Sources and Data for US Economic History under the Gold Standard

Hanes (2013) provides a highly useful survey of the data and sources for US economic history, especially the 19th century and gold standard era until 1914, which I review below.

First, some miscellaneous facts. The US became part of the international gold standard in 1879, though it had no central bank until 1913. The US went off the gold exchange standard in 1933, and from the late 1930s/1940s shifted to a fundamentally different monetary and fiscal system.

One of these changes was that the government started to collect detailed economic data, whereas we lack such high quality data for the period before the 1940s.

Estimates for many pre-1914 economic variables are hardly definitive.

Hanes notes that we should sometimes be careful about making strict comparisons between estimates of some economic variables before the 1930s with the post-1945 data, because the two sets of data are often uneven and difficult to compare properly.

Take inflation rates. Historical price indices before the 1930s include a higher degree of “less-processed goods” or flexprice goods rather than manufactured goods (which tend to be fixprice), so that the volatility of pre-1945 inflation rates is higher than post-1945 rates, and that pre-war volatility may be a result more of the data used (Hanes 1999).

In general, pre-1914 business cycles appear to share the following traits with post-1945 cycles:

(1) Consumption and investment were procyclical

(2) net exports were not procyclical, and

(3) agricultural real output is volatile and acyclical (Hanes 2013: 118).

Pre-1914 recessions, however, were often marked by financial crises, bank runs or mass withdrawals of deposits and contraction of credit supply, whereas these problems have been rarer after 1945 (Hanes 2013: 119).

An interesting fact about real GDP is that fluctuations of agricultural output often have no relation to movements in the business cycle, since the weather, plant diseases, insect pests and other exogenous factors mainly influence farming output (Hanes 2013: 117).

I. Unemployment Data
From 1890, some US states began recording unemployment data in manufacturing and the Interstate Commerce Commission (ICC) on railroad employment (Hanes 2013: 119), but many gaps remain.

For pre-1914 unemployment data, a number of estimates have been made, as follows:

(1) Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.

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

(3) 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.

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

It is generally thought that Lebergott’s estimates are too high, but there are counterarguments (James and Thomas 2007).

Weir (1992) provides a useful “private nonfarm unemployment rate” that can be used to show how unemployment was considerably more volatile before 1914 than after 1945.

II. Real GDP
For pre-1914 real GDP, the following estimates have been made:

(1) the Kuznets-Kendrick-Gallman series:

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

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

Gallman, R. E. 1966. “Gross National Product in the United States 1834–1909,” in D.S. Brady (ed.), Output, Employment, and Productivity in the United States after 1800. Columbia University Press, New York.

(2) Romer’s estimates:

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.

(3) Balke and Gordon’s estimates:

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.

But none of these estimates can be considered definitive, although Balke and Gordon’s (1989) figures seem to be widely used.

Hanes (2013: 121) argues that there is no general agreement about which of the series is the best one.

However, there are valuable alternative measures of business cycles: production indices.

III. Production Indices
A number of indices of industrial production are available for the pre-1914 era, as follows:

(1) Fabricant, Solomon. 1940. The Output of Manufacturing Industries, 1899–1937. National Bureau of Economic Research, New York
http://papers.nber.org/books/fabr40-1

(2) Frickey, Edwin. 1947. Production in the United States, 1860–1914 (Harvard economic studies v. 82). Harvard University Press, Cambridge.

(3) Miron, Jeffrey A. and Christina D. Romer. 1990. “A New Monthly Index of Industrial Production, 1884–1940,” The Journal of Economic History 50.2: 321–337.

(4) 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.

Davis (2004) provides what is generally considered to be the best index, with many more products and services used to calculate it (Hanes 2013: 121).

Since business cycles are generally fluctuations in non-agricultural output, a manufacturing index like Davis (2004) provides a good method for comparing the volatility of pre-1914 recessions with post-1945 ones by simply comparing it with a post-1945 industrial index (Hanes 2013: 121). Such a comparison finds that percentage changes in annual fluctuations in pre-1914 industrial production were larger than after 1945 (Hanes 2013: 121).

IV. Prices and Wages
Warren and Pearson (1932) provide an index of wholesale prices from 1720 to 1932, but this index cannot provide a good comparison with post-1945 wholesale price changes because it is biased towards prices of raw materials and less-finished goods in a way that does not reflect the composition of wholesale output in this period (Hanes 2013: 122).

Hanes (1998) provides a better wholesale price index for all periods.

Hoover (1960) and Rees (1961) provide consumer price indices for most of the later 19th century even though many goods are not covered, and Long’s (1960) index for 1880–1890 relies on limited data.

Genuinely reliable GDP price indices and deflators are not available for the pre-1914 era (Hanes 2013: 122).

