Everyone knows about the Great Depression that kicked off with the 1929 stock market crash. However, the crash of 1921 was much worse. Why is it that the 1921 crash is ignored by economists and historians? For one, it was not a “great” depression. The depression of 1921 was over in a year, while the depression of 1929 raged for over a decade. There are a multitude of reasons for this, and James Grant tackles the causes in this book.

Grant published this in 2014, as the United States was slowly crawling out of another long depression that arguably began in 2008. The 1921 depression is unique in that it was the last recession (depression wasn’t a term commonly used in 1921) in which the federal government did nothing to “correct.” In fact, attempts by government to correct economic downturn have always lengthened those bad times, as evidenced by the Great Depression of 1929.

A common myth is that the free-market capitalist policies of then-President Herbert Hoover caused the 1929 crash and subsequent depression. This couldn’t be further from the truth, and Grant lays down the argument here. Hoover was far from a laissez-faire capitalist as evidenced by his actions and attempted actions as Director of the U.S. Food Administration under Woodrow Wilson and Secretary of Commerce under Harding and Coolidge. Price controls, stimulus packages (bailouts) and high tariffs were policies Hoover always supported. He finally got the chance to implement his preferred policies when he became President in 1929, and the rest is history. Hoover was a technocrat and always wanted government to “do something.”

This is a big reason why you never hear about the 1921 depression. If you support active central government, central banking and Keynesian economics, the 1921 depression is simply an anomaly that cannot be explained. These ideologies fall apart when you take a look at statistics for 1921 and 1929 back-to-back. Prices in 1921, artificially inflated by war production, were allowed to correct themselves. There were no massive stimulus plans and rates were not held artificially low by central banks in efforts to “help the downtrodden.”

The reasons for this are complicated and not necessarily done out of devotion to free-market principles. The Federal Reserve, created in 1913 partially to pay for World War I, was already overseeing U.S. monetary policy. Grant covers the origins of the bank and its subsequent role in 1921. He also makes the argument that easy money created by the bank to debt-finance production in WWI largely led to the crash of ’21.

There were early warning signs of economic collapse post-WWI. President Woodrow Wilson was also an interventionist and would have likely implemented the same economic policies that Hoover did in 1929. But during the last year of his presidency, Wilson suffered a stroke, leaving him incapacitated. The American people were kept unaware of this, and the hotter issue of the time was U.S. entry into the League of Nations. What little energy Wilson had was solely devoted to his League of Nations cause.

Warren Harding was elected President in 1920 on the post-WWI platform of a “Return to Normalcy.” Harding was pro-business, but the idea of the U.S. President acting as economist-in-chief was not yet a norm. Harding was not educated in banking, interest rates and inflation cycles, a fact he freely admitted, and was often raked over the coals by the press for. Harding was vastly popular with the people but excoriated by the press and academia for his alleged lack of pedigree. For the most part, he did nothing to “fix” the crash.

But in Harding’s inaction, prices were allowed to find their natural bottom and rebound. Insolvent banks were allowed to suffer the brunt of poor lending and decision making. Businesses that hit the bottom were liquidated and their assets fell to the highest bidder. Today, these “too big to fail” businesses would be artificially kept afloat by taxpayer subsidy. In 1921, private investors could assume these assets, and foreign and domestic investors put stock in these operations at fire-sale prices. Grant also goes into how this affected the housing market and provides several real estate listings from the time.

And the Roaring Twenties followed. This book is a real economics lesson on how cycles actually work. When government stays out of the economy, prices are allowed to naturally correct themselves free of coercion. Opponents of laissez-faire economics will not like this book because it statistically takes apart their ideology. But if you’re curious as to how economics work in practice, not just academic theory, give this a read!

Grant lays out his stats in an easy to digest manner. You don’t have to be an economics professor to enjoy this. In fact, Grant lays down quite a few arguments to show that “economic experts,” those who support John Maynard Keynes’ policies of government intervention, have a terrible track record. It is just over 100 years since the depression of 1921 as I write this, and while D.C. has learned nothing from these lessons, the arguments in this book are just as important today.

You can purchase The Forgotten Depression – 1921: The Crash That Cured Itself here.