The USA’s First ‘Belle Époque’ (1841-1856)

America’s First Great Moderation

By Joseph Davis (NBER) and Marc Weidenmier (Claremont – McKenna University,


We identify America’s First Great Moderation, a recession-free 16-year period from 1841 until 1856, that represents the longest economic expansion in U.S. history. Occurring in the wake of the debt-deleveraging cycle of the late 1830s, this “take-off” period’s high rates of economic growth and relatively-low volatility enabled the U.S. economy to escape downturns despite the absence of a central bank. Using new high frequency data on industrial production, we show that America’s First Great Moderation was primarily driven by a boom in transportation-goods investment, attributable to both the wider adoption of steam railroads and river boats and the high expected returns for massive wooden clipper ships following the discovery of gold in California. We do not find evidence that agriculture (i.e., cotton), domestic textile production, or British economic conditions played any significant role in this moderation. The First Great Moderation ended with a sharp decline in transportation investment and bank credit during the downturn of 1857-8 and the coming American Civil War. Our empirical analyses indicate that the low-volatility states derived for both annual industrial production and monthly stock prices during the First Great Moderation are similar to those estimated for the Second Great Moderation (1984-2007).


Distributed by NEP-HIS on 2016-03-23

Review by Natacha Postel-Vinay (University of Warwick)

Those who like to study the causes of business fluctuations are often primarily interested in severe downturns, or sometimes wild upswings. They may be tempted to gloss over periods of relative calm where not much seems to be happening. Yet there is a good case for studying such phenomena: surely a long period of low volatility in output, prices and unemployment combined with relatively high sustained growth would make many policy makers happy. As such they deserve our attention.

The Great Moderation is usually thought of as one such period when, from the 1980s up to 2007, US economic growth became both more sustained and much less volatile. The causes of the Great Moderation are still being debated, and range from better monetary policy to major structural changes such as the development of information technologies to sheer luck (for example, an absence of oil shocks). Less well-known is the fact that the US economy experienced a similar phenomenon more than a century earlier, from the 1840s to the mid-1850s. In their paper, Davis and Weidenmier draw our attention to this period as it was, in their view, America’s First Great Moderation.  While much of the paper is spent demonstrating just that, they also look for its causes, and argue that important structural changes in the transportation industry were probably at the origin of this happy experience.


Despite being sometimes pointed out as America’s “take-off” period (Rostow, 1971), the idea that this was the US’s First Great Moderation is far from straightforward. This is partly because the period has been commonly known for its relative financial instability, with for instance financial panics in the late 1930s, 1940s and 1950s. In addition, the National Bureau of Economic Research (NBER)’s official business cycle data do not go further back than 1854, which itself results from the fact that most of the extant data on pre-1854 output is qualitative. Thorp’s Business Annals (1926), for example, are primarily based on anecdotal newspaper reports. Thorp identifies a recession in almost every other year, which Davis and Weidenmier think is a gross overestimation.

Instead, the authors use Davis’s (2004) index of industrial production (IP) and defend their choice by pointing out a number of things. First, this is a newer, high-frequency series which despite its industrial focus is much more precise than, for example, Gallman’s trend GDP data. It is based on 43 annual components in the manufacturing and mining industries which were consistently derived from 1790 to World War I. The series does not contain any explicit information on the agricultural sector, which produced more than half of US output in the antebellum era. However, Davis and Weidenmier argue that any large business fluctuations apparent in this sector would also be reflected in the IP index as the demand for industrial goods was very much tied to farm output. Conversely, the demand for say, lumber, could be intimately related to business conditions in the construction and railroad industries.

Simply looking at standard deviations makes clear that the 1841-1856 period was indeed one of especially low volatility and sustained growth in industrial production, with no absolute normal declines in output. From this data it is thus apparent that even the well-known 1837 financial panic was not followed by any protracted recession, thereby confirming Temin’s (1969) earlier suspicion. Testing more rigorously for breaks in the series, their Markov regime-switching model suggests that the probability of a low-volatility state indeed rises the most during this period as compared to the early and late 19th-century periods. Applying the same model up to the recent era, it even appears that the two Great Moderations were similar in magnitude – a remarkable result.


