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Kibbe on Liberty
Ep 322 | Everyone Is Wrong About the New Deal | Guest: George Selgin
00:56:52
Nearly a century after President Franklin Delano Roosevelt spearheaded a sweeping set of economic policies known as the New Deal, the debate still rages over whether he was a hero or a villain.
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- [00:00]
Kibbe
Welcome to Kibbe on Liberty.
- [00:01]
Matt Kibbe
I'm talking to George Seljan, one of the OG theorists in the free banking movement. We're going to talk about the promise of cryptocurrency and we're going to talk about his new book, False dawn, which is a re examination and ultimately a takedown of the idea that Franklin Delano Roosevelt and the New Deal led us to economic recovery. It turns out it was something else. Check it out. Welcome to Kibby at Liberty. George, it's good to see you again.
- [01:03]
George Selgin
Matt, it's a pleasure.
- [01:04]
Matt Kibbe
It's, it's. It's been a while.
- [01:07]
George Selgin
I think the last time we saw each other was in Europe. Could it have been Prague? It was some European capital.
- [01:14]
Matt Kibbe
Yeah, yeah. I was thinking this morning about, and you probably don't even remember this, but when I was a new student, graduate student at George Mason, and you were a, I think, first year professor, you had organized a reading group where we went chapter by chapter through Ludwig von Mies's Human Action.
- [01:36]
George Selgin
Oh, I remember. I remember.
- [01:38]
Matt Kibbe
And two points about that. From my perspective, most of the important things I learned at George Mason were not in the classroom. They were in events like that. And my mentor Don Lavoie would do that too, where we would just sit around and have beers and argue about something we had just read. And first of all, very fun, but perhaps more dynamic than an actual lecture in a classroom.
- [02:07]
George Selgin
Yeah, I think I had the same experience. I didn't learn much in the classroom. I did a lot of reading and had discussions with people, including Larry White, who was my dissertation advisor at nyu, but I never took a class with him.
- [02:25]
Matt Kibbe
Oh, interesting.
- [02:27]
George Selgin
I did have some good classes. I had maclep's class on methodology and I had Israel Kirsner's History of Thought class, for example. So it wasn't that I didn't learn some things in class, but when it came to my own areas of specialization, by far the majority of my learning was outside the classroom.
- [02:50]
Matt Kibbe
And the other lesson was. So I had read Human Action very poorly when I was a high school kid and I had no idea what I was doing. And one of the things I learned from that, and later from Vernon Smith, who continues to this day to read the Theory of Moral Sentiments again and again and again, is that there's certain books that are worth never putting down. And you discover something new in a substantial book, you'll discover something new every time you read it and not notice the richness of the language and the intent of the author. That perhaps you didn't see the last time you read it.
- [03:32]
George Selgin
Yes, well, I do have a. I have a short shelf of desert island books and now having moved twice and sold two libraries, they are literally almost the only books I own. I have accumulated a number of books since coming to Spain, but I have one set of books that has never left me in the last 30, 40 years.
- [04:00]
Matt Kibbe
What's the most important?
- [04:01]
George Selgin
Oh, picking one out of those is very hard. I will say that it's not economics for the most part. If I had to pick one economics book that was the most influential or the most, the one that most impressed me of the Austrians, I would pick Socialism by von Mises over his Human Action and some others that made a big impression on me were vixel interest in prices. But my. My desert island shelf has things in it like Carlyle's French Revolution for the wild prose, Schopenhauer's essays, which I absolutely adore. Some also the essays of William Hazlitt. I'd have to think hard to remember some of the others, not because I can't remember them, but because I might pick the ones, not pick the few that I kept. Oh, another one is Burton's Anatomy of Melancholy. So these are some of the books that are just books that I love to keep indispensable.
- [05:16]
Matt Kibbe
Yeah, yeah. So you mentioned Larry White and free banking. And I think it'd be useful for our audience, people that are not aware of your important career, particularly when it comes to topics like free banking. Give us a synopsis of your research and your work, particularly when it comes to monetary policy and free banking.
