The Long Depression And American Empire

The Archdruid Report makes a few intriguing observations, via nc links.  This section is of interest to me:

North of the Rio Grande, though, the potential for further conflict was hard to miss. It’s a commonplace of history that the aftermath of a war normally includes quarreling among the victors, since all the disagreements that had to be kept at bay while there was still an enemy to defeat typically come boiling up once that little obstacle is removed. That’s what happened across the North in the wake of the Civil War, as the loose alliance between industrial and agrarian interests began to splinter about the time the last of the confetti from the victory celebrations got swept up. Alongside the ordinary sources of economic and political disagreement was a hard fact better understood then than now: the farm states of the Midwest were unwilling to accept the unequal patterns of exchange that the industrial states of the East required.

To make sense of this, it’s necessary to glance back at Alf Hornborg’s analysis of industrial production as a system of wealth concentration. To build and maintain an industrial system takes vast amounts of capital, since factories don’t come cheap. All that capital has to be extracted from the rest of the economy, placed in the hands of a few magnates, and kept there, in order for an industrial economy to come into being and sustain itself. That’s why, in a market economy, the technological dimension of industrialism—the replacement of human labor with machines—is always paired with the economic and social dimension of industrialism—the creation of unequal patterns of exchange that concentrate wealth in the hands of factory owners at the expense of workers, farmers, and pretty much everybody else. The exact mechanisms used to impose and maintain those unequal exchanges vary from case to case, but some such mechanism has to be there, because an economy that allows the wealth produced by an industrial system to spread out through the population pretty quickly becomes an economy that no longer has the concentrated capital an industrial system needs to survive.

That’s the problem the United States faced in the latter third of the 19th century. The rising industrial economy of what would eventually turn into the Rust Belt demanded huge concentrations of capital, but attempts to extract that capital from the farm states ran into hard limits early on. The epic struggle between the railroad barons and the Grange movement over shipping rates for farm commodities made it uncomfortably clear to the industrialists that if they pushed the farm belt too far, the backlash could cost them much more than they wanted to pay. During the Reconstruction era, the defeated South could have what was left of its wealth fed into the business end of the industrial wealth pump, but that only worked for so long. When it stopped working, in the 1870s, the result was what normally happens when the industrial wealth pump runs short of fuel: depression.

I think that with deflating cash wages, inflating health care costs (which is where wage increases have been given, in employer provided health insurance) and inflating commodity costs, we've reached the point where consumers just can't consume.  Without real cash wage increases, we're going to just sputter along.  Middle class wage earners have become the Midwestern farmers of the 1870s, and our system just isn't working.