent time for the world economy.

The USA enjoyed the ‘roaring 20s.’ Deficit spending for the war led to the money supply expanding. There was a multiplier effect which led to speculation and rising prices. Ordinary citizens invested in the stock market as a way to get rich quick and the banks were more than happy to give out loans to any and all.

A typical citizen would go to their bank and ask for a loan of e.g. $500, they would invest this in shares and then sell these shares to produce a profit and then pay back the banks. 

However the stock market crashed. This was largely due to overproduction. High quality consumer items such as cars and radios, which had once enjoyed huge demand were now in the homes of millions of citizens. There was no longer a domestic market that could support companies who had continued to over produce. Exportation was not the solution as the import tariffs imposed on foreign goods were likewise imposed on American exports meaning products could not sell competitively in foreign markets. Thus shares in companies declined in value. Consequently people could no longer afford to pay back their loans and millions simply disappeared. 

This was the period of the great depression which had a knock on effect on other foreign economies. Germany suffered massive hyperinflation in 1923. 

The neo-classical view of the great depression is that it constitutes a temporary market correction.

The view also states that the answer to unemployment is to reduce the cost of wages and money itself (through manipulation of interest rates).

The reduction of wages is only effective in an environment devoid of both trade unions and unemployment benefit. This ensures labour mobility; workers will migrate to where there are the most opportunities, mostly concerned with employment but also education as workers will likely move with their families to permanently settle. Thus all labour is re-emplyed in areas of best interest to the nation. I.e. jobs are filled where needed.

Parallel to this the initiative to ‘cut government waste’ through reduction of government spending and raising taxes. Reduction of spending is to create downward pressure on interest rates through the bond market. Raising taxes can be done in a multitude of ways such as the raising of tuition fees which is a ‘stealth tax.’

In response to the global economic crisis Winston Churchill went back on the gold standard as he argued the collapse in world trade was due to cheap money.

Keynes argued it was in fact the opposite, that deflation was the reality and would not simply cure itself. Keynes argued that to devalue currency and issue more money would bring unemployed resources into effect and thus companies and consumers would have more money (through tax breaks) and that government spending would result in job creation thus more employment.

Freud

Whether or not you agree with Freud’s theories of psychoanalysis, you cannot argue that his influence was not staggering. At the time it was revolutionary and even today remains remarkable in its depth and oddness.

Freud and Plato:

Freud’s views were in line with Plato’s idea of the tripartite self; reason, spirit and desire.

However the beyond this their theories are the polar opposites, Plato believed that reason could rule spirit and desire. Freud however felt reason was the weakness of the three because human beings are irrational by nature.

He argued we are driven by desires that are outside of our control, beyond our conscious mind thus reason will never be dominant. 

Freud and Marx:

Freud didn’t care for Marx’s political views, rejecting Marx’s idea of a communist society as hopelessly idealistic given man’s nature to put desire above reason even without intent.

Freud and the Unconscious:

Freud believed our deepest need is aggression, the wilful desire to hurt others and ultimately destroy ourselves. He believed that through psychoanalysis he had discovered things about the unconscious that were never known before. 

Freud’s ideas were a challenge to the Enlightenment, an alternative to rationality which instead argues for innate impulses and overall lack of self control over ones cognitive faculties. 

Furthermore his theories presented a bleak vision of humanity; he saw the reality of human nature as pain and suffering arising out of his own psychic alienation and the painful interaction with other human beings.

Living between two major World Wars and suffering with cancer of the mouth for over decade, Freud had experience with this pain on both a global and personal level. Therefore it is unsurprising that this would manifest in his deeply pessimistic writings.

The deep pessimism seen in his theories is something he would readily admit to. He said that (to paraphrase): ‘When you think of my views, think of Rembrandt, a little light but a lot of darkness.’

The Freudian Personality:

Freud theorised the mind was divided into 3 distinct processes that are in a constant everlasting conflict with one another.

Id: This is the primal instinct to avoid pain and gain pleasure. The id is synonymous with sex and aggression and dominate the personality on a subconscious level allows wanting express these desires and doing so to varying degrees.

Ego: Represents rationality. It is our reasoning faculty and is the least powerful of the three. It dictates moderation and common sense and so must fight constantly against the primal urges of the id and repressive nature of the superego.

Superego: The internalised rules of parents of society. It develops after birth through socialisation. It punishes the ego with guilt as it holds it up to impossibly high standards of perfection. It also deals with morality in a way that supersedes the ego and is more akin fanatical belief. Hence why the superego can be substituted or strengthened by religion. 

