Learn from History

Depression of 1920-1921

When President Harding assumed office on March 4, 1921 the United States was in the midst of a post war economic depression. By 1920, unemployment had jumped up to 12 percent and the GNP had dropped by 17 percent. Harding ignored Secretary of Commerce Herbert Hoover's recommendation for proactive federal intervention; rather Harding cut tax rates for all groups, including the reduction of the top rate from 75% to 25%. His efforts to reduce the national debt also involved cutting Government spending by 50% over the next 2 years. The resultant climate of low Government spending and low taxes allowed the private sector the room it needed to add jobs at a rate not seen in modern times. Recovery began to take place in summer of 1921; by 1922 unemployment receded to 6.4 percent; by 1923 the unemployment rate was 2.4 percent. The continuation of his policies by his Vice President, after his death (only 2 years into his Presidency) laid the foundation for the era known as the "Roaring Twenty's", and by 1926 unemployment had reached a record low of 1.8%, the lowest ever recorded in peacetime. Economist Benjamin Anderson writes, "In 1920–21 we [the U.S.] took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. . . . The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.

History provides the best lessons of all, if we let it.

Tom Peters
Ashland NH
(reprinted from Wikipedia Historical Facts)