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Inflation vs. Deflation, 1920: Anxiety, Indecision, Reversal, and Electoral Upheaval

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Inflation Decade, 1910—1920

Abstract

In retrospect, the National Bureau of Economic Research concluded that the US economic expansion which began in early 1919 peaked in January 1920. Thereafter the economy contracted, slowly at first, until it bottomed out in July 1921. At the time, nobody much noticed the NBER’s turning point, and prices continued to rise.

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Notes

  1. 1.

    Geoffrey H. Moore and Victor Zarnowitz, “The Development and Role of the National Bureau of Economic Research’s Business Cycle Chronologies,” in The American Business Cycle: Continuity and Change, ed. Robert J. Gordon (Chicago: University of Chicago Press, 1986), 750.

  2. 2.

    F&S, 231; Simon S. Kuznets, Cyclical Fluctuations: Retail and Wholesale Trade, United States, 1919–1925 (New York: Adelphi, 1926), 139–140.

  3. 3.

    BLS, Index Numbers of Wholesale Prices on Pre-War Base, 1890 to 1927 (GPO, 1928), 7–8.

  4. 4.

    NICB, The Cost of Living in the United States, 1914–1926 (New York: NICB, 1926), 34, 59, 164–65.

  5. 5.

    HSBC, 1115; John M. Firestone, Federal Receipts and Expenditures during Business Cycles, 1879–1958 (Princeton: Princeton University Press, 1960), 114–15.

  6. 6.

    James H. Shideler, Farm Crisis, 1919–1923 (Berkeley: University of California Press, 1957), 47; Henry Parker Willis, The Federal Reserve System: Legislation, Organization and Operation (New York: Ronald Press, 1923), 1398–99; HSBC, 898.

  7. 7.

    HSBC, 44, 511, 878; Alexander D. Noyes, The War Period of American Finance, 1908–1925 (New York: Putnam’s, 1926), 371–72; United States Department of Agriculture, Yearbook of Agriculture 1926 (GPO, 1927), 818, 845, 975.

  8. 8.

    USDA, Yearbook of Agriculture 1926, 1046, 1101.

  9. 9.

    “The Deflation Conference,” Journal of the American Bankers Association 12 (June 1920): 694; Melvin Thomas Copeland, “Profiteering and Prices: Inflation of Our Currency through the Federal Reserve Banking System,” Atlantic Monthly 125 (Apr. 1920): 526 (his italics).

  10. 10.

    “‘Work and Save,’ Says Reserve Board,” NYT, Aug. 11, 1919, 1; CR, Aug 18, 1919, 3917; “Deflation Conference,” 695 (2nd quotation); Kuznets, Cyclical Fluctuations, 135–36, 155.

  11. 11.

    CR, May 17, 1920, 7145 (quotation); May 18, 1920, 7200; “Deflation Conference,” 694.

  12. 12.

    “Reduction of Loans Urged by Harding,” NYT, May 26, 1920, 2 (quotation); “Deflation Conference,” 696.

  13. 13.

    “Cheer Up! The Peak of H.C.L. Is Now in Sight,” Sunset 44 (May 1920): 15; Fabian Franklin, “Gains and Losses Caused by Rising Prices,” Annals 89 (May 1920): 7.

  14. 14.

    Strong to Edwin Kemmerer, Feb. 10, 1919, in Lester V. Chandler, Benjamin Strong: Central Banker (Washington: Brookings Institution, 1958), 124 (first quotation); Meltzer, 1: 110; Roberts quoted in James Grant, The Forgotten Depression (New York: Simon & Schuster, 2014); Noyes, War Period, 341–44; Edwin Walter Kemmerer, High Prices and Deflation (Princeton: Princeton University Press, 1921), 63–71; Irving Fisher, “High Prices, and a Remedy,” American Review of Reviews 60 (Sept. 1919): 271 (third quotation); Fisher, “Discussion,” Annals 89 (May 1920): 276–77.

  15. 15.

    Meltzer, 1: 109–110; Adam Tooze, The Deluge: The Great War, America and the Remaking of the Global Order, 1916–1931 (New York: Penguin, 2015), 355–59; Press statement, Nov. 4, 1919, in Paul M. Warburg, The Federal Reserve System: Its Origin and Growth, vol. 2 (New York: Macmillan, 1931), 651.

  16. 16.

