Academic Agent versus Reality on the US Industrial Recession of 1873–1878

In this recent stream on economics, Academic Agent attempts to defend Rothbard’s views on the American economy in the 1870s.



In my Twitter debates on this issue with Academic Agent – who is an unusually ignorant libertarian – I directed him to my post here.

I said explicitly in that post that, while Rothbard was correct that there was no depression in the sense of a fall of GDP/GNP of 10% or more, Rothbard was nevertheless wrong to claim that the 1873–1878 period saw “extraordinarily large expansion of industry.”

Here is what Rothbard said:

“Orthodox economic historians have long complained about the ‘great depression’ that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged ‘monetary contraction’ never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

It should be clear, then, that the ‘great depression’ of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.” (Rothbard 2002: 154–155).

The central claims of Rothbard about the 1870s are therefore as follows:

(1) there was no “depression” in GDP/GNP between 1873–1879.

(2) in the period between the panic of 1873 and 1879, there was an “extraordinarily large expansion of industry”.

While assertion (1) is true on the basis of the most recent GNP/GDP estimates, assertion 2 is false.

To see this we need only look at the best indices of industrial/manufacturing output in these years.

First, a graph of Frickey’s manufacturing index (Frickey 1947; for a high quality version of the graph, click on it or open it in a new window):



The data from Frickey shows an industrial recession from 1873–1876 in which there was a 9.67% fall in manufacturing output (almost a depression in the manufacturing sector).

Next, a graph of the data from Davis’s US industrial index (Davis 2004: 1189), which uses 43 annual components of the manufacturing and mining industries in the US, which represented about 90% of manufacturing output in the 1800s (Davis 2006: 105; for a high quality version of the graph, click on it or open it in a new window):



We can see the data here in table form from Davis’s US industrial index:

US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index
1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2
1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).

So the data is clear: there was a real industrial recession and stagnation until 1877. Both industrial indices, whether the older data of Frickey (1947) or newer, better index of Davis, show serious problems in the manufacturing sector.

By contrast, it is true that the real GNP estimates of Balke and Gordon (1989: 84) on the annual growth rates in the US in this period only show a recession in 1874, and low growth in 1876:

Year | GNP* | Growth Rate
1869 | 78.2 |
1870 | 84.2 | 7.67%
1871 | 88.1 | 4.63%
1872 | 91.7 | 4.08%
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%
* Billions of 1982 dollars
Average real GNP growth rate, 1870–1879: 4.69%.
(Balke and Gordon 1989: 84).

But given our data from Frickey and Davis that shows a manufacturing recession, the data of Balke and Gordon – if accurate – can only mean that it was agriculture and services that continued to grow in order to provide positive real GNP in 1873 and in 1875–1877.

But this is the precise opposite of what Rothbard said: Rothbard wanted us to believe that there was an “extraordinarily large expansion of industry” from 1873 to 1877. That is clearly false.

There is also considerable contemporary evidence from the 1870s of serious unemployment in the manufacturing sector as catalogued by Bernstein (1956).

A report of the Bureau of Statistics in Pennsylvania in 1875 reported the following:

“… in October, 1873, occurred the revulsion in trade (known as the panic) which immediately checked industrial operations, and which, although it was generally supposed its effects would be temporary, has continued to grow in force and intensity ever since.

This has materially obstructed the operations of the Bureau in its attempts to procure returns that could be used for tabular statements, in fact making it impossible. Those who have not given particular attention to this phase of the subject, would be astonished in making anything like an extended inquiry among our industrial establishments this year, to find in how large a proportion of them, there was so little being done that detailed reports would be impracticable.

Very many are entirely closed, having given up the attempt to keep their machinery moving at all. Many more just doing sufficient to have the appearance of running, while those doing what could be called sufficient business to cover expenses, were so very small a proportion of the whole as to constitute them exceedingly rare exceptions to the general rule. Probably never in the history of the country has there been a time, when so many of the working classes skilled and unskilled, have been moving from place to place seeking employment that was not to be had—never, certainly for so long a time.” (Commonwealth of Pennsylvania 1875: 433).

