Year GNP* Growth RateAccording to these figures, the US had a moderate recession from 1893–1894 in which GNP fell by 2.96%, with a recovery in 1895, but a further serious recession in 1896 with real GNP falling by 2.27%.
1890 $183.9 1.43%
1891 $189.9 3.26%
1892 $198.8 4.68%
1893 $198.7 -0.05%
1894 $192.9 -2.91%
1895 $215.5 11.7%
1896 $210.6 -2.27
1897 $227.8 8.16%
1898 $233.2 2.37%
1899 $260.3 11.6%
1900 $265.4 1.95%
* Billions of 1982 dollars
Average real GNP growth rate, 1890–1900: 3.62%.
(Balke and Gordon 1989: 84).
What were the effects of these shocks on employment? There are three estimates that have been done:
(1) Lebergott’s estimates of the unemployment rate.Now I have lost my copy of Vernon (1994). If anyone can cite the unemployment estimates of that paper, that would be helpful.
(2) Romer (1986: 31):
(3) Vernon (1994).
Here are Lebergott’s estimates of the unemployment rate:
Year Unemployment RateBy these figures, the unemployment rates were a disaster in the 1890s, but Lebergott’s figures are challenged by Romer (1986).
1890 4.0%
1891 5.4%
1892 3.0%
1893 11.7%
1894 18.4%
1895 13.7%
1896 14.5%
1897 14.5%
1898 12.4%
1899 6.5%
1900 5.0%
The revised figures in Romer (1986: 31) are as follows:
Year Unemployment RateEven using Romer’s figures, the US economy did not return to high employment for nearly a decade after 1893. If my memory serves me, Vernon’s (1994) figures are lower than Romer’s, but still high.
1892 3.72%
1893 8.09%
1894 12.33%
1895 11.11%
1896 11.965
1897 12.43%
1898 11.62%
1899 8.66%
1900 5.00%
Romer’s figures would confirm that something very serious happened to the US economy in the 1890s. There was a period of protracted unemployment in the 1890s comparable to the aftermath of the Great Depression in many countries from 1933–1939.
How did moderate recessions in 1893–1894 and 1896 cause double digit unemployment until 1899? What were the additional causes of this economic malaise? Some provisional answers occur to me:
(1) The New Keynesians G. A. Akerlof and R. J. Shiller have argued – and here a Post Keynesian could readily agree with them – that the 1890s suffered from a severe shock to business expectations (Akerlof and Shiller: 59–64), a view that is essentially consistent with a Post Keynesian theory of fluctuating subjective expectations in the investment decision having serious effects on the level of investment, liquidity preference, spending and aggregate demand.BIBLIOGRAPHY
(2) There was probably also a degree of debt deflationary malaise in the economy in the 1890s (Eichengreen 2008: 39–40; Baker et al. 2005: 27), as deflation continued down to 1896. Certainly there is a great deal of empirical evidence for this in the case of farmers in the Midwest and South, many of whom became supporters of the Free Silver Movement. A research question is: to what extent was the American private sector over-indebted before and after the Panic of 1893, a financial crisis with effects on the real economy which is a classic example of Minsky’s financial instability hypothesis. The financial crisis caused bank panics and collapses and the familiar pattern of a credit crunch, business failures and a spill-over into negative effects on investment, consumption, output and employment.
(3) There was also considerable uncertainty and problems caused by the political conflicts in the United States over bimetallism and the effects of the Sherman Silver Purchase Act (July 14, 1890) (which had been preceded by the Bland-Allison Act of 1878). In this badly designed piece of legislation, the U.S. government was purchasing about 4.5 million ounces of silver bullion every month. But the Treasury (Coin) Notes that were issued in exchange for silver could be redeemed for either silver or gold, which caused a depletion of the US government’s gold reserves. In a paradoxical manner, the free silver movement, the gold outflows, and the expectations that the US might leave the gold standard all had a deflationary effect on the US economy (Timberlake 1997: 517). Grover Cleveland had won the presidential election of November 1892, but was not inaugurated until March 1893, perhaps increasing uncertainty about monetary policy. The Sherman Silver Purchase Act was repealed on November 1, 1893, but the election of 1896 pitted bimetallist William Jennings Bryan against the Republican William McKinley (who supported the Gold Standard), and this may well have caused investor anxiety, capital flight and failure to invest (Eichengreen 2008: 40). It is curious that the second recession of 1896 coincided with the election year and the lead-up to it. But even then it took a number of years for unemployment to fall, and it was not until 1900 that (by the figures of Romer) it went down to 5%. It is no surprise to me that you do not see the Austrians appealing to the 1890s as an example of the wonders of the free market allegedly ending the aftermath of a severe recession.