- [05:42]
George Selgin
If I had to say it in as few words as possible, that part of my research program, which is a big part of it, is about understanding the spontaneous forces that are behind monetary orders, understanding how free markets in money and banking work. And what I have learned in that program in that effort, is that a lot of the problems, if not the vast majority of the problems, that rise in banking systems both today and in the past are due to misguided regulations and could be solved simply by getting rid of those misguided regulations rather than by trying to heap further layers of regulation on top of the bad layers that are already there. And this all started, this research started before grad school when I read I had been voraciously reading up on monetary economics during the inflation of the late 70s and early 80s and I came across Hayek's Denationalization of Money. And that book isn't about free banking. Many people think it is. It is about Competition and currency, but in a different sense. But that's the book that got me asking, wait a minute, could it be that the problem with money and inflation and all that is too much regulation and too much involvement of government and not enough of the private sector doing stuff. And at that point I had a question. I didn't have a thesis, but I went on before again, before going to grad school or before going to NYU I should say, because at the time I was at the University of Rhode island working towards a degree in marine resource economics that I ultimately didn't get. But I quit that program and then did a research paper where the question I was asking was what would have happened if banks hadn't been regulated by government so much in US monetary history. And I look back at the whole history with this question in mind and it was like shooting fish in a barrel. That is, it was so easy to see, it was quite clear how bad regulations had been responsible for so many of the panics and crises and other monetary mess ups that had occurred in US history. So that really got me keenly interested. It was while writing that brief research paper which by the way, somebody recently has unearthed a copy of. I don't know how, but it showed up on Twitter. Anyway, while writing that I learned about Larry White's work. He was still a graduate student at the time, working on his. What became his book on free banking in Britain. The title is somewhat misleading. It's really about free banking in Scotland and comparing how the Scottish system performed with how the English system performed. Anyway, I read some chapters of his book, was really impressed, wrote to him at UCLA where he was studying and I said, let me know where you go to teach when you get your degree. I think I was just assuming that that's what he was going to do. And eventually he did write me and we both headed to NYU at the same time and I studied with him there.
- [09:37]
Matt Kibbe
For me, when I think about it, and I'll say it very simply, that to me, the entire basis of understanding the folly of manipulating money and credit goes back to Carl Menger's understanding of the spontaneous emergence of money and how people just trying to figure out how the world works, figured out a way to use a medium of exchange and anything that screws with that process ultimately is going to create unintended consequences, perhaps negative ones.
- [10:14]
George Selgin
Right. Menger's story of how money can evolve spontaneously tells us that markets can even handle that there's no need for government to dictate what are the things we use as Money, let alone to come up with some sort of money that government alone could possibly create. And it's a very important lesson. It's also important though to recognize Menger there isn't doing anthropology, he's not telling us what actually happened in the past. He's telling us what can happen and he's telling us part of the story of money's evolution in the past. But of course, Menger recognized that the states, that governments have been involved from the get go in fact, and that they have played a very, very important part in the shape that monetary institutions have actually taken historically. The other thing about Menger that people have to realize that he was no advocate of monetary laissez faire. He actually did believe that the state played very important roles. Some of his beliefs here were quite conventional, like the belief that you had to rely on the state to produce good metallic coins. Of course I've written about that and so has Larry, and we've both said no, that's not true. Using both some theory and historical examples of the rare instances where governments didn't handle coinage, showing that in many cases those were successful instances. So Menger was more conservative than I am or than Larry is on the question of the proper or necessary role of government in monetary arrangements.
- [12:02]
Matt Kibbe
Maybe Hayek was as well, more conservative.