    Harold L. Reed, “The Work of the Federal Reserve Board,” JPE 29 (Jan. 1921): 57; “Removing the Ingrowing Toenail,” New York Tribune, Sept. 9, 1920, 10.

  17. 17.

    See above, Chap. 12.

  18. 18.

    Sixth Annual Report of the Federal Reserve Board … for the Year 1919 (GPO, 1920), 71–73.

  19. 19.

    Minutes of the Board of Governors of the Federal Reserve System, 1919, at https://fraser. Minutes stlouisfed.org, accessed June 2, 2019; Meltzer, 1: 95–103.

  20. 20.

    Meltzer, 1: 96–98; Chandler, Benjamin Strong, 140.

  21. 21.

    Meltzer, 1: 94.

  22. 22.

    Chandler, Benjamin Strong, 160; Charles Sumner Hamlin Diaries, Library of Congress microfilm, vol. 5, reel 2, Oct. 28–31, Nov. 1, 1919; Minutes of the Board of Governors, Nov. 4, 5, 6, 7; Dec. 13, 23; Meltzer, 1: 97n60.

  23. 23.

    Meltzer, 1: 103; Annual Report of the Secretary of the Treasury … for the Fiscal Year ended June 30, 1920 (GPO, 1921), v–vi.

  24. 24.

    Minutes of the Board of Governors, Jan. 21, 1920.

  25. 25.

    Hamlin Diaries, vol. 5, reel 2, Jan. 21, 1920; F&S, 239.

  26. 26.

    Chandler, Benjamin Strong, 183–87.

  27. 27.

    F&S, 139; Meltzer, 1: 95; HSCB, 884; Board of Governors of the Federal Reserve System, Banking and Monetary Statistics (Washington: The Board, 1943), 330.

  28. 28.

    Hamlin Diaries, Jan. 21, 1920; Minutes of the Board of Governors, Jan. 21, 1920; Meltzer, 1: 104 (2nd quotation).

  29. 29.

    Discount Rates of the Federal Reserve Banks, 1914–1921 (GPO, 1922), 4–26; Board of Governors, Banking and Monetary Statistics, 450.

  30. 30.

    Meltzer, 1: 107, 108n86; Annual Report of the Secretary of the Treasury … for the Fiscal Year Ended June 30, 1920 (GPO, 1920), v–vi.

  31. 31.

    Meltzer, 1: 108; Board of Governors, Banking and Monetary Statistics, 450.

  32. 32.

    Federal Reserve Bank of Kansas City, Monthly Bulletin 5 (April 25, 1920): 1; “Federal Reserve Board Conference: Minutes of Conference with the Federal Reserve Board of the Federal Advisory Council and the Class A Directors of the Federal Reserve Banks, Held at Washington, D.C., May 18, 1920,” 67 Cong., 4 sess., Senate Document 310 (GPO, 1923), 5–7, 39–40, 48 (quotations 7, 39–40); “Federal Reserve Has NOT Placed Official Ban on Automobile Paper,” Automotive Industries 43 (July 8, 1920): 88; “Miller Encourages Loans on Car Paper,” ibid. 44 (June 2, 1921): 1176.

  33. 33.

    CR, May 18, 1920, 7199–7208, 7238.

  34. 34.

    Seventh Annual Report of the Federal Reserve Board … for the Year 1920 (GPO, 1921), 396–97; Noyes, War Period, 326, 331, 339, 340 (quotation); Chandler, Benjamin Strong, 168.

  35. 35.

    Inflation of Currency and Mobilization of Credit, Letter from W.P.G. Harding, May 25, 1920, 66 Cong., 2 sess., Senate Document 280 (GPO, 1920), 2, 4–5; “Federal Reserve Board Conference,” 59–62 (quotation 62).

  36. 36.

    Grant, Forgotten Depression, 98 (quotation); Minutes of the Board of Governors, May 27, 28, 29, 1920; Discount Rates of the Federal Reserve Banks, 4. Hamlin was ill and one position vacant.

  37. 37.

    Discount Rates of the Federal Reserve Banks, 4–26; “Operations of the Federal Reserve Banks,” Federal Reserve Bulletin 6 (June 1920): 646; “Operations of the Federal Reserve Banks,” ibid. 6 (Sept. 1920): 989; Federal Reserve Board, Seventh Annual Report, 41, 90, 156, 161; Board of Governors of the Federal Reserve Board, Eighth Annual Report … for the Year 1921 (GPO, 1921), 158.

  38. 38.

