Year GNP* Growth RateWhat is notable in Romer’s figures is the following:
1869 75.609
1870 $76.464 1.13%
1871 $76.952 0.638%
1872 $89.605 16.4%
1873 $94.863 5.86%
1874 $96.205 1.414%
1875 $97.684 1.53%
1876 $104.628 7.10%
1877 $110.797 5.89%
1878 $118.906 7.31%
1879 $127.675 7.37%
1880 $139.990 9.64%
1881 $143.580 2.56%
1882 $149.307 3.98%
1883 $152.097 1.86%
1884 $155.684 2.35%
1885 $157.789 1.35%
1886 $164.375 4.17%
1887 $169.453 3.08%
1888 $168.940 -0.3%
1889 $175.030 3.60%
1890 $182.964 4.53%
1891 $191.757 4.80%
1892 $204.279 6.53%
1893 $202.616 -0.81%
1894 $200.819 -0.88%
1895 $215.668 7.39%
1896 $221.438 2.67%
1897 $233.655 5.51%
1898 $241.459 3.33%
1899 $254.728 5.49%
1900 $264.540 3.85%
* Billions of 1982 dollars
Average real GNP growth rate, 1870–1900: 4.17%.
(Romer 1989: 22).
(1) Romer’s average real GNP growth rate for 1870–1900 was 4.17%, which is slightly higher than the figure of 4.08% from the estimates of Balke and Gordon (1989: 84).BIBLIOGRAPHY
(2) The average rates per decade are as follows (with additional measures for the 1870s, since that decade is of interest in previous discussion):Average real GNP growth rate, 1870–1879: 5.46%.The 1870s were the decade with the strongest growth as measured from 1871–1880 (the technical definition of the decade). The 1880s had unusually low growth, worse than the 1890s.
Average real GNP growth rate, 1870–1880: 5.84%.
Average real GNP growth rate, 1871–1880: 6.32%
Average real GNP growth rate, 1881–1890: 2.72%.
Average real GNP growth rate, 1891–1900: 3.79%.
Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.
Romer, C. D. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97.1: 1–37.
Average real GNP 1869-1879: 5.95%
ReplyDeleteOut of curiosity Lord Keynes, what theory of economic growth do you subscribe to?
ReplyDeleteWhat's also important about this time was that because the country was on a gold standard, the value of money gradually increased over time on account of the investors who took risks and increased production and hence increased the supply of goods.
ReplyDeleteTheir productivity allowed poor people to earn a positive return just by holding onto their money incomes as cash. That is how poor people benefit in laissez faire capitalism. All they have to do is earn money through offering their labor, and over time, whatever sum of money they hold onto after consuming, that money can earn a positive return over time.
The myth that so many Keynesian dolts adhere to is the myth that in an economy with gradual price deflation (on the basis of higher productivity) will allegedly reduce the amount of investment, because it will give incentives to people to just hold onto their money as cash because they can get a positive return.
This ridiculous myth is easily refuted by simply pointing to the fact that in our economy, in our inflationary economy, even though investors can earn a positive return "risk free" just by buying government debt, many investors nevertheless make positive investments in productive enterprises, because they can earn a HIGHER return by doing so.
So in a gold standard economy, where people can earn a "risk free" return just by holding onto a sum of money as cash, investors will, just like from 1870-1900 that generated an average of 4.17% annual real GNP growth (which by the way is greater than even the real GNP growth during 1945-1973, a period WITH inflation, that allegedly increases investments), they will nevertheless make positive investments because they can earn a HIGHER return from doing so.
And not only that, but the more greedy investors are for profits, the more investments they make, the higher and higher the poorest people's money incomes and money holdings become. Compare that to our economy, where most poor people can't afford to make investments, or are too risk averse, and their money holdings DECLINE in value, i.e. their cash holdings earn a NEGATIVE return.
