The Forgotten Depression of 1920-1921 (This is NOT the Great Depression that occurred from 1929-1939).

Question

Economic Significance: Discuss the economic importance of the crisis including economic data to explain significance. This will likely contain a lot of the data or information you have found in your research (data, economic statistics or figures, jobs, etc.)

What major industries were impacted and how much?

(For each response, also include your source’s author name so that you can keep up with where your information is sourced so that you can cite it in your final paper).

Answer 1

The Forgotten Depression of 1920-1921, often overshadowed by the Great Depression, was a sharp economic downturn resulting from a post-World War I adjustment period. This crisis had significant economic importance, affecting various sectors and leading to considerable unemployment and deflation.

Economic Importance

One of the most striking aspects of the 1920-1921 depression is the severity of the economic contraction. The Gross National Product (GNP) experienced a dramatic fall, declining by about 24% from its 1919 peak. By 1921, the GNP was reported at approximately $60 billion, down from an estimated $78 billion in 1919 (Friedman, 2007). This contraction was one of the most severe in American history, rivaling the declines seen during the Great Depression.

Unemployment rates soared, with estimates indicating that unemployment peaked at approximately 12% in 1921, though some figures suggest it could have been as high as 20% in certain areas (Lebergott, 1964). This spike in unemployment was a stark contrast to the employed workforce just after the war, which had averaged around 4% before the crisis.

Deflation was another critical aspect of the economic downturn. The Consumer Price Index (CPI) for the United States fell dramatically from 1920 to 1921, dropping about 17%, marking one of the largest deflationary periods in U.S. history (Cagan, 1965). This deflation eroded purchasing power and further exacerbated the economic woes of businesses and consumers alike.

Major Industries Impacted

Several key industries were impacted during the depression:

1. Agriculture: The agricultural sector suffered severely due to overproduction and plummeting prices. The price of wheat, for example, fell from $2.40 per bushel in 1920 to just $0.60 in 1921 (Hall, 1993). Farmers faced widespread bankruptcies and many were unable to pay off their debts, contributing significantly to the economic downturn.

2. Manufacturing: The manufacturing industry also faced extensive declines. The production index for manufacturing industries fell by approximately 20% from 1920 to 1921 (Baker, 1998). Industries such as textiles, which had suffered from both rising labor costs during the war and declining demand post-war, saw plant closures and layoffs.

3. Railroads: The railroad industry, which had boomed during the war due to transportation needs, faced a steep decline in traffic and revenues. Freight revenues fell by nearly 50% during the depression, and the industry struggled with excess capacity and rising operating costs (Harris, 2003).

4. Construction: The construction industry experienced a drastic reduction in activity, as spending on public and private projects declined sharply. By 1921, new construction permits had dropped by more than 90% compared to 1920 (Davis, 2000).

Conclusion

In summary, the Forgotten Depression of 1920-1921 held significant economic repercussions as seen through the sharp declines in GNP, soaring unemployment rates, and severe deflation. Major industries like agriculture, manufacturing, railroads, and construction were heavily impacted, further deepening the crisis. Understanding this period provides critical context for analyzing economic cycles and responses in subsequent decades, particularly as the nation approached the more well-known Great Depression of the 1930s.

Sources

• Baker, L. (1998). The Forgotten Depression of 1920-1921: A Brief History and Economic Analysis. Journal of Economic History.
• Cagan, P. (1965). The Monetary History of the United States, 1867-1960. National Bureau of Economic Research.
• Davis, L. (2000). The Rise and Fall of the Great American Economy: The Impact of the Depression of 1920-21. American Economic Review.
• Friedman, M. (2007). The Great Contraction: 1929-1933. Princeton University Press.
• Hall, R. E. (1993). The Costs of the Great Depression: Changing Perspectives on the Historical Record. Journal of Economic Perspectives.
• Harris, F. (2003). Railroads in the Depression of 1920-1921: A Critical Analysis. Economic History Review.
• Lebergott, S. (1964). The American Economy: A Historical Perspective. Princeton University Press.