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Various administrations have closed in gloom and weakness ... but no other has closed in such paralysis and discredit as (in all domestic fields) did Grant's. The President was without policies or popular support. He was compelled to remake his Cabinet under a grueling fire from reformers and investigators; half its members were utterly inexperienced, several others discredited, one was even disgraced. The personnel of the departments was largely demoralized. The party that autumn appealed for votes on the implicit ground that the next Administration would be totally unlike the one in office. In its centennial year, a year of deepest economic depression, the nation drifted almost rudderless. [38]
Recovery began in 1878. The mileage of railroad track laid down increased from 2,665 mi (4,289 km) in 1878 to 11,568 in 1882. [30] Construction began recovery by 1879; the value of building permits increased two and a half times between 1878 and 1883, and unemployment fell to 2.5% in spite of (or perhaps facilitated by) high immigration. [26]
Business profits declined briefly between 1882 and 1884. [26] The recovery in railroad construction reversed itself, falling from 11,569 mi (18,619 km) of track laid in 1882 to 2,866 mi (4,612 km) of track laid in 1885; the price of steel rails collapsed from $71/ton in 1880 to $20/ton in 1884. [26] Manufacturing again collapsed –durable goods output fell by a quarter again. [26] The decline became a brief financial crisis in 1884, when multiple New York banks collapsed; simultaneously, in 1883–1884, tens of millions of dollars of foreign-owned American securities were sold out of fears that the United States was preparing to abandon the gold standard. [26] This financial panic closed eleven New York banks, more than a hundred small state banks, and led to defaults on at least $32 million worth of debt. [26] Unemployment, which had stood at 2.5% between recessions, surged to 7.5% in 1884–1885, and 13% in the northeastern United States, even as immigration plunged in response to deteriorating labor markets. [26]
The 1880s saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, and real per capita income. As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-per annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion –a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction. [39]
The period preceding the Long Depression had been one of increasing economic internationalism, championed by efforts such as the Latin Monetary Union, many of which then were derailed or stunted by the impacts of economic uncertainty. [40] The extraordinary collapse of farm prices [16] provoked a protectionist response in many nations. Rejecting the free trade policies of the Second Empire, French president Adolphe Thiers led the new Third Republic to protectionism, which led ultimately to the stringent Méline tariff in 1892. [41] Germany's agrarian Junker aristocracy, under attack by cheap, imported grain, successfully agitated for a protective tariff in 1879 in Otto von Bismarck's Germany over the protests of his National Liberal Party allies. [41] In 1887, Italy and France embarked on a bitter tariff war. [42] In the United States, Benjamin Harrison won the 1888 US presidential election on a protectionist pledge. [43]
As a result of the protectionist policies enacted by the world's major trading nations, the global merchant marine fleet posted no significant growth from 1870 to 1890 before it nearly doubled in tonnage in the prewar economic boom that followed. [44] Only the United Kingdom and the Netherlands remained committed to low tariffs. [42]
In 1874, a year after the 1873 crash, the United States Congress passed legislation called the Inflation Bill of 1874 designed to confront the issue of falling prices by injecting fresh greenbacks into the money supply. [45] Under pressure from business interests, President Ulysses S. Grant vetoed the measure. [45] In 1878, Congress overrode President Rutherford B. Hayes's veto to pass the Silver Purchase Act, a similar but more successful attempt to promote "easy money". [30]
The United States endured its first nationwide strike in 1877, the Great Railroad Strike of 1877. [30] This led to widespread unrest and often violence in many major cities and industrial hubs including Baltimore, Philadelphia, Pittsburgh, Reading, Saint Louis, Scranton, and Shamokin. [46]
The Long Depression contributed to the revival of colonialism leading to the New Imperialism period, symbolized by the scramble for Africa, as the western powers sought new markets for their surplus accumulated capital. [47] According to Hannah Arendt's The Origins of Totalitarianism (1951), the "unlimited expansion of power" followed the "unlimited expansion of capital". [48]
In the United States, beginning in 1878, the rebuilding, extending, and refinancing of the western railways, commensurate with the wholesale giveaway of water, timber, fish, minerals in what had previously been Indian territory, characterized a rising market. This led to the expansion of markets and industry, together with the robber barons of railroad owners, which culminated in the genteel 1880s and 1890s. The Gilded Age was the outcome for the few rich. The cycle repeated itself with the Panic of 1893, another huge market crash.
