Financial History Issue 130 (Summer 2019) | Page 18
Deflation,
Up Close
and Personal
How 3M Conquered
the Depression of 1921
By Daniel C. Munson
Most readers of economic and financial
history have digested and interpreted the
many big financial events of the 20th cen-
tury: The Great Depression, the war mobi-
lizations, the oil shocks and inflations, etc.
These economic events demanded atten-
tion and interpretation not only because
of their severity, but also their duration.
The Great Depression, for example, is
often thought to have begun with the
stock market crash of October 1929, but its
effects lingered into the late 1930s.
The economic record of the tumultuous
20th century contains other interesting
but largely ignored or undigested events.
This may be due to their brevity. The
stock market crash of October 1987, for
example, a much sharper decline than that
of October 1929, is now largely ignored by
all but historians of stock market techni-
cal detail, perhaps because prices quickly
recovered and the crash had little long-
term effect on the nation’s economic life.
One of the most startling of these undi-
gested events, the details of which are sim-
ply mystifying to us today, is the quick and
sharp depression and deflation of 1920-
1921. Inflation, not deflation, has been
the constant in monetary affairs over the
last century, one during which increas-
ing prices of goods and services became
relentlessly commonplace.
The 1921 deflation/depression is hard
to ignore from the economic data. A scan
of some of the nation’s most studied eco-
nomic measurements reveals only two real
bouts of deflation in the last 100 years. The
most famous of these, the Great Depres-
sion and the dreadful economic year of
1932 that saw the consumer price index
decline by 10.3%, has been studied to death.
The drop in prices in 1932 did not set a
calendar year record, however. The calen-
dar-year deflation record is held by 1921,
when consumer prices declined by 10.9%.
Monetary historians Milton Friedman and
Anna Jacobson Schwartz could not ignore
the 1920–1921 slump: they called the 1920–
1921 deflation “unprecedented,” the related
drop in economic activity “one of the most
rapid declines on record.”
Manufacturing sandpaper at the 3M plant.
16 FINANCIAL HISTORY | Summer 2019 | www.MoAF.org