While most people know about the Great Depression, there was another depression, which ran from 1920 to 1921, that is rarely discussed. This was an 18-month downturn that happened soon after the end of the First World War. It also took place right before one of the most prosperous decades in the nation’s history. This economic event became known as the Forgotten Depression.
The Troops Come Home
Because of the enormous influx of supply, businesses offered workers smaller wages, allowing them to cut their production costs, and slash prices. This eventually resulted in deflation later in the 1920s.
The Spanish Flu
America Diagnosed With a Depression
By January 1920, the U.S. economy had been diagnosed with an economic depression. The huge contraction took place until July 1921. The unemployment spiked to 12%.
- The gross national product (GNP) crashed 17%.
- The Dow Jones Industrial Average plunged 47%.
- Industrial output declined 10%.
- Corporate profits plummeted 75%.
- Business failures tripled to 120 bankruptcies per every 10,000 companies.
How did the federal government respond? President Woodrow Wilson did not do much, which upset his successor, President Warren Harding, during the 1920 election campaign. However, when Harding finished gathering conferences and committees and signing stimulus and relief legislation, the depression had already ended. And so a boom was born without the state really having to do much of anything.
The US Economy Recovers
In the summer of 1921, the U.S. economy started to recover and the most prosperous decade in the nation’s history began. The unemployment rate fell below 7%, private-sector production rose, credit markets stabilized, the GNP grew 4.2% annually, wages went up, and investors became wealthy. The Roaring Twenties has become more than a footnote in American history. Nothing will ever emulate it again, which is why classrooms have entire lesson plans for the 1920s.