Have You Heard Of The Depression That Didn’t Become Great?

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Posted: Nov 26, 2019 10:20 AM
Have You Heard Of The Depression That Didn’t Become Great?

Source: AP Photo

Economists Lowell Gallaway and Richard Vedder contrast the recovery of the 1920 Depression with the economic crash of 1929 (what became known as the Great Depression). They report that industrial production plummeted 27.5 percent from a peak in July 1920 to July 1921 while it dropped 21.3 percent from June 1929 to July 1930; while money wages fell by 13 percent from 1920 to 1921, where the average hourly rate of production workers from 1929 to 1930 only reduced from 56 cents to 55 cents.[1]

This quick clearing and rapid adjustment from the 1920 Depression, which was not allowed during the 1929 crash due to significant government intervention, allowed for a very rapid purging of malinvestments and adjustments to earnings and pricing which accelerated the economy out of the Depression within months and into the vibrate 1920s. “The clear implication seems to be that the money wage rate adjustment process was distinctly different during the Great Depression compared to the 1920 to 1921 decline in business activity.”[2]

“In the case of 1921, the price level stabilized, money wage rates continued to adjust downward, and recovery began. However, during the Great Depression, the price level did not stabilize”[3] and real wage rates “continued to fall until equilibrium was restored and recovery [was] achieved in 1923.”[4]

Also in 1923, under the Harding and Coolidge administrations, the national income was approximately $60,000,000,000 with nearly $7,500,000,000 paid in taxes; with a breakdown of tax collection of $3,200,000,000 from the federal government and $4,300,000,000 collected from the State and local governments. The reduction in tax rates significantly increased tax revenue into the government also allowing half of the WWI debt of over $40,000,000,000 to be paid own.  In fact, President Coolidge disclosed that, “Experience does not show that the higher [income tax] rate produces the larger revenue… When the [income tax] rate on incomes of $300,000 and over was but 10 per cent, the revenue was about the same as when it was at 65 percent.”[5]

As in my previous article, How FDR Systematically Destroyed Business Investment For 11 Years, we have economic history which illustrates what action and polices America should apply to reap economic benefits. It should not be difficult, but unfortunately, it often is.

[1] Lowell Gallaway and Richard K. Vedder, 1987, “Wages, Prices, and Employment: Von Mises and the Progressives,” (The Review of Austrian Economics, Vol. 1, No. 1), p. 46, [http://mises.org/journals/rae/pdf/RAE1_1_4.pdf].

[2] Lowell Gallaway and Richard K. Vedder, 1987, “Wages, Prices, and Employment: Von Mises and the Progressives,” (The Review of Austrian Economics, Vol. 1, No. 1), p. 46, [http://mises.org/journals/rae/pdf/RAE1_1_4.pdf].

[3] Lowell Gallaway and Richard K. Vedder, 1987, “Wages, Prices, and Employment: Von Mises and the Progressives,” (The Review of Austrian Economics, Vol. 1, No. 1), p. 47, [http://mises.org/journals/rae/pdf/RAE1_1_4.pdf].

[4] Lowell Gallaway and Richard K. Vedder, 1987, “Wages, Prices, and Employment: Von Mises and the Progressives,” (The Review of Austrian Economics, Vol. 1, No. 1), p. 51, [http://mises.org/journals/rae/pdf/RAE1_1_4.pdf].

[5] Calvin Coolidge, February 12, 1924, “Address of the President of the United States before the National Republican Club at the Waldorf-Astoria, New York, NY.”  Taken from Andrew W. Mellon, 1924, Taxation: The People’s Business, (New York, NY: Macmillan Company), pp. 216-217 and p. 220, Appendix E.