And Keynesians wonder why wealth inequality keeps growing in our inflationary economy. Oh yeah, it's the fault of greedy investors. The same people who would have increased the value of the poorest people's cash holdings, if we had sound money instead of a funny money economy. Har har har
Your statement 1:
ReplyDelete"Their productivity allowed poor people to earn a positive return just by holding onto their money incomes as cash. That is how poor people benefit in laissez faire capitalism. All they have to do is earn money through offering their labor, and over time, whatever sum of money they hold onto after consuming, that money can earn a positive return over time."
You're saying that holding money idle and preventing the demand for furher goods leading to investment to increase wealth is a benefit!
Your statement 2:
"The myth that so many Keynesian dolts adhere to is the myth that in an economy with gradual price deflation (on the basis of higher productivity) will allegedly reduce the amount of investment, because it will give incentives to people to just hold onto their money as cash because they can get a positive return."
You have contradicted yourself hopelessly.
"And Keynesians wonder why wealth inequality keeps growing in our inflationary economy. "
ReplyDeleteWealth inequality did not grow in 1945-1973 era. The reverse happened.
...generated an average of 4.17% annual real GNP growth (which by the way is greater than even the real GNP growth during 1945-1973, a period WITH inflation, that allegedly increases investments),
ReplyDelete(1) Yes, it was higher, but not by much: 3.86% (1947-1973) compared to 4.17%. This means growth was 8.03% higher.
(2) (1) is explained by the industrialisation phase of the US economy, and motsly by the 1870s. It's notable that the decadal rates in the 1880s and 1890s were much lower:
Average real GNP growth rate, 1881–1890: 2.72%.
Average real GNP growth rate, 1891–1900: 3.79%.
(2) As pointed out before, across the whole OECD, 1946-1973 won out as a better period:
1700–1820 – 0.2%
1820–1913 – 1.2%
1919–1940 – 1.9%
1950–1973 – 4.9%
1973–1990 – 2.5%
(Davidson 1999: 22).
This doesn't fit your genuflecting to the gold standard.
Lord Keynes:
ReplyDelete"Yes, it was higher, but not by much: 3.86%"
Why does your conscience compel you to include "but not by much"? Isn't this something that your readers should decide for themselves? I mean, why the unsolicited prompting?
It's kind of like someone with sour grapes still trying to defend his beliefs, in some petty way, after they were refuted. It's like saying "Yes, your team beat our team....but not by much." Or "Yes, I was wrong....but not by much."
Why can't you just say that the real GNP growth was higher, and leave it at that? Are you afraid that some of your readers will gloat if you don't qualify the statement? "Yes, it was higher, but not by much.....so don't think to yourself that gold will produce a huge gigantic oh my god incredible rate of growth. It's a measly few bps."
"(1) is explained by the industrialisation phase of the US economy, and motsly by the 1870s."
No, that is not a good explanation at all. For that explanation ultimately requires a belief in the fallacy that humans have a limit to how much wealth they want. But the desire for more wealth is practically infinite, no matter how wealthy people get.
A "young" industrial economy isn't more productive just because it is young and people need "basic necessities", after which those necessities are more or less satisfied, which then somehow leads to a drop in economic growth as the economy "matures" and people aren't as "interested" in economic growth any more.
That myth is in fact a remnant of the old Marxist belief that capital accumulation gradually decreases profits over time, but twisted a little by being mixed with the myth that there is only a finite desire for wealth.
"1700–1820 – 0.2%"
"1820–1913 – 1.2%"
"1919–1940 – 1.9%"
"1950–1973 – 4.9%"
"1973–1990 – 2.5%"
"As pointed out before, across the whole OECD, 1946-1973 won out as a better period:"
Those time periods are all vastly unequal. I could just as easily select the 1870s and say that was better than 1880-2011.
The 1950-1973 period is cherry picked out of time period that had fiat money since 1913-2011.
Picking 1950-1973, a period which conveniently ignores the Great Depression, and 1970s stagflation, in a list that has periods ranging from 120 years to just 21 years, just doesn't seem right to me.
I mean, sure, you can say 1950-1973 had 4.9% growth, but then I could point to periods in the 19th century that had higher growth than that. But to me it just would not feel right to do that. I would feel like I'm cherry picking.
