Was the U.S. affected by the Long Depression?
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In the United States, economists typically refer to the Long Depression as the Depression of 1873–1879, kicked off by the Panic of 1873, and followed by the Panic of 1893, book-ending the entire period of the wider Long Depression. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. In the United States, from 1873 to 1879, 18,000 businesses went bankrupt, including 89 railroads. Ten states and hundreds of banks went bankrupt. Unemployment peaked in 1878, long after the initial financial panic of 1873 had ended. Different sources peg the peak U.S. unemployment rate anywhere from 8.25% to 14%.
Long Depression
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Nobel laureate economist Milton Friedman, author of "A Monetary History of the United States", on the other hand, blamed this prolonged economic crisis on the imposition of a new gold standard, part of which he referred to by its traditional name, The Crime of 1873. This forced shift into a currency whose supply was limited by nature, unable to expand with demand, caused a series of economic and monetary contractions that plagued the entire period of the Long Depression. Murray Rothbard, in his book "History of Money and Banking of the United States", argues that the long depression was only a misunderstood recession since real wages and production were actually increasing throughout the period. Like Friedman, he attributes falling prices to the resumption of a deflationary gold standard in the U.S. after the Civil War.
Long Depression
48847#17
Deflation occurred periodically in the U.S. during the 19th century (the most important exception was during the Civil War). This deflation was at times caused by technological progress that created significant economic growth, but at other times it was triggered by financial crises — notably the Panic of 1837 which caused deflation through 1844, and the Panic of 1873 which triggered the Long Depression that lasted until 1879. These deflationary periods preceded the establishment of the U.S. Federal Reserve System and its active management of monetary matters. Episodes of deflation have been rare and brief since the Federal Reserve was created (a notable exception being the Great Depression) while U.S. economic progress has been unprecedented.
Deflation
1610496#206
Panic of 1873 created one of the worst and longest depressions in American history, seriously affecting every aspect of the economy and bringing the railroad expansion to a halt. The New York Stock Exchange closed for ten days. Of the country's 364 railroads, 89 went bankrupt, a total of 18,000 businesses failed between 1873 and 1875, unemployment reached 14% by 1876, during a time which became known in Britain as the Long Depression. Politically, the Democrats took control of Congress in 1874, the election of 1876 was deadlocked.
Economic history of the United States
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In the United States, the Long Depression began with the Panic of 1873. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. Figures from Milton Friedman and Anna Schwartz show net national product increased 3 percent per year from 1869 to 1879 and real national product grew at 6.8 percent per year during that time frame. However, since between 1869 and 1879 the population of the United States increased by over 17.5 percent, per capita NNP growth was lower. Following the end of the episode in 1879, the U.S. economy would remain unstable, experiencing recessions for 114 of the 253 months until January 1901.
Long Depression
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The Great Depression began in August 1929, when the United States economy first went into an economic recession. Although the country spent two months with declining GDP, it was not until the Wall Street Crash in October 1929 that the effects of a declining economy were felt, and a major worldwide economic downturn ensued. The stock market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth as well as for personal advancement. Altogether, there was a general loss of confidence in the economic future.
Great Depression in the United States
19283335#88
Because of high levels of U.S. investment in Latin American economies, they were severely damaged by the Depression. Within the region, Chile, Bolivia and Peru were particularly badly affected.
Great Depression
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The U.S. Government's commitment to the gold standard prevented it from engaging in expansionary monetary policy. High interest rates needed to be maintained in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing.
The U.S. interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: Allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore, Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. One of the only things the U.S. could do to get back into equilibrium was increase interest rates.
Great Depression in the United States
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Some have argued the depression was rooted in the 1870 Franco-Prussian War that hurt the French economy and, under the Treaty of Frankfurt, forced that country to make large war reparations payments to Germany. The primary cause of the price depression in the United States was the tight monetary policy that the United States followed to get back to the gold standard after the Civil War. The U.S. government was taking money out of circulation to achieve this goal, therefore there was less available money to facilitate trade. Because of this monetary policy the price of silver started to fall causing considerable losses of asset values; by most accounts, after 1879 production was growing, thus further putting downward pressure on prices due to increased industrial productivity, trade and competition.
Long Depression
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Furthermore, real per capita income either stayed approximately constant (1873–1880; 1883–1885) or rose (1881–1882; 1886–1896), so the average consumer appears to have been considerably better off at the end of the "depression" than before. Studies of other countries where prices also tumbled, including the US, Germany, France, and Italy, reported more markedly positive trends in both nominal and real per capita income figures. Profits generally were also not adversely affected by deflation, although they declined (particularly in Britain) in industries struggling against superior, foreign competition. Furthermore, some economists argue a falling general price level is not inherently harmful to an economy and cite the economic growth of the period as evidence. As economist Murray Rothbard has stated:
Long Depression
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The United Kingdom, which had previously experienced crises every decade since the 1820s, was initially less affected by this financial crisis, even though the Bank of England kept interest rates as high as 9 percent in the 1870s.
Long Depression