The Long, Dark Night Of The 20th Century
It has been a long time since Americans were so optimistic, so full of confidence… so sure of themselves and the future that lies ahead of them.
Progress! We anticipate steady, accumulating improvements in the quality of our lives…in our net worth…even in our life expectancies.
The division of labor and knowledge makes us less self- reliant. We don’t know how the bread is made….or by whom…or even where. The cereal I just ate for breakfast must have ingredients from dozens of different countries. I could not reproduce them – I couldn’t even identify them.
Not only have we lost control of the things that are essential to our quality of life… we don’t understand the money that buys them. It too has become more abstract. Most of the money we spend is no longer even in paper form – it is now only data…whose integrity we have no way of monitoring or controlling.
Yet, confidence in this abstract money is at a record high – as judged by yesterday’s dollar index. Confidence in the custodian of the currency, Alan Greenspan, must be at an episodic high too – never before have Americans or the citizens of any civilized nation had such faith in a bureaucrat.
The list of things in which confidence runs high could stretch on for several pages – the Internet, technology, the Big Tech stocks, brokerage houses, the economy, employment, creditors, promises of a balanced budget, and so on. About the only thing that really seems to worry Americans is the increase in temperatures at the poles – a concern so remote and extravagant that it must reflect an almost complete absence of anything real to worry about.
The last time confidence ran so high was probably at the beginning of the 20th century. Then, as now, the nation was enjoying a burst of technological innovation that promised a whole new quality of life. Electrification, trains, automobiles, telephones, appliances – it must have seemed as if nothing would ever stop the march of progress. Surveys of public attitudes at the turn of the century revealed an almost unbounded faith in the future. Respondents universally expected vast increases in material well-being. But not only that, they also looked for lower crime rates, higher levels of education, courtesy and manners, and a diminishing burden of government.
But progress does not come in digitally-perfect units. It does not build steadily, like a pile of beer cans at a summer picnic. Instead, progress happens in fits and starts – by trial and error, accidents, and disasters. For every step forward, there are several to one side or the other, many dead ends… and some long, dark nights when things actually get worse, not better.
“In life,” said the philosopher Kierkegaard, to repeat the quote I gave you a couple of days ago, “only sudden decisions, leaps, or jerks can lead to progress. Something decisive occurs always only by a jerk, by a sudden turn which neither can be predicted from its antecedents nor is determined by them.”
A jerk happened in the late spring of 1914. The Archduke Ferdinand was assassinated. Did anyone really care? What did it matter to France, Britain, Russia…let alone to America? But by this time in August, war had already begun…and the German army had already advanced so deeply into France that it could bombard Paris. The French government fled to Bordeaux. Hundreds of thousands of people left the city.
I told the story of this part of the war in an earlier letter. But the point I want to make today is not about the progress of the war, but the meaning of it.
At the beginning of the war, the people of this area of France – a rural area far from Paris – were asked what they thought of it. “Stupefaction” was the reply. They didn’t know what it was about. Nor did they particularly care.
But wars and credit bubbles have a way of generating their own momentum. France was allied with Russia. And Russia was allied with Serbia, like two hapless prisoners handcuffed together. Once the war was set in motion – citizens rallied around the flag. Many people thought the whole thing was crazy…but defection from the majority, in time of war, is a cause of shame, if not treason.
Directed at the mothers, sweethearts and wives of the soon-to-be dead men, a British recruiting poster asked “When the war is over and someone asks your husband or your son what he did in the Great War, is he to hang his head because you did not let him go?” Another asked mothers directly, “Is your best boy wearing khaki? If your young man neglects his duty to King and Country, the time may come when he will neglect you.”
Peer pressure also drove men into uniform. Believe it or not, one of the earliest of the “‘Pals’ Battalions,” which were organized by groups of friends, was made up of London stockbrokers.
Crowds gathered. The excitement was infectious. Everyone wanted to get in on the action – as they now want to buy Big Tech stocks. A young man recalled arriving in London on August 3, 1914 – “the city was in a state of hysteria. A vast procession jammed the road from side to side, everyone waving flags and singing patriotic songs. We were swept along…bitten by the same mood of hysteria.”