Akerlof, G. A. and R. J. Shiller. 2009. Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism, Princeton University Press, Princeton.
Baker, A., Hudson D. and R. Woodward (eds). 2005. Governing Financial Globalization: International Political Economy and Multi-Level Governance, Routledge, London and New York.
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.
Eichengreen, B. J. 2008. Globalizing Capital: A History of the International Monetary System (2nd edn.), Princeton University Press, Princeton, N.J. and Oxford.
Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800, McGraw-Hill, New York.
Lebergott, S. 1964. Men Without Work: The Economics of Unemployment, Prentice-Hall, Englewood Cliffs, N.J.
Lebergott, S. 1986. “Discussion,” Journal of Economic History 46: 367-371.
Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.
Timberlake, R. H. 1997. “Panic of 1893,” in D. Glasner and T. F. Cooley (eds), Business Cycles and Depressions: An Encyclopedia, Garland Pub., New York. 516-518.
Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.
Lebergotts and Romers estimates are based off of the KK series and Okun's law. I have class right now so I am typing this very fast, but Lebergott interpolates based off of census data and GNP estimates (I believe), and Romer corrects him, saying that the correlation between unemployment and GNP in this period is not what Lebergott uses. Again, this is really fast, I'll look at the papers when I have time. The problem is, I don't think Romer or anyone else ever reconciled unemployment rates with the new GNP figures given by Romer or Balke.
ReplyDeleteUsing Balke/Romer, the contraction from 1892-1894 ranged from 1-3%. I want you to tell me with a straight face that during a contraction of 1-3%, the unemployment rate could have ranged from 8-18%.
I'll add more when I come back
Cheers.
"Using Balke/Romer, the contraction from 1892-1894 ranged from 1-3%. I want you to tell me with a straight face that during a contraction of 1-3%, the unemployment rate could have ranged from 8-18%. "
ReplyDelete(1) The GNP contraction from 1893–1894 was 2.96%. Yes, that level of contraction, with the shock to expectations affecting aggregate investment levels, could have caused a severe surge in unemployment to 12.33% by 1894.
(2) You ignore that 2nd recession in 1896, don't you, which caused unemployment to surge again.
(3) You ignore the other factors I have listed above affecting aggregate demand.
(1) There is a question here too about whether movements in the labour force - especially involving women - were pro-cyclical or countercyclical in the 19th century.
ReplyDeleteIf it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment.
Relevant reading:
Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.
Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.
John A. James and Mark Thomas, "Romer revisited: long-term changes in the cyclical sensitivity of unemployment," Cliometrica 1.1, 19-44.
(2) Then there is the effect of immigration on unemployment in these years:
Years Average Yearly Total
1881-1893 525,102
1894-1899 276,547
http://eh.net/encyclopedia/article/cohn.immigration.us
Did these people find work?
(3) Then there is the extraordinary labour unrest in this decade. How do you account for that if unemployment was not a serious problem?
Coxey's Army marches on Washington D.C. (1894, U.S.)
http://en.wikipedia.org/wiki/Coxey%27s_Army
Cripple Creek miners' strike of 1894 (U.S.)
Pullman Strike (1894, U.S.)
Great Northern Railway Strike (1894, U.S.)
Bituminous Coal Miners' Strike of 1894 (U.S.)
Haverhill Massachusetts Shoe Strike (1895, U.S.)
Brooklyn, New York Trolley Workers' Strike (1895, U.S.)
Leadville Colorado, Miners' Strike (1896)
Lattimer Massacre Strike (1897, Pennsylvania)
Marlboro Massachusetts, Shoe Workers' Strike (1888, U.S.)
Buffalo New York, Grain Shovellers' Strike (1899, U.S.)
Cleveland Ohio, Street Railway Workers' Strike (1899, U.S.)
Coeur d'Alene, Idaho labor confrontation of 1899 (1899, U.S.)
