Steve Keen is interviewed in a “From Alpha to Omega” podcast I have posted below, in which the conversation includes the idea of a debt jubilee and Hyman Minsky’s work. The interview begins at 3.12.
Of interest is Steve Keen’s warning that Stabilizing an Unstable Economy (1986) is Minsky’s worst work. The best treatment of the financial instability hypothesis is Minsky’s John Maynard Keynes (2008 [1975]) and Can “It” Happen Again?: Essays on Instability and Finance (1982).
BIBLIOGRAPHY
Minsky, H. P. 1982. Can “It” Happen Again?: Essays on Instability and Finance. M.E. Sharpe, Armonk, N.Y.
Minsky, H. P. 1986. Stabilizing an Unstable Economy. Yale University Press, New Haven and London.
Minsky, H. P. 2008 [1975]. John Maynard Keynes. McGraw-Hill, New York and London.
Saturday, September 8, 2012
Thursday, September 6, 2012
Reply to “Unemployment, Deflation and Growth During the Period of 1873–1896”
A commentator on Mises.org called “Rodolphe Topffer” attempts a critique of my views on US GNP growth in the late 19th century:
(1) The whole post suffers from the use of a straw man argument.
Curiously, the author cites Bordo and Filardo for the view that it is “abundantly clear that deflation need not be associated with recessions, depressions, and other unpleasant conditions” – but this very view is, as far as I can see, already accepted by Keynesians. Certainly, I accept it.
The idea that there is “a common belief among Keynesians that a situation of a falling prices will result in a recession” is simply not true, if by that we mean that academic Keynesian economists think that price deflation always results in recession. On the contrary, any Keynesian with a decent knowledge of economic history knows about the long period of deflation in the Western world from 1873–1896, during which there was in fact real output growth. In one of the first posts on my blog, I in fact noted this myself.
Now what Keynesians would say is that deflation can be a consequence of economic crisis when the money supply collapses, or that, in an environment of heavy private debt, steep deflation is likely to induce debt deflationary effects. This is quite different from thinking price deflation is always bad or results in real output collapse.
(2) Rodolphe Topffer states:
The average per capita GDP rate from 1879 to 1896 was 1.36%. This was not especially high historically.
As always, the data is only an estimate and might be challenged. For example, Joseph H. Davis’s (2006) list of recessions in the 19th century, on the basis of his annual dataset of US industrial production from 1796 to 1915, shows that the US had a recession from 1873 to 1875 lasting about 3 years, a recession which is absent from Balke and Gordon (1989).
If Davis is right, the mid-1870s was hardly a prosperous period.
The most telling data is unemployment, which we can see here from the estimates is that of J. R. Vernon (1994):
Thus the period from 1873–1896 in the US had two periods of economic crisis: the mid/late 1870s and 1893–1896. During both these periods unemployment rose sharply. A financial crisis also appears to have begun the crisis periods. It is quite likely that the economy in both 1870s and 1890s experienced some degree of debt deflation, so that the deflation was the cause of economic malaise.
(3) The author objects to a comparison of per capita GDP between 1946–1973 and 1873–1896, but the major objection is simply absurd:
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.
Maddison, Angus. 2006. The World Economy: Volume 1: A Millennial Perspective and Volume 2: Historical Statistics. OECD Publishing, Paris.
“Unemployment, Deflation and Growth During the Period of 1873–1896,” 4 September, 2012.My response:
(1) The whole post suffers from the use of a straw man argument.
Curiously, the author cites Bordo and Filardo for the view that it is “abundantly clear that deflation need not be associated with recessions, depressions, and other unpleasant conditions” – but this very view is, as far as I can see, already accepted by Keynesians. Certainly, I accept it.
The idea that there is “a common belief among Keynesians that a situation of a falling prices will result in a recession” is simply not true, if by that we mean that academic Keynesian economists think that price deflation always results in recession. On the contrary, any Keynesian with a decent knowledge of economic history knows about the long period of deflation in the Western world from 1873–1896, during which there was in fact real output growth. In one of the first posts on my blog, I in fact noted this myself.
