The depression of 1873-1879: an Austrian perspective.
Newman, Patrick
SECTION I: INTRODUCTION
With the recent financial meltdown in 2008, Austrian economics has
experienced a revival by both professional and popular commentators. As
documented by Cachanosky and Salter (2013) and Salerno (2012), much of
this attention is directed towards Austrian Business Cycle Theory
(ABCT), which places government manipulations of the interest rate and
distortions in the production structure as the cause of economic booms.
Significant focus is also placed on critically examining the policy of
laissez faire that is often associated with the theory during the
ensuing bust (e.g., Horwitz, 2011; Kuehn, 2011; Murphy, 2009; Thornton,
2010).
Since the advent of the economic crisis also reinvigorated a
general interest in studying business cycles and the application and
efficacy of monetary and fiscal policies, this paper provides an
analysis of ABCT by examining an American business cycle from the 19th
century. The 19th century was a period of relatively minimal government
action compared to the 20th century, and as a result a detailed study of
this period provides a different perspective on the effects of
macroeconomic policies. Specifically, it allows for an analysis of the
1870s boom (1870-1873) and bust (1873-1879), which the NBER designates
as the longest contraction in modern American history (Sutch, 2006a,
series Cb5-8). The experience of the 1870s provides a unique window into
economic history because the data from this period are more accurate
compared to the early 19th century, and it allows for a rare
investigation of output growth during a monetary contraction.
The present work is closer in line with those papers that analyze
ABCT from a historical-economic perspective (e.g. Callahan and Garrison,
2003; Hughes, 1997; Powell, 2002; Rothbard [1963] 2008; Salerno [1988]
2010, 2012) instead of an econometric study (e.g. Bismans and Mougeot,
2009; Fisher, 2013; Keeler, 2001; Lester and Wolff, 2013; Luther and
Cohen, 2014; Mulligan, 2006; Wainhouse, 1984; Young, 2012). The
existence of an ABC in the 1870s is illustrated by showing the
appearance of a significant credit expansion and confirming that prices
and production behaved in a manner explainable by the theory. (1) The
paper shows how political legislation allowed for monetary inflation to
cause a boom and bust in the 1870s that is explainable by ABCT.
Furthermore, since the federal government pursued a policy of relative
laissez faire, the economy successfully recovered and the length of the
perceived bust (1873-1879) is grossly exaggerated.
The paper is structured as follows: Section II provides a summary
analysis of ABCT and related theories. Section III explains the relevant
data, especially the figures regarding the money supply and industrial
production, as well as describing how they will be used to show an ABC
in the paper. Section IV provides the necessary historical analysis of
monetary institutions and the economic narrative for the three time
periods of study: 1867-1873, 1873-1875, and 1875-1879. Section V
concludes the paper and Section VI is the Appendix, where the referenced
tables and figures can be found.
SECTION II: THEORY
The following section provides a brief summary of what can be
called "capital based macroeconomics" (Garrison, 2001, pp.
7-8). This review is essential as capital based macroeconomics is
extensively used to interpret the economic landscape from 1867-1879,
particularly the movements in relative prices and production, and as a
result it is important to have the theories clearly stated.
Capital based macroeconomics emphasizes the importance and
interrelatedness of time preference (the proportion of consumption to
investment spending), the interest rate (the price spread or rate of
return between stages of production), and the structure of production.
The structure of production can be described as the temporal process
where goods in the "higher order" stages (a shorthand term for
those production processes that are more temporally remote from
consumption) are worked on and sold to the "lower order"
stages (a shorthand term for those production processes that are more
temporally close to consumption) until they become finished goods and
sold to the consumer. These relationships are graphically represented in
the simplified diagram in Figure 1.
In capital based macroeconomics, changes in the production
structure occur through changes in time preference A decrease in time
preference results in a lower interest rate and the creation of
additional stages of production. Savings are channeled through the
credit market and the loanable funds interest rate drops. The decline in
consumption spending reduces prices in the lower orders, while the
increase in investment spending raises prices in the higher orders,
i.e., prices in the former fall relative to before as well as to the
latter. The additional investment funds are spent on creating higher
order goods as the economy engages in relatively more long term
production processes. The process continues as the public spends its
constant money income at their lower time preferences The opposite
occurs with an increase in time preferences The process is depicted in
Figure 2. (2)
The situation is different when the increase in investment is
financed through credit expansion. Here the money supply increases as
additional bank credit enters the loanable funds market. This can be
called inflation. (3) As a result, the loanable funds interest rate
drops and is distorted because it no longer reflects time preferences
Firms that receive the additional supply of bank credit respond by
increasing investment in the higher orders, and because of the increase
in spending, aggregate money incomes also increase A boom begins.
Since time preferences have not changed, the public spends its
enlarged income at its old time preference spending patterns, which
pushes prices up in the lower orders. (4) Whereas in the earlier growth
scenario, lower order prices fall both relatively to higher order prices
and to before, now lower order prices rise relative to before. The
reassertion in time preferences relative to the period of credit
expansion and the resultant price increases in the lower orders reveals
the unprofitability of the newly embarked investment projects, known as
malinvestments. In a modern complex economy, booms are prolonged because
banks continue to expand credit and entrepreneurs temporarily mask the
unprofitability of the increased investment through additional
borrowing. However, the bank credit still filters down and enlarges
money incomes, which causes another rise in consumer spending and
reassertion of time preferences. Through a combination of tightened
money from overexpanded banks and the eventual realization of
entrepreneurs that many of their investment projects are unprofitable,
the boom ends. (5)
The next phase of the cycle is the necessary liquidation of
unprofitable lines of production and the reorganization of the economy
according to current time preferences. Since time preferences are
actually higher than planned by entrepreneurs, the capital structure
must shorten and the rate of interest rise. In order for that to occur,
relative prices are bid down in the overextended lines of production to
reflect the higher price spread and infeasibility of the more temporally
remote production stages Unprofitable businesses contract and allow
their resources to be reabsorbed and more efficiently used elsewhere,
particularly in the comparatively more lucrative shorter production
processes. In essence, it calls for a policy of laissez faire. The
entire cycle of boom and bust (ABC) is shown in Figure 3. Phase 1
represents the initial expansion of investment spending into the higher
orders. Phase 2 shows the reassertion of time preferences and the
unprofitability of investment projects Phase 3 depicts the necessary
corrections.
