The Forgotten Depression 1921: The Crash That Cured Itself

The year 1921 marked a turning point in American economic history. It was a time of great despair and financial chaos, as the country faced one of the worst economic recessions in its history. This devastating period came to be known as "The Forgotten Depression", as it has often been overshadowed by the more famous Great Depression of the 1930s. However, the events of 1921 and the subsequent recovery hold valuable lessons for us today.

The Causes of the 1921 Depression

The 1921 depression was triggered by a number of factors. The aftermath of World War I, rapid inflation, and a series of bad policies by the government all contributed to the economic collapse. The government's decision to tighten monetary policy, raise interest rates, and reduce spending worsened the crisis.

The collapse of the stock market, declining prices, and a massive drop in industrial production caused panic and widespread unemployment. Businesses closed, banks failed, and people lost their homes and life savings. The situation seemed dire, and many believed that the American economy was doomed.

The Forgotten Depression: 1921: The Crash That Cured Itself

by James Grant (Kindle Edition)

4.5 out of 5

Language	:	English
File size	:	20768 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
X-Ray	:	Enabled
Word Wise	:	Enabled
Print length	:	273 pages

FREE

The Path to Recovery

In the face of adversity, there emerged a remarkable individual who would play a crucial role in turning the tide of the 1921 depression. His name was Warren G. Harding, who assumed the position of the President of the United States in 1921. Harding embraced a different approach to economic recovery, unlike his predecessors who favored intervention and government regulation.

Harding recognized the importance of allowing market forces to correct themselves. He believed that the government's role should be limited and that the economy would recover naturally if left to its own devices. Therefore, he initiated a series of pro-business policies, including tax cuts and reduced government spending, to stimulate economic growth.

In addition to his laissez-faire approach, Harding appointed Andrew Mellon as Secretary of the Treasury. Mellon was a renowned industrialist and economist who advocated for fiscal responsibility and tax cuts. Under his guidance, tax rates were significantly reduced, which encouraged investment and entrepreneurship.

The Impressive Recovery

The measures taken by Harding and Mellon yielded remarkable results. Within a short period, the American economy began to recover from the depths of the depression. Unemployment rates dropped, industrial production increased, and the stock market stabilized.

By the end of 1921, the country experienced a sharp V-shaped recovery, defying all expectations. It was an unprecedented turnaround, with the economy growing at an annual rate of around 8% for the following decade.

Lessons for Today

The forgotten depression of 1921 holds several crucial lessons for us today. Firstly, it emphasizes the significance of limited government intervention. Harding's hands-off approach allowed the market to correct itself, leading to a swift recovery. This is in stark contrast to the prolonged intervention and regulation that characterized the approach to the Great Depression in the 1930s.

Secondly, the 1921 depression highlights the importance of fiscal responsibility and tax cuts. By reducing tax rates, entrepreneurs and businesses had the incentive to invest and create new jobs. This approach fostered economic growth and prosperity.

Lastly, the forgotten depression serves as a reminder that economic downturns are not necessarily permanent. The resilience of the American economy, when given the freedom to operate, can lead to unexpected recoveries. This optimism is crucial as we navigate through future challenges.

In

The forgotten depression of 1921, known as the crash that cured itself, offers important insights into economic recovery. It reminds us that limited government intervention, fiscal responsibility, and allowing market forces to correct themselves can lead to rapid recoveries. As we face economic challenges today, let us not forget the valuable lessons from this forgotten chapter in American history.

The Forgotten Depression: 1921: The Crash That Cured Itself

by James Grant (Kindle Edition)

4.5 out of 5

Language	:	English
File size	:	20768 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
X-Ray	:	Enabled
Word Wise	:	Enabled
Print length	:	273 pages

FREE

James Grant’s story of America’s last governmentally untreated depression: A bible for conservative economists, this “carefully researched history…makes difficult economic concepts easy to understand, and it deftly mixes major events with interesting vignettes” (The Wall Street Journal).

In 1920-1921, Woodrow Wilson and Warren G. Harding met a deep economic slump by seeming to ignore it, implementing policies that most twenty-first century economists would call backward. Confronted with plunging prices, wages, and employment, the government balanced the budget and, through the Federal Reserve, raised interest rates. No “stimulus” was administered, and a powerful, job-filled recovery was under way by late 1921. Yet by 1929, the economy spiraled downward as the Hoover administration adopted the policies that Wilson and Harding had declined to put in place.

In The Forgotten Depression, James Grant “makes a strong case against federal intervention during economic downturns” (Pittsburgh Tribune Review), arguing that the well-intended White House-led campaign to prop up industrial wages helped turn a bad recession into America’s worst depression. He offers examples like this, and many others, as important strategies we can learn from the earlier depression and apply today and to the future. This is a powerful response to the prevailing notion of how to fight recession, and “Mr. Grant’s history lesson is one that all lawmakers could take to heart” (Washington Times).