Were Luddites the victims of 2011-style finances?
The British weavers known as Luddites, who destroyed looms precisely 200 years ago, thought rising unemployment within their ranks was due to machinery. But there’s a case to be made that inflation, money supply expansion, budget deficits and trade barriers were equally to blame. Maybe we haven’t learned much in two centuries.
The first Luddite riot occurred on March 11, 1811, an attack on wide knitting frames in the Nottinghamshire village of Arnold. The rioters were mostly skilled artisans, whose livelihoods had been endangered by what they perceived was a “dumbing down” of their skilled work by automated looms. The riots spread to the main cotton center of Manchester late in 1811. Prime Minister Spencer Perceval’s government, which had a robust approach to public order, made frame breaking a capital offense a year later, executing 17 offenders the following year. After that, Luddite activity gradually died down, petering out after 1817, when the economy improved.
The economic conditions facing the Luddites bear consideration for economists today. Britain had been off the Gold Standard since 1797 and consequently suffered considerable inflation, with prices doubling from 1793 to their peak in 1813. Real interest rates were historically low; the yield on long-term British government Consols, the equivalent of today’s 10-year Treasury, averaged below 5 percent, only 1 percent above the inflation rate. The Bullion Report of 1810, whose drafters included David Ricardo and the monetarist Henry Thornton, specifically blamed excessive credit for the persistent inflation. Much of this credit was absorbed by the government, which ran a deficit of about 12 percent of GDP owing to spending on the concurrent Napoleonic wars.
There were some large differences with today; a wartime trade embargo had cut off many Continental markets for British textiles. Nevertheless the overall picture was of cheap money leading to labor-saving capital investment, while wages were eroded by inflation and economic activity was dampened by restrictions and excessive government deficits.
The Luddites have been mocked for attacking the productivity-enhancing machinery that was to improve living standards unprecedentedly. But given the economic policies of the time, which bear an uncomfortable resemblance to some of our own, the Luddites were right to believe that only higher unemployment, with no discernible improvement in conditions on the horizon, was their fate.