Although during the bust the main adjustments that must take place
are relative to reflect higher time preferences, contractions in the
money supply can also occur. This credit contraction is called
deflation. (6) Under such a scenario, prices in the economy must adjust
both relatively to reflect the higher price spread and nominally to
reflect the changes in total spending. (7) Credit contraction also has
other effects. Firstly, it can cause unanticipated capital accumulation
that provokes lower time preferences which increases the relative
profitability of the malinvested investment goods and allows for prices
to fall less than they would have in the absence of the effect. Unlike
inflation that causes capital consumption because individuals do not
realize their profits are fictitious, deflation overstates losses and
causes businessmen to spend the same amount of money on factor inputs in
the economy even though their prices have fallen. Instead of not saving
enough for factor inputs whose prices have risen, the fall in spending
provokes the opposite effect (Mises, [1949] 2008, p. 547; Rothbard,
[1962] 2009, p. 1006).
Just as the credit expansion described above distorts interest
rates, so too can credit contraction. There are, however, important
differences between the two. Credit contraction is directly beneficial
to speeding up the adjustment process during a bust by correcting both
the loan market and production structure's rates of interest to the
higher one supportable by current time preferences. It results in a
higher price spread by stopping the growth in loans to businesses that
have facilitated the boom, which causes the demand for factor inputs and
products in the temporally remote stages of the economy to fall and
relatively lowers their prices. Credit contraction may raise loan and
production structure rates of interest higher than deemed necessary by
existing time preferences, and in this sense can be considered
distortionary. However, due to the reduction in investment businesses
pay smaller amounts to original factors, who in turn, with reduced money
incomes, spend less on consumption Price spreads fall in accordance with
the lower time preferences and the market rates adjust (Mises, [1949]
2008, pp. 564-565; Rothbard, [1963] 2008, p. 18; Rothbard, [1962] 2009,
pp. 1005-1006).
SECTION III: DATA
This section presents the rationale behind the particular data
sources and series used Much of this analysis may seem overly technical
and out of place, but since this paper applies ABCT and other Austrian
economic insights, there must be a proper analysis behind the data that
are used to describe these theories For example, the selected Austrian
definitions of the money supply and the breakdown of the structure of
production into higher orders and lower orders are cited extensively in
Section IV and therefore must be accurately defined in order to provide
a clear exposition of the relevant economic concepts.
The numerical data are presented in Tables 2-4. They include data
on money supply, interest rates, prices, and production. The per annum
growth rates of all data except interest rates are presented, in
addition to the level figures of interest rates in relevant years.
Growth rates are used to show relative movements over time.
Gross National Product
Because the United States only started recording Gross National
Product (GNP) figures in 1929, a variety of historical series were
created in an attempt to present an accurate picture of the
macro-economy in earlier years. The construction of such series has been
described as a "work in progress," and they are less precise
than modern figures as the underlying data were not collected for the
purpose of making GNP estimates (Rhodes and Sutch, 2006, pp. 3-12).
The three GNP series used in the analysis are taken from Balke and
Gordon (1989), Johnston and Williamson (2008), and Romer (1989). These
three are the latest GNP series devised for the period and are more
accurate for measuring annual movements than earlier series that were
designed for more long term measurements. In addition, the annual
industrial production index by Davis (2004a) that is used to analyze
specific compositional changes in the production structure (see below)
serves as a suitable proxy for GNP and is also included Numbers for the
series can be found in Davis (2004b), Johnston and Williamson (2013) and
Sutch (2006b, series Ca213 and Ca216). (8)
Since the series were composed using different methods and none
have been conclusively accepted as the most accurate, it is best to
incorporate them all. The discrepancy among them suggests that the best
conclusion is to use the averages of small intervals for the individual
series, and use the smallest as the average lower bound and the highest
as the average upper bound. To use these series with individual years
seems inappropriate, especially since there will be an urge to compare
them to more accurate modern estimates that incorporate a much larger
pool of data and can be precisely broken down in minute detail A
rationale for the particular bounds chosen is given at the beginning of
Section IV.
Government Spending and Taxation
While analyzing changes in government spending and taxation is
undoubtedly important for a paper that deals with historical
macroeconomic policy, its small size relative to output makes it
inconsequential for this period. After steeply rising during the Civil
War, federal spending sharply declined in the post-war period and then
gently fell throughout the 1870s (Wallis, 2006a, series Ea584-587). In
addition, save for the Civil War, the federal government during this
period ran surpluses, as tax revenue was greater than expenditures.
Given the chosen method for estimating annual GNP figures and the dearth
of annual figures for state and local governments (Wallis, 2006b, 5-3),
it is hard to paint a reliable picture of annual changes in total
government spending and taxation to gauge fiscal policy. It is for this
reason that detailed figures on annual changes in taxation and spending
have not been included. However, it can safely be said that significant
activist fiscal policy was nonexistent in this period, including the
depression years.
Interest Rates
Unfortunately, detailed collection of interest rates during this
period is scanty. The most reliable figures are yields on government
bonds and short term interest rates on commercial paper and call money.
Given the limited data, the interest rates used are the rates on 60-90
day commercial paper. Their movements are assumed to roughly mirror
interest rates on general loans. It is important to remember that during
a credit expansion there are other factors that influence the rates of
interest on various financial assets. For example, during a credit
expansion, other economic factors such as a rise in the risk premium or
an expectation of a rise in prices may counteract the increase in the
supply of loanable funds from credit expansion and raise the loan
interest rate (Mises, [1949] 2008, pp. 549-550, 556; Rothbard [1963]
2008, p. 85). The interest rates are taken from James and Sylla (2006,
series Cj1223).
Money Supply
In order to appropriately depict changes in the monetary
environment during this period, proper money supply figures are needed.
Following Rothbard ([1978] 2011, pp. 736-739), a general money supply
figure, [M.sub.a] (a = Austrian), and a more specific figure, [M.sub.b]
(b = business cycle) are defined. The first is useful for showing
aggregate monetary influences on the economy, while the second serves as
a suitable estimate for gauging business cycle generating bank credit.
The general money supply [M.sub.a] consists of the base money
(specie) and all money substitutes. The definition of a money substitute
here comes from Mises ([1949] 2008, pp. 429-431) and includes all notes
and deposits that the public perceives as always redeemable for a
definite amount of the base money (such as the par value). This not only
includes money that is usable in exchange, but also instruments that
must first be converted into an exchangeable type of money For the
relevant period, [M.sub.a] includes specie, government notes (such as
greenbacks), bank notes, commercial bank demand and time deposits, and
mutual savings bank time deposits. (9)
In order to accurately depict the effects of credit expansion on
the structure of production one must concentrate solely on the increases
in [M.sub.a] created through business loans and investments ([M.sub.b]).
