The Depression You Haven’t Heard Of

I was watching Glenn Beck the other day, and he mentioned something that I hadn’t heard of before: the depression of 1921. Admittedly, my studies of history have mostly focused on the ancient world or post-WWII America, so I wasn’t up on the ’20s too much, but I was kind of surprised about this. Weren’t the ’20s known as the “roaring twenties” because of the massive prosperity of the time? I thought that the economy was great until the Great Depression – so what was this about a big depression during this time?

Woodrow Wilson was the first major socialist leader of the 20th Century. His employment of progressive government policies left a mark on the US economy, leaving it in shambles. President Harding took office supporting capitalism and free market president, and this is the primary reason that we don’t hear about the depression that he fought – it ended quickly because the free market was allowed to correct itself.

The Oregon Catalyst has an essay explaining the situation:

It’s a few years after the war and things are dire indeed. US farm export sales crashed as European farms returned to production after WW1. The beginning of depression was extraordinarily sharp: the U.S. price level declined by over 40% in 6 months and 56% for the year. The highest decline ever in the whole history of the United States. The gross national product plunged 24 percent.

As the depression grew the President began to dismantle the huge federal bureaucracies built up during WW1. The Presidents slogan was “less government in business” as he opposed excessive governmental interference in the private sector of the economy and worked to control $25 billion of Federal debt. After taking office the President had said that government ought to “strike the shackles from industry .. We need vastly more freedom than we do regulation.”


The 1921 loss of half the value and price of all goods was horrendous. For comparison the loss of housing value in the last year is around 18%, lower in many areas and a bit higher in others. Even though it was worse than 1930 we don’t remember the 1920 depression because the President didn’t tinker with the economy and built the groundwork to allow quick recovery without wide spread damage.

That President? That was Warren G Harding. Harding “embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress on April 12, 1921. The highest taxes, on corporate revenues and “excess” profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8 percent of incomes above $4,000. Harding recognized the crucial importance of encouraging the investment that is essential for growth and jobs, something that FDR never did.”

Under Harding, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million, s reported 6.7 percent in 1922. Then fell again in 1923. So, just a year and a half after Harding became president, the Roaring Twenties were underway.

The Secretary of Commerce? That was Herbert Hoover who wanted government intervention in the economy … which as president he was to pursue a decade later when he transformed the second Great Depression into the beginning of a disaster.

Jim Powell at the Cato Institute also presents a history of this depression, and how it was corrected:

Harding’s Secretary of Commerce Herbert Hoover wanted government intervention in the economy— which as president he was to pursue when he faced the Great Depression a decade later— but Harding would have none of it. He insisted that relief measures were a local responsibility.

Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding’s policies started a trend. The low point for federal taxes was reached in 1924; for federal spending, in1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930.

Conspicuously absent was the business-bashing that became a hallmark of FDR’s speeches. Absent, too, were New Deal-type big government programs to make it more expensive for employers to hire people, to force prices above market levels, or to promote cartels and monopolies.

With Harding’s tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million— a reported 6.7 percent of the labor force— in 1922. So, just a year and a half after Harding became president, the Roaring Twenties were underway. The unemployment rate continued to decline, reaching an extraordinary low of 1.8 percent in 1926. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.

The Roaring Twenties were a time of unprecedented prosperity. GNP expanded year after year without inflation. Productivity improved, and real wages increased. The stock market tripled. There was a dramatic expansion of the middle class. The Great Migration occurred during the 1920s, with some 7 million African-Americans moving north for better schools and job opportunities. Women had the vote. Millions of Americans began to buy cars, originally a luxury of the rich. People bought radios that enabled ordinary people to hear the finest entertainers in their own homes. Movies became popular. Frozen food made possible a more varied diet year-round. Doctors developed new medicines to fight deadly diseases like diphtheria and tuberculosis.

While Harding can hardly be considered a champion of laissez-faire economics (he supported tariffs, after all), the pro-growth policies he implemented are directly responsible for the astonishingly rapid growth in prosperity— and widely shared prosperity— America enjoyed throughout the Roaring 20s.

I was told in school that the progressive New Deal policies of FDR saved America from teh Great Depression, and the Left has touted this advice for us in the wake of our current economic downturn. Of course, history clearly shows that not only did the New Deal not end the Great Depression, it probably prolonged it.

I can’t understand how anyone can sit with a straight face and tell us that the best way to come out of a recession is to increase taxes, government spending, and debt. The Left had been crying out for government regulation of the economy to “fix” it, despite the fact that the imposition of socialist controls on the housing and lending markets are what caused the housing bubble to begin with. It seems very apparent to me that Socialism in general propigates itself by creating the very problems it calism to offer a solution to, like a vacuum salesman who dumps dirt on your carpet.

Let the American people excell, already. Leave us the hell alone, and we’ll do what we need to do to get back on track. It has worked before, and it can work again, if you let it.

And for your viewing pleasure, a video discussing the Great Depression and responses to it:

See more here, here, and here.


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  1. #1 by DurableFaith on Tue 13 Apr 2010 - 20:06


  2. #2 by iusbvision on Tue 20 Apr 2010 - 13:17

    Oh this is very good stuff – I will be back to get every last detail soon – Thanks!

  1. A Radical Recovery Proposal « The Republican Heretic
  2. America’s Forgotten Depression « The Republican Heretic
  3. The Forgotten Depression of 1921 « The Republican Heretic

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