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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Because there was no controlling agency like the Federal Reserve to govern the money flowTHE TURNING POINT In 1897 Baum was on the road selling glass, bakery, and cookware. He was surprised to find that for the first time in his life he was making a good living. This did not stem from a suddenly elevated appreciation for crockery, but from a reinvention of the economy, like the one we witnessed in the mid-1990s. A stockbroker at the firm of Cuyler, Morgan, and Company had this to say in January of 1897: Among investors and people from all parts of the country I find a very hopeful feeling. There is a general confidence in the future. And this, by the way, is in marked distinction to the lack of such confidence which existed before. Then everyone was frightened. Now all are sanguine.23 The positive new trend didnt stop there: Failures for the year which closed last night have been smaller and average liabilities per failure smaller than in any year during the last 23 years except four.24 The new prosperity allowed Baum to recapture some of the affluence of his childhood. He moved his family into an elegant new home. For the first time in his adult life he had some disposable income and time to cultivate his creative gifts, which he put to good use. In 1898 he finished writing The Wonderful Wizard of Oz. A number of authors and sources have remarked on this new prosperity: The final years of the century found a dynamic reversal in economic conditions.25 In From Dawn to Decadence, Jacques Barzun stated, The turn of the century was a turning indeed; not an ordinary turning point but rather a turntable on which a whole crowd of things facing one way revolved until they faced the opposite way.26 A retrospect of 1897 is much more pleasing than was a similar retrospect of 1896. The year was marked by a decisive recovery of business . . . and at the year s close we find the outlook more hopeful than for many years past.27 And the New York Times noted on January 17, 1897, that the stock market became active. It is strong. Both activity and strength promise further development. Even something like enthusiasm is developing. The Wall Street week has closed with a show of what contrasted with recent experiences is outright buoyancy. This was a dramatic turnaround, and it was caused by the same set of factors that would synchronize an economic and cultural shift of similar proportions in 1995. The fact that both of these turning points occurred just in time to usher in new centuries may seem a little too convenient. That the same set of factors that rejuvenated the economy of 1897 and rekindled prosperity converged again in the twentieth century may be suspect. A variety of theories have been put forth to explain the happy reversal in Americas fortunes in 1897, not one of which commands universal agreement. Supporters of William McKinleys candidacy for president attributed his winning of the election to the new prosperity. Historians have pointed to the discovery of gold in the Klondike river valley in 1896, and the Alaskan gold rush that followed it, as the source of new wealth. But the facts show that many huge gold strikes had occurred earlier with no economic effect, one in Colorado as early as 1890. To quote David H. Fischer, These events were part of a long continuum of gold discoveries that had happened through the nineteenth century without raising prices.28 It follows that gold strikes alone did not start the economic boom in 1897. Some economists contend that an increase in the money supply created the turnaround in 1897. They cite data showing that the annual growth of money was 6% from 1879 to 1897 and that it increased to 7.5% from 1897 to 1914. Other economists point out that using only a slightly different set of years to calculate averages shows that there was not appreciable change before or after 1896 in the money supply.29 What no one questions is that Americans stepped into an entirely different world in 1897. That world brought with it a new dominant investment system. The same four factors that created our own new system in 1995 converged in 1897 to send America on an exciting new course. THE ELEMENTS THAT CREATED THE SECOND DOMINANT INVESTMENT SYSTEM REPRESENTED BY THE DOW JONES INDUSTRIAL AVERAGE Element 1: Completion of an Incubation Interval The suggestion that two decades, and not one, be called the Nineties, arises from the rush of new ideas and behavior that took place between 1885 and 1905. Jacques Barzun, From Dawn to Decadence In Chapter 4 we defined an incubation interval as a period of history that spawns a superabundance of new ideas that must be cultivated and developed during the interval before they become ubiquitous enough to increase productivity. The incubation interval for the third dominant investment system occurred between 1970 and 1994. In a capitalistic economy, things must either grow or die, and historians and economists have pointed out the intrinsic importance that these periods of innovation have in advancing a healthy economy. The incubation interval for the second dominant investment system occurred between 1870 and 1896. Just as they would a century later, long periods of prosperity stood like bookends on either side of it. A characteristic of both intervals was the breaking down of confidence in the capabilities of established authorities. That the canons of behavior and frameworks of action which worked during the first two-thirds of each century no longer worked in the last third, was not grasped by those in power until the point was forcibly driven home by those who had to live with the decisions that were handed down. In the 1970s and 1980s a short list of challenges to the status quo included Vietnam War protests, race riots, and the womens liberation movement. In the 1870s and 1880s examples include the labor and granger movements and the feminist movement (Baums mother-inlaw was Matilda Joslyn Gage, who coauthored History of Women Suffrage with Susan B. Anthony and Elizabeth Cady Stanton). In The Victorian Frame of Mind, the historian Walter Houghton says of the years prior to 1870 that it was still possible to adopt this or that theory of Church or State with full confidence that it might be true though not that it was. He proceeds to comment on the shift that occurred: But less possible after 1870. For about that time a number of things converged to suggest relativity of knowledge and the subjective character of thought. This radical change, bounding the mid-Victorian temper, is documented in the popular work of Walter Pater.30 Out of this stew of change came innovations that would change how life was lived: In a word, between 1870 and 1900 the pattern of working-class life which the writers, dramatists and TV producers of the 1950s thought of as traditional came into being. It was not traditional then, but new. It came to be thought of as age-old and unchanging.31 The first lesson to be taken from this incubation interval is its farreaching and culture-altering effects. The second is that the extent to which an innovation