Newsboys Strike of 1899 (New York City, U.S.)
http://en.wikipedia.org/wiki/List_of_strikes#1850.E2.80.931899
More here on Romer's method for unemployment calculations:
ReplyDeletehttp://books.google.com.au/books?id=EasEioJQHk4C&pg=PA590&dq=1890s+unemployment+US+Romer&hl=en&ei=mRvdTrqqF-P1mAW7r7z0Cw&sa=X&oi=book_result&ct=result&resnum=2&ved=0CDUQ6AEwAQ#v=onepage&q&f=false
It seems that pro-cyclical labour force participation rates is one of her assumptions.
If it was countercyclical in the 1890s, you already have problems with her estimates.
Also relevant is Lebergott's response to Romer:
ReplyDeleteLebergott, S. 1986. “Discussion,” Journal of Economic History 46: 367-371.
"I want you to tell me with a straight face that during a contraction of 1-3%, the unemployment rate could have ranged from 8-18%."
ReplyDeleteSuch remarks could in theory be thrown right back at you: tell me with a straight face that an estimated unemployment rate from 8-18% only resulted from a real GNP contraction of 1-3%. I.e., something stinks in both Romer's and Balke and Gordon's figures? That the Kuznets-Kendrick series is more reliable?
This all underscores how you will never get an definitive GNP estimates. "Definitive" statements from either the Austrian or the Keynesian side are not possible.
"I want you to tell me with a straight face that during a contraction of 1-3%, the unemployment rate could have ranged from 8-18%."
ReplyDeleteAnyway, this is a very strange question. Real US GDP contracted by these figures in 2008-2009:
2008 -0.337
2009 -3.486
This is very similar to this, isn't it?:
1893 $198.7 -0.05%
1894 $192.9 -2.91%
Unemployment in the US by U6 soared from about 9% in 2008 to 17% by 2009 (88% increase).
By U3 it soared from 5% to 10% (100% increase)
http://www.shadowstats.com/alternate_data/unemployment-charts
According to you this could not happen!
And note that the 2008-2010 period had macroeocnomic stabilisation. There was no such stabilisation in the 1890s, and far less labour market rigidity.
“(1) The GNP contraction from 1893–1894 was 2.96%. Yes, that level of contraction, with the shock to expectations affecting aggregate investment levels, could have caused a severe surge in unemployment to 12.33% by 1894.”
ReplyDelete(2) You ignore that 2nd recession in 1896, don't you, which caused unemployment to surge again.
(3) You ignore the other factors I have listed above affecting aggregate demand.”
A couple of things.
You say I ignore the 2nd recession of 1896. I find this quite amusing, especially because it has roughly the same level of contraction (a little under 2.5%), yet unemployment barely rises (less than a percentage point in both cases). This amounts to a 6-7% increase in the unemployment rate for this time. Yet, with a slightly, slightly, slightly more severe contraction (2.91 instead of 2.27), from 1893 to 1894 unemployment lurches forward a massive 52-57% increase! At the same time, from 1894 to 1895 when real GDP increased a stunning 11% (this isn’t like in the Great Depression, where output was seriously in a trough, and decreased drastically from 1929-1933), unemployment in Lebergott’s estimates only decreased 25%. In Romer’s they actually increased slightly.
You also list other reasons that could have affected aggregate demand. The problem is that in order (in my view) for these things to have affected aggregate demand severely enough for unemployment to rise to those levels, output would have had to have fallen much more during the contraction, and rose much more slowly during the expansion. If output was only increasing at roughly 4% throughout the decade (as said in the post in the prior thread), yet unemployment was so sickly high, what on earth would potential GDP have to be?
Bear in mind that during the Great Depression from 1929-1933, output roughly decreased by 11% per year. And only at the end of this was unemployment at 25%.
“(3) Then there is the extraordinary labour unrest in this decade. How do you account for that if unemployment was not a serious problem?
During this period you listed, 13 strikes occurred. During 1886-1887, 10 strikes occurred.
Using Balke’s GNP estimates, the growth rates were
1886: 3%
1886: 4.5%
Labor unrest does not mean that there was widespread labor problems.
http://en.wikipedia.org/wiki/List_of_strikes#1850.E2.80.931899
“Such remarks could in theory be thrown right back at you: tell me with a straight face that an estimated unemployment rate from 8-18% only resulted from a real GNP contraction of 1-3%. I.e., something stinks in both Romer's and Balke and Gordon's figures? That the Kuznets-Kendrick series is more reliable?”
