I believe this period in economic history deserves a closer look, starting with S.B. Saul’s book The Myth of the Great Depression.
1873-79 was quite turbulent, but afterwards the global economy adjusted to deflation. Those years were among the most beneficial in human history, as the foundations of the modern world were laid.
This is one reason why I become suspicious when deflation is blamed for Japan’s current problems, or when we are told that weak AD could lead to two lost decades in the United States. I do not favor deflation but its curse need not last forever.
If we are mired in the muck for two decades or more, as Japan has been, I blame low rates of productivity and technical progress. A simple comparison with North Dakota and Nebraska drives home the point. For the globe as a whole, increased resource prices are not the same as a productivity boost, but for a single region they can be.
Even before that historical book, I’d recommend reading “Less Than Zero, the case for a falling price level” by George Selgin. Rising productivity should cause deflation under a regime of stable nominal spending / stable money supply. It’s a feature, not a bug.
And the most interesting aspect of George’s analysis is that productivity norm deflation is being driven by innovation. The firms which make improvements are knowingly doing so. As such, the fully anticipate the reduced cost of production from their innovations AND expect competition to ultimately drive down the final price to customers (if they aren’t cutting their prices themselves to undercut competitors with their new cost advantage). Given this process, productivity-driven deflation needn’t lead to money illusion where some firms see falling nominal demand and are unable to know if it’s nominal or real. Rather, the drivers of the deflation know what’s happening and other firms are likely to see INCREASED demand (via Say’s law and the release of purchasing power to other areas).
Here’s the cliff notes version:
http://old.nationalreview.com/23mar98/selgin032398.html
sins of omission & false equivalencies, though par for the course with this stuff. wherein does the massive, hideous difference in our rates of income inequality enter your future US = present Japan story?
How does income inequality impair economic growth?
Isn’t income inequality a moral issue, or a stability/revolution issue?
It should be obvious by now that there is no demand if there isn’t a healthy/growing middle class. We masked our income inequality issue by fraudulent lending practices for years (a real estate bubble helps the middle class employment in an outsized way). Now that lending is normalized, let’s just admit it: our grandparents had it right. Redistributing income is what made capitalism work. Without that, there is no economic stability.
In my words, the poor and middle class will spend their money in your economy, the rich have too many options to create a stable, predictable economy. We’re seeing these vast fluctuations and the flight to gold because we’ve created too many ‘too big to fail’ individuals who move their money around too easily.
Since when is consumption something other than the using up of wealth? Any theory of economic wellbeing which claims to be built on consumption is built on sand. Consumption is the RESULT of producing goods and services that other people value and enjoying a surplus from trade with their goods. The most basic Caruso economics reveals that celebrating consumption and those who consume at a higher rate is nonsense on stilts.
I don’t know how you can claim that “lending is normalized” in the USA right now. Nothing about our current financial “system” is remotely normal.
Meanwhile, unemployment appears to track pretty directly with which regions had a housing boom and bust. Not all did. Those which didn’t appear to be doing much better. This makes perfect sense if you see macroeconomics in classical (and Austrian) terms as a question of effective coordination of production with demand. But if you view the world through the aggregated-into-oblivion lens of Keynesianism, these mechanics of change are lost.
You must produce value for others FIRST. Only then can you demand from others.
http://www.charlotteobserver.com/2011/08/28/2559411/jobs-fairly-plentiful-in-some.html
And those producers (ie laborers, the rich are not producers) are the middle class. It’s by the middle class and for the middle class. I know it’s odd, but supply vs demand is a matter of lagging effect one way or the other as they are generated by the same people. I there isn’t much being produced, there isn’t much of a middle class.
What I’m trying to say is that you and the GP have no business arguing.
Dan, I really can’t respond to these assertions in any constructive way. “there isn’t much being produced” is completely false. Your use of “middle class” appears to be more demagoguery and class warfare than anything else. The “rich” are not producers? Really? Where, then, do entrepreneurs like myself ultimate get the capital for our startups? Where is the supply of loanable funds coming from?
Discussing society in terms of “the rich” vs “the middle class” is just politically charged handwaving. I’m not into it. It’s not constructive or informative.
Funny, but when middle class me looks around, all I see for miles in every direction, in every house and apartment, are middle class people. I’m growing tired of this assertion that the middle class is shrinking.
The only thing that restrains the middle class from reaching a level of income sufficient to save for retirement or enjoy pleasures is the burden of onerous taxation.