Specie and notes can be removed because they are currency and do not
cause a business cycle. Deposits at mutual savings banks can also be
removed as most of their investments during this period were in
government securities or small residential mortgages and were thus not
cycle generating (Teck, 1968, p. 42; Welfling, 1968, p. 67). This leaves
us with total commercial demand and time deposits. With this in mind, it
can be stated that ceteris paribus (i.e., the demand for money), an
increase in commercial bank deposits is synonymous with an increase in
business cycle generating bank credit and investments to private firms.
The specific money supply figures are taken from Friedman and
Schwartz ([1963] 1993, p. 704) as opposed to the figures used by
Rothbard ([1983] 2005, pp. 153-154). Due to the imperfections of the
statistical collection of the figures used by the latter, they are
undoubtedly inferior to the Friedman and Schwartz estimates. 10 Using
those figures would significantly overstate credit expansion during the
boom and would in fact continue to show credit expansion after the bust,
which was not the case.
Prices and Production
As explained earlier, ABCT describes a structural adjustment in the
macroeconomy that manifests itself through relative changes in prices
and production. In order to show this, prices from Hanes (2006, series
Cc114-121), and sector specific industrial figures from Davis (2004b)
are used. The individual price and production series are divided into
the higher orders and the lower orders and are presented in Table 1.
This dichotomization is not meant to be literal. Indeed, such an
inappropriate categorization is akin to organizing the production
structure into strict "consumer goods" and "producer
goods" industries (Hayek [1931] 2008b, p.444; Rothbard, [1962]
2009, p. 543). To reiterate, the "stages" or
"orders" of an economy are merely shorthand reference for the
length of production processes and/or the temporal distance of a good
from the consumer good it helps to produce. The distinctions are only
meant to distinguish those sectors of the economy whose profitability
would be most likely affected by credit expansion. Those industries
designated as higher orders are the most capital intensive and
temporally remote from consumption.
During the post-Civil war era there was a large expansion in the
railroad and railroad related industries (Cain, 2006, series Df874;
Fishlow, 2000, pp. 583-584). They were a major American industry and
financially accounted for 15-20 percent of American capital investment
(Moseley, 1997, p. 148). Economically, they were large projects that
required a variety of land, labor, and capital, and completing a
railroad was a significant long term investment dependent on heavy
financing. Because the federal government was eager to create
transcontinental railroads to stimulate growth into the Western States,
in the Civil War and post-Civil War era an enormous amount of government
railroad land grants and subsidies were given and a little over a third
of the increase in railroad production during this period came from land
grants (Burch, 1981, p. 16; Fishlow, 2000, p. 585). (11) However,
undoubtedly a significant factor was also credit expansion as railroad
production and its related industries constitute long term production
processes which credit expansion increases the profitability of most.
The changes in production in this industry will be shown through the.
Transport Equipment and Machinery figures, which contains locomotives as
an included series. (12)
As stated earlier, an inflationary boom is signaled through a
relative increase in the prices and production of the higher orders
while at the same time a relative increase in the lower orders to
before, with the opposite occurring during the bust. Likewise, a
recovery driven by lower time preferences manifests itself as a relative
increase in the higher orders with both a relative decline in the prices
of the lower orders to the higher orders and to before Of course, in the
real world, one change never occurs isolated, so other factors are
always influencing the economic landscape and counteract the visible
effects of credit expansion. But what matters is that these credit
induced restructuring processes still occur alongside the other forces.
(13)
SECTION IV: HISTORICAL AND ECONOMIC ANALYSIS, 1867-1879
The intervals were chosen to best capture the macroeconomic trends
during each period. The first two periods, 1867-1870 and 1870-1873, were
chosen to best distinguish changes in the economy during periods of
credit expansion. The third period, 1873-1875, was chosen because it was
the post-panic years listed by Wicker (2000, pp. 30-31) while the fourth
period, 1875-1879, was chosen to include the rest of the purported
depression years listed by Sutch (2006a, series Cb5-8) and the monetary
contraction that ended in early 1879 by Friedman and Schwartz ([1963]
1993, p. 704). It is noticeable in the output series that exceptionally
strong growth occurred in 1879. Extending the growth analysis to
1875-1879 would overestimate GNP growth and give a less than accurate
picture of the time period. Therefore, only the money supply and
interest rate figures are extended to early 1879 (to include the rest of
the monetary contraction in 1878) while the other series end in 1878.
Each section contains a historical analysis of the relevant monetary
institutions and an economic analysis of the production structure and
other pertinent information.
Part 1: The Post-Civil War Boom, 1867-1873
Historical Analysis
After severe difficulties in financing the war, in late 1861
private banks suspended specie conversion on their notes and deposits as
well as the federal government on its. Treasury demand notes. Thus, for
roughly the next 20 years the United States was off the gold standard.
Subsequently, Congress passed several Legal Tender Acts that provided
the Treasury with $449 million "greenbacks" for the war effort
(Friedman and Schwartz [1963] 1993, p. 24). At the end of the war in
1865 the total supply of greenbacks stood at $400 million (Timberlake,
1993, p. 133), and afterwards Congress contracted them to $356 million
by the end of 1867. From 1867-1870 the federal government retired most
of the Treasury demand notes that were remnants of the wartime economy
(Friedman and Schwartz [1963] 1993, pp. 24, 54).
In addition, in 1863 and 1864 Congress passed the National Currency
Acts (later known as the National Banking Acts) which caused a complete
overhaul of the previous decentralized banking system by creating a
group of so called national banks. For such institutions the legislation
stipulated minimum capital requirements, restricted real estate loans,
prevented branch banking and created an Office of the Comptroller of the
Currency that had the ability to charter new banks and supervise them
(White, 1982, p. 34). National banks could only issue notes up to 90
percent of the value of federal government securities they deposited
with the Treasury (Klein, 1970, p. 141). This bond backing requirement
and the total ceiling limit on national bank note issues (at $300
million) made their issuance very restrictive, and in 1870 Congress
increased the maximum number of national bank notes oustanding (to $354
million). These notes soon became the only bank notes available after
Congress passed a law in 1865 that stipulated a 10 percent annual tax on
all state bank note issues after July 1866 in order to force all state
banks to become national banks (Friedman and Schwartz [1963] 1993, pp.
18-21). However, the punitive tax on state bank notes only reduced their
note issues and did not force them out of business. The growing use of
deposits and the lower regulatory requirements still made state banks a
profitable institution, and they became an important factor in much of
the credit expansion of this period.