The unemployment data in Vernon (1994) shows rising unemployment from 1873 to 1878 (for a high quality version of the graph, click on it or open it in a new window):



This would strongly confirm problems in the US economy in these years. Another point is that, on the basis of analysis of the 1890s and the likelihood that 19th century labour force participation rates were countercyclical in the sense of rising during recessions, there is at least a reasonable case that Vernon’s data seriously underestimates US unemployment in the 19th century, so that the real unemployment rate for the 1870s may have been considerably higher.

Finally, we can look at immigration into the US in the 1870s (data from Historical Statistics of the United States: Colonial Times to 1970. Part 1, 1975, pp. 105–106, Series C 89–119; for a high quality version of the graph, click on it or open it in a new window):



As we can see, immigration fell in every year from 1873 to 1878, which suggests a bad economy which discouraged immigration. The falling periods of US immigration in the late 19th century generally line up with recessions.

So, all in all, our data shows that the United States from 1873 to 1877 had a recession within the manufacturing sector, even if GDP (with the exception of 1874) continued to grow owing to agriculture and services.

Unemployment seems to have risen in every year down to 1878 (consistent with contemporary evidence reporting bad industrial unemployment), and there cannot have been a healthy economy in these years if manufacturing – the most important sector – was internally in recession. Rothbard was wrong to think there was an “extraordinarily large expansion of industry” between 1873 and 1879, and that there was some economy-wide boom in these years.

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.

Bernstein, Samuel. 1956. “American Labor in the Long Depression, 1873–1878,” Science & Society 20.1: 59–83.

Commonwealth of Pennsylvania. 1875. Second Annual Report of the Bureau of Statistics of Pennsylvania, for the Years 1873–1874. B. F. Meyers, Harrisburg.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790–1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Frickey, Edwin. 1947. Production in the United States, 1860–1914. Harvard University Press, Cambridge, Mass.

Rothbard, Murray N. 2002. A History of Money and Banking in the United States. Ludwig von Mises Institute, Auburn, Ala.

U.S. Department of Commerce. 1975. Historical Statistics of the United States: Colonial Times to 1970. Part 1. US Government Printing Office, Washington, DC.

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

The 1870s Economic Crisis in America: Reality versus Rothbard

It doesn’t matter how many times Rothbard’s view of the 1870s is refuted, Austrians and libertarians simply continue to shun reality and repeat Rothbard’s errors (such as here and here).

It can’t hurt to review the data.

First, industrial production. The best and most recent index of US industrial production in this era is Davis (2004) (see Hanes 2013: 121), which draws on many more industrial products and services than other, older indices.

The data from Davis shows that US industrial production contacted from 1873 to 1875, then had a modest recovery in 1876, but then stagnated in 1877:

US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index
1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2
1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).

Even in 1877 US industrial production remained below its 1873 peak. On the basis of this data, Davis argued that there was a recession in the US probably from 1873 to 1875. Strangely, the real GDP estimates in Balke and Gordon (1989) only show a recession in 1874 in this decade, but Davis’s data clearly are a much better guide to what was happening in the US industrial sector then Balke and Gordon’s work, and we should go with Davis.

The data on US industrial production are best seen in the graphs below.

As we can see in the graph above, the recession and stagnation in industrial production from 1873 to 1877 are clearly visible as compared with the ten years of growth both before and after this period.

We can also see that the serious take-off in the recovery of industrial production only happened from 1878.

It is evident, then, that something went badly wrong with US industrial production from 1873 to 1877, and this is confirmed by the unemployment estimates from this period from Vernon (1994).

As we see here, unemployment was rising from 1873 and kept on rising until 1878. That would strongly confirm that the US economy was in recession in these years or at the very least was stagnating (another point is that, on the basis of analysis of the 1890s and the likelihood that 19th century labour force participation rates were countercyclical in the sense of rising during recessions, there is at least a reasonable case that Vernon’s data seriously underestimates US unemployment in the 19th century, so that the real unemployment rate for the 1870s may have been considerably higher).