The only reason I see poor people at all is because government subsidizes their presence, rewards their inactivity, and promotes their dependence. I don’t live off of their misery because they don’t possess the skills to threaten my wages or employment, and they don’t provide any labor for me to exploit. If they buy a bottle of liquor from dad’s store, they do so with government dollars. Frankly, we’d prefer they save their money. Profits from them we can live without.
The rich people? I don’t see much of them and I don’t really care to. They don’t buy from us, and what we buy from them is worth our money.
MY grandparents were right when they left countries that redistribute wealth and came to a land of opportunity. If you want redistribution, feel free to board a boat in search of a country that does it. We are better off without you.
mw,
What does income inequality have to do with economic growth vs. deflation?
recent US “economic growth” has been driven very much by outsourced efficiency gains, producing inequality. opposition to inflation (though supported by economists of all stripes to “deleverage” out of this slump) is held largely by vested interests of the well-off, creditors, bond-holders etc (ie the top of the income distribution).
I seem to recall the economy doing quite well in the late 1990s, despite all kinds of global trade going on. There’s no fixed basket of “jobs” which can be “outsourced”. If prices fall on a good like clothing because it’s being made cheaper elsewhere, that does indeed suck for domestic textile workers but they are a tiny group compared with the millions of normal Americans who see their real income increase because they can buy cheaper clothing. Their increased purchasing power is what opens up new possibilities for entirely new industries to emerge and provide opportunities for those seeking work. Again, this is pure Say’s law and it was in full force in the nineties. Global trade INCREASES opportunities for everyone even though, yes, it can put particular people out of work.
Meanwhile, only 2.7% of personal consumption expenditures are actually coming from production in China and over half of US imports are inputs and capital goods used in America production processes. None of those employment opportunities would exist if half of our global trade vanished and the trillions in needed materials for domestic production went away. We’d all be poorer. Trying to make the case that global trade made low income Americans worse off is pretty strange, but no stranger than those who wished to throw their wooden shoes into those terrible machines that were taking away their jobs. Robots have been replacing manufacturing jobs for decades. Again, the poor live better as a result, able to purchase more goods of higher quality, which is born out by the facts.
It’s a little strange to call school teachers with pension funds and the millions of other people with savings the “top of the income distribution”. Those at the bottom of the income charts tend to be young (because young people have less experience and earn less) and as they get older, they make more and move up. The snapshots don’t capture this process, making the data problematic from the outset.
A great many of those in the top of the income distribution happen to do great during an inflation since they’re wall street bankers who get to make the first use of that newly printed money. Keynes understood this, which is why he was an inflation hawk. Today, Keynes may have been a tea partier. Here he is in Economic Consequences of the Peace:
Inflation helps those who get the money from the inflationists: banksters. The rest of us get higher food and energy prices and vicious booms and busts that cause major job dislocation. No thanks.
yep, i’m on board–can’t think of any differences between 1873 and 2011 that would impede comparison. “holding all else equal” as we no doubt are, what could be wrong in equating deflation then and deflation now?
Certainly better than you making up nonsense.
Do you actually have specific points of difference which you find germane to a theoretical discussion of productivity-norm deflation (or a historical review for that matter)? Or is this just hand waving and rhetorical argument?
Keynes by the time of “General Theory” was certainly not in favor of deflation. His chapter 19 is devoted entirely to the point that falling nominal wages are bad for the economy and ends with this remark:
“In the long period, on the other hand, we are still left with the choice between a policy of allowing prices to fall slowly with the progress of technique and equipment whilst keeping wages stable, or of allowing wages to rise slowly whilst keeping prices stable. On the whole my preference is for the latter alternative…”
I don’t know if Keynes ever remarked on whether or not a stable inflation rate of 2% (seemingly the consensus among most economists of a Keynesian or even Friedmanesque bent) but I doubt he would have seen much of a problem with it to the extent it promotes nominal wage growth and to the extent that it promotes the “euthanasia of the rentier.”
The story of Keynes’ economics is a story of regression over time. Economic Educational Entropy, if you will.
You’re not making a lot of sense. Being able to afford clothing isn’t the same as a high standard of living. The 90s was the start of the large income inequality in the nation, proving that, yes, outsourcing, offshoring, whatever you want to call it, hurts the average citizen. It was partly masked in the 90s by the slow transition of physical media to the Internet and by the huge reserve of resources our middle class had built up over 4 decades of prosperity and union employment (real estate, pensions, stocks). That’s mostly gone now.
