Tuesday, September 11, 2012

Per Capita GDP Growth Rates During the Gold Standard Era

There is a considerable amount of rubbish written about the gold standard. For instance, was this era one of unparalleled prosperity, unmatched before or since, in terms of real per capita GDP growth?

Not at all.

Let us look at the average OECD real per capita GDP growth rate estimates and data for various periods over the past three centuries:
1700–1820 – 0.2%
1820–1913 – 1.2%
1919–1940 – 1.9%
1950–1973 – 4.9%
1973–1990 – 2.5%
(Davidson 1999: 22).
The classical gold standard era is of course usually defined as the period from the 1870s to 1914, but many OECD nations were on a gold standard or de facto gold standard before 1870, such as Britain (1821–1914), Portugal (1854–1891), Australia (1852–1915), and Canada (1854–1914). Many would argue that the US was on a de facto gold standard from 1834 (with the exception of the suspension of gold payments for paper dollars from 1861-1879).

Thus the 1820–1913 period is a reasonably good proxy for the performance of the gold standard.

The verdict on the gold standard era is that real per capita GDP was impressive compared to what had preceded it: an era from 1700–1820 when real per capita GDP was just 0.2%.

But the explanation for the remarkable surge in real per capita GDP from 1820 undoubtedly lies with the industrial revolution and the advances in science, technology and productivity, not with the monetary system adopted in this era per se.

But compared to what followed 1914, especially the classic era of Keynesianism from 1945–1973, the gold standard era was hardly impressive at all: it was clearly inferior. Even annual labour productivity growth from 1950-1973 was more than triple the figure for the industrial revolution (Davidson 1999: 22).

And most interesting is that during the neoliberal era following 1973 (only down to 1990 in the data above), when full employment and Keynesian macroeconomic management was largely abandoned, real per capita GDP slumped once again.

As far as I am aware the rates for 1980–2008 tend to confirm this trend too.


Davidson, P. 1999. “Global Employment and Open Economy Macroeconomics,” in J. Deprez and J. T. Harvey (eds), Foundations of International Economics: Post Keynesian Perspectives, Routledge, London and New York. 9–34.


  1. If one wants to try and explain reasons behind various economic growth surges, it is just as plausible to suggest the 1950-1973 period was due to a combination of:
    1) relaxed price controls
    2) recovery from depressed war period
    3) increasing labor participation

    The data above does not imply Keynesian policies caused the surge in growth any more than it implies the gold standard was of little aid to growth.

  2. 1) relaxed price controls

    Plainly absurd.
    Perhaps you mean prices were more flexible after 1945 after the dismantling of the WWII price controls. No doubt they were upwards, but as always in real world capitalist economies not significantly downwards.

    Why would rising prices cause high real per capita GDP growth rates?

    2) recovery from depressed war period

    The American homeland was never damaged in the war. Nor were many other OECD nations like Canada, Australia etc.

    There was never any reconstruction in the US. Yet its growth was very high right down to the 1970s.

    In other nations (Europe and Japan) reconstruction was completed by 1950-1955, yet the growth rate trends continued long after this.

    3) increasing labor participation

    Plenty of other periods saw increasing labor participation without correspondingly unprecedented real per capita GDP growth rates.

  3. During the period with the highest rate of growth recorded in history, that is the "Keynesian Era", the interest rate was regulated. There were several buffer stocks of crucial commodities. And you still believe that it was an era of "relaxed price controls", compared to the 80s onwards???

  4. @LK,

    My reference on price controls was to those established during WWII. In many cases the controls created a shortage of goods, so less trade was taking place. As prices were allowed to rise, suppliers produced more of the goods to fulfill demand and trade increased. Rising prices would therefore lead to higher real GDP.

    As for recovery from depression, I was thinking of the low levels of foreign trade during the interwar period and suppression of consumption that resulted in low private-sector levels of debt. The subsequent expansion of global trade and increased private sector borrowing could certainly provide a large boost to growth.

  5. (1) price control removal certainly had economic effects, in rising prices, but this direct effect was undoubtedly over by 1950. Nor is rise in prices and surging production in the immediate post-WWII year sin any way inconsistent with Keynesian economics.

    The 19th century had no price controls. Did the absence of price controls cause unprecedented real per capita GDP growth back then? No.

    (2) "As for recovery from depression, I was thinking of the low levels of foreign trade during the interwar period and suppression of consumption that resulted in low private-sector levels of debt. The subsequent expansion of global trade and increased private sector borrowing could certainly provide a large boost to growth."

    Rising trade and increased demand either from consumption or investment (either from earnings, savings or debt) is totally consistent with a Keynesianism, espeically when post-WWII demand was increased in times of recession by fiscal policy.

    It is bizarre that you would cite this as evidence against Keynesian economics.

    1. Labor force participation means little, since it does not exactly compare directly to the workforce; it includes people who are not even looking for work, let alone employed.

      What matters, in terms of wages/job creation/productivity, is the existing labor force i.e unemployment levels, labor force growth etc.

      And labor force growth is generally responsive to wages and unemployment, not the other way around.

    2. LK.There is a commentator over at Lars P Syll that don´t agree with you ,maybee you will leave a comment?:
      "No matter if economic conditions were better during the Bretton-Woods era than during the classical gold standard era, everyone agrees that the period 1873 until 1896 was a period of much greater relative prosperity than during the interwar gold standard era. Why? Furthermore, is there any period of greater relative prosperity than the period from 1870 until 1914?"

    3. This commentator's comments are quite simply, wrong.

      In fact everyone knows that 1946-1973 - the golden age of capitalism - was the most prosperous period in modern history (over about 200 years). There are some exceptions - e.g., the US in its phase of quick industrialisation in the late 1800s may have achieved a roughly similar real GDP rate, but in terms of real per capita GDP it was still inferior.