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

Analysis/Evaluation of Government Response

How long did it take to resolve the crisis?

What was the impact of the various steps?

Did the steps taken resolve the crisis or make it worse?

How did these steps impact society?

(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).

1 answer

The Forgotten Depression of 1920-1921: Government Response Analysis

1. How long did it take to resolve the crisis?

The crisis of 1920-1921 was relatively brief compared to the more well-known Great Depression. The downturn began in January 1920 and began to resolve by mid-1921, with significant economic recovery evident by late 1921. Thus, the critical phase of the crisis lasted approximately 18 months. According to economist Robert E. Wright, this quick recovery was due in part to the adjustment of prices and wages that allowed the economy to stabilize (Wright, Robert E. "The Forgotten Depression: 1920-1921").

2. What was the impact of the various steps?

The governmental response to the crisis included a tightening of monetary policy by the Federal Reserve, which raised interest rates significantly to combat inflation and stabilize the currency. This approach resulted in higher borrowing costs and a reduction in consumer spending, thus stifling economic activity initially. However, once the adjustments were made, this policy laid the groundwork for the economic recovery that followed. Historian James Grant notes that while these steps initially caused hardship, they ultimately helped reinstate financial discipline in the economy (Grant, James. "Bagehot: The Life and Times of the Greatest Victorian").

3. Did the steps taken resolve the crisis or make it worse?

The steps taken by the government, particularly the Federal Reserve’s restrictive monetary policies, initially exacerbated the economic situation by leading to deflation and increased unemployment. However, after this painful adjustment period, these policies were instrumental in facilitating recovery. Economists like Murray Rothbard argue that, despite the initial negative impacts, these measures were ultimately necessary to restore economic stability (Rothbard, Murray N. "America's Great Depression").

4. How did these steps impact society?

The government's actions during the crisis significantly affected society. The tightening of monetary policy resulted in increased unemployment and business failures in the short term, leading to widespread economic hardship. However, by allowing for necessary market corrections, the response eventually paved the way for robust economic growth in the years following 1921. Sociologist Robert Higgs suggests that this period marked a critical turning point where the economy transitioned towards a more sustainable growth path, though it came at the cost of immediate hardship for many Americans (Higgs, Robert. "Crisis and Leviathan: Critical Episodes in the Growth of American Government").

References:

  • Wright, Robert E. "The Forgotten Depression: 1920-1921."
  • Grant, James. "Bagehot: The Life and Times of the Greatest Victorian."
  • Rothbard, Murray N. "America's Great Depression."
  • Higgs, Robert. "Crisis and Leviathan: Critical Episodes in the Growth of American Government."

These sources provide a solid foundation for further exploration of the government’s response to the Forgotten Depression and its lasting impacts on society.