CEOs make more money vs. their employees that at any time since the Great Depression. That’s not a coincidence, it’s a symptom of the disease that’s killing our economy. Putting more and more money into fewer and fewer hands obviously results in instability.
So yes, global trade has made people worse off. Look at the numbers. Should I have to link to them? I thought they were generally well known, even wikipedia has them.
Well then, if that makes any sense at all, we should erect trade barriers between the states, should we not. After all, that will prevent people in Nevada with their high unemployment rate from “outsourcing jobs” to Texas. Or maybe we should just destroy all machinery, since THAT is the greatest job-killing force known to man. Come on. The 1700s called, they want their monopolist mercantilism back.
I don’t think you understand how basic financial intermediation works. Every nickel of Bill Gates wealth which is held in financial assets (stocks, bonds, bank liabilities) is not in his “hands” at all. It’s being lent to countless people to start and grow businesses (or at least it could be). It’s really not that hard to understand. The only time Bill Gates personally has his fortune in his “hands” is when he is using it for direct consumption. So, how much is consumption and hard assets (boats, houses and such) do you think Gates has used relative to the resources he’s provided for others to use through intermediation? I bet the ratio is pretty enormous.
What industries are you talking about? Media production doesn’t employ that many people. What does physical media have to do with anything? This seems like an unfocused string of assertions.
I’d love to look at your numbers, if you could provide them. Are they hopelessly over-aggregated national income statistics? What is this reserve of resources you are referring to?
ps – wikipedia isn’t a source of any higher merit than any other encyclopedia, which is to say, it’s a poor primary source for your argument.
No, inflation hurts “banksters”.
http://historymatters.gmu.edu/d/5354/
Under our current institutional arrangement, where increases in the supply of money come about by the Fed purchasing treasuries from a handful of Wall Street broker-dealers who get the privilege of going to market and competing for new business before the rest of us, the banksters make out from inflation.
Bryant was just class-warfare populist demagoguing for the farmers who were forced to compete in a world of increased competition from international commodity trade and increases in productivity.
“Those years were among the most beneficial in human history, as the foundations of the modern world were laid.”
Are you saying the former caused the latter or was correlated with it? It’s certainly the case that the chaos of the late 19th Century led to incredible migration into the interior a la the Laura Ingles Wilder books (which after all ended with the emergency of agriculture and infrastructure-development driven prosperity in South Dakota.) And I’m perfectly prepared to believe that a 10% running unemployment level among educated, middle-class-quality citizens could lead to some… interesting social transformations once people deleverage (either through payments or abandonment.) But if the chaos-driven population and productivity explosions of the 1880s-1920s were beneficial to survivors a survey of diaries of those also-educated, also middle-class-quality non-survivors suggest it might not have been all that hunky-dory. For non-Keyensians the pertinent quip might be “in the short run some of us will be dead too.”
figleaf
Wikipedia. Is it wholly wrong?
Certainly the pre-eminent world superpower – namely, the United Kingdom – spent the period ceding influence to Germany and economic power to the United States.
Are we ceding both to China?
’1873-79 was quite turbulent, but afterwards the global economy adjusted to deflation.’
6 years for the economy to adjust to deflation. What are we waiting for!?
In 2011, it’s already been four years of inflationary wealth-destroying dilly-dallying, with no end and no fix of the economy in sight.
‘In 2011, it’s already been four years of inflationary wealth-destroying dilly-dallying, with no end and no fix of the economy in sight.’
I honestly don’t think inflation is the reason for our economic problems.
Indeed. One of the classic studies of this era from an American perspective is “1877: Year of Violence” by Robert Bruce. While lots of other things were going on in America at the time, wage cuts in the railroad industry seem to be behind some of the union militancy of that era.
So, is anyone getting ready their cross of gold speech?
Prairie populism of those with underwater mortgages meets tight money Austrian solutions.
Instead of great orators holding people spellbound for hours, we now have Sarah Palin, Al Sharpton and Twitter.
Still, crucify upon a cross of gold still has a powerful imagery too it even in this secular age long after we left the gold standard. It’s fun to speculate on possible replacements.
I’m quite certain that those orators had nothing more important to say than Sarah Palin or Al Sharpton. Twitter is mostly a wash in my mind.
Zbicyclist,
The more things change, the more they stay the same.
Instead of the great revolving ring of the Universe,
It is a Bycycle Tire
Going flat.