More importantly, the acts created a multi-tiered financial system
that allowed banks to pyramid credit on the same set of reserves (Klein,
1970, p. 144). (14) Before, in the pre-Civil War era system, each bank
held its own reserves in terms of its own specie, and excessive credit
expansion was prevented by other banks and depositors redeeming their
notes and deposits. However, now banks could consider interest paying
deposits at other banks as reserves, which weakened this mechanism and
led to greater credit creation.
The system worked as follows. The National Banks were divided into
three subcategories based on size and location: central reserve city
banks, city reserve banks, and country banks Central reserve city and
city reserve banks faced reserve requirements of 25 percent, while
country banks had 15 percent. While central reserve city banks had to
keep 25 percent of their notes and deposits in "lawful money",
i.e., greenbacks and specie, city reserve banks could split their
reserves into a minimum of 50 percent lawful money and up to 50 percent
in interest-paying deposits at central reserve city banks Country banks
had a minimum of only 40 percent lawful money reserves and could keep up
to 60 percent in interest-paying deposits at either central reserve city
or city reserve banks (Friedman and Schwartz [1963] 1993, pp. 56-57;
Rothbard [1983] 2005, pp. 136-137). Furthermore, most states allowed
state banks to use national bank notes as reserves State banks held
deposits at national banks where they could "buy" notes to
redeem deposits, as their own notes were unprofitable to circulate due
to the federal tax (Friedman and Schwartz [1963] 1993, p. 21; Rothbard,
2005, p. 144). Thus a multi-layered credit pyramid was formed with state
banks pyramiding off any national bank, country banks off central city
reserve and city reserve banks, and city reserve banks off central city
reserve banks, where lawful money reserves were generally concentrated.
Overall, the National Banking Act encouraged greater credit
expansion by thwarting the competitive adverse clearing mechanism that
would normally limit excessive deposit and note issuance. Much of the
monetary expansion during this period was due to the banks adapting to
this new system.
Economic Analysis
The economic climate in this period can be broken up into two
parts: from 1867-1870, when there was mild growth in [M.sub.a] and
[M.sub.b], and from 1870-1873, when there was large increase in both.
The results, presented in Table 2, show that in the latter period the
familiar symptoms of an Austrian style boom appeared, which would make
sense given the run-up in credit expansion.
From 1867-1870 both [M.sub.a] and [M.sub.b] increased by a
relatively small amount. The growth in [M.sub.a] was due mainly to the
increase in both commercial and mutual savings bank deposits as currency
during this period actually declined. In the second period, however,
monetary conditions were much different. From 1870-1873 both [M.sub.a]
and [M.sub.b] increased by enormous annual rates compared to the prior
period.
While this was partly due to currency increasing, most of the rise
came from an increase in mutual savings bank and nonnational bank
deposits. The nonnational banks were able to expand credit from both the
increase in national bank notes made possible in 1870 and the lawful
money reserves that came from the national banking system As explained
earlier, the national banking system allowed banks to hold a large
portion of their reserves in interbank deposits, which made it possible
for them to decrease their lawful money reserves As time progressed and
the national banking system matured, many of these lawful money reserves
found their way into the nonnational banking system (which had lower
reserve requirements on average) and caused an increase in credit
expansion that impacted both [M.sub.a] and [M.sub.b] (Friedman and
Schwartz [1963] 1993, pp. 56-57).
It is clear that during both periods there was strong growth
Comparisons of GNP between 1867-1870 and 1870-1873 can only be made with
the Davis and the Johnston and Williamson figures as the Balke and
Gordon and Romer series start later. One can observe the difference
between the Davis and the Johnston and Williamson figures and in the
overall bounds to see that there was a marked increase in growth rates.
Crucial to showing an ABC is comparing the production structures in
the two periods As stated above, there was a large increase in credit
expansion starting in 1870. Consequently, one would expect the familiar
symptoms. Production-wise, when comparing the two periods the higher
order industries expanded the most. (15) In particular, Machinery
experienced a large jump in growth rates between the periods, which fits
neatly with the railroad boom at the time.
However, movements in prices tell a more revealing story. Since the
end of the Civil War, massive growth in the money supply subsided and
combined with large increases in the output of goods, prices began a
long secular downward trend that would last until the late 1890s. As
explained earlier, what matters are the relative prices between the
higher orders and the lower orders In the period of low credit
expansion, prices in both groups decreased at roughly similar rates.
During the second period of high credit expansion, prices in the higher
orders relatively rose to the lower orders and in almost all cases rose
in even nominal amounts. (16) By comparing the relative prices, it is
clear that the economy was attempting to conform to a longer capital
structure But since the prices in industries closest to consumption were
also rising relative to before, the change in the economy was symptom of
an ABC. Interest rates also tell a similar story. From 1867-1870
interest rates slightly fell. (17) At the beginning of the significant
credit expansion from 1870-1871 interest rates continued to fall.
However from 1871-1873 interest rates began to rise. (18). This reflects
the increased demand for loans by entrepreneurs in order to bid away
factors of production and continue to embark upon their production
processes. The changes in the production structure during this time are
graphically shown by Figure 3, particularly Phases 1 and 2.
As shown above, credit expansion induced changes in the structure
of production cannot last forever, and a correction in prices and
production would have to occur in the near future.
Part II: The Panic of 1873 and Bust, 1873-1875 Historical Analysis
In late 1872 and early 1873, financial and economic conditions
started to decline, and investors began to pull money out of businesses,
particularly railroads. In the first eight months of 1872 bank loans
increased slowly, and at the end of August depositors withdrew large
amounts of cash from New York banks. The Treasury shored up the
situation by purchasing $5 million worth of bonds to increase bank
reserves, but by the spring of 1873 another seasonal difficulty
developed, and banks struggled to raise cash to meet withdrawals by
selling securities due to the weakening bond market (Studenski and
Krooss, 1952, p.181).
Despite avoiding spillover effects from a Vienna stock market crash
in May of 1873, Wall Street was hit with a great shock when Jay Cooke
and Co. closed its doors on September 18th, full of worthless Northern
Pacific railroad securities (Wicker, 2000, p. 20). Stocks plummeted and
the New York Stock exchange responded by closing for 10 days on
September 20th (Glasner, 1997, p. 133). The concentration of funds in
New York's central city reserve banks lead to a withdrawal by other
banks calling in their deposits With the New York City banks unable to
meet all of their demands, the New York Clearing House (NYCH) stepped in
and issued clearinghouse loan certificates and pooled reserves. The
equalization of reserves allowed seven major New York banks to meet
banker demands for withdrawal and pay out cash. Despite the noble
efforts, cash payment to depositors was suspended (Wicker, 2000, p. 31).
