James Grant Remembers The Forgotten Depression Of 1921: "The Crash That Cured Itself"

The Forgotten Depression tells of the slump of 1920-21: high unemployment, collapse in commodity prices, upsurge in bankruptcies and sharp break in stock prices. However, unlike the Great Depression, the 1920 affair was over in 18 months. What explains its brevity? James Grant, publisher of the prestigious Grant's Interest Rate Observer, tells the story of America's last governmentally-untreated depression; relatively brief and self-correcting which gave way to the Roaring Twenties...

As ValueWalk.com's Jacob Wolinksy explains, in 1920–21, 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 in 1921.

In 1929, the economy once again slumped—and kept right on slumping as the Hoover administration adopted the very policies that Wilson and Harding had declined to put in place. Grant argues that well-intended federal intervention, notably the White House-led campaign to prop up industrial wages, helped to turn a bad recession into America’s worst depression. He offers the experience of the earlier depression for lessons for today and the future. This is a powerful response to the prevailing notion of how to fight recession. The enterprise system is more resilient than even its friends give it credit for being, Grant demonstrates.

 

As Grant so perfectly summarized previously, while we seem incapable of learning from what has worked in the past, future citizens will reflect on this so-called PhD standard (that runs the world), thus...

"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.

 

We put the cart of asset prices before the horse of enterprise.

 

We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.

 

We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017).

 

We seem to have miscalculated."