Why should long run technological growth have any impact on employment? I understand why there would be a short run or even medium run effect from a change in technological growth, but not in the long run. It doesn’t appear as though people work much less as their countries get much richer, so that suggests the income and substitution effects roughly cancel. Therefore a long run slowdown might move around when we work but shouldn’t have much of an effect on total labor supply over the lifetime.
The issue is one of what technology allows. The extreme mobility of our age in terms of information and people is enabling totalitarianism and extreme inequality. It’s nice that people in Africa will soon make as much money as people in America, but not nice for Americans if its’ because their wages are depressed and there is no safety net mechanism to keep their life above Africans’.
Globally, it’s a zero sum game – plus whatever plus we get from population growth. But we’ve always managed economies, and we don’t really elect people to global positions. So it’s a real problem that technology is enabling the downfall of our American economy so quickly.
Of course, that was before the great stagnation.
The final quarter of the 19th century was a period of massive macroeconomic instabiity. The 1880s had one of the highest GDP growth rates of any decade in US history and was the decade that led by far in railroad construction, along with major innovations in other important industrial sectors. OTOH, the 1870s and the 1890s were the worst performing decades of any in US history with the exception of the 1930s.
Barkley,
How does Canada’s performance look in comparison? It seems like there were a whole host of terribly destructive regulations on banks which made them undercapitalized and prone to failures with the regional harvest (unit banking sucks). Plus there’s the whole post-civil war treasury note reserve requirements that lead to reserve drains as the war debts were retired. All kinds of terrible money mischief, no?
I think its clear that deflation during this period was the result of rapid economic growth rather than a fall in the money supply or velocity. As a result wages relative to productivity could fall so lower nominal wages weren’t required.
Immigration also drove a lot of gains, even if they don’t show up in per capita gdp. And this is about Europe too, not just the United States.
So, the thing the world economy needs is deflation driving half the population into poverty, which is followed by widespread bankruptcy, then migration from economies with no land available to be grabbed by immigrants from those who claimed ownership, because transferring wealth from the weaker to the more powerful is the best way to break the conservative constraints of the established order of things?
I would think you would consider Mao’s Long March to be a fantastic period that transformed China economy from one constrained by the conservative established order for thousands of years to the past three decades of outstanding growth.
But which continent are the migrants seeking to escape poverty going to migrate to engage in imperial land and resource grabs for pillage and plunder? Mao did the pillage and plunder within China’s borders.
Hard to know where to start. But:
(1) Tyler is right in saying that Saul is a good place to start. Saul’s argument is to the effect that economists and historians, noting episodes like 1920-21 in which depression went-hand-in-hand with deflation, and also that the period from 1873-1896 was also one of almost continuously falling prices, jumped to the conclusion that that entire period must have been mistakenly jumped to the conclusion that the latter period must have been one “long depression.”
(2) In fact real measures show that there was no long depression at all. Indeed, more accurate historical GNP statistics developed since Saul’s book appear only strengthen his thesis. The NBER chronology suggested a contraction lasting from 1873 to 1879–not as long as the “long depression” but a record for the U.S. nonetheless. Joseph Davis’s most recent (2006) chronology has the contraction lasting just two years. Romer’s numbers are in between. No accepted chronology supports the “long depression” thesis. If some people would rather go by Wikipedia, well, to each his own.
(3) That the “long depression,” viewed as something beyond a mere depression of prices, is a myth, and that studies like Atkeson and Kehoe’s find that deflations that are also depressions or recessions are the exception rather than the rule, doesn’t mean of course that there aren’t genuine deflationary depressions. The 20-21 episode was one such; so (all agree0 was the 1930s. japan may be as well. The real numbers are what’s crucial. That prices are falling alone can’t tell you whether an economy is depressed or not, for the simple reason, indicated here by John Papola, that prices can fall despite health demand (e.g. NGDP growth), because unit production costs are falling.
(4) It’s silly for anyone to blow a gasket just because someone points out that the U.S. and European economies really didn’t experience a depression that lasted for a whole generation. Of course, no one is denying that certain groups experiences declining fortunes during the period. But unless we are going to strip the terms depression and recession of all meaning by defining them in such a way as to suggest every economy is depressed always, we have to have some strict rules, and any reasonable rule for dating depressions and recessions ought to rely on real rather than merely nominal measures of economic performance.
One legacy of this era is still unresolved: ownership of the Black Hills.
Who do you think are the rightful owners of the Black Hills?
