I am taking a guess here, but I would argue that the cause of the long depression is consistent with ABCT, in that it was the expansion of the money supply via fiat money during the Civil War, that caused the “long depression”.
Was the “long depression” really a depression?
From a previous forum thread, it appears there is consensus that the “long depression” was a time or prosperity. Falling prices is not indicative of a depression. But if it is not a depression, does it fit in readily with ABCT?
The Panic of 1973 and the prosperity period that happened later (called a depression by some) is compatible with ABCT. The mal-investments were allowed to be liquidated (there was minimum government interference) and therefore the crisis was over quick.
Compare that to the crash of 1929, were Hoover and FDR started all kind of government programs and created the Great Depression.
Viception: “Prior to the Federal Reserve System, the business cycle occurred in U.S. history due to low interest rates and money supply expansion by state banks as in the Panic of 1819. The state banks paper money expansion was not tied to their gold holdings. The boom-bust process occurred again in the Panic of 1857. This process was not a mystery. James Buchanan, the 15th President of the United States (1857-1861), in his 1857 State of the Union address, said, ‘that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper money and bank credits.’ The 1863 and 1864 National Banking Acts created a quasi-central banking money system that led to the Panic of 1873. Money and banking have been interfered with by government throughout U.S. history. Government-backed national banks, special privileges for weak banks, imposed gold-silver ratios, bailouts, and so on have occurred. There never was a free banking system that collapsed in U.S. history. There has always been a government banking system that regularly malfunctions.”
From a previous forum thread, it appears there is consensus that the “long depression” was a time or prosperity. Falling prices is not indicative of a depression. But if it is not a depression, does it fit in readily with ABCT?
The period between 1873 and 1879 saw economic stagnation. The period from 1879 and 1893, however, was one of the most prosperous periods of the United States. This era is oftentimes confused as a depression because of a) the crash in the mid-1880s b) falling prices. But, the reason for falling prices was higher productivity, not a falling money supply, and as such the deflation was beneficial.
The period known as the long depression is really 1873-1879, but is oftentimes extended through to 1894 (the date of the third crash during that period).
There is pretty much consensus amongst serious economists that this was a period of prosperity, not one of depression. Only a few mainstream economists have seemed confused, including Paul Krugman, but I have a feeling this has more to do with lack of reading on the period more so than actual belief. I think that if Krugman was shown a paper by Cristina Romer (who has written prob. one of the best papers on the subject) he would agree.