Shifting for Himself in an Earlier Great Recession

by Gregory Rehmke · Published August 31, 2014 · Updated October 27, 2016

In the last three years many thousand American boys have been compelled, like Gilbert, to give up their cherished hopes, and exchange school-life for narrow means and hard work. Nothing is more uncertain than riches; and such cases are liable to occur at all times. — Horatio Alger Jr., Preface, Shifting for Himself

Recessions and depressions throw thousands or millions out of work, reduce incomes for others, and diminish wealth across the economy. The rich adjust to having less and spending less, as do those of middle income. Reduced incomes ripple down through society. Adjusting is harder by far for those with the lowest income and the least wealth and savings set aside.

Students researching the NCFA LD topic (Resolved: In the realm of economics, freedom ought to be valued above equity), might wonder about ways to assist poor and lower-income people when the economy is weak. Ought we to be called upon through government coercion to transfer some of our income so that agents of the state can try to help those in need? Or are we instead obligated to give money to church or community groups so that they can assist the poor? Or are we called upon to help poor people directly and personally? And if personally, how best we would go about that? Is giving a dollar or five to a person begging outside a Trader Joe’s actually helping them, or just encouraging them to spend more hours outside asking for help? Lots of questions and no easy answers.

As The Economist notes:

India and China stand out, both by virtue of their vast populations and also because their growth record in the 1980s and 1990s was so much better than the poor-country average. A population-weighted line of best fit drawn through this second chart would indeed slope downwards, implying both catch-up and narrowing inequality.

Read much more in Angus Deaton’s The Great Escape.

It may be as well that reading posts about economics and economic history won’t help poor people in the U.S. and around the world. But speech and debate students don’t just read about ideas, they tend toward active learning and rework much of what they read into speeches and debates (some more successful than others) to advance ideas, values, and policy reform proposals.

Policies allowing more economic freedom in China and India over the last couple decades allowed more people to work their way out of extreme poverty than any two decades in the entire history of mankind. This burst of economic progress also increased income inequality within those countries. Doesn’t it make sense to try to understand the policies at the root of economic reform in China and India? The Economist article “Toward the End of Poverty” notes: “Nearly 1 billion people have been taken out of extreme poverty in 20 years.”

China (which has never shown any interest in MDGs) is responsible for three-quarters of the achievement. Its economy has been growing so fast that, even though inequality is rising fast, extreme poverty is disappearing. China pulled 680m people out of misery in 1981-2010, and reduced its extreme-poverty rate from 84% in 1980 to 10% now.

From economic progress in China and India, let’s turn to the earlier stunning economic progress of Europe and the U.S., and the unexpected economic recessions and depressions that for a time stalled and reversed progress.

Stephen Davis, in a 2012 column in The Freeman, notes that the recent “Great Recession” and weak recovery since is often compared to the Great Depression of the 1930s, but shouldn’t be.

Davis writes, in “Are We Looking at the Wrong Depression?”:

Most of this attention is being paid to the Great Depression of the 1930s. However, it is worth pointing out the important ways in which the present situation differs from that of the 1930s. … Perhaps we are looking at the wrong “Great Depression.” …

Until as late as the 1950s, “Great Depression” in economic history generally referred to the period between 1873 and 1879 (in the United States) or 1873 and 1896 (in the United Kingdom and much of Europe). When we look more closely at those years, the likeness to where we are now becomes noticeable. The “Long Depression” (as it has come to be known) was sparked by a global financial panic in 1873, which arose from the bursting of several speculative bubbles, particularly in railroads and real estate.

I encourage students to read the rest of Davis’ Freeman article to get a sense of this earlier period of economic boom and bust.

Economic historians also compare and contrast the post-WWI recession of 1920-1921 to the Great Depression. Few people today know much about this recession, even though it was deep and severe because it was short and the U.S. economy recovered quickly. For more, see Robert Murphy’s 2009 Freeman article “The Depression You’ve Never Heard Of: 1920-1921.“

Horatio Alger Jr.’s novel, Shifting for Himself, was written in 1876 in the years when the steep downturn following the Panic of 1873 had bankrupted thousands of firms in Europe and the U.S..

From the Preface to the Horatio Alger novel Shifting for Himself:

“Shifting for Himself” records the experiences of a boy who, in the course of a preparation for college, suddenly finds himself reduced to poverty. He is obliged to leave his books, and give up his cherished plans. How cheerfully Gilbert Greyson accepted the situation, and settled down to regular work, what obstacles he encountered and overcame, and what degree of success he met with in the end, the reader of this story will learn.

Though it must be admitted that Gilbert was more fortunate than the majority of boys in his position, it is claimed that he displayed qualities which may wisely be imitated by all boys who are called upon to shift for themselves. In the last three years many thousand American boys have been compelled, like Gilbert, to give up their cherished hopes, and exchange school-life for narrow means and hard work. Nothing is more uncertain than riches; and such cases are liable to occur at all times. I shall be glad if the story of Gilbert Greyson and his fortunes gives heart or hope to any of my young readers who are similarly placed. The loss of wealth often develops a manly self-reliance, and in such cases it may prove a blessing in disguise.
— New York, Oct. 20, 1876.

Expanding economies open doors of opportunity which allow the enterprising to step through, learn work skills and earn, save, invest, and innovate. Because people are quite different in their natural and developed skills and energies, and because circumstances differ, earnings will naturally vary along with levels of success. How wide these differences of income shouldn’t matter as long as legal systems are tolerable and overall incomes and standards of living are rising.

Shifting for Himself in an Earlier Great Recession

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