A Depression that Should Not Be Forgotten

Print Friendly, PDF & Email

I liked The Forgotten Depression but did not love it.

Its subject is the depression of 1921 — a valuable subject because, as the author indicates, the depression went away without massive government intervention. Imagine that.

The author's brief history of the problems some big banks got into, in the late 1800s and early 1900s, is excellent. Grant shows how the principals of the banks had their own fortunes tied up in the banks’ capital, which usually kept them prudent. Still, they made mistakes. For instance, National City Bank (“forerunner of today’s Citigroup” p. 18) for instance, invested in Tsarist Russia — just before the Bolshevik revolution. The firm had over 60% of its capital tied up in sugar investments in Cuba, when prices were high, then crashed. Guarantee Trust, another huge bank of the time, was considered "too big to fail," almost a hundred years before our present policies on that subject.

The author aptly characterizes the 1920–21 depression as the last major downturn to be "un-medicated" (by government stimulus policies), and makes telling comparisons with the activist Herbert Hoover and Franklin Roosevelt administrations. Notably, the earlier depression was of short duration, while the “medicated” depression of the 1930s and the recent Great Recession went on and on. Grant’s discussions of the various economists, bankers, and policy makers involved in the problems of the 1920s are challenges to today’s economists, policy makers, and historians.

Meanwhile, Grant adds texture and depth to his story with descriptions of the difficulties suffered by the various sectors of the economy during the Forgotten Depression: farming, steel production, the auto industry, construction, and even haberdashers (including one very famous and resentfully unsuccessful one). But be prepared for a massive amount and variety of statistics about earnings and losses, interest rates, unemployment rates, sales rates and amounts, etc., etc. The author is an expert who knows how to deal with statistics. His writing is not nearly as dry as it could be.

Notably, this earlier depression was of short duration, while the “medicated” depression of the 1930s and the recent Great Recession went on and on.

He is also basically sound on substantive economic issues. He provides a good explanation of the classic gold standard up to the 1920-21 depression, and then of the fake "gold exchange" standard thereafter. He understands market forces and government intrusions and distortions. His description of the anti-business, anti-market biases, or ideology, of the key figures in the Woodrow Wilson administration is appropriately sickening.

Unfortunately, Grant’s presentation of basic business-cycle theory is lacking, save for a discussion of people who believe in the market vs. people who think government competent to force “solutions” on it. His explanations of how government coercion usually has unfavorable, unforeseen, and mostly unacknowledged repercussions is good, but probably not good enough to convince those who believe in such things.

Two other matters need to be mentioned.

First, the book has a section called Acknowledgements, which is more like a bibliographic essay. I liked this section very much. It is moderately short, fun, and informative to read, and it gives a great commentary on Grant’s main sources, some of which I highly recommend. The Great Depression sources, which he uses to excellent effect throughout the book, are very important

Second, the "hero" of Grant’s story is wonderful. But I won’t give it away. It’s in the book.

Leave a Reply

Your email address will not be published.