The US economy was actually much less stable in the late 1800s and early 1900s.
Refer to this thread
http://forums.pelicanparts.com/showthread.php?t=454313&highlight=deflation&page=2
There is a chart of YOY chg in US industrial production since the early 1900s, and a chart of inflation (CPI) since the late 1800s.
You can see that both of these very long-term charts show
much more volatility during the period before the middle of the 20th century, than in the period from roughly WW2 to present.
The present recession actually looks rather modest, compared to the busts in the first period.
I think most would agree that in the late 1800s and early 1900s, there was substantially less government regulation than there is today. There was also no Federal Reserve and no "automatic stabilizers" built into the economy.