19th Century American economic growth

Miscellaneous History
1

I have recently encountered 2 people critical of Rothbard (they also fancy themselves well-versed in mainstream/neo-classical economics and economic history) who have made the claim that the years 1870-1899 was a period of one long economic depression in America. It looks like their sources must be somewhere within the mainstream of the typical American history books. Can anyone here tell me:

  1. How this erroneous yet pervasive mis-information got started?

  2. Some precise sources of information that run counter to that point of view?

2

I forget where to get the info on this, it’s in smatters here and there.

As for your first point, many people think that the steady price deflation during that era was the result of, or resulted in depressed economic conditions. This was during the height of the industrial revolution, where things were starting to get mass produced, and people started to get electricity. I don’t see how these were bad times for people. The steady price deflation did make it more difficult to raise cash for investments, though.

EDIT: put “price” in front of deflation :wink:

3

Rothbard…

"We have seen already that there can be only one business cycle at a time – the real, or evident one, the one that actually shows up in all the data – and that this cycle is emphatically not periodic. One of the mystical “cycles” that has been getting a lot of play from time to time is the flimsiest “cycle” of them all: the Kondratieff long cycle. The Kondratieff is supposed to be a strictly, or at least roughly, periodic cycle of about 54 years, which allegedly underlies and dominates the genuine cycles for which we have actual data. Even though, as we shall see, this cycle is strictly a figment of its fevered adherents’ imagination, there does seem to be some sort of cycle in the periods when the “Kondratieff” captures the interest of financial and economic analysts.

(…)

"Let us then look more closely at the long contraction, or “long depression,” phases of the Kondratieff cycle. To make any sense, they should in some way look and feel like depressions, like grim periods of decline in business activity. The first Kondratieff long depression was supposed to be the period 1814-1849. But these thirty-five years were by and large a period of great expansion, prosperity and economic growth for the United States, England and France, the three countries Kondratieff used for his statistical analysis. And what of the second Kondratieff depression, the period 1866–96? Was that in any sense a depression? For the United States, and to a large extent for Western Europe as well, this was the period of the most dazzling spurt of production and economic growth in the history of the world. Production and living standards skyrocketed. How in the world could three such glorious decades be called a period of secular decline?

Obviously, it is absurd to call these periods long-wave depressions. The point is that in real terms – production, activity, growth, employment – these “Kondratieff depressions” were all periods of gigantic growth and prosperity. The only sense in which the two nineteenth-century “Kondratieff contractions” were contractions at all is that prices, by and large, fell during those decades. And that is that.

But if only prices fell, while all real or physical units increased, this means that the Kondratieff contractions could only be considered depressions if we define periods of falling prices as depressions or declines in economic well-being. And here we have one of the many fundamental fallacies of the Kondratieff doctrine.

Prices fell during most of the nineteenth century because prices always tend to fall on the free market. The natural course of events is for free market capitalism to pour forth an ever-increasing supply of goods and services, ever more production, and ever greater increases in the standard of living of everyone. If the government and its banking system do not inflate the money supply too much, prices will always tend to fall. But this does not mean depression in any sense, because costs are falling also, and productivity and production rising, so that business profits are in no way hurt by the price decline. Think of the computer and calculator industries in recent years, with their great rise in productivity and fall in prices, coupled with high growth and profits, and you will understand how this can work for free-market capitalism over many decades and epochs."

4

I believe Rothbard himself has written on this topic, and Tom Woods has discussed it, but I’m looking for more sources and more specifics on the growing prosperity that most Americans enjoyed during that period. There still appears to be a pervasive belief that the period following the panic of 1873 was a long depression. But Tom Woods has said that recovery from the Panic of 1873 came relatively quickly, followed by a long period of real economic growth with rising real wages (in terms of purchasing power). I agree with you that many have been misled into thinking that falling prices are directly associated with and a cause of depressions, but I’m wondering if that’s all there is to the typical mainstream argument.

5

Do you think that a belief in the Kondratieff cycle is where this “long depression” idea came from, or are there other sources?

6

I don’t know for a fact, but I would guess it stems more fundamentally from Keynesian/inflationist fallacies. It might also go back to Irving Fisher’s price stabilization fetish, but idk. The Monetarists (whom I regard as inflationists as well) also bought the ridiculous “Long Depression” myth. One of the most rapid periods of growth in human history was a depression?! It beggars belief.

7

It would seem that The “Long Depression” myth would be shown to be fallacious by evidence that indicates a growing middle class with a rising standard of living during that period. It would be measured, of course, not in nominal wages and prices, but the increase in productivity, the increase in the purchasing power of real wages, and consumption of real goods and services that actually demostrate a growing prosperity for most people. This is the sort of evidence that I would like to see more of. I would welcome references that would supply this information.

8

Friedman and Schwartz cover the period in A Monetary History of the United States. Jesús Huerta de Soto quotes them in Money, Bank Credit and Economic Cycles to show that price deflation is not synonymous with a loss in productivity. The quote is compelling, but Jesús Huerta de Soto must have used a different edition of the book than the one I own, because the page number doesn’t correspond with mine. Here is an important quote that I found:

Yet if the evidence from physical-volume series can be believed, at least the later years of that contraction were years of expanding output. (p. 87)

Observers of the business scene then, no less than their modern descendants, took it for granted that sharply declining prices were incompatible with shaprly rising output. The period deserves much more study than it has received precisely because it seems to run sharply counter to such strongly held views. (p. 88)