But what could explain this apparently unique phenomenon? To answer this question, Davis and Weidenmier first decompose industrial production into several sectors such as metal products, transportation machinery, lumber, food, textiles, printing, chemicals and leather. They then find that the probability of faster growth and lower volatility during the First Great Moderation is significantly higher for the transportation-goods industry. This corresponds to the general idea that the “transportation revolution” (especially in railroads and ships) was an important aspect of America’s take-off. However, increased production in transportation goods could be a result of increased demand in the economy as a whole. The authors then refute this possibility by showing that transportation production preceded all other industrial sector increases in this period, which would tend to confirm the importance of transportation investment spillover effects into other sectors.

Davis and Weidenmier therefore make a convincing case that the Great Moderation should in fact be called the Second Great Moderation, since a first one is clearly apparent from the 1840s to the mid-1850s. Interestingly, they emphasize that in both cases deep structural changes in the economy seem to have been at work, especially in the realm of general purpose technologies, with significant spillovers (transportation in one case, IT in the other).


An important question left to answer is the extent to which an era of the “Great Moderation” type is to be desired, and on what grounds. Although aiming at a quiet yet prosperous era seems legitimate, it is important to remind ourselves that the 1850s ended with a severe financial and economic crisis which some argue had its roots in financial speculation and overindebtedness in preceding years. Likewise, we all know how the 2000s sadly ended. The “Second” Great Moderation also saw significant increases in inequality. Davis and Weidenmier acknowledge not being able to account for financial and banking developments during this era; perhaps this needs to be investigated further (or at least pondered upon). One may ask, indeed, whether such periods of prosperity may not bear in themselves the seeds of their own demise.



Davis, Joseph. (2004). “An Annual Index of US Industrial Production, 1790-1915.” The Quarterly Journal of Economics 119:4, pp. 1177-1215.

Gallman, Robert. (1966). “Gross National Product in the United States, 1834-1909” in Dorothy S. Brady (ed.) Output, Employment, and Productivity in the United States after 1800. New York, Columbia University Press.

Rostow, W. (1990). The Stages of Economic Growth: A Non-Communist Manifesto. 3rd Edition. Cambridge: Cambridge University Press.

Temin, Peter. (1969). The Jacksonian Economy. New York: W. W. Norton & Company, Inc.

Thorp, William. (1926). Business Annals. NBER.



2 thoughts on “The USA’s First ‘Belle Époque’ (1841-1856)

  1. Drew Keeling

    Thanks for the lively review of an important and thought-provoking paper, which I had not previously been aware of. The paper employs a creative combination of relevant -but undertapped- data sources and methodologies to impressively address important and complex issues concerning the interplay between structural factors in US economic growth (especially transport) and business cycles. The causes of “low volatility and sustained growth in industrial production” during the focused-upon 1841-56 “belle epoque” seem somewhat tentative but plausible, and neatly summarized by the review.

    I have a quibble with some of the terminology, however. Low volatility logically qualifies as a “moderate” economic phenomenon, but high growth less so. The paper could probably make that distinction crisper than it does.

    Furthermore, the 16 year span 1841-56 (while obviously well-covering the period of prosperity between the aftermath of the panic of 1837 and the onset of the panic of 1857) seems not well-evaluated by the comparison (in Table 3 of the paper) to the 49 year period 1792-1840 or the 48 year period 1867-1914. A more “apples to apples” approach, I think, would compare other similarly chosen periods of comparable length. For example, using the underlying data (Davis, 2004) and a comparable methodology to Table 3, to evaluate two other 16 year periods, 1798-1813 and 1898-1913, I came up with growth rates slightly lower but coefficients of variation considerably lower than for 1841-56.

    Thus, while the fascinating antebellum 1840s and ’50s (certainly evoked by the paper, by the way) seem to clearly deserve categorization as an episode of economic “moderation”, and quite possibly as a “great moderation” as well, I have some slight doubts about that convincingly panning out to be conclusively regarded as “the first great moderation,” and am even more skeptical about 1984-2007 being (only) “the second” such “great moderation.” The stock market crash of 1987 and the bubble a decade later, might be more moderate than many other fluctuations of the past two and a quarter centuries of American economic history. But more moderate than almost all of them? And what about the stagflation of the late ’70s and early ’80s? Not very “moderate”-looking it seems to me.

    In sum, the insightful conclusions about 1841-56 seem more broad-based, persuasive and pathbreaking than the comparison (across the full lifetime of the US economy) implied by applying the labels “first” and “second” “great” moderation to the antibellum transport boom epoch and its most recent quasi-parallel.


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