thinking out loud
Too often it is claimed that economic growth is inflationary. The following chart should shatter that myth (but probably won’t). During the 1800s when the British economy expanded massively the price level actually halved.
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27 March 2008 at 1:03 am
Hi Terje, like your site. Agreed that growth is not inflationary per se. Inflation occurs when high powered money is cheaper (more plentiful) than it ought to be, deflation when it is dearer (in short supply), and this can only be assessed relative to the needs of the economy.
So was the price level halved due to monetary conditions, economic conditions, or both? Consider the timeline: gold convertibility suspended during Napoleonic Wars caused singificant inflation; return to gold c.1821 at its prewar parity caused significant deflation; gold discoveries in 1840s caused mild inflation; global move onto gold at existing rate c.1873, combined with dearth of new gold discoveries, caused persistent deflation until massive gold discoveries in South Africa c.1896. Despite steady real growth and rising real savings and incomes, this period was known globally as the Great Depression until displaced by the 20th century version. It is now called the Long Depression. The agitation for a return to a bimetallic standard in the late 19th century appears to have been solidly grounded in the deflationary reality of the time.
20 April 2008 at 9:49 pm
Bloody hell Terje, just when I was giving up on both of you, you and Pommy start writing again. Good on you.
26 April 2008 at 11:17 am
Jim – My blog never stopped. It has always been a slow moving endeavour.
16 June 2008 at 2:50 pm
Interesting!
19 November 2008 at 2:18 am
Economic growth in 19th century England was anything but “massive” by the standards of the 20th and 21st centuries.
6 October 2009 at 6:18 pm
This is great. Do you know if the data series is available anywhere?
8 October 2009 at 9:32 pm
You can get it from the following but they are not cheap.
https://www.globalfindata.com/