In his book Bowling Alone , Robert Putnam mentioned the Panic of 1890, and said that what we now call recessions were known as panics in the old days.
Prior to reading that, I always imagined the Panic of 1890 to involve a bunch of guys, hair parted down the middle, running through the streets screaming.
When did the more descriptive, albeit far less colorful, term “recession” develop? And why were economic downturns known as panics? Certainly the loss of one’s job is a big stress inducer, but it is just as big a cause of stress today as it was in 1890. Are folks just more reserved these days?
“Recession” replaced the word depression, after the 1930’s. Depression used to mean just a slight depression in the economy until it became associated with the economy of the 1930’s.
I expect/predict the word: “recession” will also be replaced someday, maybe soon, if our current “recession” becomes worse, and if our jobs and factories dont return from asia.
It’s my understanding that “recession” and “depression” actually switched places on the scale of relative severity. In other words, a recession was considered very bad and at the outset the Hoover administration tried to reassure the public that this isn’t a recession, it’s “only” a depression.
I took a class on the Economic History of the U.S. and I don’t exactly remember when the term recession developed. My prof may have explained it, but she used the term to describe downturns throughout our history. As far as I know, a Panic refers more to a bank panic type situation. As in, the public would become concerned with economic stability or soundness of their bank and make a mad dash to convert all of their assets into gold or other hard assets. Before the Great Depression era there weren’t central banks, so each was pretty much on their. When the public stormed the banks and withdrew all of their assets, the banks, as you could expect, had difficulties running their business. This was really more of a mentality rather than a state of the economy. So during the Great Depression era, the Federal Reserve took on the responsibility of overseeing the stability of the money supply and banking system. That has really made the biggest difference. That, and now the money in your savings account is insured by the FDIC. So, a good old fashioned Panic is unlikely these days.
Actually, the Fed was assigned that responsibility in 1913, and botched it so badly that it turned the recession beginning in 1929 into the Great Depression. But that’s another topic for another day.
As for panics and recessions–a “panic” of some kind usually marks the transition from expansion to recession. The panic, as mentioned, involves a collapse in price of risky assets (1800’s–railroad stocks; 2000–Internet stocks) and transfer of money into safe assets (1800’s–gold; today–money market accounts and T-bills). Usually this causes a recession, defined as at least six months of decline in Gross Domestic Product.
In earlier times, when we were less inundated with economic statistics, people focused on the more visible “panic” and referred to the entire recession as a “panic”, which is technically incorrect. Nowadays we call a recession a recession and tend to refer to the opening panic as the “collapse” of a “speculative bubble”.
[jklann], thanks for the reminder. I knew the Fed was established in or around 1913, but they were given other responsibilities in the Banking Act of 1935.
I now remember from my class my professor had a chart that showed the economic growth from around 1800 on, and for most of the negative spikes just at the beginning of most if not all of them there was always a panic and/or bank run or the like. Have you read any more current books on this subject, aside from textbooks? I would be interested in learning more about it. Thanks.
Can’t say as that I’ve ever read anything systematic on the topic. I’m sure stuff has been written; I just haven’t read it.
The correlation between panics and recessions isn’t perfect; in 1982, for example, we had a recession caused by Fed tightening to choke off inflation, at a time when prices of risky assets were already low (Dow = 800). But there were panics at or near the beginning of recessions in 1837, 1857, 1873, 1893, 1907, 1929, 1974, and 2000, and those are just the ones I know about.