And, of course, the press saw an opportunity to sell newspapers. Jean Cocteau bought a copy of Le Figaro (which is the paper I read today) in Paris shortly after the war. He discovered that he had been overcharged – and the paper was two years old! But when he complained, the vendor replied, “But, cher monsieur, that is precisely why it is more expensive – there is still a war in it!”
Reports of German atrocities in Belgium were magnified beyond recognition. Not only did this sell papers – with lurid descriptions of how the Huns raped and murdered their way through Louvain (which was not untrue…but greatly exaggerated) – it also hardened attitudes in Britain and France towards the war, and helped tilt America towards the Allied cause.
Governments tried to suppress news and opinion that was considered contrary to the war effort – but in Britain and France, the press was left relatively free. By contrast, in America, freedom of the press was sharply curtailed. The Sedition Act of 1918 made even criticizing the war in a lodging house illegal. And the director of a patriotic film – “The Spirit of ’76” – was sentenced to 15 years in jail because it was ‘anti-British.”
Defection was not permitted. Not in the tabloids. Not in the theatres and lodging houses. And certainly not on the battlefield.
Once an objective was set – no matter how unimportant or strategically blockheaded – soldiers hammered away. The Germans decided to attack the French fortress at Verdun. The resulting campaigns cost them 337,000 casualties – for no apparent reason. German casualties were so high that a young man reaching age 18 in 1915 had only a 50/50 chance of surviving the war. (The most notable result of the Verdun campaign was that it made the defending French General, Philippe Petain, known throughout France – so he could play a decisive role in the next Franco-German war 2 decades later.)
Britain’s General Haig decided that it was a war of “attrition” – so he directed the Somme campaign…gaining a few yards here and there…at a cost of hundreds of thousands of lives on both sides. The French mutinied.
But the British, French and Germans gradually learned better tactics. Enter the Americans, whose commander, Pershing, ignored his Old World colleagues and promptly launched frontal assaults on well-defended German positions. American troops suffered disproportionate casualties and were so ineptly led that a British military historian concluded that “the most important service of the AEF (American Expeditionary Force) was simply to appear in France.” The Germans were discouraged by the apparently inexhaustible manpower and supplies of the Allies.
But what was the point of it all? Niall Ferguson examines the war in detail in his book, The Pity of War. He asks a series of questions, including: Why did Britain (let alone America) intervene? Why did not the war end more quickly? Why did men keep fighting…and why did they stop? Who won the peace?
Even now, we do not have good answers to these questions. We don’t really understand why the war began. It was just one of those ‘jerks’ of history. But if it had been avoided – or even if the British, and then Americans, had stayed out of it…the history of the 20th century might have been very different.
Russia may have come to terms with Germany much earlier – and thus almost certainly avoided the Bolshevik revolution which caused so much misery to so many people for the next 7 decades.
Germany and France probably could have fought it out – and come to some peace on their own…as they had in 1871. This would avoided the Versailles Peace agreement…the reparations…the great inflation in Germany…the rise of Adolph Hitler…and probably WWII (which was merely a continuation of the first World War).
As things turned out, WWI marked the end of the evolving culture of the 19th century.
“When the German Foreign Secretary Jagow received the news of the English declaration of war on August 4,” records Mr. Ferguson, “one witness recalled, ‘his features showed…an expression of anguish.’ The previous evening, [his British counterpart, Sir Edward] Grey had famously likened the war to ‘the lamps going out all over Europe’ and telling a friend: ‘We shall not see them lit again in our lifetime.'”
Grey was right. For the next 70 years, Western civilization would go sideways, and backwards – taking one misstep and then another. The great confidence – in the institutions and progress of bourgeois European civilization – was shattered. It never recovered. Only now, at the dawn of a new millennium is the debris being swept away – all the humbug of socialism, nazism, communism…the Stalinist architecture…the empty and appalling “modern” buildings…and the accumulated scum of big government. Maybe, after the rubbish is hauled away…we can begin building again, on the exposed foundations of real civilization.
Confidence – like credit – comes and goes.
Your ever-optimistic reporter,
Ouzilly, France August 30, 2000
*** Consumer confidence fell slightly in August…but it is still near record levels.
*** A measure of the public’s optimism may be found in savings rates – which hit a new record low in July of 0.2%. Contrary to the signals I reported a few weeks ago, the average American is not saving. He is spending – and taking advantage of Internet search engines that offer to find him even more money to spend, by mortgaging his home. (see: Pride, The Bubble and National Self-Interest)
*** Yet another sign of confidence – the cost of put options has fallen still further, to the point where they are practically free. Put options pay off when stocks fall. They are insurance against a bear market. But who needs insurance? Things just get better, right? See below.