Now what Keynesians would say is that deflation can be a consequence of economic crisis when the money supply collapses, or that, in an environment of heavy private debt, steep deflation is likely to induce debt deflationary effects. This is quite different from thinking price deflation is always bad or results in real output collapse.
(2) Rodolphe Topffer states:
“The periods running from 1873 to 1879 and 1879 to 1896 show a huge increase in GNP per capita, see Rothbard (2002) ‘A History of Money and Banking in the United States’ (see pages 360–361, 400–403, 154–155, 159–161, 164).”Let us look at US per capita GDP in the late 19th century from the figures in Angus Maddison (2006), which appear to be calculated from the estimates in Balke and Gordon (1989):
US per capita GDP 1870–1900The average per capita GDP rate from 1873 to 1879 was 1.64%.
(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%
1881 | 2921 | 1.42%
1882 | 2963 | 1.43%
1883 | 3008 | 1.51%
1884 | 3056 | 1.59%
1885 | 3106 | 1.63%
1886 | 3158 | 1.67%
1887 | 3213 | 1.74%
1888 | 3270 | 1.77%
1889 | 3330 | 1.83%
1890 | 3392 | 1.86%
1891 | 3467 | 2.21%
1892 | 3728 | 7.52%
1893 | 3478 | -6.70%
1894 | 3314 | -4.71%
1895 | 3644 | 9.95
1896 | 3504 | -3.84%
1897 | 3769 | 7.56
1898 | 3780 | 0.29
1899 | 4051 | 7.16
1900 | 4091 | 0.98
Average Growth Rate 1871–1900: 1.78%
Average Growth Rate 1873–1879: 1.64%
Average Growth Rate 1879 to 1896: 1.36%
Average Growth Rate 1871–1880: 1.64%
Average Growth Rate 1881–1890: 1.65%
Average Growth Rate 1891–1900: 2.04%
(Maddison 2006: 465–466).
The average per capita GDP rate from 1879 to 1896 was 1.36%. This was not especially high historically.
As always, the data is only an estimate and might be challenged. For example, Joseph H. Davis’s (2006) list of recessions in the 19th century, on the basis of his annual dataset of US industrial production from 1796 to 1915, shows that the US had a recession from 1873 to 1875 lasting about 3 years, a recession which is absent from Balke and Gordon (1989).
If Davis is right, the mid-1870s was hardly a prosperous period.
The most telling data is unemployment, which we can see here from the estimates is that of J. R. Vernon (1994):
Year | Unemployment RateThe 1873–1896 era saw two periods of rising unemployment: (1) 1875–1878 and (2) 1893–1896.
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%
1882 | 3.29%
1883 | 3.48%
1884 | 4.01%
1885 | 4.62%
1886 | 4.72%
1887 | 4.30%
1888 | 5.08%
1889 | 4.27%
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
1897 | 7.54%
1898 | 8.01%
1899 | 6.20%
(Vernon 1994: 710).
Thus the period from 1873–1896 in the US had two periods of economic crisis: the mid/late 1870s and 1893–1896. During both these periods unemployment rose sharply. A financial crisis also appears to have begun the crisis periods. It is quite likely that the economy in both 1870s and 1890s experienced some degree of debt deflation, so that the deflation was the cause of economic malaise.
(3) The author objects to a comparison of per capita GDP between 1946–1973 and 1873–1896, but the major objection is simply absurd:
“2) Theoretically, we can say that economic growth is much easier when the economy has to recover from the damages caused by the war. The comparison therefore does not hold.”Why is this absurd? The US was not invaded or damaged during the war in the way the European economics were. Thus there was no “war reconstruction” in the US as there was in Europe. Instead, what occurred was the reconversion of the US economy from its wartime command structure to a peacetime consumer economy. That was certainly accomplished by 1950. So even if we were to subtract the 1946–1949 period, it is obvious that a comparison of 1950–1973 with an equivalent period in the late 19th century (say, 1873–1896) should be perfectly justifiable.
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.
Maddison, Angus. 2006. The World Economy: Volume 1: A Millennial Perspective and Volume 2: Historical Statistics. OECD Publishing, Paris.
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