All in all, then, it is not possible to claim that the US economy was booming in these years.

Now compare the facts above with the ignorance of Murray Rothbard:

“Orthodox economic historians have long complained about the ‘great depression’ that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged ‘monetary contraction’ never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

It should be clear, then, that the ‘great depression’ of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.” (Rothbard 2002: 154–155).

Rothbard makes the following claim about our relevant period:

“Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income.” (Rothbard 2002: 154–155).

Of course, if one wants to define “depression” as a fall in real GDP of 10% or more (a definition which I accept), then it is likely that the 1873 to 1879 period was not an era of depression. Rather, it was most likely a period of serious recession (where “recession” means a fall in real GDP of less than 10%) and then stagnation of industrial production and rising unemployment, and probably pessimistic business expectations leading to deficient investment.

Moreover, Rothbard is wrong on the following points:

(1) there was no large expansion of industry in this period: our best data shows industrial production was in recession from 1873 and then stagnated until 1877. Indeed for the 1870s as a whole there were 4 years in 1873, 1874, 1875 and 1877 when industrial production was in recession or essentially stagnating.

(2) if industrial production was in crisis, then it is very difficult to see how there could have been a “large expansion” of “physical output” or “net national product” in these years, despite the real GDP estimates of Balke and Gordon (1989: 84): they estimate that average real GDP growth from 1873 to 1877 was 2.8% (which in any case is far lower than Rothbard’s estimate). If real GDP was experiencing such growth rates, one must ask: which sectors were growing? Clearly the industrial sector was not.

(3) there was no “extraordinarily large expansion of … real per capita income” in the relevant period. Even if one accepts the estimates of Balke and Gordon (in Maddison 2006: 87–89) the average real per capita GDP growth rate from 1873–1879 and even from 1871–1880 was just 1.64%: one of the lowest growth rates of all time in relevant periods of economic and historical significance in US history.

(4) finally Rothbard never considered unemployment, which by one influential modern estimate by Vernon (1994) began rising from 1873 and kept on rising until 1878.

Our inescapable conclusion is that the Austrian claim – derived from Rothbard – that the 1870s were an uninterrupted era of “prosperity …[,] economic growth, and the spread of the increased living standards” is an outright historical travesty.

And while Rothbard might claim that he did the best with the data he had at the time (e.g., older and now discredited data from Friedman and Schwartz 1963), that is no excuse for modern Austrians repeating his false and flawed analysis today.

Further Links
“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“US Unemployment Graph, 1869–1899,” February 27, 2013.

“Huerta de Soto gets it Wrong on the Gold Standard,” December 20, 2014.

“Libertarian Gold Standard Myths Never Die,” January 13, 2015.

“Real US GDP 1870–2001,” January 13, 2015.

“US Real Per Capita GDP from 1870–2001,” September 24, 2012.

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.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790-1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Friedman, M. and A. J. Schwartz, 1963. A Monetary History of the United States, 1867–1960. Princeton University Press, Princeton.

Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. 116–135.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Newman, Patrick. 2014. “The Depression of 1873–1879: An Austrian Perspective,” Quarterly Journal of Austrian Economics17.4: 474–509.
https://mises.org/library/depression-1873%E2%80%931879-austrian-perspective

Rothbard, Murray N. 2002. A History of Money and Banking in the United States. Ludwig von Mises Institute, Auburn, Ala.

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

Rothbard on the US Economy in the 1870s: A Critique

Here is Rothbard on the US in the 1870s:

“Orthodox economic historians have long complained about the ‘great depression’ that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged ‘monetary contraction’ never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

It should be clear, then, that the ‘great depression’ of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.” (Rothbard 2002: 154–155).

If one defines “depression” as a fall in real output of 10% or more, then it is likely that the 1873 to 1879 period was not an era of depression.

