The Home of American Intellectual Conservatism — First Principles

November 15, 2018

Page 6 of 6
Warren Harding and the Forgotten Depression of 1920
Thomas E. Woods, Jr. (from IR 44:2, Fall 2009) - 10/20/09
We must face the grim necessity, with full knowledge that the task is to be solved, and we must proceed with a full realization that no statute enacted by man can repeal the inexorable laws of nature. Our most dangerous tendency is to expect too much of government, and at the same time do for it too little. We contemplate the immediate task of putting our public household in order. We need a rigid and yet sane economy, combined with fiscal justice, and it must be attended by individual prudence and thrift, which are so essential to this trying hour and reassuring for the future. . . .
The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, the relations of labor and management have been strained. We must seek the readjustment with care and courage. . . . All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved. No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.

Harding’s inchoate understanding of what was happening to the economy and why grandiose interventionist plans would only delay recovery is an extreme rarity among twentieth-century American presidents. That he has been the subject of ceaseless ridicule at the hands of historians, to the point that anyone speaking a word in his favor would be dismissed out-of-hand, speaks volumes about our historians’ capabilities outside of their own discipline.

The experience of 1920–21 reinforces the contention of genuine free-market economists that government intervention is a hindrance to economic recovery. It is not in spite of the absence of fiscal and monetary stimulus that the economy recovered from the 1920–21 depression. It is because those things were avoided that recovery came. The next time we are solemnly warned to recall the lessons of history lest our economy deteriorate still further, we ought to refer to this episode— and observe how hastily our interrogators try to change the subject.

  1. On the fallacy of “wartime prosperity” during the Second World War, see Robert Higgs, Depression, War, and Cold War (New York: Oxford University Press, 2006).
  2. Kenneth E. Weiher, America’s Search for Economic Stability: Monetary and Fiscal Policy Since 1913 (New York: Twayne, 1992), 35.
  3. On Japan, see Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946 (Indianapolis: Liberty Press, 1979 [1949]), 88–89, 90.
  4. Ibid., 92.
  5. Robert Aaron Gordon, Economic Instability and Growth: The American Record (New York: Harper and Row, 1974), 21–22, cited in Joseph T. Salerno, “An Austrian Taxonomy of Deflation—With Applications to the U. S.,” Quarterly Journal of Austrian Economics 6 (Winter 2003): 89.
  6. Robert A. Degen, The American Monetary System: A Concise Survey of Its Evolution Since 1896 (Lexington, MA: D. C. Heath, 1987), 41.
  7. Weiher, America’s Search for Economic Stability, 36.
  8. Eugene P. Trani and David L. Wilson, The Presidency of Warren G. Harding (Lawrence, KS: University Press of Kansas, 1977), 72.
  9. C. A. Phillips, T. F. McManus, and R. W. Nelson, Banking and the Business Cycle: A Study of the Great Depression in the United States (New York: Macmillan, 1937), 76.
  10. The Austrian theory also applies to cases in which no central bank was present and artificial credit expansion took place by other means. Government intervention is at fault in these cases as well. See Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles, trans. Melinda A. Stroup (Auburn, AL: Ludwig von Mises Institute, 2006).
  11. Roger W. Garrison, “The Austrian Theory: A Summary,” in The Austrian Theory of the Trade Cycle and Other Essays, comp. Richard M. Ebeling (Auburn, AL: Ludwig von Mises Institute, 1996), 99.
  12. Gene Smiley, “The U.S. Economy in the 1920s,” EH.Net Encyclopedia, ed. Robert Whaples, March 26, 2008;
  13. Ludwig von Mises, Bureaucracy (New Haven, CT: Yale University Press, 1944).
Page 6 of 6

Library of Modern Thinkers Logo

By clicking the logo above to shop, every purchase helps to support ISI.

Intercollegiate Studies Institute • 3901 Centerville Rd. • Wilmington, Delaware 19807-1938 •
Please direct all inquiries regarding First Principles to [email protected].