The problem is that KK is clearly inferior because both Romer and Balke use superior methods of data collection/estimation, and especially that Balke/Gordon use a components method similar to KK, but with actual output estimates from construction, transportation, and communications. KK based their series off of the Frickey series of industrial production, whose basket of commodities is inferior to postwar data because of its quantity and scope, and especially that it is based more on raw materials, which is much more volatile.
“Anyway, this is a very strange question. Real US GDP contracted by these figures in 2008-2009:
ReplyDelete2008 -0.337
2009 -3.486
This is very similar to this, isn't it?:
1893 $198.7 -0.05%
1894 $192.9 -2.91%
Unemployment in the US by U6 soared from about 9% in 2008 to 17% by 2009 (88% increase).
By U3 it soared from 5% to 10% (100% increase)
http://www.shadowstats.com/alternate_data/unemployment-charts
According to you this could not happen!
And note that the 2008-2010 period had macroeocnomic stabilisation. There was no such stabilisation in the 1890s, and far less labour market rigidity.”
Peak to Trough (2007-2009) in the recession, using the government’s calculations (revised) GDP contracted in total about 5% (http://www.bea.gov/faq/index.cfm?faq_id=1004). Granted, this is with a flawed statistic, and using shadowstats and/or a method that compensates for government burden, the contraction would be higher. (http://www.shadowstats.com/alternate_data/gross-domestic-product-charts). Taking 5% unemployment as our starting point, up to 10% during the lowest point, we have 100% increase as you pointed out. With a 5% GDP contraction that definitely understates.
In addition, during the Great Depression, where output collapsed by roughly half, unemployment surged forward 607% (http://en.wikipedia.org/wiki/Great_Depression Economic indicators chart cited via footnote 15).
What do we have for the Panic of 1893, from 1892 to 1894 (from the top to the bottom?)
1892-1894: a 230-513% increase (depending on either Romer or Lebergott).
And yet with from 1894 and 1896 (1896 there was a similar contraction, unemployment barely decreases (25%) from 1894-1895, and then barely increases from 1895 to 1896, despite a similiar contraction occuring.
So in one contraction of 3% unemployment shoots up 230%, and in another contraction of roughly 2-3% unemployment barely changes.
"Labor unrest does not mean that there was widespread labor problems. "
ReplyDeletePathetic.
"During this period you listed, 13 strikes occurred. During 1886-1887, 10 strikes occurred."
ReplyDelete(1) that is because there was recessions in these years 1882–1885 and 1887–1888 to by the standard data:
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
(2) it also shows up in Balke and Gordon in 1887-1888
1886 164.1
1887 171.5
1888 170.7
"You say I ignore the 2nd recession of 1896. I find this quite amusing, especially because it has roughly the same level of contraction (a little under 2.5%), yet unemployment barely rises (less than a percentage point in both cases). "
ReplyDeleteGiven that we don't know the composition of the contraction (in which sectors the falls occurred), this is a feeble argument: there is not necessaily an automatic, consistent ratio between GNP/GDP contraction rates and the amount of unemployment. Historical circumstances are different: contractions in different sectors will have different effects on unemployment,
"You also list other reasons that could have affected aggregate demand. The problem is that in order (in my view) for these things to have affected aggregate demand severely enough for unemployment to rise to those levels, output would have had to have fallen much more during the contraction, and rose much more slowly during the expansion."
ReplyDeleteAgain: doesn't this suggest to you that the GNP/GDP figures may be underestimates?
"The problem is that KK is clearly inferior because both Romer and Balke use superior methods of data collection/estimation, and especially that Balke/Gordon use a components method similar to KK, but with actual output estimates from construction, transportation, and communications."
ReplyDeleteAnd again there are serious, often severe, contradictions between their estimates.
There is no definitive data.
"What do we have for the Panic of 1893, from 1892 to 1894 (from the top to the bottom?)
ReplyDelete1892-1894: a 230-513% increase (depending on either Romer or Lebergott)."