will impact society may not be known for decades. That something as innocuous as barbed wire would change the culture of a continent by allowing cattlemen, farmers, the transportation industry, and the residents of towns and cities to cohabit large blocks of land was not foreseen on its invention. Nor can it be foreseen how innovations may develop when used in concert with others. An inflatable rubber tire is one thing. Who would have predicted that it would become an intrinsic element in establishing a culture in which two or Fountain pen Hamburger three cars per family make the automobile Americas main mode of transportation? Not enough time has elapsed since the end of the twentieth-century incubation interval for us to appreciate all that it can deliver. But what the nineteenth-century incubation interval tells us is that we have a long and exciting journey ahead. Element 2: Dependable Consumer Economy Just how Americans devotion to consumerism developed would make an interesting topic for a book all by itself; because as tough as things were from the 1870s to 1896, the American consumer kept the economy from collapse. The number of people engaged in retail trade grew 52% between 1864 and 1874 and jumped another 63% by 1889. Advertising volume grew 300% from 1867 to 1880 and another 171% by 1900.32 In 1872 Aaron Montgomery Ward established the first large-scale mail-order business. He opened up a consumer pipeline by winning the publics trust when he proved that he had the ability to get household items to isolated farmers and remote communities. In 1875 1,138 new brand names and trademarks were registered with the U.S. Patent Office, and the number rose exponentially every year. Everything from malted milk (invented in 1886 by William Horlick of Racine, Wisconsin) to baseballs was delivered across America. In 1878 the American Cereal Company mass-marketed the first breakfast food, Quaker Oats, and in 1879 Frank Woolworth opened the first five-and-dime. The Armour Brothers were making Chicago Beef and Pork famous. John Deere figured out that farmers would buy manufactured plows, and the Pillsburys of Minneapolis-St. Paul figured out that their wives preferred to buy ready-to-use flour. In 1883 the Ladies Home Journal became a hit with housewives and a great place to introduce new products like Coca-Cola, which was created in 1886, the same year Cosmopolitan magazine became a new advertising outlet for fashion and cosmetics. In 1892 Vogue magazine began publication, and Sears, Roebuck, and Co. mailed out 8,000 postcards across the country introducing their new services. Two thousand orders were immediately received. With the promise, Satisfaction guaranteed or your money back, items as diverse as washing machines, plows, tools, watches, baby carriages, bicycles, harnesses, and stoves were sent out across the country. Element 3: Improvement in Economic Conditions The single most harmful factor at the root of the economic hardship of the 1870-1896 period was a decade-long deflation. Wholesale commodity prices bottomed in 1896.33 When prices began to inch up in 1897, this improvement in economic conditions brought relief to farmers, merchants, and manufacturers.34 Real wages rose for the first time that most laborers could remember (see Figure 5.3).35 Economists debate the reasons for the economic turnaround. Because there was no controlling agency like the Federal Reserve to govern the money flow, the improvement could only come from market forces. The logical explanation seems to be that an accelerating population increased demand. In 1850 the total U.S. population was estimated at 17,312,533. Even though difficult times caused immigration to reverse in 1876 (45% more people left the United States than entered it), the U.S. population by 1890 had soared to 45,979,391.36 This 165.58% increase in population drove the need for goods and services allowing for higher prices. Element 4: Surge in Foreign Exports The first modern Olympic games were held in Athens, Greece, in 1896. This was a harbinger of the happy circumstance that was to follow. In 1896 European countries began to buy U.S. agricultural products in record amounts: The governments annual statement of international trade balances showing more than a million of dollars to our credit for each day of 1896is an ample answer to every doubt or quibble about our financial condition. Such a record is unprecedented in the history of our nation.37 In 1896 and 1897 European wheat crops were shrinking while American crops were twice as large.38 This is when America earned the title bread basket for the world. American wheat that sold for 51 cents in 1895 sold for 72 cents in 1896 and 81 cents in 1897,39 a 59% in crease. U.S. wheat exports had doubled. Agricultural products initiated the export boom, but it seemed to open a channel for other American products as well. The export value of automotive parts and engines grew from $2,000 in 1895 to $10,000 in 1896; sawmill products from $14,000 in 1894 to $22,000 in 1897; petroleum products from $3,000 in 1895 to $19,000 in 1897; machinery from $22,000 in 1894 to $44,000 in 1898; copper products from $16,000 in 1895 to $34,000 in 1897. In total, the export of U.S. merchandise jumped from $793,000 in 1895 to $1,032,000 in 1896 and $1,210,000 by 1898, a 52.58% increase over the three-year period.40 After a whole year of entire freedom from disturbance or alarm, in which the country has paid heavy foreign indebtedness, taken and paid many millions for stocks sent from abroad, and accumulated credits against other countries represented by merchandise balances of more than $320,000,000 in its favor for the past five months, with deferred exchanges for more than $20,000,000 held by New York banks alone, while great industries have been pushing their way into foreign markets with unprecedented success, the monetary situation is no longer a matter of anxiety.41 From the end of the discovery phase in the spring of 2000, through the market volatility of 2002as most of the stocks of the new dominant investment system tumbled in value there was a lot of talk about how this stampede out of stocks meant the end of the new twenty-first century (realize, capitalize, customize) company. All one has to do to prove how incorrect this conclusion was would be to turn to September 24, 1900, when the Dow Jones Industrial Average had fallen 31.76% from its high of 77.61 on September 7, 1899the end of its own discovery phase. The dramatic decline in value of what was then the new take it, make it, break it-style company did nothing to prevent those stocks and others like them from being the driving forces of American productivity for decades to come. It did nothing to stop those companies from helping America to form a pattern of life ... that would come to be thought of as typical of the 1950s.42 To comprehend that we are only just beginning to walk down a parallel road of prosperity, we only have to appreciate that the interlocking of the same four elements that converged in 1897 to send the twentieth century on a new course, did the same for us in 1995. |
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