Deflation
Deflation occurred periodically in the U.S. during the 19th century (the most important exception was during the Civil War). This deflation was at times caused by technological progress that created significant economic growth, but at other times it was triggered by financial crises — notably the Panic of 1837 which caused deflation through 1844, and the Panic of 1873 which triggered the Long Depression that lasted until 1879. These deflationary periods preceded the establishment of the U.S. Federal Reserve System and its active management of monetary matters. Episodes of deflation have been rare and brief since the Federal Reserve was created (a notable exception being the Great Depression) while U.S. economic progress has been unprecedented.
Long Depression
The period preceding the depression was dominated by several major military conflicts and a period of economic expansion. In Europe, the end of the Franco-Prussian War yielded a new political order in Germany, and the £200 million reparations imposed on France led to an inflationary investment boom in Germany and Central Europe. New technologies in industry such as the Bessemer converter were being rapidly applied; railroads were booming. In the United States, the end of the Civil War and a brief post-war recession (1865–1867) gave way to an investment boom, focused especially on railroads on public lands in the Western United States - an expansion funded greatly by foreign investors.