    Meltzer, 1: 107–8; Noyes, War Period, 414–15; Federal Reserve Board, Seventh Annual Report, 152–53.

  39. 39.

    F&S, 709–710.

  40. 40.

    Nathan S. Balke and Robert J. Gordon, “Historical Data,” in Gordon, ed., American Business Cycle, 816.

  41. 41.

    Kuznets, Cyclical Fluctuations, 49–53, 71–72; John D. Pilgrim, “The Upper Turning Point of 1920: A Reappraisal,” Explorations in Economic History 11 (1974): 273.

  42. 42.

    Pilgrim, “Upper Turning Point,” 272.

  43. 43.

    Christopher W. Shaw, “‘We Must Deflate’: The Crime of 1920 Revisited,” Enterprise & Society 17 (2016): 618–650.

  44. 44.

    Shideler, Farm Crisis, 28–29, 58–59; E.B. Fussell, “‘The Crime of 1920′ and What It Cost,” Nonpartisan Leader 12 (Apr. 18, 1921): 5.

  45. 45.

    Noyes, War Period, 402–3, 411; “Dark Side of Low Farm Prices,” LD 67 (Oct. 30, 1920): 19–21; Shideler, Farm Crisis, 55 (quotation); “Praise Corn for Falling Prices,” LD 67 (Oct. 23, 1920): 21.

  46. 46.

    McAdoo to J.H. O’Neil, July 31, 1919, box 223, McAdoo Papers.

  47. 47.

    Donald R. McCoy, “Election of 1920,” in History of American Presidential Elections, 1789–1968, vol. 3, 1900–1936, ed. Arthur M. Schlesinger, Jr. (New York: Chelsea House, 1971), 2371–73; John A. Morello, Selling the President: Albert D. Lasker, Advertising, and the Election of Warren G. Harding (Westport, Conn.: Praeger, 2001), 82.

  48. 48.

    Correspondence, Nov. 2–6, 1920, WWPLink, 66: 305–336; McCoy, “Election of 1920,” 2381.

  49. 49.

    “European Issues Having Effect on Alien-Born Voters,” New York Tribune, Oct. 16, 1920, 2.

  50. 50.

    “Democratic Platform,” with McCoy, “Election of 1920,” 2391; “Use Exact Words,” Topeka State Journal, Oct. 8, 1920, 1; “Wilson Gives out Text of Speech,” New York Tribune, Oct. 12, 1920, 1.

  51. 51.

    Noyes, War Period, 375.

  52. 52.

    NICB, Cost of Living … 1914–1926, 59, 165.

  53. 53.

    Kuznets, Cyclical Fluctuations, 155.

  54. 54.

    “Women of Great National Parties Will Lead Onslaught on High Cost of Living,” Women’s Wear 21 (Sept. 24, 1920): 35.

  55. 55.

    “Labor Commends Democrats’ Stand,” NYT, July 15, 1920, 2 (first quotation); American Federation of Labor, Proceedings 40 (1920): 94, 330–31 (2nd quotation).

  56. 56.

    Republican National Committee, Republican Campaign Text-Book, 1920 (New York: The committee, 1920), 22–23 (quotation), 154–55, 167–68; “Democratic Platform,” 2392, 2397.

  57. 57.

    “Politics and the H.C.L.,” New Republic 23 (June 9, 1920): 34–37.

  58. 58.

    “Harding for Thrift to Cut Living Costs,” NYT, Sept. 25, 1920, 12.

  59. 59.

    “Democratic Platform,” 2391–92.

  60. 60.

    Republican Campaign Text-Book, 85–87 (quotations), 185, 424–26.

  61. 61.

    Ibid., 153.

  62. 62.

    “Are Good or Bad Times Ahead?” LD 67 (Oct. 2, 1920): 9; Charles G. Dawes, “The Next President of the United States and the High Cost of Living,” Saturday Evening Post 193 (Oct. 2, 1920): 7; “Harding and Coolidge and Good Government,” in, e.g., Parisian (Paris, Tenn.), Oct. 29,1920, 3.

  63. 63.

    HSBC, 970, 1073, 1078, 1083.

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  1. History, Central Michigan University, Mt. Pleasant, MI, USA

    David I. Macleod

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Macleod, D.I. (2024). Inflation vs. Deflation, 1920: Anxiety, Indecision, Reversal, and Electoral Upheaval. In: Inflation Decade, 1910—1920. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-55393-6_14

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