Extensive wage data for manufacturing, railroads and mining exist from the late 19th century. Douglas (1930), Long (1960), Hanes (1992) provide wage indices, mainly for these sectors.

While nominal wage cuts appear common in the pre-1914 era (Hanes and James 2003), real wage trends may well have been similar to the post-1945 era (Hanes 1996).

Post-1945 data shows strong downward nominal wage rigidity in many types of wages (Hanes 2013: 118), and absolute cuts in nominal wages rates are very rare, even during recessions (Lebow et al. 2003).

V. Financial Crises
Banking panics and financial crises are studied by Wilson et al. (1990), Calomiris and Gorton (1991), and Wicker (2000), and such crises occurred in 1884, 1890, 1893, and 1907, which amplified and worsened downturns in the business cycle already under way (Hanes 2013: 125).

VI. Causes of Recessions
Davis et al. (2009) argue that a number of recessions in the pre-1914 era (such as those in 1884, 1893, 1896 and 1910) were set off by changes in the US cotton harvest.

Cotton was a major US export. When bad harvests reduced output, the US exported less, reducing the flow of gold into the US and hence causing interest rates to rise, which impacted negatively on the economy.

Hanes and Rhode (2012) also argue that a decline in European demand for American assets (either by interest rate hikes in Europe or fire sales of American assets by Europeans) was probably also a factor causing business cycles in the pre-1914 era.

BIBLIOGRAPHY
Backus, David K. and Patrick J. Kehoe. 1992. “International Evidence on the Historical Properties of Business Cycles.” The American Economic Review 82.4: 864–888.

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.

Calomiris, C. W. and G. Gorton. 1991. “The Origins of Banking Panics: Models, Facts, and Bank Regulation,” in R. Glenn Hubbard (ed.), Financial Markets and Financial Crises. University of Chicago Press, Chicago. 107–173.

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.

Davis, Joseph H., Hanes, Christopher and Paul W. Rhode. 2009. “Harvests and Business Cycles in Nineteenth-Century America,” The Quarterly Journal of Economics 124.4: 1675–1727.

Douglas, Paul Howard. 1930. Real Wages in the United States, 1890–1926. Houghton Mifflin Company, Boston and New York.

Fabricant, Solomon. 1940. The Output of Manufacturing Industries, 1899–1937. National Bureau of Economic Research, New York
http://papers.nber.org/books/fabr40-1

Frickey, Edwin. 1947. Production in the United States, 1860–1914 (Harvard economic studies v. 82). Harvard University Press, Cambridge.

Gallman, R. E. 1966. “Gross National Product in the United States 1834–1909,” in D.S. Brady (ed.), Output, Employment, and Productivity in the United States after 1800. Columbia University Press, New York.

Hanes, Christopher. 1992. “Comparable Indices of Wholesale Prices and Manufacturing Wage Rates in the United States, 1865–1914,” in Roger L. Ransom, Richard Sutch, and Susan B. Carter (eds.), Research in Economic History 14: 269–292.

Hanes, Christopher. 1996. “Changes in the Cyclical Behavior of Real Wage Rates, 1870–1990,” The Journal of Economic History 56.4: 837–861.

Hanes, C. 1998. “Consistent Wholesale Price Series for the United States, 1860–1990,” in Trevor J. O. Dick (ed.), Business Cycles since 1820: New International Perspectives from Historical Evidence. E. Elgar, Cheltenham, UK and Northampton, MA.

Hanes, Christopher. 1999. “Degrees of Processing and Changes in the Cyclical Behavior of Prices in the United States, 1869–1990,” Journal of Money, Credit and Banking 31.1: 35–53.

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.

Hanes, Christopher and John A. James. 2003. “Wage Adjustment under Low Inflation: Evidence from U.S. History,” The American Economic Review 93.4: 1414–1424.

Hanes, Christopher and Paul W. Rhode. 2012. “Harvests and Financial Crises in Gold-Standard America,” NBER Working Paper No. 18616, December
http://www.nber.org/papers/w18616

Hoover, Ethel D. 1960. “Retail Prices after 1850,” in Trends in the American Economy in the Nineteenth Century (Studies in Income and Wealth, vol. 24), Princeton University Press, Princeton, N.J.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

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

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

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.

Lebow, David E., Saks, Raven E. and Beth A. Wilson. 2003. “Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index,” Advances in Macroeconomics 3.1: 1–28.

Long, Clarence D. 1960. Wages and Earnings in the United States, 1860–1890. Princeton University Press, Princeton.

Miron, Jeffrey A. and Christina D. Romer. 1990. “A New Monthly Index of Industrial Production, 1884–1940,” The Journal of Economic History 50.2: 321–337.

