| Avinash_Tyagi said:
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http://en.wikipedia.org/wiki/1921_recession
"The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The recession was over in one year.
Economist Thomas Woods argues that President Harding's laissez faire economic policies during the 1920/21 recession, combined with a coordinated aggressive policy of rapid government downsizing, had a direct influence (mostly through intentional non-influence) on the rapid and widespread private-sector recovery. Because there existed mass distortions in private markets due to government economic influence related to World War I, an equally mass "correction" to the distortions needed to occur as quickly as possible to realign investment and consumption with the new peace-time, government-free economic environment.
Woods argues that the massive 1921 recession and subsequent rapid recovery is an episode in the history of capitalism and economics that is woefully understudied. He believes it to be a watershed case proving that free markets adjust prices and supplies much more efficiently than any government coordinated action, and that Keynesian philosophy ignores the '21 episode because it suggests government intervention is not required in such "crises." The 1921 recession/recovery could have been a model for recovery from the "Great Depression" one decade later, which instead focused on massive government spending, trade tariffs, and price floors - rather than letting the markets quickly and efficiently adjust."