- [12:05]
George Selgin
Yeah, Hayek was. Hayek's difficult to pin down here because in some respects he's more radical, in others less. Hayek is more radical in that his proposal for competing currencies, which included competition of private currency issuers with governments. So he was happy to allow governments to try to compete as long as it was on what we now call an even playing field. But his vision of private currency issuance was of private firms issuing fiat type monies, not convertible monies, and regulating them by controlling their supply on the understanding that by doing so they could stabilize the purchasing power of their monies. And Hayek believed that people would choose the most stable. Larry and I have both questioned this feature of Hayek's argument and come to the conclusion, Larry especially, I should say he has a very good essay on this in his theory of monetary institutions, a very good chapter. Come to the conclusion that private fiat money issuance probably would not work very well if it was a question of deliberate management, discretionary management of the private fiat money, because there's an equilibrium where you make a. You profit most by surprise inflation, even if you're a private issuer. And so it may be that if you're going to have fiat money, you'd Better have the state do it, because the private firms are going to manage it even worse. But where Hayek is, Hayek is of course, being very radical here because he's envisioning something that's never happened or something that didn't happen, hadn't happened when he wrote. But his vision comes closest of any to describing cryptocurrency. I mean, the independent cryptocurrencies, if people don't mind me, including Bitcoin in the general category of cryptocurrency. This gets people very upset sometimes at bitcoiners. But what I mean is Bitcoin is among those novel private digital media that they're not redeemable in some other money. They're not like stable, not stable coins. And in that respect, they resemble what Hayek had in mind. Except, of course, that Bitcoin very strictly regulates supply. There's no discretion, there's nobody managing it. So in that sense, it departs from Hayek's vision of private fiat money, but departs in a way that makes it viable in a way that Hayek's imagined scheme may not be. And that's why Bitcoin hasn't hyperinflated. If we could speak of losing value as equivalent to that, on the contrary. So hike is, in that respect, more radical. On the other hand, and this is where people have overlooked an aspect of Hayek's thought. He hated free banking. He was completely opposed to it. Now, what did that mean? Free banking is where you have some standard money that's out there, whether it's issued by the state or not. It could be gold, it could be any commodity, it could be a Bitcoin standard. He did not believe that private firms should be allowed to issue, competitively issue, redeemable IOUs representing whatever the basic money was. He never, ever accepted the possibility that that could work well, or if he did, he didn't say so in as many words. Even in the 70s, when he was as radical as ever, he is writing things, saying, oh, we can't have that, we can't have that. There's a real irony here because Hayek's student, one of them, was Vera Smith. Later she married Frederick Lutz, so she became Vera Lutz. She wrote her dissertation under Hayek. And that dissertation is of course, the rationale of central banking, where she eloquently describes the debates on free versus central banking in the 19th century and, and clearly represents the successful cases of free banking that informed those debates, like the Scottish case, but not just so it's not really possible to believe that Hayek was unaware of cases like the Scottish Free Banking system. Yet he wrote adamantly, as if that could not possibly work.
- [16:59]
Kibbe
Thank you for joining me today on Kibbe on Liberty and for being part of our fiercely independent audience. Every week, my organization, Free the People, partners with BlazeTV to bring you this show. My guests bring smart perspectives on everything from current events to timeless philosophical debates. If you like what you hear, go to freethepeople.org kol and support Kibbe on Liberty so we can continue to produce these honest conversations with interesting people. Now, let's get back to it.
- [17:30]
Matt Kibbe
I mean, that's the conservatism part. And perhaps the circumstances that Menger found himself in. Mises and Hayek limited their ability to imagine an alternative future. But as you probably know, I learned this about you today. I was reading your Wikipedia page, which one should also always take with a grain of salt, but you are considered an OG intellectual in the emergence of Bitcoin as a paradigm. This is what your Wikipedia page says to me. It makes perfect sense.
- [18:06]
George Selgin
I've been called that by some of the deaf. And genuine OGs, like Nick Szabo have done me the honor of claiming that I was part of that. And Larry White too. Well, the truth of that consists of the fact that Larry and I participated in an Internet group that was prominent. I guess it was in the 90s, late 90s, where all these possibilities for private electronic money, as we called it back then, were being considered. However, Larry and I were unusual in that group because all the others had the technical know how to actually work towards developing what they were describing. Whereas all Larry and I, we were the. We were the economist wonks who talked about economic history and general monetary theory and couldn't. I should speak for myself, not for Larry, but I couldn't. I couldn't compute my way out of a paper bag as far as trying to actually come up with these.
- [19:18]
Matt Kibbe
Sure. Well, there's an interesting happened recently that sort of ties this all together. I went to Grove City College and Grove City, Peter Betke, my good friend, went there as well, and we studied under a professor named Hans Senholtz. And Hans Senholtz, of course, studied under and got his PhD from Ludwig von Mises. Another guy that went to Grove City College far before us studied under Senholtz, and he is the father of the Winklevoss twins, who have publicly come out now and attributed their dad teaching them Austrian economics and the lessons from Hans Senholtz to their ultimate interest in Bitcoin. And now They're a big deal in bitcoin. Yes, of course, but it's.
- [20:14]
George Selgin
I didn't know that. I did not know that.
- [20:18]
Matt Kibbe
The father just made a substantial contribution to Grove City College to build out that tradition there. So the fact that you and Larry were sort of the intellectual wing of the technologist movement makes perfect sense to me because you need a framework to think about the world.