In addition, during the crisis there were a number of bank suspensions,
which occur when a bank either temporarily or permanently closes. The
number of banks that suspended payment totaled 101, the majority coming
from New York and Pennsylvania, which had a combined 59 bank suspensions
(Wicker, 2000, p. 19). By the end of October, cash redemption was
resumed in most banks except a few in the South (Sprague, 1968, pp.
68-71).
Wicker (2000, p. 33) analyzed the surrounding financial events and
concluded that the suspension of cash payments was actually unnecessary,
given that the banks were in good shape. Most of the suspensions came
from brokerage houses, which were banks with variably priced deposits
based on the value of assets (in essence speculative investments and not
money) and not commercial banks. Contrary to its purpose, it ended up
aggravating hoarding and uncertainty, making it harder for businesses
near banks to continue daily operations. The incentive to deposit cash
in banks was lowered for many people and some chose to deposit currency
in their own safes instead. In fact, the suspension may have even led to
panic among reserve city and country banks, contributing to further
withdrawals from New York.
Government action during this time period could be considered
mildly expansionary. There was a temporary $26 million increase in
retired greenbacks from the Treasury following the panic that were
legalized (i.e., made permanent) by a bill in 1874, bringing the total
up to $382 million (Friedman and Schwartz [1963] 1993, pp. 24, 47).
Ultimately the bill was more expansionary through its changes with
regards to the national banking system by removing reserve requirements
against notes, and its consequences are explained below. However,
changing economic realities and government policy starting in 1875
prevented the act from having an expansionary impact for the rest of the
decade.
Economic Analysis
The turbulent crisis years following the Panic of 1873 are compared
with the prior boom period of 1870-1873. It is apparent after looking at
the figures presented in Table 3 that output growth definitely entered a
slowdown and was mainly concentrated in higher order goods that were
most affected by credit expansion, which is what one would expect under
ABCT.
Overall, the panic did not cause a devastating monetary contraction
and in fact both [M.sub.a] and [M.sub.b] grew. The rates of increase
were definitely smaller compared to the prior period, although they were
higher than the amounts from 1867-1870. The increases in [M.sub.a]
predominantly and in [M.sub.b] entirely came during 1874-1875. The
source was mostly due to the recent monetary legislation in 1874 which
freed the national banks from the requirement of a reserve against note
issue. This in effect released base lawful money into the banking system
that could be used for the additional creation of deposits (Friedman and
Schwartz [1963] 1993, p. 57; Rothbard [1983] 2005, p. 141). It would
have been far better for the economy if the government had not
intervened in the monetary affairs by making it easier to increase
credit. The government promoted expansion in credit distorts prices and
production compared to what they would have been at a time when the
market was adjusting them downwards. After rising during the panic,
interest rates then sharply fell below their pre-panic level. This was
undoubtedly due both to the increase in bank credit as well as a large
drop in business demand for loans after businesses realized that many of
their projects were unprofitable.
Looking at revised GNP estimates, growth only contracted in the
Davis series and slowed down in the others. Despite the sharp downturn
in his series, Davis concluded that the depression in fact only lasted
from 1873-75 (Davis, 2006, p. 106). In the other series, while severe
slowdowns occurred, they were certainly not the massive decline in
output one would label as the beginning of a depression. (19) As can be
seen in Table 3, the drop in output was not uniform among sectors, and
instead was concentrated in the higher order industries that were the
most affected by credit expansion (specifically in Machinery and Metals)
while the lower orders were much less relatively affected. With regards
to prices, the situation was similar, with the higher orders
(particularly Metals) taking the brunt of the fall in prices, while
lower order goods fell at a much weaker rate. (20). It is clear that the
sectors with the largest contractions in prices and production were the
industries that were most affected by the boom. Consequently, they
needed their prices and production levels to fall the most in order to
allow the economy to properly adjust to the steeper production structure
price spread. This paved the way for a subsequent recovery during the
latter half of the 1870s. Overall, the movements in prices and
production can be shown by Phase 3 of Figure 3.
Part III: The Recovery and Resumption, 1875-1879
Historical Analysis
In March of 1875 Congress passed the Specie Resumption Act, which
planned to bring the nation back on the gold standard at the prewar
parity by January of 1879. It allowed the Treasury to accumulate a gold
reserve using surplus revenue and proceeds from bond sales that would
act as a "redemption fund" for specie convertibility. It also
allowed for a retirement of greenbacks through an increase in national
bank notes, though retirement was suspended in mid-1878, capping the
greenbacks at $346 million (Friedman and Schwartz [1963] 1993, pp. 24,
48). Due to the perceived downturn caused by the panic, there was
continued agitation for monetary expansion, which partly took the form
of the "free silver" movement that advocated the
remonetization of silver. Despite the passage of the Bland Allison Act
in 1876 that forced the Treasury to purchase $2 to 4 million of silver a
month for coinage, the Treasury was able to work towards resumption and
from 1877-1879 refunded a large amount of debt to build up a redemption
fund (Friedman and Schwartz [1963] 1993, pp. 82-84). In the end, on
January 2nd 1879, the U.S. successfully resumed specie payments and
returned to the gold standard.
Economic Analysis
The rest of the supposed depression years of the 1870s are compared
with the initial crisis years of 1873-1875. Despite a declining money
supply, Table 4 shows that in virtually all of the economic indicators
there was a visible recovery. In addition, qualitative evidence is
presented that suggests the reason that there was perceived to be an
enormous depression from 1873-1879 was mainly due to faulty economic
statistics and reliance on nominal rather than real values.
Both [M.sub.a] and [M.sub.b] in this period declined at significant
rates that were only very rarely seen in U.S. economic history (Friedman
and Schwartz [1963] 1993, pp. 31, 299). Although this was partly due to
the government-enforced monetary contraction following the Resumption
Act, the decline was mainly due to the contraction of credit following a
series of bank runs after 1876. The run on banks was fostered by
weakened confidence in the banking system, and led to multiple
nonnational bank suspensions; banks responded by building up their
reserves (Friedman and Schwartz [1963] 1993, pp. 56-57, 82). As
explained earlier, this type of monetary contraction can be part of a
healthy process of recovery by speeding up the economy's return to
its sustainable price spread.