*** So far this millennium, bonds have been the smart place to be. They’re safe…they’ve risen about 10%…and they pay interest. But bonds get killed when consumer price inflation rises. Could that be happening now?
*** Bonds fell yesterday…the 30-year T bond lost $3.75 on each $1,000 of face value. The yield rose to 5.75%. It is surely too early to call a top in the bond market. But it’s got to happen some day.
*** JP Morgan’s Commodity Index hit a new high of 550 yesterday. It was only 420 as recently as April. Shipping futures rose sharply. “Virtually every commodity inflation index has soared in August,” writes Bill King in today’s commentary. Could consumer price inflation be far behind?
*** One commodity that bucked the trend is lumber. Lumber was down big yesterday, though housing sales rose 14.7% in July. In fact, “home sales [are] rising to [the] highest level in 7 years” reported Reuters. Maybe they don’t use lumber in houses anymore. Maybe they build them with silicon chips and recycled laptop computers.
*** The Dow fell 37 points. The Nasdaq rose 11. It was another slow day in August.
*** Leading the Nasdaq were, again, the Big Techs – companies such as Oracle and Cisco that have harnessed the economies of scale of the Information Age.
*** There were 1325 issues advancing on the NYSE yesterday; 1470 declined. 81 stocks registered new highs. 41 hit new lows.
*** Ahem…the euro is either near or at a new record low against the dollar. The dollar index has hit a new high. And the euro at 89.2 cents. I got mixed reports this morning…but if it has sunk to a new low, I will be forced to revise (or deny) my view.
*** I thought the beginning of this trend was in place when the dollar topped out on May 17th. Since then, we’ve been enjoying a ‘summer of love’ – with the momentum of an 18-year bull market carrying us forward and the warm sun of July and August to boost confidence. But now, the sun is sinking a little lower in the skies of North America. The dollar should be beginning its decline too.
*** The dollar will eventually crack against the euro…and the whole thing will fall apart – the Big Techs, bonds, stocks generally, the dollar itself, and the U.S. economy. Savings rates will rise, imports will collapse, gold will go up and Americans’ self-esteem will fall. Maybe not yet, dear reader. But maybe soon.
*** “American companies operating outside the United States are the world’s largest exporters,” writes Lynn Carpenter of the Fleet Street Letter, “[They’re] bigger than Japan. Bigger than Germany. Yet the Fed pretends these giants don’t exist. Just as it pretends our cost of living has nothing to do with eating, staying warm or driving a car.” (see: It All Makes Sense in Bora Bora )
*** And speaking of the New Economy yesterday, Dan Ferris: “It isn’t virtual at all. It’s made of metal and wire and it burns gargantuan amounts of fossil fuels, just like the Old Economy, the horse and buggy economy.” Ferris reports coal demand could surpass our current billion-ton burn rate by as much as 200 million tons. But coal is only one way to play the demand for electricity generated by computer users and the like… (see: The Joke’s on the New Economy)
*** The ice is melting at the North Pole. Is it too early to buy beachfront property in Nebraska? Writing in the Wall Street Journal, Dr. Fred Singer, a veteran of two Arctic expeditions with the U.S. Navy: According to satellite photos, the polar ice cap is shrinking, but that is because the world is “recovering from a previous cold period that climate experts refer to as the Little Ice Age. As a result of these changes, which have nothing to do with human influences, it is warmer now than it was 100 years ago.”
*** I talked with Elizabeth yesterday. The boys made it through their first day back at school. Edward was relieved that his teacher seemed nice. French teachers, by the way, are not the least bit concerned about a child’s self-esteem. They are not allowed to hit students, but they have a rich and vivid vocabulary for telling them what they think of them – rather like a plumber’s remarks to the pipe upon which he has just skinned his knuckles.
*** Robert Heinlein on the division of labor and knowledge:
“A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.”
*** Today marks the anniversary of the bombardment of Paris in WWI. A few years later, American troops arrived in France. “Lafayette, we are here,” declared Pershing – before wasting the lives of thousands of American soldiers. Lafayette had more sense. More below.