Maybe it would be a better comparison to make a list of more or less equal time periods, with transition years being 1913, 1945, and 1971, which are years that significant changes to the monetary system took place, and then see what the growth rates are.
"This doesn't fit your genuflecting to the gold standard."
And the higher growth rate during 1870-1900 in the US, compared to 1945-1973 in the US, doesn't fit YOUR genuflecting to the fiat standard!
See? Anyone can play around with numbers. It's boring and doesn't tell us anything about economic theory.
Cheers.
Lord Keynes,
ReplyDeleteYou wrote:
"Your statement 1:"
"Their productivity allowed poor people to earn a positive return just by holding onto their money incomes as cash. That is how poor people benefit in laissez faire capitalism. All they have to do is earn money through offering their labor, and over time, whatever sum of money they hold onto after consuming, that money can earn a positive return over time."
"You're saying that holding money idle and preventing the demand for furher goods leading to investment to increase wealth is a benefit!"
Holding more money doesn't reduce REAL demand for further goods. With lower spending and investing in nominal terms, it means the same investing and consumption can take place on a foundation of lower prices. The same goods can be demanded, at lower prices!
"Your statement 2:"
"The myth that so many Keynesian dolts adhere to is the myth that in an economy with gradual price deflation (on the basis of higher productivity) will allegedly reduce the amount of investment, because it will give incentives to people to just hold onto their money as cash because they can get a positive return."
"You have contradicted yourself hopelessly."
How so? I don't see any contradiction there.
"And Keynesians wonder why wealth inequality keeps growing in our inflationary economy."
"Wealth inequality did not grow in 1945-1973 era. The reverse happened."
The government was tied in some respects to gold. They were still under Bretton Woods agreement, at least until 1971. Once the last tie to gold was abandoned, wouldn't you know it? The government had no more restrictions on inflation, which was then accompanied by growing wealth inequality, as incredible amounts of new money poured into the market at distinct points, typically in the primary dealer banks first, which then got passed to their friends, and so on, while those who get the new money last lost purchasing power.
I'm really interested in this "contradiction" you claim I made.
Cheers.
Oh, and one more thing:
ReplyDelete"You're saying that holding money idle and preventing the demand for furher goods leading to investment to increase wealth is a benefit!"
You're conflating money with real wealth. They are not equivalent. Just because less money is spent nominally, that doesn't mean real wealth disappears, or reduced in quantity, or not produced. You're ignoring the fact that prices can fall.
If I reduce my spending and investing in dollars, then my lower demands will lead to sellers lowering their prices. The same production can take place, just at lower prices.
If there is a gold standard, and people can earn a return just by holding money, then they can only earn such a return if others are investing and producing. If they are not, then they could not earn a return by holding money. The more that wealthy people invest and increase production, the more that poor people's cash balances will rise in value over time.
If poor people hold more cash, then investors will react by just bidding and asking lower prices for the assets they buy and sell.
How is this a bad thing? It happened in the 1870s, and that decade had spectacular growth!
"I mean, sure, you can say 1950-1973 had 4.9% growth, but then I could point to periods in the 19th century that had higher growth than that"
ReplyDeleteWhich periods?
"If there is a gold standard, and people can earn a return just by holding money, then they can only earn such a return if others are investing and producing"
The level of investment would higher without the excess idle holdings of money owing to deferring purchasing in the face of deflation.
Thus GNP - real output or wealth - would be increasing at a higher rate
> "Wealth inequality did not grow in
ReplyDelete> 1945-1973 era. The reverse happened."
The government was tied in some respects to gold. They were still under Bretton Woods agreement, at least until 1971. Once the last tie to gold was abandoned, wouldn't you know it?
A pathetic evasion of the truth, called the red herring. I repeat: Wealth inequality did not grow in 1945-1973 era. The reverse happened.
LK, could you please answer my question? What are your beliefs regarding theories of economic growth, or no?
ReplyDelete