It is partly due to this decline in the money supply, alongside the
falling price level, that justified the belief that there was a long and
protracted depression up until the beginning of 1879. However, it is
certainly not apparent from the GNP estimates, as almost all of the
series from 1875-1878 show a sharp rebound in growth as compared to
1873-1875. The only one that did not was the Balke and Gordon index,
which one could reasonably argue understates growth in the mid to late
1870s because one of the main series they build on was the railroad
output-dominated Frickey transportation and communications index (Balke
and Gordon, 1989, p. 53). Despite having shown enormous growth during
the boom, it is well known to both contemporaries and economic
historians that railroads suffered an especially severe decline relative
to the rest of the economy during this period (Morris, 2006b, pp.
105-106). From an Austrian perspective, one would certainly expect poor
growth after a period of excessive expansion. Thus, basing a GNP series
partly on railroads would reasonably underestimate expansion. Production
figures show that the sectors with the sharpest recovery were those of
the higher orders, particularly in Machinery and Metals Recovery was
also apparent in the price indexes as prices of the higher orders
relatively rose compared to the lower orders, which mostly fell relative
to before. (21) Wages were also flexible during this period and fell
from 1873-1879. After rising 5. 55 percent from 1870-1873, hourly
nominal manufacturing wage rates fell 3.27 percent from 1873-1875, and
from 1875-1879 fell 13.27 percent. In total, from 1873-1879 they fell
16.11 percent (Margo, 2006, series Ba4290). (22) Similarly, interest
rates throughout this period also fell. The growth for this period was
healthy and sustainable, as it signified a lowering of time preferences
and was not influenced by an expansion in bank credit. It is graphically
portrayed by Figure 2.
So why did contemporary reports describe awful conditions in
economic welfare? The main reason is that prices fell all around. If
businesses based their outlooks on nominal series, they could be fooled
by the appearance of a contracting economy. This belief, however, was
purely an illusion, and in fact encouraged capital accumulation and a
lowering of time preferences through the reasoning described earlier.
Overall, businessmen did not consider the decline in the cost of their
inputs, and hence overstated their losses. Wage earners did not realize
that consumer prices also dropped, and their real income did not decline
as much as they thought (Morris, 2006b, pp. 103-104). (23) A similar
argument can be found in Davis (2006, p. 115). After he determined new
recession-ear benchmarks for the 19th century, Davis found that the
years with the biggest differences were during recessions with large
price and monetary contractions. Davis' reasoning was similar: that
businesses concentrated on nominal series rather than real series
Falling prices, however, do not imply a depression.
Popular news reports also had little way of knowing entire
nationwide estimates of economic performance and tended to poorly
estimate production. The Commissioner of Labor at the time stated,
"There was much apprehension to be added to reality"
(Kleppner, 1979, pp. 124-125). Reznack (1950, p. 497), whose classic
article famously gave a negative picture of the 1870s, even admitted
that "contemporary appraisals of the intensity of depression tended
to be the more alarming by their very vagueness and contributed to the
prevailing pessimism."
Americans were also confused by the growing modernization of the
country Large grain farmers began to replace smaller family owned farms,
newly emerging department stores and mail order catalogs broke up
previous local artisanal monopolies, increasing social and geographic
mobility disturbed older traditional family security, and rising
inequality from both market and political entrepreneurs bred resentment
(Morris, 2006a). Overall, the lack of reliable information and the
changing economic environment brought exaggerated conditions with regard
to the depth of the depression, especially concerning unemployment. (24)
Modern estimates of unemployment also tend to be inaccurate in light of
more recent economic data. Lebergott (1971, p. 80) provides an estimate
of over two million, which would roughly correspond to 13 percent in the
depths of the depression. Vernon's (1994, p. 710) annual
unemployment series is more reasonable, but still shows unemployment
rising until it peaks at 8.25 percent in 1878, which seems hard to
believe given the GNP growth rates. (25)
Overall, both quantitative and qualitative suggest that the
contraction in the 1870s was much shorter than previously assumed and
there was no prolonged slump during this period.
SECTION V: CONCLUSION
ABCT explains the boom and bust that stretched across the time
period analyzed. Following a run-up in credit expansion that occurred in
the early 1870s, a visible widening in both relative prices and
production compared to the late 1860s emerged that fostered multiple
malinvestments in the higher orders. The expansion was largely caused by
the Civil War monetary legislation that created the National Banking
System. Both state and national banks were able to pyramid credit on the
same set of lawful money reserves through the use of interest paying
interbank deposits. The money supply continued to expand during the bust
years, which showed symptoms of an Austrian contraction with the decline
in output and prices concentrated in industries that overexpanded during
the boom. Largely the result of bank runs, the money supply contracted
for the remainder of the supposed depression years This decline was
shown to have actually hastened the recovery and during this period
there was a noticeable rebound in growth.
The length of the depression was perceived to be from 1873-1879
when in reality it was closer to 1873-1875 because contemporary accounts
relied on nominal series and had poor access to aggregate economic
information And aside from some monetary interventions from 1873-1879,
there was no significant fiscal or monetary stimulus--yet the economy
recovered. Indeed, the recovery is an example of how an economy can
successfully correct itself when the government steps out of the way and
allows the market to reallocate resources. It can be concluded that
there was no prolonged depression in the 1870s. On this period Rothbard
([1983] 2005, pp. 154-155) appropriately writes, "It should be
clear, then, that the 'great depression' of the 1870s is
merely a myth--a myth brought about by misinterpretation that prices in
general fell sharply during the entire period.
SECTION VI: APPENDIX
For more intricate structure of production diagrams, the following
sources can be consulted: for Figure 1, see Hayek ([1931] 2008a, p.
233), Garrison (2001, p. 47), Huerta de Soto (2006, p. 293), Rothbard
([1962] 2009, p. 369) and Skousen (2007, p. 203); Figure 2, see Hayek
([1931] 2008a, p. 239), Garrison (2001, p. 62), Huerta de Soto (2006, p.
334), Rothbard ([1962] 2009, p. 521), and Skousen (2007, p. 235); Figure
3, see Hayek ([1931] 2008a, pp. 242, 244), Garrison (2001, p. 69),
Huerta de Soto (2006, pp. 356, 383) and Skousen (2007, pp. 288, 296).
Sources for the components of the Production industries can be
found in Davis (2004a, p. 1188). The components are taken from the
largest series in the 1880 weights.
All growth rates are compounded annually For the monetary periods
1873-1875 and 1875-1879, the intervals also include half years, and as
such the growth rates are adjusted accordingly.
[FIGURE 1 OMITTED]
[FIGURE 2 OMITTED]
[FIGURE 3 OMITTED]
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(1) Space constraints preclude a more thorough study that
distinguishes among other rival business cycle theories.