But, apart from this truth, virtually everything else Rothbard writes is a travesty of history, on the basis of the most recent real GDP, real per capita GDP, industrial output and unemployment data.

Let us refute Rothbard’s dubious assertions one by one:

(1) Rothbard proclaims:

“Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income?”

Yet the idea that 1873 to 1879 was an era of “large expansion of industry” seems highly doubtful.

Joseph H. Davis (2004, 2006) has provided a new list of recessions in the 19th century, on the basis of his annual dataset of US industrial production from 1796 to 1915. Davis uses 43 annual components of the manufacturing and mining industries in the US, which represented about 90% of manufacturing output in the 1800s (Davis 2006: 105).

Let us look at the relevant data for the 1870s from Davis’s US industrial index:

US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index
1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2
1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).

From 1873, industrial output fell, mildly in 1874, but sharply in 1875. Davis (2004: 1203) finds that the cumulative industrial index loss (-10.83) was the second worst of the late 19th century, and only surpassed by the double dip recession of the 1890s.

A mild recovery ensued in 1876, but it is remarkable how feeble the growth was in 1877: indeed one could justifiably speak of recession from 1873–1875, then stagnation in 1877.

Modest recovery came from 1878, which sharply expanded in 1880. Davis finds that the US had a recession from 1873 to 1875 lasting less than 3 years, since unemployment was rising in these years and continued rising until 1878.

On the basis of this recent data, the notion that US industry experienced a “large expansion” from 1873 to 1879 is utterly absurd. These were years of recession, stagnation or very modest growth.

(2) Rothbard asserts that

“the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product ... .”

But “money national product” normally means “nominal national product” (or nominal GDP/GNP), and nominal GDP figures are really not that interesting: what we need is real GDP.

(3) Rothbard asserts the following:

“from 1869 to 1879 saw … an outstanding real national product growth of 6.8 percent per year … .”

But where does this data come from? It appears to come from Milton Friedman and Anna Schwartz’s A Monetary History of the United States (Princeton, 1963).

Friedman and Schwartz were presumably using the standard estimates for pre-1914 real US GNP based on the work of Simon S. Kuznets (1938, 1941, 1946, 1961), whose work was developed by Gallman (1966) and Kendrick (1961). The resulting data is normally called the Kuznets-Kendrick series or Gallman-Kuznets-Kendrick series. Presumably Friedman and Schwartz were using that, or some version of it.

But this data has long been challenged as questionable.

In contrast, let us look at the estimates of Balke and Gordon (1989: 84; the annual growth rates are my own calculation):

Year | GNP* | Growth Rate
1869 | 78.2 |
1870 | 84.2 | 7.67%
1871 | 88.1 | 4.63%
1872 | 91.7 | 4.08%
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%
* Billions of 1982 dollars
Average real GNP growth rate, 1870–1879: 4.69%.
(Balke and Gordon 1989: 84).

A average annual rate of 4.69% does look high, but falls far short of the 6.8% figure used by Rothbard.

Moreover, how can we reconcile these estimates with the data from Davis’s industrial index which shows industrial contraction from 1873–1875 and a growth so low in 1877 as to be little better than stagnation? And Davis finds actual recession in the overall US economy from 1873 to 1875, which seems to contradict Balke and Gordon’s estimates.

This should alert us to how questionable all GNP estimates for this era are.

What we can say is that, even if one were to accept Balke and Gordon’s estimates, the real GNP growth rates for this era were far lower than Rothbard’s. And Balke and Gordon’s figures themselves can be challenged by using Davis’s industrial index.

(4) Rothbard’s next claim:

“the decade from 1869 to 1879 saw … a phenomenal rise of 4.5 percent per year in real product per capita.”

Again, the per capita GDP data appears to be calculated from the Gallman-Kuznets-Kendrick series, but that series is largely rejected today as being reliable.

What of the most recent real per capita GDP estimates? (for what they are worth, of course).

