Thread: Debunking the myths of Industrial-era America and Laissez-faire

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

C'mon, are ya'll really that uninterested in economics? This is the gilded age I'm talking about!

I believe the death of the American economy was when Americans began to hold politicians responsible for their economic well-being. Instead of taking responsibility for their personal financial state they blamed their elected officials and demanded that they do something about it.

Once it was in the hands of the government politicians found ways to destroy the economy through spending-stimuli, "full-employment" goals, and federal regulations.

Now that our beloved government has the power in their hands, of course they want us to believe that depression, starvation, and general panic will ensue if they back off. People are scared so they believe them. We are in a downward spiral that will only end in a socialistic dictatorship if allowed to continue.

That's just plain depressing. Now you know why no one wants to talk about it.