How much should they be paid for the pillage and plunder of their lands in the wake of one of the economic growth drivers from 1873 to 1896?
Much of the strife in Africa today has roots in this same period.
“A simple comparison with North Dakota and Nebraska drives home the point. For the globe as a whole, increased resource prices are not the same as a productivity boost, but for a single region they can be.”
This frankly mystifies me, Tyler. Productivity “boosts” tend to lower, not raise, prices (despite some clever arguments about very short-run effects); the boosts shift AS out, not in, so if we see rising prices we should if anything wonder whether there is some technological regression going on.
In Japan the presence of falling prices could either mean that productivity is surging there (AS out/up) or that demand is shrinking (AD in/down). In the U.S. from 1873 to 1896 unit costs fell in every sector you can name; under the gold standard AD didn’t grow rapidly enough to compensate for that. (Nor do I believe there was any sound argument that it should have.)
So I guess I want to understand what supply-demand story you have in mind for Japan (or Nebraska, for that matter).
I’m not totally following you, but I do have a couple of questions:
1. Wouldn’t increasing productivity also increase AD, as incomes rise? So how can you claim it must lower prices?
2. What about money? It’s hard to talk about price changes without reference to the monetary system, isn’t it?
Productivity growth doesn’t raise nominal demand, which depends on money and its velocity. Real income (y) increases with productivity, other things equal. With nominal demand (MV=Py) constant, that translates into lower prices. If P is rising in the face of a productivity surge, then it must be the case that MV is growing sufficiently to more than offset the tendency of expanded y to reduce prices.
Concerning the 1890s: yes, there was another real downturn that began with the panic of ’93. there was also a downturn in ’84, according to most measures. These cycles shouldn’t be taken as suggesting a single “long depression,” however.
It is indeed difficult to measure real output in that period because not only were overall prices falling, but there were major changes in relative prices as well as relative growth rates of sectors, meaning that there were severe index number problems. Indeed, the more recent data suggesting that 1873-75 was the period of real decline has much credibililty and is supported by the data on railroad construction, a leading sector of the economy, which declined sharply during those years. However, it only recovered slightly and was flat during the 1876-78 period, meaning that it would have seemed somewhat similar to the sort of recovery we are now having. RR construction surged in 1879 and shot to all time highs in the early 1880s. As it is, some of these more recent data suggest that the 1890s might have been worse than the 1870s, contrary to the standard accounts.
Those who have commented about the building of the railroads should (if they have not already) read “Railroaded: The Transcontinentals and the Making of America” by Richard White. the RRs were over built, under-capitalized, and in need of bailout time and time again. The book also touches on the commerce issues of the time and some of the reasons for the various panics. Well worth reading.
What is the role of the gold supply in all of this? In a time of great technological innovation, and when millions (immigrants) are being transferred from poverty to something better, wouldn’t a constrained supply of specie contribute to widespread deflation? After all, there’s no guarantee, ever, that the rate of new gold production will match increases in human output.
Just a thought for those who favor a return to the gold standard.
People are creative. Not all transactions require the abstraction of government money — and since these transactions are unrecorded by the government, all figures are skewed.
The deflation of the late 1800s did cause hardship for many. We should not forget the devestation to farmers who had fixed debt payments with decreasing income due to lower prices. Still, productivity improvements helped increase the incomes of many farmers. Population growth also increased GDP. All in all the American public benefited, while some suffered. Compared with other alternatives, deflation may not be all that bad.
Labor markets were considerably different then, I believe. More informal and hence more flexibility. “Sticky downward” wages is more a 20th c. phenomenon (though would have probably been emerging at that time as the economy industrialized).
Aren’t wages considerably less sticky now than 40 years ago, given how much of our labor force are self-employed, freelance, commission-based, performance-bonused, etc?
Wouldn’t the fact that Japan’s deflationary stagnation has gone on for far more than 6 years invalidate the example of 1873-79 as an example for today’s environment?
I hate to keep coming back to wage rigidity, but the more I look at it, the more I see that the wages of the employed just about never decrease at the same job. If demand for, say, welders goes down, one of three things need to happen to make the math work for the welder market:
1. The nominal wages of welders decrease across the board. The cheaper wages decreases prices and increase volume of welding demanded by economy.
2. Nominal wages for welders currently employed stay the same, without any productivity improvements. To make the math work, some welders need to see wages cut by 100%, i.e. become unemployed.
