The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which the world prices of goods, materials and labor decreased, although at a low rate of less than 2% annually. This was one of the few sustained periods of deflationary growth in the history of the United States.Andrew Atkeson and Patrick J. Kehoe of the Federal Reserve Bank of Minneapoli
Deflation and Depression: Is There an Empirical Link?
/ref> This had a positive effect on the economy in general, as the purchasing power improved. Many businesses suffered, such as warehousing, especially in the

London London is the capital and List of urban areas in the United Kingdom, largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary dow ...

area, due to improvements in transportation, like efficient steam shipping and the opening of the Suez Canal, and also because of the international telegraph network. Displaced workers found new employment in the expanding economy as real incomes grew. By contrast to the mild deflation of the so-called Great Deflation, the deflation of the 1930s Great Depression was so severe that

deflation In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflatio ...

today is associated with depressions, although economic data are not quite as clear on the matter.

Productivity caused deflation

The ''Great Deflation'' occurred at the beginning of the period sometimes called the

Second Industrial Revolution The Second Industrial Revolution, also known as the Technological Revolution, was a phase of rapid scientific discovery, standardization, mass production and industrialization from the late 19th century into the early 20th century. The Fi ...

. It was characterized by dramatic increases in productivity made possible by the transition from agriculture to industrialization in the leading economies. The new leading industries were Bessemer and open hearth steel, railroads, the machinery industry, efficient steam shipping and animal powered agricultural mechanization. The prices of most basic commodities and mass-produced goods fell almost continuously; however, nominal wages remained steady, resulting in a pronounced and prolonged rise in real wages, disposable income and savings – essentially giving birth to the middle class. Goods produced by craftsmen, as opposed to in factories, did not decrease in price.

Deflation with increasing gold supply

The Great Deflation occurred despite an increase in the world's gold supply, which

William Stanley Jevons William Stanley Jevons (; 1 September 183513 August 1882) was an English economist and logician. Irving Fisher described Jevons's book ''A General Mathematical Theory of Political Economy'' (1862) as the start of the mathematical method in ec ...

predicted would result in inflation.

References

{{DEFAULTSORT:Great Deflation 1870s economic history 1880s economic history 1890s economic history Economic history of the United States de:Große Deflation

Productivity caused deflation

Deflation with increasing gold supply

See also

References