In the United States, the National Bureau of Economic Analysis dates the recession through March 1879. In January 1879, the United States returned to the gold standard which it had abandoned during the Civil War; according to economist Rendigs Fels, the gold standard put a floor to the deflation, and this was further boosted by especially good agricultural production in 1879. [49] The view that a single recession lasted from 1873 to 1896 or 1897 is not supported by most modern reviews of the period. It has even been suggested that the trough of this business cycle may have occurred as early as 1875. [50] In fact, from 1869 to 1879, the US economy grew at a rate of 6.8% for real net national product (NNP) and 4.5% for real NNP per capita. [51] Real wages were flat from 1869 to 1879, while from 1879 to 1896, nominal wages rose 23% and prices fell 4.2%. [52]
Irving Fisher believed that the Panic of 1873 and the severity of the contractions which followed it could be explained by debt and deflation and that a financial panic would trigger catastrophic deleveraging in an attempt to sell assets and increase capital reserves; that selloff would trigger a collapse in asset prices and deflation, which would in turn prompt financial institutions to sell off more assets, only to further deflation and strain capital ratios. Fisher believed that had governments or private enterprise embarked on efforts to reflate financial markets, the crisis would have been less severe. [53]
David Ames Wells (1890) wrote of the technological advancements during the period 1870–1890, which included the Long Depression. Wells gives an account of the changes in the world economy transitioning into the Second Industrial Revolution in which he documents changes in trade, such as triple expansion steam shipping, railroads, the effect of the international telegraph network and the opening of the Suez Canal. [54] Wells gives numerous examples of productivity increases in various industries and discusses the problems of excess capacity and market saturation.
Wells' opening sentence:
The economic changes that have occurred during the last quarter of a century –or during the present generation of living men –have unquestionably been more important and more varied than during any period of the world's history.
Other changes Wells mentions are reductions in warehousing and inventories, elimination of middlemen, economies of scale, the decline of craftsmen, and the displacement of agricultural workers. About the whole 1870–90 period Wells said:
Some of these changes have been destructive, and all of them have inevitably occasioned, and for a long time yet will continue to occasion, great disturbances in old methods, and entail losses of capital and changes in occupation on the part of individuals. And yet the world wonders, and commissions of great states inquire, without coming to definite conclusions, why trade and industry in recent years has been universally and abnormally disturbed and depressed.
Wells notes that many of the government inquiries on the "depression of prices" (deflation) found various reasons such as the scarcity of gold and silver. Wells showed that the US money supply actually grew over the period of the deflation. Wells noted that deflation lowered the cost of only goods that benefited from improved methods of manufacturing and transportation. Goods produced by craftsmen and many services did not decrease in value, and the cost of labor actually increased. Also, deflation did not occur in countries that did not have modern manufacturing, transportation, and communications.
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. [55] Additionally, Friedman pointed to the expansion of the gold supply through Gold cyanidation as a contributor to the recovery. [56] 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.
Most economic historians see this period as negative for the most industrial nations.[ citation needed ] Many argue that most of the stagnation was caused by a monetary contraction caused by abandonment of the bimetallic standard, in favor of a new fiat gold standard, starting with the Coinage Act of 1873.[ citation needed ]
Other economic historians have complained about the characterization of this period as a "depression" because of conflicting economic statistics that cast doubt on this interpretation. They note it saw a relatively large expansion of industry, of railroads, of physical output, of net national product, and of real per capita income.
As economists Milton Friedman and Anna J. Schwartz have noted, the decade from 1869 to 1879 saw a growth of 3 percent per year in money national product, an outstanding real national product growth of 6.8 percent per year, and a rise of 4.5 percent per year in real product per capita. Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion, a rise of 13.1 percent, or 2.6 percent per year. In short, it was a modest but definite rise, not a contraction. [57] Although per-capita nominal income declined very gradually from 1873 to 1879, that decline was more than offset by a gradual increase over the course of the next 17 years.
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 United States, 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 the UK) 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. [58] As economist Murray Rothbard has stated:
Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, freemarket capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too), economic growth, and the spread of the increased living standard to all the consumers. [58]
Accompanying the overall growth in real prosperity was a marked shift in consumption from necessities to luxuries: by 1885, "more houses were being built, twice as much tea was being consumed, and even the working classes were eating imported meat, oranges, and dairy produce in quantities unprecedented". The change in working class incomes and tastes was symbolized by "the spectacular development of the department store and the chain store".
Prices certainly fell, but almost every other index of economic activity – output of coal and pig iron, tonnage of ships built, consumption of raw wool and cotton, import and export figures, shipping entries and clearances, railway freight clearances, joint-stock company formations, trading profits, consumption per head of wheat, meat, tea, beer, and tobacco – all of these showed an upward trend. [59]
A large part at least of the deflation commencing in the 1870s was a reflection of unprecedented advances in factory productivity. Real unit production costs for most final goods dropped steadily throughout the 19th century and especially from 1873 to 1896. At no previous time had there been an equivalent "harvest of technological advances... so general in their application and so radical in their implications". That is why, notwithstanding the dire predictions of many eminent economists, the UK did not end up paralyzed by strikes and lockouts. Falling prices did not mean falling money wages. Instead of inspiring large numbers of workers to go on strike, falling prices were inspiring them to go shopping. [60]
Recent Economic Changes and Their Effect on Distribution of Wealth and Well Being of Society Wells.