(2) For a more in depth overview of Austrian structure of
production theory and this basic growth scenario, see Garrison (2001,
pp. 33-67), Hayek ([1931] 2008a, pp. 223-240), Huerta de Soto (2006, pp.
266-346), Rothbard ([1962] 2009, pp. 319- 555), and Skousen (2007, pp.
133-264).
(3) More specifically, inflation occurs when the increase in the
money supply is not offset by an increase in the demand for money
(Mises, [1953] 2009, p. 240; 2004, pp. 44-45). This definition is
different from the one proposed by Rothbard ([1962] 2009, p. 990; [1963]
2008, p. 12).
(4) The inflation can actually cause capital consumption through an
accounting illusion (Mises, [1949] 2008, pp. 549-550; Rothbard, [1962]
2009, pp. 993-994). When this occurs, time preferences increase.
(5) For a more in depth analysis of ABCT, see Garrison (2001, pp.
67-83), Hayek ([1931] 2008a, pp. 241-247), Huerta de Soto (2006, pp.
347-384), Mises ([1949] 2008, pp. 542-563), Rothbard ([1962] 2009, pp.
994-1004), and Skousen (2007, pp. 282-331).
(6) More specifically, it is a decrease in the supply of money not
offset by a decrease in the demand for money (Mises, [1953] 2009, p
240).
(7) The following arguments regarding a decline in nominal spending
are different than those Austrians who adhere to Monetary Disequilibrium
Theory For supporters of this theory, such a scenario of "secondary
deflation" (declines in nominal spending during the bust)
aggravates the downturn through various sticky-price induced arguments
and necessitates the need for a stabilization in nominal spending either
by government or private banks. See Garrison (2001, pp. 221-243) and
Horwitz (2000, pp. 141-175; 2006; 2014) for a more in depth explanation.
(8) It should be noted that the Johnston and Williamson series
incorporates the Davis industrial production index in its annual
observations (Johnston and Williamson, 2008).
(9) This particular definition of Ma, best defended in Rothbard
([1978] 2011, pp. 727-739) and Salerno ([1978] 2010, pp. 115-130), is
different from other Austrian definitions such as Mises ([1949] 2008,
pp. 429-431, 459-463) and White (1989, pp. 203-217) mainly because it
considers time deposits that are in and of themselves not exchangeable
for goods as money substitutes. While space constraints unfortunately
preclude a thorough defense of this definition, it should be noted that
for this time period it essentially corresponds to the M3 definition
provided by Friedman and Schwartz (1970, pp. 79-81).
(10) Due to new Civil War legislation (explained below), the
government stopped collecting statistics on state banks based on the
belief that they would disappear, which turned out to be untrue
(Friedman and Schwartz [1963] 1993, p. 3). As a result there is a large
drop in state bank figures at the end of the Civil War, which continued
until the early 1870s. Furthermore, the figures may include mutual
savings banks as well as loan and trust companies (Bodenhorn, 2006, pp.
3-634).
(11) In particular, in 1862 Congress passed the Pacific Railway
Act, which created the Union Pacific and Central Pacific, and in 1864
Congress also created the Northern Pacific. The first two received money
subsidies, and all three received land subsidies. (Folsom, 1991, pp. 18,
22-23).
(12) Railroad track mileage will not be included in the relative
structure of production comparisons in the economic analysis. The Davis
series is a self-contained industrial production index; to compare
railroad miles with those figures would be inappropriate as it was
neither designed like the other series nor meant to be compared in such
a fashion.
(13) Historically an increase in saving or technological innovation
usually occurs alongside a credit expansion. In this case (which applied
to this period) during the boom prices may decline, but still change
relative to what they would have been had the credit expansion not taken
place Such economic forces do not eliminate the boom but only obscure it
(Mises, [1949] 2008, p. 558; Rothbard, [1963] 2008, pp. 169-170). This
fact reinforces the use of per annum growth rates to show movements in
relative prices. If a price is falling in one period but then falls less
(i e the growth rate becomes less negative) in the next period, it can
be said that the price relatively increased.
(14) The term "pyramiding of credit" refers to when one
bank holds part of their reserves in the form of another bank's
liability, and banks "pyramid" credit off the same base
reserves (in this period, lawful money).
(15) In this analysis based on the earlier classification of higher
and lower orders the Textile group played the role of an outlier as
evident in Table 2. However, its unusual growth appears to be the result
of its own industry specific fluctuations, as it experienced virtually
no growth from 1865-1870, unlike every other group in the Davis series.
One could be tempted to include it as a higher order industry, but it is
far more conservative for the study to not change its categorization.
(16) Though they still rose relative to before, chemicals prices
did continue to fall during this period, although they increased
absolutely from 1871 onward.
(17) There was a sharp run up in interest rates in 1869, but this
was almost certainly a consequence of the attempted cornering of the
gold market by Jay Gould and James Fisk that culminated in "Black
Friday" (Morris, 2006b, pp. 69-75).
(18) Part of the rise in 1873 was due to the Panic of 1873, but
what matters is that the trend had begun in 1872.
(19) Rockoff and Wicker also have somewhat similar views on the
economic effects of the panic, with Rockoff (2000, p. 669) stating that
"The crisis did not leave a strong impression on the aggregate
economic statistics," and Wicker (2000, p. 30) commenting that
"Contemporary accounts describe the post-panic [1873-1875] years of
contraction as years of almost unrelieved gloom. But the evidence for
such gloom is certainly not apparent in the Romer-Balke-Gordon estimates
of real GNP."
(20) The exception in this period being again Textiles.
(21) Textiles again serving as an outlier.
(22) On the lack of downward nominal wage rigidity in the late 19th
century in the 1860s and 1870s, see Hanes and James (2003).
(23) Real income for unskilled labor did decline during this period
before drastically catching up throughout the 1880s However, the decline
in real income was much less than the decline in nominal income, which
undoubtedly exacerbated the perceived effects of income stagnation
(Morris, 2006b, p. 103).
(24) For example, a New York relief agency estimated that during
1873 roughly 25 percent of the city's working force was unemployed.
They arrived at this estimate by counting all of the people whom they
helped during the year. Their error came in including nonworking
children and housewives, and by simply adding up the sum of the people
they helped in each month without realizing they were double counting
(Feder, 1936, pp. 39-40). Many other figures, such as those of the
Chronicle newspaper, were also erroneous as some of their unemployment
reports for certain industries were grossly exaggerated and based on
incomplete information (Morris, 2006b, pp. 104-105).