There is evidence that the contraction began in 1892, and that was already having effects on unemployment:
"Yet several monthly series of indicators showed that business was falling off. Building construction had peaked in April 1892, later moving irregularly downward, probably in reaction to over building. The decline continued until the turn of the century, when construction volume finally turned up again. Weakness in building was transmitted to the rest of the economy, dampening general activity through restricted investment opportunities and curtailed demand for construction materials. Meanwhile, a similar uneven downward drift in business activity after spring 1892 was evident from a composite index of cotton takings (cotton turned into yarn, cloth, etc.) and raw silk consumption, rubber imports, tin and tin plate imports, pig iron manufactures, bituminous and anthracite coal production, crude oil output, railroad freight ton mileage, and foreign trade volume. Pig iron production had crested in February, followed by stock prices and business incorporations six months later."
http://eh.net/encyclopedia/article/whitten.panic.1893
Therefore:
1892 3.72%
1893 8.09%
Therefore there was a 117.4% increase in unemployment from 1892-1893.
1893 8.09%
1894 12.33%
Then 52.4% increase from 1893-1894.
So this is a 231.4% increase from 1892-1894.
You have also ignored:
ReplyDelete(1) Whether movements in the labour force - especially involving women - were pro-cyclical or countercyclical in the 19th century.
If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment.
(2) Immigration contribution to unemployment.
"So in one contraction of 3% unemployment shoots up 230%, and in another contraction of roughly 2-3% unemployment barely changes. "
ReplyDeleteYou're looking for some "law" of correlation that doesn't necessarily exist. Different historical circumstances and different effects on different sectors have different effects on unemployment.
"Pathetic.
ReplyDelete(1) that is because there was recessions in these years 1882–1885 and 1887–1888 to by the standard data:
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
(2) it also shows up in Balke and Gordon in 1887-1888
1886 164.1
1887 171.5
1888 170.7"
Okay, growth from 1886 to 1887 is a stunning 4.5%, while growth from 1887 to 1888 is a -.46%. These are not years of “social unrest”. The growth rates between these three years are quite well. If a recession only had a contraction of only -.46%, you would say “Fantastic!” Just because some labor groups are mad, does not mean everyone is doing poorly. Furthermore, why were the strikes in the period of 4.5% growth and not in the period after?
Here is a nice quote that encapsulates much of the era. The quote comes from Charles Morris in his book “Tycoons”. In this book he is describing the 1870s and how they were in fact a decade of strong growth. When discussing the labor unrest in the late 1870s, he says
“So why did it feel like a depression? One reason was that prices fell throughout the decade and beyond, in a slide that was steep, relentless, and continuous. The wholesale price index fell by 25 percent from 1870 to 1880, a decline that continued through the 1880s at about half that rate, before flattening out at essentially zero inflation in the 1980s. Falling prices were reflected in falling money incomes. Because prices, in the main, fell faster than incomes did, real income grew strongly, but shrinking pay packets, or diminishing cash returns from crop sales, still felt awful…[and] the Average American was a farmer or an artisan, a housekeeper or a small businessperson in a rural town, and had no way of knowing what was happening to overall price levels. Like people in any age, as their money incomes went down, they forgot about their new curtains and tools, and kerosene lamps; as far as they knew, they were getting poorer, and they were mad as hell about it” (p.103)
A similar type of analysis by him is provided online
http://www.nytimes.com/2006/06/02/opinion/02morris.html
This is from the 1870s, but if the GNP rates from the 1890s are to be believed, then a similar explanation can be provided for the 1890s.
“Again: doesn't this suggest to you that the GNP/GDP figures may be underestimates?”
No, because you and I have very different views on how to cure recessions, etc etc.
“And again there are serious, often severe, contradictions between their estimates.
There is no definitive data.”
Balke and Gordon improve on Romer’s data, from what I understand. Balke and Gordon use additional estimates of output and try to build off of the components method. As stated before, KK is based off a smaller scope of raw materials. Has anyone disputed Balke and Gordon’s work much like they disputed Romer’s work? You would be the person to know.
Again, Balke and Gordon enhance previous estimates of GNP figures: (especially KK)
“The components method of estimating GNP involves obtaining estimates of various components of GNP either directly or indirectly and adding them together. This is the method used by Kuznets to obtain his original GNP estimates.” (p.42)
“The standard annual GNP estimates of Kuznets, Gallman, and Kendrick before 1919 rely simply on commodity output data, “blown up” by assumed ratios to reflect distributive margins. In contrast, this study uses direct information not just on commodity output but also on output in the construction, transportation, and communications sectors.” (p.47)
“The accuracy of the annual movements in the Kuznets series hinges totally on the elasticity assumptions and on the accuracy of the underlying estimates of commodity output.” (p.48)
“To underscore the achievements of Hoover and Ress, we begin with the fact that neither Shaw nor Kuznets used any direct information on prices actually paid by consumers.” (p.61)
“Therefore there was a 117.4% increase in unemployment from 1892-1893.”