3. Nominal wages stay the same, but productivity improvements for welders increases the market-clearing wage for welders.The same welder at the same wage now produces more welding. That increases the equilibrium wage AND decreases equilibrium prices for welding, increasing the supply of welding though the S curve moving right.
#2 is the circumstance us and Japan are in. #1 is the situation for how the country came out of 1879, pre-TGS and all that. While it would be nice if cold fusion or whatever would take the world out of high unemployment, I would rather do what works with or without productivity booms, i.e. fix AD. Without productivity, that may lead to somewhat higher inflation. But higher inflation to compensate lack of productivity is much better than higher unemployment.
Er, #3 is how we came out of the 1873 panic, not #1. #1 does not apply except maybe for economies with only self-proprietors. Farmers, for example, can work the same number of hours no matter what wheat is selling for. Welders work for big companies though who cannot commoditize wages like wheat is commoditized. The market for labor vs. wheat is simply much, much more imperfect.
Orange 14,
I am the one going on about the RRs and am very well aware of this matter, indeed, brought them up not only because of what you mention but because they were the leading sector of the US economy at the time whose fluctuations were very important. So, the reason Reinhart and Rogoff claim that the 1870s resemble the 1930s and today is precisely that this was the other big depression that was substantially driven by a major financial crash that affected the entire financial system, with them arguing that such crashes make it harder to get out of the downturn, an obviously highly relevant point regarding today, with the trigger of that crash being scandals and the collapse of bubbles coming out of the RR financial sector as symbolized by the Jay Gould scandal. The subtext of those going on about how the decline of the 1870s was not really so bad after all, a mere two year decline instead of a six year one, is to sort of pooh pooh this argument. I noted that while the actual decline was “only” two years, still long by most measures, the recovery remained very weak for several more years, much like today.
This also is relevant to the 1890s. There was no major financial system collapse as in the 1870s, but there was not only a major decline in RR construction from the peak of the 1880s, but pretty much a total cessation. This was accompanied by the culmination of the deflation, with this being the period in which it most severely affected the much-indebted farming sector, arguably a financing problem, which was the immediate trigger of the populist movement.
The post Civil War deflation cancelled the Civil War inflation. The latter was caused by the introduction of fiat money (“not worth a greenback”) and the former undid that.
So perhaps the post Civil War deflation was viewed as a special case at the time, rather than a deflation “out of a clear blue sky”.
The gold supply for the period 1873-1896 wasn’t deficient in the sense that it prevented nominal GDP growth roughly equal to growth in factor input. Output prices fell, as has been noted; but money wage rates did not display any similar downward trend.
The groups that struggled during this period–farmers, notably (as others have mentioned) did so owing to a secular decline in the real or relative prices of their products. A more inflationary standard would not have prevented this, though it might have supplied them with relief in the shape of an ex-post reduction in their real indebtedness to the extent that they had contracted debts at rates based on the deflationary trend. This was the sort of possibility that informed both greenbackism and the agitation for silver.
Concerning the overbuilding of railroads, it was certainly a factor in the 1873 crisis, which was sparked by anticipations that the Northern Pacific would not generate the traffic or land sales needed to pay its creditors. Indian raids and grasshopper infestations were both big factors, though graft didn’t help. The downturn of ’73-’77 (or whatever) was more a real than a monetary cycle.
The 1870s and the 1930s both followed peaks of technological, as well as financial, innovation. So did the 1970s and this past decade, for that matter. Maybe we need to pay a little less attention to Keynes and Hayek and little more to Schumpeter.
Schumpeter is the elephant in the room.
“Schumpeter is the elephant in the room.”
He is in the sense that he linked technological and monetary cycles by claiming that you needed forced saving to finance innovation. But as the claim rests on the spurious real-bills doctrine; it may be wise to ignore this particular elephant
Is this comparison really appropriate? (Apparently a myth needs exploding.)
Was the period from 1873-1896 really that deflationary? During the best part of this period, 1878-1892, nominal (not real) GDP per capita increased by 43% and nominal wages of unskilled workers increased by 24%. In contrast nominal GDP per capita and average nominal wages in Japan fell by 9% and 45 respectively between 1997 and 2009. Sure prices were slowly falling during the 1880s but nominal wages were booming.
Alas, Mark, the myth that all deflations are similar–whether because they all spell depression or because they all spell rapid technological change–apparently does need exploding again and again. So thanks for the statistical nitro.
Falling prices != deflation. Deflation is devaluation of currency. Falling prices is the natural order of technological progress.
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