The Great U.S. Economic Expansion of 1870-1913
April 11, 2013
(This item originally appeared at Forbes.com on April 11, 2013.)
For some reason, it is conventional wisdom today that the years 1870-1914, the era of the Most Perfect Monetary System Ever Created, was a time of chronic recession and disaster.
But how could that be? The United States was the world’s greatest economic success story of the last two centuries. When did that happen? It didn’t happen during the Civil War and the Great Depression. It must have happened — logically — during times of peace and prosperity.
That’s why Professor Brian Domitrovic says the usual story you hear about the gold standard years is completely wrong.
The United States actually did not return to a gold standard until 1879. However, by 1870, most of the rubble of the Civil War, including the floating “greenback” dollar, had been cleared up. Between 1870 and 1912, a period of forty-two years, industrial production in the United States rose by 682%.
Six hundred and eighty-two percent. Not too shabby.
Today, we live in an environment of floating fiat currencies, which began in 1971. Conventional academic wisdom is that this period has been a wonderful example of how economic management via currency manipulation can solve the terrible problems of the bad old gold standard years.
How did the United States do in the 42 years of floating fiat currencies, between 1970 and 2012? Industrial production rose by 159% over that time.
Even that mediocre result reflects some pretty good times in the 1982-2000 period, when the dollar’s value was crudely stable vs. gold around $350/oz. If you look at the periods where the dollar’s value fell significantly vs. gold — 1970-1982 and 2000-2012 — the picture looks a lot worse. During the twelve years of the 1970s (until the end of the 1982 recession), U.S. industrial production rose a meager 21%. Yes, 21% in twelve years.
During the 2000-2012 period, it rose by — get this — 7%. Not seven percent per year. Seven percent total!
Yes, that floating fiat money is surely some kind of cure-all. Thanks a bunch Ben Bernanke, and Arthur Burns.
During the 1946-1970 era — the Bretton Woods gold standard system, when the dollar’s value was held at $35/oz. — U.S. industrial production rose by 209%.
We remember the Bretton Woods era as one of the most successful and prosperous periods in all of U.S. history. But, actually, the 1870-1912 period had a higher annualized rate of growth in industrial production, 5.0% per year vs. 4.8%.
Not bad for an era that most economists today think was a time of chronic economic difficulties and stagnation.
Most of what you hear is a fairy tale designed to serve present-day political purposes. We still worship at the altar of funny money. For anyone who looks, the record is clear. The United States had its greatest periods of economic advancement with a gold standard system.