ReplyDeleteYes, and GNP changed .05%. ...05% and yet unemployment supposedly lurched forward 117.4%. That’s just saying in the span of one year the economy maintained its level of output yet shed a massive amount of its labor force. Did robots come and replace factory workers in this year?
“So this is a 231.4% increase from 1892-1894.”
Yes, during a contraction of 3%. And in the Great Depression when output fell 50%, unemployment increased by over 600%. And in the 2007-2009 period, when the contraction was at the bare minimum 5% (much higher if you use shadowstats and/or account for government burden), unemployment increased 100%.
“(1) Whether movements in the labour force - especially involving women - were pro-cyclical or countercyclical in the 19th century.
If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment.
(2) Immigration contribution to unemployment.”
This is relevant when discussing Romer v. Lebergott’s data. I’m not talking about either of these. Clearly, if GNP decreased by only 3%, you wouldn’t expect massive layoffs that justified the rest of the family to bring in some bread.
“Given that we don't know the composition of the contraction (in which sectors the falls occurred), this is a feeble argument: there is not necessaily an automatic, consistent ratio between GNP/GDP contraction rates and the amount of unemployment. Historical circumstances are different: contractions in different sectors will have different effects on unemployment,
You're looking for some "law" of correlation that doesn't necessarily exist. Different historical circumstances and different effects on different sectors have different effects on unemployment.”
Okun’s Law? Based on the revised (better) GNP estimates and the unemployment figures, anyone who holds any sort of belief would have to throw it aside. I'm not saying that I believe in it, but it frankly is a slap in the face to anyone who thinks positively of it.
I'm saying that based off of the output data, and wage flexibility, and (obviously my own terrible rudimentary backwards praxeology), the unemployment data can't coexist with the output data. And since the output data is a clear improvement on the unemployment data, the unemployment data needs to be revised.
It is no surprise to me that you do not see the Austrians appealing to the 1890s as an example of the wonders of the free market allegedly ending the aftermath of a severe recession.
ReplyDeleteWell that's because the 1890s was the decade whereby the Rockefellers and Morgans began to really influence politics to cartelize the banking industry, and the tremendous rise in money manipulation that resulted created great dislocutions in the economy.
Money manipulation/soundness is one of the core topics of Austrianism. Even if the entire economy is fully free and there is zero government regulations in all business, if there is money manipulations going on, then all bets are off.
It is NOT due to your ridiculous insinuation that Austrians are somehow "embarrassed" about that time period, as if it serves to refute Austrian principles. Austrian principles are neither confirmed nor falsified by any historical data, because Autrianism is based on irrefutable logical necessities that are timeless. Historical data in economics can only tell us what people knew and what they did in the past.
Since there has been no Austrian interpretation of the 1890s on this blog, it is apropos to include some Austrian interpretations of the 1890s. Here is what Rothbard writes:
"In these pages, Friedman and Schwartz suggest that the “money ‘issue’” that consumed American politics in the last three decades of the nineteenth century was precipitated by “the crime of 1873” and was almost exclusively driven by the silver interests in league with the inflationist and agrarian Populist Party. This movement, moreover, was partly expressive of the 1890s, a decade which, according to C. Vann Woodward as quoted by the authors, “had rather more than its share of zaniness and crankiness, and that these qualities were manifested in the higher and middling as well as lower orders of American society.” In thus trivializing the “money issue,” the authors completely ignore the calculated and covert drive by the Wall Street banks led by the Morgans and Rockefellers for a cartelization of the entire banking industry, with themselves and their political allies at the helm. This movement, which began in earnest in the 1890s, was also in part a reaction to the proposals of the silverite and agrarian inflationists and was aimed at reserving to the banks the gains forthcoming from monetary inflation."