(25) After selecting full employment benchmark years, he derives
his estimates by regressing on the Balke and Gordon series and uses
Okun's law to get a figure of deviations from trend of output to
produce annual unemployment rates (Vernon, 1994, pp. 702-707). With
respect to the period under analysis, there are a number of problems
with this approach Firstly, although growth was undeniably lower in the
mid-1870s compared to before 1873, this does not mean that economic
stagnation occurred and unemployment rose, especially considering that
the boom years were infeasible and not really "trend" growth.
While it is reasonable to see unemployment rising during the recession
of 1873-1875, after a sufficient fall in costs and reallocation of
resources the idle labor would have been reabsorbed into the economy.
Under such a dramatic change in production, one would not see growing
unemployment throughout the recovery, which is what the series suggests.
Secondly, it is important to note that Vernon derives his Okun's
law percentage from the years 1900-1940, a period of greater policy
mandated wage rigidity, especially during the Great Depression, and of
much greater rigidity than what actually occurred in the 1870s. Thirdly,
he uses Balke and Gordon's annual series, which one can reasonably
expect to understate growth.
Patrick Newman (patrick.newm@yahoo.com) is a second year Ph. D.
student in the Department of Economics at George Mason University.
Earlier drafts of this paper were presented at the 2012 Mises
Institute Summer Fellowship program, the 2012 Society for the
Development of Austrian Economics (SDAE) meeting, two 2013 IHS
colloquia, and at a 2013 Mercatus Center Graduate Student Paper Workshop
(GSPW) roundtable discussion. The author would like to thank the
participants at the above meetings as well as Malavika Nair, Matt
McCaffrey, and Mark Thornton for their helpful comments on various
drafts of the paper.
Table 1. Prices and Production Series
Production Prices
Industry Composed Industry
primarily of:
Lower Orders Wood and Paper Lumber Farm products
products shipments,
Newspapers
Textile and Cotton Textile products
Textile products consumption
Food and Kindred Milled wheat Textile products
products flour, Refined
sugar
consumption, Hog
packing, Beef
packing
Leather and Sole leather, Hides and
Leather products Leather hides Leather products
Higher Orders Chemicals and Anthracite coal, Chemicals and
Fuel Bituminous coal, Drugs
Crude petroleum
Transport Merchant ships, Building
Equipment & Locomotives, materials
Machinery Reaping
machinery; steel
plows
Metals and Metal Pig iron Metals and Metal
products production, products
Tinsmithing,
Bessemer and
open-hearth
steel
--- Fuel and
Lighting
Table 2. U.S Economy, 1867-1873 (per annum growth rates
and levels)
Interest Rates (level)
1867 1870 1871 1872 1873
7.32% 7.23% 6.98% 8.63% 10.27%
Money (growth rates)
1867-1870 1870-1873
[M.sub.a] 2.75% 10.15%
[M.sub.b] 2.23% 11.16%
GNP (growth rates)
1867-1870 1870-1873
Davis 4.97% 7.53%
J and W 3.20% 7.20%
B and G -- 4.57%
Romer -- 7.45%
Bounds 3.2-4.97% 4.57-7.53%
Production (growth rates) Prices (growth rates)
Industry 1867- 1870- Industry 1867- 1870-
1870 1873 1870 1873
Lower Wood and 4.23% 4.22% Farm -5.56% -2.75%
Orders Paper
Textile 4.03% 11.16% Textile -6.64% -0.75%
Food 5.56% 7.56% Food -5.93% -4.25%
Leather -1.20% -5.93% Leather -1.02% 1.03%
Higher Chemicals 9.81% 10.66% Chemicals -4.57% -3.11%
Orders & Fuel & Drugs
Machinery 6.15% 11.35% Building -5.58% 1.62%
Metals 8.66% 10.56% Metals -6.91% 6.70%
-- -- -- Fuel and -2.37% 3.36%
Lighting
Table 3. U.S Economy, 1870-1875
(per annum growth rates and levels)
Interest Rates (level)
1873 1874 1875 ---
10.27% 5.98% 5.44% ---
Money (growth rates)
1870-1873 1870-1875
[M.sub.a] 10.15% 3.81%
[M.sub.b] 11.16% 4.16%
GNP (growth rates)
1870- 1873-
1873 1875
Davis 7.53% -3.02%
J and W 7.20% 0.81%
B and G 4.57% 2.25%
Romer 7.45% 1.47%
Bounds 4.57-7.53% -3.01-2.25%
Production (growth rates)
Industry 1870- 1873-
1873 1875
Lower Wood and 4.22% 0.20%
Orders Paper
Textile 11.16% -0.95%
Food 7.56% 6.94%
Leather -5.93% 8.71%
Higher Chemicals 10.66% 0.18%
Orders & Fuel
Machinery 11.35% -17.84%
Metals 10.56% -5.24%
--- --- ---
Prices (growth rates)
Industry 1870- 1873-
1873 1875
Lower Farm -2.75% -1.96%
Orders
Textile -0.75% -10.23%
Food -4.25% -0.82%
Leather 1.03% -3.46%
Higher Chemicals -3.11% -9.26%
Orders & Drugs
Building 1.62% -7.85%
Metals 6.70% -15.13%
Fuel and 3.36% -7.00%
Lighting
Table 4. U.S Economy, 1875-1879
(per annum growth rates and levels)
Interest Rates (level)
1875 1877 1878 --- ---
5.44% 5.01% 4.82% --- ---
Money (growth rates)
1873-1875 1875-1879
[M.sub.a] 3.81% -2.78%
[M.sub.b] 4.16% -4.11%
GNP (growth rates)
1873-1875 1875-1878
Davis -3.02% 3.37%
J and W 0.81% 4.10%
B and G 2.25% 2.86%
Romer 1.47% 6.77%
Bounds -3.01-2.25% 2.86-6.77%
Production (growth rates)
Industry 1873- 1875-
1875 1878
Lower Wood and 0.20% -2.91%
Orders Paper
Textile -0.95% 9.81%
Food 6.94% 3.11%
Leather 8.71% -0.83%
Higher Chemicals 0.18% 2.89%
Orders & Fuel
Machinery -17.84% 1.14%
Metals -5.24% 8.91%
--- --- ---
Prices (growth rates)
Industry 1873- 1875-
1875 1878
Lower Farm -1.96% -10.07%
Orders
Textile -10.23% -6.56%
Food -0.82% -8.14%
Leather -3.46% -8.24%
Higher Chemicals -9.26% -5.18%
Orders & Drugs
Building -7.85% -7.16%
Metals -15.13% -10.37%
Fuel and -7.00% -10.10%
Lighting