Civilisation is a collective superego and whilst the religious teachings of peace may propagate the fundamental instincts that underlie human behaviour in the id will remain and so: ‘Man is wolf to man.’

Freud states that this conflict between the three can result in repression and defence mechanisms. These include:

Sublimation: This concerns releasing sexual energy and aggression in a way that is socially acceptable. For example relieving them by playing sports or doing work. 

Displacement: Turning shameful thoughts into something else.

Projection: Placing our negative thoughts on someone else.

Regression: Regressing to an earlier developmental stage.

Coping mechanisms include the chemical; intoxication or isolation but both are temporary. Sublimation is also a coping mechanism  but will never give one as much pleasure as ‘the real thing.’

Freud states the only way to actually solve the problem is through analysis which involves strengthening the ego so that a person might become a more rational creature. However this is not for everyone and so humanity overall will continue its self-destructive ways as primal instinct fights against societal restraints.

L'Age D'Or

L'Age D'Or was released in 1930 to a largely hostile audience. It was a surreal movie which concerned two lovers constantly thwarted by their families, church and society to fulfil their passionate desires. The film intended to send the message that sexual repression within society breeds violence. It is perhaps ironic then that during a screening, members of the Fascist League of Patriots threw ink at the screen and attacked members of the audience.

L'Age D'Or is a strange film which was shown to illustrate Freud’s ideas of sexual repression, id, ego and superego in practice. It shows a world where two lovers are without restraint i.e. controlled by their id completely. The ego isn’t anywhere to be found whilst the superego takes the place of the church, parents and society as it continually attempts to stop them. The film demonstrates what society could be without restraint where Freudian desires are realised full and completely with little regard to consequence, social or otherwise.

The History of the Daily Mirror

The history of the Daily Mirror is a long and turbulent one wrought with both failures and successes.

The Daily Mirror was the idea of Alfred Harmsworth. Harmsworth was born in 1865 into a comfortable environment. Whilst failing in his studies he successfully worked for a magazines until 1886 where at the age of 21 he stole some paper and launched his own magazine called Answers. This magazine was shamelessly modelled after the commercially successful Tit-bits.

Harmsworth skilfully used competitions and cash prizes to boost circulation and eventually after months of planning and testing the Daily Mail was launched in 1896.

The Daily Mail was created to capture a brand new audience, the young literate working class with little time and energy, the paper would have articles no more than 250 words. This was to allow it to be interesting yet sufficiently simple for the working man. On the first day of publication sales far exceeded expectations and immediately turned a substantial profit. The Daily Mail used such cash prizes and competitions like its predecessor but also innovated in other ways including a woman’s column. 

The woman’s section proved so popular that the Daily Mirror was created, to be written by and for women. In preparation to the launch of the new paper it was given a lavish advertising campaign which included large advertisements in the Daily Mail. The Mirror was launched with high hopes but sales quickly plummeted after the first day. The paper was an unmitigated disaster and what’s more; an embarrassment. 

The Daily Mirror sold so poorly that it ate into the profits of the Daily Mail and risked destroying both papers in the process. After so much capital had been invested, Northcliffe couldn’t simply ahandon the paper or shut it down lest it take his Emprie with it. He hired … who immediately fired the entire female writing staff.

The paper was renamed ‘The Illustrated Daily Mirror’ but in print simply ‘Illustrated Mirror.’ In 1904 the Mirror was relaunched as a picture paper, pictures of the royals tripled the paper’s circulation overnight and a year after relaunch the circulation was almost 300,000.

The new mirror was designed to be even easier to read than the Daily Mail, to entertain people on the way to work, ‘to prevent them from thinking.’

The Mirror was responsible for, at least in part for allowing cameras to become more portable and film that required less exposure time. Mirror photographers were encouraged into dangerous situations and as such were the first to accomplish many feats such as flying aboard a zeppelin airship.

The Mirror’s greatest scoop was King Edward VII’s deathbed pictures, these proved so incredibly popular that it broke circulation figures for the time selling over 2 million copies.

However despite commercial success, by 1905 was badly regarded. At this point photographers were thought of as ghouls as they would often appear at places of tradegy taking pictures. With the Mirror being a picture paper their image suffered.