"Rothbard’s analysis of the concrete evidence demonstrates that, beginning in the late 1890s, a full decade before the panic of 1907, this Wall Street banking axis and allied special interests began to surreptitiously orchestrate and finance an intellectual and political movement agitating for the imposition of a central bank."
"The fateful decade of the 1890s saw the return of the agitation for free silver, which had lain dormant for a decade. The Republican Party intensified its longtime flirtation with inflation by passing the Sherman Silver Purchase Act of 1890, which roughly doubled the Treasury purchase requirement of silver."
ReplyDelete"Another unsettling inflationary move made in the same year was that the New York Subtreasury altered its longstanding practice of settling its clearinghouse balances in gold coin. Instead, in August 1890, it began using the old greenbacks and the new Treasury notes of 1890. As a result, these paper currencies largely replaced gold paid in customs receipts in New York."
"Uneasiness about the shift from gold to silver and the continuing free-silver agitation caused foreigners to lose further confidence in the U.S. gold standard, and to cause a drop in capital imports and severe gold outflows from the country. This loss of confidence exerted contractionist pressure on the American economy and reduced potential economic growth during the early 1890s."
"Fears about the American gold standard were intensified in March 1891, when the Treasury suddenly imposed a stiff fee on the export of gold bars taken from its vaults so that most gold exported from then on was American gold coin rather than bars. A shock went through the financial community, in the U.S. and abroad, when the United States Senate passed a freesilver coinage bill in July 1892; the fact that the bill went no further was not enough to restore confidence in the gold standard. Banks began to insert clauses in loans and mortgages requiring payment in gold coin; clearly the dollar was no longer trusted. Gold exports intensified in 1892, the Treasury’s gold reserve declined, and a run ensued on the U.S. Treasury. In February 1893, the Treasury persuaded New York banks, which had drawn down $6 million on gold from the Treasury by presenting Treasury notes for redemption, to return the gold and reacquire the paper. This act of desperation was scarcely calculated to restore confidence in the paper dollar. The Treasury was paying the price for specie resumption without bothering to contract the paper notes in circulation. The gold standard was therefore inherently shaky, resting only on public confidence, and that was giving way under the silver agitation and under desperate acts by the Treasury."
"Poor Grover Cleveland, a hard-money Democrat, assumed the presidency in the middle of this monetary crisis. Two months later, the stock market collapsed, and a month afterward, in June 1893, distrust of the fractional reserve banks led to massive bank runs and bank failures throughout the country. Once again, however, many banks, national and state, specially in the West and South, were allowed to suspend specie payments. The panic of 1893 was on. In a few months, Eastern bank suspension occurred, beginning with New York City. The total money supply—gold coin, Treasury paper, national bank notes, and national and state bank deposits—fell by 6.3 percent in one year, from June 1892 to June 1893. Suspension of specie payments resulted in deposits—which were no longer immediately redeemable in cash—going to a discount in relation to currency during the month of August. As a result, deposits became less useful, and the public tried its best to intensify its exchange of deposits for currency."
ReplyDeleteBy the end of 1893, the panic was over as foreign confidence rose with the Cleveland administration’s successful repeal of the Sherman Silver Purchase Act in November of that year. Further silver agitation of 1895 endangered the Treasury’s gold reserve, but heroic acts of the Treasury, including buying gold from a syndicate of bankers headed by J.P. Morgan and August Belmont, restored confidence in the continuance of the gold standard."
"The victory of the free-silver Bryanite forces at the 1896 Democratic convention caused further problems for gold, but the victory of the pro-gold Republicans put an end to the problem of domestic and foreign confidence in the gold standard."
"The Transformation of 1896 and the death of the third party system meant the end of America’s great laissez-faire, hardmoney libertarian party. The Democratic Party was no longer the party of Jefferson, Jackson, and Cleveland. With no further political embodiment for laissez-faire in existence, and with both parties offering “an echo not a choice,” public interest in politics steadily declined. A power vacuum was left in American politics for the new corporate statist ideology of progressivism, which swept both parties (and created a short-lived Progressive Party) in America after 1900. The Progressive Era of 1900–1918 fastened a welfare-warfare state on America which has set the mold for the rest of the twentieth century. Statism arrived after 1900 not because of inflation or deflation, but because a unique set of conditions had destroyed the Democrats as a laissez-faire party and left a power vacuum for the triumph of the new ideology of compulsory cartelization through a partnership of big government, business, unions, technocrats, and intellectuals."
