I have been told time and again that 19th-century America is the proof of the failure of laissez-faire policies. I have now found proof that not only is that false, 19th-century America is proof of the success of laissez-faire policies and especially commodity standards. What's more, my findings have actually vindicated Austrian business cycle theorists, humbling even me (I formerly believed in the
Real Business Cycle theory).

So without further ado, let's start putting myths on the chopping block.

Myth 1 - the 1800's were an era of great instability when violent boom-bust cycles terrorized the citizenry.

Fact - If you only look at nominal figures the 1800's do indeed look like the GDP was a yo-yo. However, if you look at the real (inflation-adjusted) numbers, you'll see the 19th century was a period of almost uninterrupted growth. Only two negative growth years were registered between 1800 and 1890, and six throughout the entire 19th century, which cost the economy a combined 2k$(2000 dollars)43.52 billion or 5.19% of the economy. That is worth contrasting with the much-revered period of 1950-2000, the rule of the Fed and Keynesian policies, when the economy registered seven years of negative growth, costing the economy a combined 2k$114.4 billion or 7.04% of GDP.

As for the 1890's, when the economy was indeed rocked by violent booms and busts, that was actually caused by the government meddling into the monetary system. Quite simply, Congress overcompensated for attempting to implement a pure gold standard (which angered the people) by beginning to issue silver certificates, which in turn caused a bank run over fears of silver inflation when people tried to redeem their silver notes in gold and found the government had been dumb enough to run fractional reserves. Needless to say, a run on the central banking authority caused an economic collapse, and the first time ever the US economy reported eight consecutive quarters of negative growth. To make matters worse, that bank run was
accompanied by another patently stupid law, which slapped a 49%
tariff rate on imports, causing inflation due to high costs of production.

Myth 2 - The workers were screwed by the system.

Fact - Workers benefited handsomely from deflationary money cycles, which resulted in a year-on-year real salary growth of 1.18% (adjusted for a year-on-year price inflation of -0.12%) for the period from 1850 to 1900, compared to 1.33% (adjusted for a year-on-year price inflation of 3.67%) for the period between 1950-2000. With the billions and billions being spent on social programs, intervention, unions, etc. the best they could do was top what a 100% free market could do for blue-collar workers (which wasn’t too shabby to begin with) by 0.15%. And don’t even begin to tell me that intervention propped up the middle class; Hong Kong has a larger middle class as a proportion of the population than the US (About a third of our labour force is blue-collar, versus 15% of Hong Kong's).

Herein lies the reason why Hong Kong’s blue-collar salaries are currently declining in real terms. Hong Kong may have one ingredient to an ultra-successful economy (economic freedom), but it still lacks the essential element of a non-inflationary metal currency. In a free market blue-collar worker’s salaries usually have long-term rising trends within a nominal 0.2-3% band (or as much as 4%-5% if there are shortages or inflation), but deflation comes to their rescue by making everything cheaper, which pretty much equals a raise.

As for the astoundingly low salaries, they cannot be attributed to the free market. They are nothing more or less than a function of the astoundingly low productivity rate at the time. In 1900, the United States produced 2k$4,921 per capita, a 0.75% gain from 2k$4,884 the previous year. That is lower than modern-day China. Make no mistake, the US may have been a leading power at the time, but it was merely the strongest kid in an elementary school playground. Nowhere near the level of development required to sustain the standards of living we currently have. That is why I always stress that it is economic growth, not regulation, that’ll bring high living standards to people.

In conclusion, the 19th-century American economy is not only not the boogeyman they painted it to be, it is actually a model to follow. It is the most macroeconomically stable period in American history, and both workers and investors benefited from it.

Source

2nd to last paragraph:

continuous infinite growth won't happen, not planet wide anyway, and here in the US the average person has been losing the war between inflation and wages for more than a decade, growth for the sake of growth doesn't change this

much of what is in the above article is also mentioned by people usually wishing to abolish the Federal reserve banking cartel as they depend on those myths as justification for their existence

fiat currencies have never ever as far as I know survived for very long, and the failure is always quite messy and damaging

IMO a whole bunch of economic theory though will be put to the ultimate test and even abandoned in the face of peak oil, time will tell.

