19th Century Deflation and Recession in the US

Below is the data on inflation for the US in the 19th century.

In yellow, I have highlighted the periods where price deflation is correlated with recessions identified by Davis (2006) (data from Balke and Gordon (1989) can be found here).

In green, I have highlighted the years when there was (apparently) real output growth with price deflation.

Now I do not deny that an economy can have real output growth with price deflation. It certainly a myth that price deflation is always associated with recessions.

Nevertheless, outside of the historically aberrant 1873–1896 period, there were many occasions when price deflation was clearly correlated with recession, as can seen below:

Year | Inflation Rate
1800 | 2.10%
1801 | 1.31%
1802 | -15.73%
1803 | 5.49%
1804 | 4.38%
1805 | -0.70%
1806 | 4.23%
1807 | -5.41%
1808 | 8.66%
1809 | -2.05%
1810 | 0.00%
1811 | 6.80%
1812 | 1.26%
1813 | 20.02%
1814 | 9.89%
1815 | -12.29%
1816 | -8.65%
1817 | -5.36%
1818 | -4.34%
1819 | 0.00%
1820 | -7.87%
1821 | -3.52%
1822 | 3.65%
1823 | -10.65%
1824 | -7.88%
1825 | 2.57%
1826 | 0.00%
1827 | 0.83%
1828 | -4.96%
1829 | -1.85%
1830 | -0.89%
1831 | -6.26%
1832 | -0.95%
1833 | -1.93%
1834 | 1.97%
1835 | 2.89%
1836 | 5.62%
1837 | 2.77%
1838 | -2.70%
1839 | 0.00%
1840 | -7.10%
1841 | 0.95%
1842 | -6.62%
1843 | -9.24%
1844 | 1.12%
1845 | 1.10%
1846 | 1.09%
1847 | 7.69%
1848 | -4.14%
1849 | -3.14%
1850 | 2.16%
1851 | -2.11%
1852 | 1.08%
1853 | 0.00%
1854 | 8.68%
1855 | 2.95%
1856 | -1.91%
1857 | 2.92%
1858 | -5.67%
1859 | 1.00%
1860 | 0.00%
1861 | 5.96%
1862 | 14.17%
1863 | 24.82%
1864 | 25.14%
1865 | 3.68%
1866 | -2.53%
1867 | -6.82%
1868 | -3.91%
1869 | -4.14%
1870 | -4.24%
1871 | -6.40%
1872 | 0.00%
1873 | -2.03%
1874 | -4.83%
1875 | -3.62%
1876 | -2.35%
1877 | -2.31%
1878 | -4.73%
1879 | 0.00%
1880 | 2.48%
1881 | 0.00%
1882 | 0.00%
1883 | -2.02%
1884 | -2.06%
1885 | -2.00%
1886 | -2.15%
1887 | 1.10%
1888 | 0.00%
1889 | -3.25%
1890 | -1.12%
1891 | 0.00%
1892 | 0.00%
1893 | -1.13%
1894 | -4.36%
1895 | -2.40%
1896 | 0.00%
1897 | -1.23%
1898 | 0.00%
1899 | 0.00%
1900 | 1.24%
1901 | 1.23%
1902 | 1.21%
1903 | 2.28%
1904 | 1.17%
1905 | -1.16%
1906 | 2.23%
1907 | 4.47%
1908 | -2.09%
1909 | -1.12%
1910 | 4.42%
1911 | 0.00%
1912 | 2.06%
1913 | 2.13%
1914 | 0.94%

http://www.measuringworth.com/calculators/inflation/result.php

Some of the “green” years (apparent real output growth with price deflation) may be misleading, however:

(1) a number of “green” years follow recessions (e.g., 1817–1818, 1824, 1830, 1876, 1886, 1897 and 1909), and perhaps these were merely ongoing deflations caused by the previous recessions not yet finished.

(2) the real output data may well be simply inaccurate in the era before 1870: too little is known of real output movement for any definitive chronology. So some of the “green” years may well be recessions we do not know about. For example, there is some evidence that the 1817 to 1821 period was really a recession (Benson 2010: 33). Although Davis’s industrial index only shows contraction in 1816 (Davis 2004: 1189), there seems to have been a contraction of agricultural output c.1817 to 1821, and this must have been a significant part of GDP in this period (since even in 1839 industry only accounted for 22% of US output).

(3) Some “green” years seem to have had very weak growth, or essentially stagnation, e.g., 1877 (on the basis of Davis’s industrial index [Davis 2004: 1189]).

(4) the 1866–1871 period looks like post-Civil war deflation.

Other points of interest are the inflationary recessions of 1836–1837, 1860–1861, 1864–1865 (end of the Civil war) and 1903–1904. But all other periods of real output growth (i.e., booms) are inflationary.

We might also note how some of the worst deflationary years were also years of recession:

(1) 1802 | -15.73%
(2) 1815 | -12.29%
(3) 1823 | -10.65%
(4) 1816 | -8.65%
(5) 1840 | -7.10%.

So it is perfectly clear that one can identify many periods in the 19th century where price deflation was correlated with recession.

Of course, a number of years (especially within 1873–1896) saw both price deflation and real output growth.

Yet when Irving Fisher wrote this in 1933 he could have cited some considerable evidence in US history to support it:

“I had since 1909 been stressing the fact that deflation tended toward depression and inflation toward a boom.” (Fisher 1933: 350, n.).

Appendix 1: Davis’s Chronology of US Recessions

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).

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.

Benson, William Edmunds. 2010. A Political History of the Tariff 1789–1861. Xlibris

Davis, J. H. 2004. “An Annual Index of U.S. Industrial Production, 1790-1915,” Quarterly Journal of Economics 119: 1177-1215.

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

Fisher, Irving. 1933. “The Debt-Deflation Theory of Great Depressions,” Econometrica 1.4: 337–357.

Gallman, R. E. and Howie, E. S. 1971. “Trends in the Structure of the American Economy since 1840,” in R. Fogel and S. Engerman (eds.), The Reinterpretation of American Economic History. Harper and Row, New York. 25–37.