We can turn to Angus Maddison’s data on real per capita GDP calculated from Balke and Gordon (1989):

Real US Per Capita GDP 1870–1880
(in 1990 international Geary-Khamis dollars)
Year | GDP | Growth rate
1870 | 2445 |
1871 | 2489 | 1.79%
1872 | 2524 | 1.40%
1873 | 2562 | 1.50%
1874 | 2601 | 1.50%
1875 | 2643 | 1.61%
1876 | 2686 | 1.62%
1877 | 2732 | 1.71%
1878 | 2780 | 1.75%
1879 | 2829 | 1.76%
1880 | 2880 | 1.80%
(Maddison 2006: 87–89).

Average Decadal Real Per Capita Growth Rates
Average Growth Rate 1871–1880: 1.64%
Average Growth Rate 1873–1879: 1.64%.

I cannot calculate data for 1869 and 1870, but I would be surprised if they would make much difference.

The average real per capita GDP growth rate from 1871–1880 was 1.64%.

As I have just shown in the previous post, this was the third worst rate for a peacetime decade of all US decades from 1870 to 2000. Only those decades affected by the Great Depression (1920s and 1930s) were worse.

The Keynesian 1960s were a far more prosperous era than the 1870s, and even the roaring ’20s (1920–1929) had a higher average real per capita GDP growth rate (at 2.04%).

Historically speaking, Rothbard’s assertion that the 1870s saw some “phenomenal rise … in real product per capita” is utterly false and absurd, on the basis of the most recent estimates.

(5) Finally, let us look at unemployment in the 1870s, a variable that Rothbard does not even consider.

Here is US unemployment in the 1870s from J. R. Vernon (1994):

Year | Unemployment Rate
1869 | 3.97%
1870 | 3.52%
1871 | 3.66%
1872 | 4.00%
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%

Far from having low unemployment, the period from 1874 to 1878 was an era of persistent rises in unemployment, which soared to 8.25% by 1878, and the fall in 1879 was only modest at best.

What sort of period of significant prosperity or real output growth had persistently rising unemployment?

In short, the unemployment figures confirm that something went badly wrong with the US economy from 1873 to 1879.

All in all, the Austrian idea, derived from Rothbard, that the 1870s were an uninterrupted era of “prosperity …[,] economic growth, and the spread of the increased living standard” is grossly exaggerated at best, and an outright historical travesty at worst. And, while apologists for Rothbard might claim that he did the best with the data he had at the time, that is no excuse for modern Austrians repeating his flawed analysis today.

While 1873 to 1879 might not have been a full blown depression, they were most probably an era of economic malaise: industrial recession or stagnation and rising unemployment. Real per capita GDP growth was not very high by historical standards: indeed it was some of the lowest growth seen in 130 years of modern US history.


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.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790-1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Friedman, M. and A. J. Schwartz, 1963. A Monetary History of the United States, 1867–1960. Princeton University Press, Princeton.

Gallman, R. E. 1966. “Gross National Product in the United States, 1834–1909,” in Output, Employment, and Productivity in the United States after 1800 (Studies in Income and Wealth, vol. 30). Columbia University Press, New York.

Glasner, D. and T. F. Cooley (eds). 1997. Business Cycles and Depressions: An Encyclopedia. Garland Pub., New York.

Kendrick, J. W. 1961. Productivity Trends in the United States. Princeton University Press, Princeton.

Kuznets, S. S. 1938. Commodity Flow and Capital Formation National Bureau of Economic Research, New York.

Kuznets, S. S. 1941. National Income and Its Composition, 1919–1938 (2 vols). National Bureau of Economic Research, New York.

Kuznets, S. S. 1946. National Product since 1869. National Bureau of Economic Research, New York.

Kuznets, S. S. 1961. Capital in the American Economy: Its Formation and Financing. Princeton University Press, Princeton, N.J.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Rothbard, Murray N. 2002. A History of Money and Banking in the United States. Ludwig von Mises Institute, Auburn, Ala.

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