The Forgotten Depression—1921: The Crash That Cured Itself, by James Grant. New York: Simon & Schuster, 2014. 281 pp., $28 (hardcover).
It is widely accepted today that economic downturns require massive “countercyclical” government interventions, such as increased government spending to “stimulate” the economy, and suppression of interest rates by the Federal Reserve to encourage business expansion, home sales, and the like. Government intervention, almost everyone believes, is necessary to rescue the economy, lest it cascade ever downward, throwing more and more people out of work and businesses into bankruptcy.
James Grant, the founder of Grant’s Interest Rate Observer, challenges that dogma. In The Forgotten Depression—1921: The Crash That Cured Itself, Grant tells the story of the economic slump of 1920–21, “America’s last governmentally unmedicated depression” (p. 1), and compares the results of the nonintervention to the downturn of 1929–30, which was met with massive intervention and subsequently collapsed into a great depression.
The seeds of the 1920–21 depression were sown by U.S. monetary policy surrounding World War I. The wartime price increases were initially . . .