Real US GNP Growth Rates, 1873–1896

Jonathan Finegold Catalán appears to declare that the period of secular deflation between 1879 and 1894 was objectively a “period in American history [sc. that] was the most productive” in a comment here.

First, I intend to examine this assertion in light of the real GNP estimates of (1) Balke and Gordon and (2) Romer.

Secondly, I will examine the real GNP growth rates for the 1873–1896 period, in which there was almost continuous deflation in the US and in many other Western nations (on this period of deflation, see Saul 1985; Capie and Wood 1997: 287–288).

Thirdly, I will look at the unemployment estimates of Vernon (1994) for this period.

It is not possible to declare that either 1879–1894 or 1873–1896 was “the most productive” in American history.

I. Real US GNP, 1879–1894
The GNP estimates of Balke and Gordon (1989: 84) are as follows (I have added the annual growth rates by my own calculation):

Year | GNP* | Growth Rate
1879 | $123.1 | 12.31%
1880 | $137.6 | 11.77%
1881 | $142.5 | 3.56%
1882 | $151.6 | 6.38%
1883 | $155.3 | 2.44%
1884 | $158.1 | 1.80%
1885 | $159.3 | 0.75%
1886 | $164.1 | 3.01%
1887 | $171.5 | 4.50%
1888 | $170.7 | -0.46%
1889 | $181.3 | 6.20%
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%

Average real US GNP growth rate, 1879–1894: 3.67%.

We thus have an average growth rate of 3.67%. The average real US GNP growth rate from 1947–1973, during the classic era of Keynesianism, was 3.86%, higher than 1879–1894, so it is not possible to declare 1879–1894 “the most productive in period in American history,” on the basis on real output growth estimates of Balke and Gordon.

The figures for GNP in Romer are here (I have added the annual growth rates by my own calculation):

Year | GNP* | Growth Rate
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%
* Billions of 1982 dollars.

Average real GNP growth rate, 1879–1894: 3.36%

So matters aren’t any better by looking at Romer’s estimates. In fact, they are worse: the average real GNP growth rate from 1879–1894 was 3.36%, lower than the average calculated from Balke and Gordon’s figures.

Now let’s look at the entire 1873–1896 period.

II. Real US GNP, 1873–1896
The estimates of Balke and Gordon (1989: 84) for 1873–1896:

Year | GNP* | Growth Rate
1873 | $96.3 | 5.01%
1874 | $95.7 | -0.62%
1875 | $100.7 | 5.22%
1876 | $101.9 | 1.19%
1877 | $105.2 | 3.23%
1878 | $109.6 | 4.18%
1879 | $123.1 | 12.31%
1880 | $137.6 | 11.77%
1881 | $142.5 | 3.56%
1882 | $151.6 | 6.38%
1883 | $155.3 | 2.44%
1884 | $158.1 | 1.80%
1885 | $159.3 | 0.75%
1886 | $164.1 | 3.01%
1887 | $171.5 | 4.50%
1888 | $170.7 | -0.46%
1889 | $181.3 | 6.20%
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

Average real US GNP growth rate: 3.60%.

The average real US GNP growth rate from 1873–1896 was 3.60%, lower than the average real US GNP growth rate from 1947–1973, which was 3.86%.

Here are some decadal rates from Balke and Gordon’s estimates and the averages for the 1873–1880 and 1891–1896 periods:

Average real GNP growth rate, 1871–1880: 5.10%
Average real GNP growth rate, 1873–1880: 5.76%
Average real GNP growth rate, 1881–1890: 2.96%.
Average real GNP growth rate, 1891–1896: 2.40%
Average real GNP growth rate, 1891–1900: 3.85%.

Most interesting is that average rates fell in the 1881–1890 period (to 2.96%), and then again (to 2.40%) in 1891–1896 in the last years of the deflation.

Why did growth fall? Did it have anything to do with shocked business expectations and business pessimism in this period, which negatively affected the level of investment? If one bothers to look at contemporary accounts in the business press in both Europe and America in this era, one finds numerous complaints of reduced profits and pessimism. Unless you think shocked business expectations do not affect the level of investment, then there is a clear case that investment levels fell below what they could have been, perhaps in a number of nations.

Let us move on to the figures for GNP in Romer, which are below (I have added the annual growth rates by my own calculation):

Year | GNP* | Growth Rate
1873 | $94.863 | 5.86%
1874 | $96.205 | 1.41%
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%
* Billions of 1982 dollars.