Rees, Albert. 1961. Real Wages in Manufacturing, 1890–1914. Princeton University Press, Princeton.

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.

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

Warren, G. F. and F. A. Pearson. 1932. Wholesale Prices for 213 years, 1720 to 1932. Cornell University, Ithaca, N.Y.

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.

Wicker, Elmus. 2000. Banking Panics of the Gilded Age. Cambridge University Press, Cambridge.

Wilson, Jack W., Sylla, Richard E. and Charles P. Jones. 1990. “Financial Market Panics and Volatility in the Long Run, 1830–1988,” in Eugene N. White (ed.), Crises and Panics: The Lessons of History. Dow Jones/Irwin, Homewood.

Davis on US Recessions in the 19th Century

Joseph H. Davis (2006) presents 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).

While Davis’s recession list is based on real manufacturing output, not real GDP, it presents an interesting addition to Balke and Gordon (1989).

US Recessions in the 19th Century
Years (Peak–Trough) | Recession Length (years)
1796–1798 | less than 1
1802–1803 | less than 1
1807–1808 | less than 2
1811–1812 |
1815–1816 |
1822–1823 |
1828–1829 |
1833–1834 |
1836–1837 | less than 1
1839–1840 | less than 3
1856–1858 |
1860–1861 |
1864–1865 | less than 2
1873–1875 | less than 3
1883–1885 | 1
1892–1894 |
1895–1896 |
1903–1904 |
1907–1908
(Davis 2006: 106).

Most interesting here is Davis’s finding 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.

Davis shows a recession from 1883–1885, which is not found by Balke and Gordon (1989: 84).

But Balke and Gordon (1989: 84) also show a recession in 1888, which does not show up in Davis’s data.

All this should alert us to how questionable is the whole project of real GNP/GDP estimates for the 19th century.


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

The Australian Business Cycle in the 19th Century

The trade/business cycle was clearly seen in Australia before 1840s. There appears to have been a commercial crisis from 1810–1813, a financial crisis in 1826, which appears to have contributed to the recession of 1827–1828 (Butlin 1994: 223).

Moreover, the Australian depression of the 1840s was comparable in severity to the disastrous depressions of the 1890s and 1930s (Butlin 1994: 223).

In the 19th century Australia had two severe depressions, and mild to severe recessions in 1867 (0.42% GDP decline), 1870 (GDP fell by 3.32%), 1878–1879, and 1885–1886.

One of the worst downturns in the business cycle was the depression from 1890 to 1893, exacerbated by the financial crisis of 1893 (see Hickson and Turner 2002). Australia had a massive property bubble in the 1880s under a gold standard and a free banking system. Before 1893 there was a speculative boom, in real and financial assets, fuelled by inflows through the capital account, mainly from Britain. Then came the collapse of the asset bubble in 1889/1890:

“In Australia, GDP fell for four years running, from 1890 through 1893 ... Unemployment rose sharply. Immigration slowed and tentatively reversed direction. Social disorder spread, led by protesting sheep shearers, dock workers, and miners. Post-1893 recovery, if it may be called that, was slow and uneven” (Adalet and Eichengreen 2007: 233).

In Australia, real GDP fell by around 10% in 1892 (Kent 2011), and by 7% in 1893, and deflation occurred from 1891 to 1897. After 1895, growth returned but the economy was mired in what we can call a chronic underemployment disequilibrium, just as many countries were in the 1930s.

Australia in the 1880s is an example of a system that probably came closest to a libertarian free banking system than any other nation in the past two centuries. The disastrous failure of that system is empirical evidence that free banking is not the best or ideal system imagined by libertarians.


BIBLIOGRAPHY

Adalet, M. and B. Eichengreen. 2007. “Current Account Reversals: Always a Problem?,” in R. H. Clarida (ed.), G7 Current Account Imbalances: Sustainability and Adjustment, University of Chicago Press, Chicago. 205–246.

Butlin, N. G. 1962. Australian Domestic Product, Investment and Foreign Borrowing 1861–1938/39, Cambridge University Press, London.

Butlin, N. G. 1994. Forming a Colonial Economy, Australia 1810–1850, Cambridge University Press, Cambridge.

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

Haig, B. 2001. “New Estimates of Australian GDP: 1861–1948/49,” Australian Economic History Review, 41.1: .

Hickson, C. R. and J. D. Turner. 2002. “Free Banking Gone Awry: The Australian Banking Crisis of 1893,” Financial History Review 9: 147–167.

Kent, C. J. 2011. “Two depressions, one banking collapse: Lessons from Australia,” Journal of Financial Stability 7.3: 126–137.

Simon, J. 2001. “The Decline in Australian Output Volatility,” RBA, Research Discussion Paper 2001–2001.