An economic depression is a period of carried long-term economic downturn that is the result of lowered economic activity in one or more major national economies. It is often understood in economics that economic crisis and the following recession that may be named economic depression are part of economic cycles where the slowdown of the economy follows the economic growth and vice versa. It is a result of more severe economic problems or a downturn than the recession itself, which is a slowdown in economic activity over the course of the normal business cycle of growing economy.
Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s but was mostly abandoned as a direct guidance to monetary policy during the following decade because of the rise of inflation targeting through movements of the official interest rate.
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the value of currency over time, but deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from disinflation, a slowdown in the inflation rate; i.e., when inflation declines to a lower rate but is still positive.
The Specie Payment Resumption Act of January 14, 1875 was a law in the United States that restored the nation to the gold standard through the redemption of previously unbacked United States Notes and reversed inflationary government policies promoted directly after the American Civil War. The decision further contracted the nation's money supply and was seen by critics as an exacerbating factor of the so-called Long Depression, which struck in 1873.
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms.
The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain. In Britain, the Panic started two decades of stagnation known as the "Long Depression" that weakened the country's economic leadership. In the United States, the Panic was known as the "Great Depression" until the events of 1929 and the early 1930s set a new standard.
The Panic of 1893 was an economic depression in the United States. It began in February 1893 and officially ended eight months later, but the effects from it continued to be felt until 1897. It was the most serious economic depression in history until the Great Depression of the 1930s. The Panic of 1893 deeply affected every sector of the economy and produced political upheaval that led to the political realignment and the presidency of William McKinley.
The Panic of 1837 was a financial crisis in the United States that began a major depression which lasted until the mid-1840s. Profits, prices, and wages dropped, westward expansion was stalled, unemployment rose, and pessimism abounded.
The causes of the Great Depression in the early 20th century in the United States have been extensively discussed by economists and remain a matter of active debate. They are part of the larger debate about economic crises and recessions. The specific economic events that took place during the Great Depression are well established.
The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury. It also prohibited the Treasury and financial institutions from redeeming dollar bills for gold, established the Exchange Stabilization Fund under control of the Treasury to control the dollar's value without the assistance of the Federal Reserve, and authorized the president to establish the gold value of the dollar by proclamation.
Economic collapse, also called economic meltdown, is any of a broad range of poor economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment, to a breakdown in normal commerce caused by hyperinflation, or even an economically caused sharp rise in the death rate and perhaps even a decline in population. Often economic collapse is accompanied by social chaos, civil unrest and a breakdown of law and order.
The Austrian business cycle theory (ABCT) is an economic theory developed by the Austrian School of economics seeking to explain how business cycles occur. The theory views business cycles as the consequence of excessive growth in bank credit due to artificially low interest rates set by a central bank or fractional reserve banks. The Austrian business cycle theory originated in the work of Austrian School economists Ludwig von Mises and Friedrich Hayek. Hayek won the Nobel Prize in Economics in 1974 in part for his work on this theory.
In the United States, the Great Depression began with the Wall Street Crash of October 1929 and then spread worldwide. The nadir came in 1931–1933, and recovery came in 1940. 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.
A Monetary History of the United States, 1867–1960 is a book written in 1963 by future Nobel Prize-winning economist Milton Friedman and Anna Schwartz. It uses historical time series and economic analysis to argue the then-novel proposition that changes in the money supply profoundly influenced the United States economy, especially the behavior of economic fluctuations. The implication they draw is that changes in the money supply had unintended adverse effects, and that sound monetary policy is necessary for economic stability. Orthodox economic historians see it as one of the most influential economics books of the century. The chapter dealing with the causes of the Great Depression was published as a standalone book titled The Great Contraction, 1929–1933.
The Great Depression was a period of severe global economic downturn that occurred from 1929 to 1939. It was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and trade, and widespread bank and business failures around the world. The economic contagion began in 1929 in the United States, the largest economy in the world, with the devastating Wall Street stock market crash of October 1929 often considered the beginning of the Depression.
The Depression of 1920–1921 was a sharp deflationary recession in the United States, United Kingdom and other countries, beginning 14 months after the end of World War I. It lasted from January 1920 to July 1921. The extent of the deflation was not only large, but large relative to the accompanying decline in real product.
Recession shapes or recovery shapes are used by economists to describe different types of recessions and their subsequent recoveries. There is no specific academic theory or classification system for recession shapes; rather the terminology is used as an informal shorthand to characterize recessions and their recoveries. The most commonly used terms are V-shaped, U-shaped, W-shaped, and L-shaped recessions, with the COVID-19 pandemic leading to the K-shaped recession. The names derive from the shape the economic data – particularly GDP – takes during the recession and recovery.
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An economic recovery is the phase of the business cycle following a recession. The overall business outlook for an industry looks optimistic during the economic recovery phase.