Average real GNP growth rate, 1873–1896: 3.87%

Romer’s figures show an average of 3.87%. This was only very slightly higher than the average real US GNP growth rate from 1947–1973 (3.86%). Even if we take the most favourable GNP estimates of Romer, the average is only higher than the average for 1947–1973 by a tiny margin. In fact, it is not even significant.

Finally, here are some decadal rates from Romer’s data and the averages for the 1873–1880 and 1891–1896 periods:

Average real GNP growth rate, 1873–1880: 5.76%
Average real GNP growth rate, 1881–1890: 2.72%.
Average real GNP growth rate, 1891–1896: 3.28%
Average real GNP growth rate, 1891–1900: 3.79%

While 1873–1880 did have an unusually high average growth rate (5.76%), the rate slumped in the 1881–1890 period to just 2.72%, the core period of the deflation from 1873–1896. The latter fall in growth rates in the 1880s is confirmed in Balke and Gordon’s estimates. By Romer’s estimates, the 1891–1896 period average rose to 3.28%.

III. Unemployment, 1873–1896
There are a number of estimates of US unemployment in the late 19th century. One of the widely-cited estimates is that of J. R. Vernon (1994), although other estimates are considerably worse than those of Vernon, especially in the 1890s, such as the work of Lebergott or Romer (1986). Vernon’s (1994) estimates are as follows:

Year | Unemployment Rate
1873 | 3.99%
1874 | 5.53%
1875 | 5.83%
1876 | 7.00%
1877 | 7.77%
1878 | 8.25%
1879 | 6.59%
1880 | 4.48%
1881 | 4.12%
1882 | 3.29%
1883 | 3.48%
1884 | 4.01%
1885 | 4.62%
1886 | 4.72%
1887 | 4.30%
1888 | 5.08%
1889 | 4.27%
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
(Vernon 1994: 710).

I have highlighted in yellow those years where unemployment was over 5% and the years where unemployment showed a tendency to rise when it was above 5%.

According to the figures of Balke and Gordon (1989: 84), the US had negative GNP growth in 1874, 1888, 1893–1894, and 1896. There is a correlation between these recessions and rising unemployment in Vernon’s estimates.

But more puzzling is the marked rise in unemployment in the 1875–1878 period. According to the GNP estimates of Balke and Gordon, the US had positive GNP growth rates from 1875–1878, yet unemployment rose in this period. Earlier estimates of GNP showed that the US economy experienced a recession in these years, with the NBER data showing the longest recession in US history from October 1873 to March 1879 (a 65 month recession). At the very least, there appears to have been contraction in certain important sectors. This confirms that something was wrong with the US economy even in the 1870s, and that revised annual GNP estimates do not necessarily give us an accurate picture of the health of the economy on their own.

On the metric of unemployment, the 1873–1896 period saw high unemployment from 1875–1878 and from 1893–1896. While unemployment was relatively low in the 1880s, that period did not have particularly high growth rates.

Moreover, as I have mentioned above, other estimates put unemployment at higher levels for the 1890s. We can review the unemployment estimates in Romer (1986: 31) for the 1890 to 1896 period below:

Year | Unemployment Rate
1890 | 3.97%
1891 | 4.77%
1892 | 3.72%
1893 | 8.09%
1894 | 12.33%
1895 | 11.11%
1896 | 11.965
Romer (1986: 31).

By these figures, the 1873–1896 period of deflation ended with double digit unemployment.

IV. Conclusion
Nearly all of the average real GNP estimates for either 1879–1894 or 1873–1896 show inferior growth to the 1947–1973 period. Only the GNP estimates of Romer for 1873–1896 show a slightly higher average, but it is only by a tiny margin, which cannot be regarded as significant.

By the criterion of unemployment, the 1873–1896 period saw high unemployment from 1875–1878 and from 1893–1896.


BIBLIOGRAPHY

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.

Capie, F. H. and G. E. Wood, 1997. “Great Depression of 1873-1896,” in D. Glasner and T. F. Cooley (eds). Business Cycles and Depressions: An Encyclopedia, Garland Pub., New York. 287–288.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

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.

Saul, S. B. 1985. The Myth of the Great Depression, 1873–1896 (2nd edn.), Macmillan, London.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.