It was a wonderful time for the American worker...10 year old boys working 12 hours or more, falling asleep and crushed to death while picking rocks from coal. Robber barons living in opulent luxury while their workers were paid subsistence wages. Female workers burned alive because the sweat shop doors were chained shut. Coal miners paid in company script and becoming indebted to the company store. etc., etc. Yes, it was a wonderful time for the worker, it is unfortuanate that you were able to experiance those great "benefits."

There's a reason the 19th Century was known as the Guilded Age. That is because on the outside, everything looked grand and golden. But on the inside, it was composed of crap. Ask any person decended from immigrants that came at that time. If they know their family geneology, they'll all tell you the horrors the immigrant workers went through to achieve the American Dream for them and their families.

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Discuss the Issue, Not the Poster

"Everyone is entitled to their own opinion, but not everyone is entitled to their own facts"
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sounds like China present day, a few other countries as well

Both of your myths deal with perceptions--citizens feeling terrorized and workers feeling screwed. But your explanations only deal with the economic side. Everything was radically changing during the 19th century and while the standard of living for everyone was generally going up, a lot of the changes were scary and new wage labor system and the new sense of class consciousness (among other things) caused a feeling of exploitation amongst many people. Plus by this time the rule of the old nobility had increasingly been replaced by the rule of wealthy elites because voting rights extended to landowning males but poorer working males still could not vote. So regardless of the economic figures, a lot of people felt that they were being screwed over in the 19th century.

Do you even read posts before responding to them?

I'm gonna quote myself now...

Workers in the United States we're not squeezed because there was inequality, though if you have no knowledge of economics it's easy to assume that. The reality is that the only reason for a country to be underdeveloped is that it does not generate enough income to feed everybody. Turn-of-the-century USA was no exception to this rule.

Hong Kong went through the same phase. They came out of the other side faster than we did because they did not meddle, though sadly thay have a fiat currency and inflation's always been positive in the island.

We would've become well-developed nations much faster than we did had the government not started fucking with the currency and trade policy. The Depression would've been just another Panic of 1907 had the Fed not been in existence. I call the inter-war period the wasted years.

See above.

Well perception =/= reality, especially in economics. The perception of workers that they were being exploited by rich fatcats was false. The reality is that they saw faster rises in real wages and living standards than any American has before or since, mostly thanks to the seemingly erratic behaviour of the inflation rates, which made down equal up, and up also equal up.

Data extracted from the historical economic indicators site.



1800-1890 (Pre-Progressive era) real GDP growth, recessions highlighted.




1950-2000 (Post-Depression era) real GDP growth, recessions highlighted.




As you can see, there were no real GDP contractions pre-industrial era. During the industrial revolution, recessions were very few and far between, and the sharpest one is accounted for by monetary instabilities (the peak of the California Gold Rush). Nominally, GDP fluctuated wildly, but deflation increased demand which in turn expanded production, so all business cycles were dampened.

Fast forward to the 1950's and you get moderate growth wracked with intermittent and periodical, albeit shallow, recessions. The contractions were just slightly less violent than during the reign of the commodity standard, but they are much more frequent. Six contractions in 50 years, lasting a total of 7 years and sapping a total of 4.19% out of a trillion-dollar economy, compared to 6.45% out of an economy that at its high point was just about 30% larger in real terms than the modern UAE economy.

1840-1890 unskilled real wage rates

Calculated by CPI- 1.27%
Calculated by GDP Deflator- 1.46%

1950-2000 unskilled real wage rates

Calculated by CPI- 0.99%
Calculated by GDP deflator- 1.33%

Whichever score you pick real wages for workers were greatly bolstered by fast growth and falling prices. Arguably, the falling prices may have slightly held economic growth back, but since it helps the workers it is all part of the healthy functioning of the economy.

The US being a leading power in the 19th century? "The strongest kid in an elementary school"? Are you kidding? It was a regional power for sure, but hardly much more. While it is perfectly fine to be centric on the owns country history, it would be important to know that the US has not always been the most powerful country, nor the most advanced.


I really would wish you could experience a month work in a 19th century mine. 12 hour working day 6 days a week, at least, and casualties being not the exemption but the norm. While being paid hardly enough to survive. And when the workers could not bear that anymore the army was sent in to set an example... oh how I long back to those great times.

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