Economic history: The searing Twenties

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Economic history


The depression of 1920-21 has much to teach modern policymakers

The Forgotten Depression: 1921: The Crash That Cured Itself. By James Grant. Simon & Schuster; 254 pages; $28. Buy from
THE economic slump that afflicted America in 1920 and 1921 was a nasty affair. Real output fell by some 9% and unemployment may have soared as high as 19%—the statistics are patchy—making it easily twice as bad as the so-called Great Recession of 2007-09.

Yet the slump is barely remembered, largely because it was eclipsed by the Great Depression a decade later. In his aptly titled book, James Grant, the founder of a well-regarded financial newsletter, has two missions: to bring this fascinating chapter of economic history back to life, and to demonstrate that a laissez-faire approach can cure slumps better than government activism managed in the 1930s—or indeed in 2008. He is more successful in his first aim than the second.
The roots of the 1920-21 depression lay in …

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