"During the 1890s, in the new field of large-scale industrial corporations, big-business interests tried to establish high prices and reduced production via mergers, and again, in every case, the mergers collapsed from the winds of new competition. In both sets of cartel attempts, J.P. Morgan and Company had taken the lead, and in both sets of cases, the market, hampered though it was by high protective tariff walls, managed to nullify these attempts at voluntary cartelization."
ReplyDelete"It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion. In other words, to transform the economy from roughly laissez-faire to centralized and coordinated statism. But how could the American people, steeped in a long tradition of fierce opposition to government-imposed monopoly, go along with this program? How could the public’s consent to the New Order be engineered? Fortunately for the cartelists, a solution to this vexing problem
lay at hand. Monopoly could be put over in the name of opposition to monopoly! In that way, using the rhetoric beloved by Americans, the form of the political economy could be maintained, while the content could be totally reversed. Monopoly had always been defined, in the popular parlance and among economists, as “grants of exclusive privilege” by the government. It was now simply redefined as “big business” or business competitive practices, such as price-cutting, so that regulatory commissions, from the Interstate Commerce Commission to the Federal Trade Commission to state insurance commissions, were lobbied for and staffed by big-business men from the regulated industry, all done in the name of curbing “big business monopoly” on the free market. In that way, the regulatory commissions could subsidize, restrict, and cartelize in the name of “opposing monopoly,” as well as promoting the general welfare and national security. Once again, it was railroad monopoly that paved the way."
"The previous big push for statism in America had occurred during the Civil War, when the virtual one-party Congress after secession of the South emboldened the Republicans to enact their cherished statist program under cover of the war. The alliance of big business and big government with the Republican Party drove through an income tax, heavy excise taxes on such sinful products as tobacco and alcohol, high protective tariffs, and huge land grants and other subsidies to transcontinental railroads. The overbuilding of railroads led directly to Morgan’s failed attempts at railroad pools, and finally to the creation, promoted by Morgan and Morgan-controlled railroads, of the Interstate Commerce Commission in 1887. The result of that was the long secular decline of the railroads beginning before 1900. The income tax was annulled by Supreme Court action, but was reinstated during the Progressive period." - History of Money and Banking in the United States
So in summary, the 1890s was a time of monetary upheaval, brought about by politicized bankers as well as bureaucrats, which had highly detrimental effects on the US economy.
"Just because some labor groups are mad, does not mean everyone is doing poorly."
ReplyDeleteThis is the point at which there's no need ot take you serously.
(1) straw man: I didn't say "everyone is doing poorly".
(2) the existence of labor unrest suggests some labour problems from some groups, which could include unemployment, nothing more, nothing less.
"Clearly, if GNP decreased by only 3%, you wouldn’t expect massive layoffs that justified the rest of the family to bring in some bread."
ReplyDeleteI disagree.
Another issue here is that a newly industrialisng eocnomy is very much like modern China:
ReplyDelete(1) with a large reserve of urban labour, coming from the countryside and in the case of the late 1800s US from overseas, younee dhigh growth rates to keep employment high.
(2) even what look like high growth rates (3%, 4%, 5%) might be insufficent to mop up idle labourin an eocnomy like this.
(3) For example, a growth rate of 6% and 7% in China today is the functional equivalent of a recession for workers in terms of its effects on unemployment.
(4) I suspect a similar phenomenon is going on in 19th century America: just because we have positive growth rates does not mean unemployment is always going down.
"Yet, a recent World Bank study suggests that China needs to maintain a 10% growth rate in order to provide sufficient employment opportunities. This is above the Chinese government's stated desire to regulate GDP growth at around 8%"
ReplyDeletehttp://books.google.com.au/books?id=asqw4yl_tPUC&pg=PA144&dq=china+%22maintain+unemployment%22+GDP+growth+6%25&hl=en&ei=lejdTomcMoi0iQePn8WVBQ&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDsQ6AEwAg#v=onepage&q&f=false
"If the Chinese stop or slow down in their building of infrastructure and at the same time the western economies do not recover, China's GDP may hit 5%. China needs 8% GDP growth to maintain unemployment at around 5 - 10%. A 5% growth is disastrous. "
http://musingsonwallstreet.blogspot.com/2011/07/we-have-one-year-to-go-before-next-peak.html