Here’s a very common claim:
Sure, we didn’t have a pure free market, but before the 1930s we came as close as we’ve ever come. And the recessions/depressions we had were wiping out production 10-30% at a time. Since then, we’ve had much less severe recessions/depressions. So how can you say Keynesianism (and later monetarism) have no value?
And this article claims Reagan did away with the business cycle for 25 years.
What am I to make of this?
We have had various forms of credit expansion and central banking since before the 1930s (e.g. the First and Second Bank of the United States, various national banking regulations which promoted credit expansion, and finally the Fed in 1913). But before serious attempts by government to stimulate the economy, all of these recessions were very short. In contrast, recessions have actually gotten worse since Keynesianism took hold in the 30s. The Great Depression is one example. Stagflation is another. The only serious long-term economic crises pre-Keynes was the Long Depression, which was caused by several real factors (e.g. the Franco-Prussian War) and government mandated monetary contraction (the demonetization of silver). Nothing could have avoided the first and a real free market would not allow the second to occur.
It’s also worth noting that the underlying cause of the recession has not changed before and after intervention. All that has changed is that when we’ve moved up to government manipulating the money that now the easy credit period lasts longer and the contraction comes later. Sure, you give yourself a longer boom, but you also necessitate a much longer and more severe bust. Couple that with make-work programs and deficit spending and you have a recipe for a great disaster. Unemployment is still more than 1 in 10 people. At times before the Great Depression, we had as little as only 1 in 50 out of work.
krazy kaju,
Stagflation was one long depression? What in the world do you mean? Are you referring to the entire decade of the 1970s? If so, that’s news to me (and the NBER). It was certainly a period of slow growth and high inflation, but I don’t see how you can say much more than that.
As for more recent years your assertion is simply dead wrong. The volatility of output growth has decreased markedly since the mid-1980s for the U.S. and other developed nations. And evidence suggests that claims by journalists and some economists that this “Great Moderation” is over are overstated at best. Here is a good article on the subject.
http://artsci.wustl.edu/~morley/great_moderation.pdf
But really, I find the entire premise of this thread a bit difficult to wrap my head around. Terms like “Keynesianism” are really just too vague to mean anything these days.
I never said it was one long depression.
You’re missing the entire point of this thread. Since the rise of hyperinterventionist government in the early 20th century, we’ve had a Great Depression and a stagflation. Before then, sure, we had a few busts, but they were short in duration. And now? Sure, we have the “Great Moderation” (which, yes, has ended with this severe recession) but we also have had low growth despite record technical progress.
Wait, so your entire argument rests on two vaguely defined examples? Well call me convinced. [:P]
First, the causes of the Great Depression continue to be disputed and there are plenty of smart people that would disagree its the result government “hyperintervention” (whatever that means). But hey they could be wrong, right? So, let’s assume they are. That’s one data point. One many people would characterize as an outlier. Can you cite any thorough comparison of the recessions in the 19th century and the 20th century that concludes that recessions in the later are longer on average?
PS* And low growth compared to what?
PPS* I am not saying you are wrong in general (though are still certainly wrong about recessions in recent decades and no I am not convinced the Greater Moderation is over), I just hate glib responses to factual questions. Just a quick google search reveals some interesting counter examples to your argument that recessions were shorter in the 19th century. For example, there was a recession from 1815-1821 that lasted 6 years. The Depression of 1807 lasted 3 years. And of course, as you mention, the Long Depression of 1873 lasted over 5 years.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
I am not citing these as conclusive proof (its a wikipedia article so come on [:P] ), just saying its not obvious to me that recessions were shorter in the 19th century. I would like to see some hard evidence before I swallow that line.
First of all, national income accounting did not exist until the early 20th century, so it’s really impossible to tell and we can’t really make any scientific comparison. That said, make a short list of the longest periods of economic stagnancy in the history of the United States. That list would comprise of the Long Depression, the Great Depression, stagflation, and soon we’ll include what’s happening now. Three of those four happened after the progressives brought the era of Big Government. As for lower economic growth, you should see your own source.
So because data are so sparse, an accurate comparison cannot be made…but you’re willing to make a comparison anyways. Great to know that about you! [:P]
Also, I should note that wikipedia lists a recession between 1815-1821 that lasted 6 years (see link above), which is longer than the Long Depression. So I guess we went from 1 out of 3 to 2 out of 4! haha.
According to Rothbard the Long Depression did not existed:
Orthodox economic historians have long complained about
the “great depression” that is supposed to have struck the
United States in the panic of 1873 and lasted for an unprece-
dented six years, until 1879. Much of this stagnation is sup-
posed to have been caused by a monetary contraction leading to
the resumption of specie payments in 1879. Yet what sort of
“depression” is it which saw an extraordinarily large expansion
of industry, of railroads, of physical output, of net national
product, or real per capita income? As Friedman and Schwartz
admit, the decade from 1869 to 1879 saw a 3-percent-per-
annum increase in money national product, an outstanding
real national product growth of 6.8 percent per year in this
period, and a phenomenal rise of 4.5 percent per year in real
product per capita. Even the alleged “monetary contraction”
never took place, the money supply increasing by 2.7 percent
per year in this period. From 1873 through 1878, before
another spurt of monetary expansion, the total supply of bank
money rose from $1.964 billion to $2.221 billion—a rise of 13.1
percent or 2.6 percent per year. In short, a modest but definite
rise, and scarcely a contraction.
