The Origins of Economic Terminology

“If you asked someone on the street 100 years ago, ‘How’s the economy doing?’ They wouldn’t have had any idea what you were talking about.” – Jacob Goldstein, Planet Money

NPR’s Planet Money recently aired an interesting segment called The Invention of the Economy.

It discusses the fact that talking about “The Economy” at large is a relatively new phenomenon that only started after the Great Depression.

The economy wasn’t really a part of the national consciousness like it is now. Politicians or the public at large never really mentioned it.  Everyone simply looked to the banks as a way to gauge how the financial system functioned, but GDP didn’t even exist as a measure.

Economists came up with a way to calculate National Income in the aftermath of the Great Depression.  This later morphed later into GDP, the measure of economic production we use today.

But it was never meant to measure the well-being of a country’s citizens as some believe.

Jacob Goldstein from NPR shared his characterization of GDP:

Maybe the most important thing to remember about GDP is that it’s not a thing. It’s an idea and that idea keeps changing.

Once economists were able to measure economic production, they were could define economic slumps.

In the 1800s there were 17 recessions in addition to 5 panics or depressions.

NBER lists the longest GDP contraction on record as 65 months in length which was from October 1873 to March 1879 (it’s now known as the long depression – I know, innovative name). In comparison, the Great Depression was 43 months long.

This was the U.S. as an emerging market.

After a land price boom-bust in the early 1800s, the word panic entered the lexicon and was used to describe speculative economic episodes that resulted in a collapse.

The term ‘panic’ was used for the remainder of the century until officials decided they needed something that was less alarming to the public.

Basically, using the term panic freaked everyone out even more than they already were, so they had to come up with a new way of describing economic contractions.

This is how the terms recession and depression came to be used to describe economic downturns.

Feel free to use this history lesson to bore your next dinner party guests.

Listen to the NPR segment here (it’s less than 5 minutes long):
The invention of ‘The Economy’ (NPR)

 

 
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  1. Retire Before Dad commented on Mar 11

    AWOCS,
    5 panics/depressions is not bad for 100 years. We’ve already had 2-3 this century! Interesting about Backrub, I hadn’t heard that either.
    -RBD

    • Ben commented on Mar 11

      Actually those panics/depressions were extremely nasty. We’re talking declines of 15-30% in economic activity. In comparison, the great recession from 07-09 was something like a 4.3% contraction.

      We most certainly could have gone into a depression had the Fed/gov’t not stepped in, but those panics in the 1800s were pretty nuts.