Yet on the outbreak of World War 1 the paper’s circulation and reputation were given a massive boost. Circulation quickly rose to 500,000 within the first year of the war as the public enjoyed seeing a glimpse of the war whilst the soldiers on the front lines appreciated the escapist glimpses of home the paper provided. After the war the Mirror continued strongly with a newly earned reputation as a reliable paper with good circulation figures.

1922 was a n eventful year with the death of Lord Northcliffe and the Free Gift War. The Free Gift War was essentially as it sounds, each newspaper giving away items to entice buyers. It was a form of mutually assured destruction which sot the national papers £3 million a year, destroying the industry.

In 1931 the Mirror and the other two papers Rothermere had inherited were converted to fascism. The paper supported Hitler’s efforts overseas and the efforts of the growing British Fascists throughout the UK.

In 1933 in response to the efforts of the Mail and Mirror, Hitler a letter to Rothermere thanking him for all he has done.

In 1934 all of Rothermere’s papers quickly dropped their fascist slant. This was simply due to the loss of ad revenue by large Jewish run enterprises. This sudden drop of support was a severe blow to the British Fascists whose membership decreased by almost 90% within a year.

However Rothermere remained a fascists and anti-Semite at heart and firmly believed till the end of his life that Britain should have sided with Germany.

When Bart took over the Mirror, circulation had dropped from 2 million to 800,000 losing 100,000 readers annually.

Harry Guy Bartholomew or ‘Bart’ had joined the Mirror in 1904  as photographic technican. He created the Bartlane system with Captain McFarlane of New York’s ‘Daily News.’ This system allowed photos to be transmitted by radio in minutes or hours rather than days or weeks.

The Mirror underwent many changes as it strived to boost circulation. It changed to become like US tabloids with comics. This alone helped lead to a monthly increase in circulation. Under Bart, Cudlipp introduces readers letters and an agony aunt among other things all of which helped to reinvigorate reader interest in the paper and conintue to boost circulation.

The Mirror’s coverage of a child abuse case almost cuases a man to lynched as over 2,000 people assaulted his home. Sales increased sharply and the Mirror continued the stratedgy of bold, exaggerated articles.

After Bart fire King, Cudlipp betrays Bart by leaving with King. Bart is outraged but can do nothing to stop him leaving.

In 1938 with the outbreak of World War 2 fast approaching King and Cudlipp meet with Churchill to plan a political campaign against appeasement. Chuchhill is signed up as a columnist for both the Mirror and the Sunday Pictorial.

When war breaks out again Cudlipp is conscripted and ended up editing an army paper called the ‘Union Jack’ which served as propaganda and a morale boost.

Meanwhile in 1942 the Mirror is almost shut down after publishing a highly controversial cartoon, the paper barely survives.

After the war the Mirror successfully swings votes to Labour by targeting soldiers’ wives whom they expected would be voting for their husbands overseas.

Bart is eventually betrayed and forced out of the Mirror, he dies a few months later.

Citizen Kane

Citizen Kane was released in 1941 starring and directed by Orson Welles and twice topped the lists of best movies of all time in 1999 and 2007 respectively. The film narrates the rise and fall of media tycoon  Charles Foster Kane. The story is framed through a reporter trying to find out what his last word meant. The story itself is largely told through flashbacks as the reporter interviews crucial and important people in his life. This allows different time periods to be portrayed accurately by those who knew him at that time.

The character of Kane is largely based upon Hearst, however Welles admits other rich men were used and we can also draw parallels between the life of Kane and that of Welles himself. 

In the film we watch Kane start a newspaper, establish a list of principles and in due course completely ignore them in the drive for greater circulation and his own fame and fortune. In Citizen Kane, Kane argues the paper must be easy to read, to provide entertainment with big headlines and small paragraphs. Similarly the Daily Mail was created as the busy mans newspaper with have no articles over 250 words, a paper for a man to read on the train, to interest them in a sufficiently simple way.

Whilst parallels can be drawn to Lord Northclife and the Daily Mail and Mirror it is best analysed in comparison of Hearst’s life and accomplishments.

For example Hearst famously said ‘You furnish the pictures and I'll furnish the war.’ And as such is largely credited for pushing the US into war with Spain, this scene is mirrored in Citizen Kane almost exactly.

Hearst attempted to destroy the film both figuratively and literally. The film managed to become a moderate success before fading into obscurity until it’s brilliance was noticed by the French and once again in America. Hearst’s campaign to destroy the film would be his own end as now every reference to his own life, his accomplishments and his career are drawn in parallel to that of Charles Foster Kane.