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).
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.
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.