It should be clear, then, that the “great depression” of the 1870s
is merely a myth—a myth brought about by misinterpretation of
the fact that prices in general fell sharply during the entire
period. Indeed they fell from the end of the Civil War until 1879.
Friedman and Schwartz estimated that prices in general fell
from 1869 to 1879 by 3.8 percent per annum. Unfortunately,
most historians and economists are conditioned to believe that
steadily and sharply falling prices must result in depression:
hence their amazement at the obvious prosperity and economic
growth during this era. For they have overlooked the fact that
in the natural course of events, when government and the bank-
ing system do not increase the money supply very rapidly, free-
market capitalism will result in an increase of production and
economic growth so great as to swamp the increase of money
supply. Prices will fall, and the consequences will be not depres-
sion or stagnation, but prosperity (since costs are falling, too)
economic growth, and the spread of the increased living stan-
dard to all the consumers.
M.Rothbard “History of money and banking in the USA…” pages 154-155
That wikipedia article is completely bullshit. I would not bother with it.
There was deflation through much of the 1800s. When GDP numbers are put in real terms, the 1800s look more attractive. Also, note that looking purely at GDP is not perfect as much GDP is wasted by the government in “stimulus”, war, and borrowing.
hugo,
haha enlightening comment.
Wikipedia is just the first that came up on a google search. I have no dog in this fight really. I just wanted Krazy Kaju to back up him claim that recessions were longer in the “age of big government” (i guess form 1932 to now?). I only quoted the wiki as a quick way to suggest the OP should be at least suspicious of such a broad claim lacking empirical evidence.
If you have an peer-reviewed sources on the matter I would enjoy reading them.
Thanks in advance!
Depressions in 1807? A depression between 1815-1821? They never made it into the history books I’ve read so I feel half-cheated half-vindicated. From what I know of US History there were no great upheavals of production during these time periods (that is, I never read of people being unemployed, politicians being worried, etc. during these years). The first date had to be somewhere in the Adams-Jefferson period and the only big things going on then was anxiety over french wars, and trade disputes plus constitutional controversies surely no depressions. The second date is during the era of good feelings and division over the great compromise again nothing about a depression (although the panic of 1819 happened but it was only a year or two long).
Student,
I would suggest Friedman and Schwartz themselves, who although they do chronicle that period as a recession, they admit that despite the deflation there was still economic growth, and so admit that their definition of recession and their beliefs on the effects of deflation may be incorrect. Of course, I exaggerate the way they put it, as they would never admit that they’re wrong (just the chance that they are), but it is still a profound statement made in the book (A Monetary History of the United States).
You have a very good example in my previous post, documented and with the source.
Because we do not have precise data, you believe that one cannot use logic, reasoning, and existing data to try to draw conclusions? So you believe that complete ignorance is preferable to partial enlightenment? Good to know about you.
Anyone with a working knowledge of the economy of the US in the 19th century knows that there wasn’t any recession lasting 1815 to 1821. I believe you have the dates mixed up: 1819 to 1821.
Exactly. Many panics during the 19th century look much less severe once you put them in real terms. For example, MNR showed that real consumption increased 21% and RGNP increased 16% from 1839 to 1843 (when “official” history dictates that the Panic of 1837 lasted till 1843).
haha kk,
There either is enough data to make a comparison or there isn’t. If there is, you really should provide a citation for that data to back up your assertions.
And I am getting those dates from Wikipedia, which is getting those dates from Willard Thorps’ Business Annals of the United States (as published by National Bureau of Economic Research):
http://www.nber.org/chapters/c4638.pdf
A quick glance shows the quotation is correct.
Honestly, I am not quoting Thorp as the final authority on this, but you can’t just bluster your way out of it. “well anyone who knows anything would agree with me!!!”. Okay buddy. lol
I never said that there wasn’t enough data to make a comparison. What I did say was that there wasn’t enough data to make a precise comparison, since national income product accounting didn’t even exist in those years.
Well what exactly do you want a source for?
Seriously, the Panic of 1819 is some pretty standard stuff. I first read about it in my US history textbook in high school. Your claim of a recession 1815-1821 is like saying that the Great Depression really started in 1925. But here are your sources.
I am not denying that there was a panic in 1819, good buddy. 
I am questioning whether it was simply part of a longer period of economic recession. Willard Thorp thinks it was. And none of the your links seem to be devoted to answering that question.
Now, again, I am not saying Thorp was right. I am just saying you haven’t yet made your case that recessions have been longer in “the era of big government”. But I don’t want to drag this on much more.
I think the OP has enough information to dig for herself and answer her question at this point. Thanks for the exchange!