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.


BIBLIOGRAPHY

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.