- [20:36]
George Selgin
Well, you know, one interesting question is what would have happened had Hal Finney lived longer? Because he was very keen on the theory of free banking and he wrote about it on that forum that I was speaking of earlier. And of course, the bitcoin movement hasn't really generally embraced his idea, which was that of course bitcoin or whatever. At the time there was no bitcoin. But of course the sort of money we're talking about will need a good need, a complementary banking system, if it's going to work very well. And I think I'm right in saying I may be wrong, but I think I'm right in saying he was anticipating the fact that there would be a limited stock of the underlying monetary medium and the banks would help to create substitutes to make the supply more elastic. That may be reading too much into Hal's interventions. But in any event, the bitcoin community hasn't embraced that. They mostly see Bitcoin as a way to avoid, as something that would be an alternative to bank supplied media and therefore something that makes banks unnecessary.
- [21:56]
Matt Kibbe
Yeah, yeah, well, we went down that rabbit hole, which I loved. But our original rationale for getting together was to talk about your new book.
- [22:05]
George Selgin
Oh, yes, well, of course, like any author, I always want to talk about the latest.
- [22:10]
Matt Kibbe
Yeah, yeah, yeah. But in these things, obviously your career up until this point is not at all unrelated to your new book, which is called False dawn, the New Deal and the promise of recovery, 1933-1947. And by the time people see this podcast, I'm going to hold onto this for a little bit so that they can actually get excited about the book.
- [22:35]
George Selgin
Good, good.
- [22:36]
Matt Kibbe
Depending on your sales pitch, we'll see how it goes.
- [22:38]
George Selgin
Well, yeah, well, I'm glad to have you thinking about how to help me market the book because of course it's supposed to come out in April and I want it to be widely read. Of course. So thank you for that. The book, as the title suggests, is about the recovery from the Depression. And I mention that because you really have to have a good excuse to write another book about the Great Depression or another book about the New Deal. And Lo and behold, I found one. Because there aren't, there's really no book out there that is all about answering the question, how did the United States actually recover from the Great Depression? And the related question, what role did the New Deal play? Of course, other works on the New Deal and the Depression do address these topics to some extent, but they aren't exclusively devoted to them in my opinion. They don't really tell the story, the whole story that needs to be told. So I thought we needed a book that did that.
- [23:53]
Matt Kibbe
Yeah, and it's, you know, I was thinking about the, looking at the narratives that you outline and tell me if I get this right, but the classic narratives describing the New Deal either suggest that all of what could be described as FDR's Keynesian programs, all the spending and the digging of ditches and refilling the ditches, that is what got us out of the Depression. And the counterargument is no, no, no, it wasn't until World War II that we got out of the Depression.
- [24:28]
George Selgin
I think that's correct. The two views, I'll restate them without veering too far from what you've said and you can find this on the Internet. Just look up New Deal, Great Depression. You have one set of people saying that it was thanks to the New Deal that the US was able to recover from the Depression. And often what they also claim is that the New Deal, the aspect of the New Deal that helped achieve this recovery was all the Keynesian type stimulus. And then you have another group saying, oh no, no, no, the New Deal kept us in depression much longer than we might have been. And they too often say because of all that deficit spending. And then they may conclude that it was really World War II that got us out. And all of that is wrong. They're all wrong. Pox on both houses.
- [25:31]
Matt Kibbe
It's kind of the same argument in essence.
- [25:33]
George Selgin
Well, it's sort of the same argument with changing the sign, if you like. First of all, the New Deal wasn't very Keynesian at all. And where he alive today, Keynes might be the first to tell us that. Keynes tried to give advice to Roosevelt, but for the most part Roosevelt didn't take it throughout until 1938, which is after the secondary depression of 37 38. Roosevelt was a die hard fiscal conservative. He really tried to keep the deficits down, much as Hoover had and much as Hoover did. Roosevelt failed to keep to avoid deficits. Neither of those presidents wanted to pursue a balanced budget to the point of eliminating all relief programs. And that was especially true of Roosevelt. So there was deficit spending, but it was only because of relief programs. Roosevelt did not think those deficit spending was good per se. And by modern Keynesian standards, the deficits were far too small to made any difference. In fact, any substantial difference. The only deficit that was large enough to really have made much of a difference was in 1936. And it was a deficit that came about as a result of the passage of an army bonus bill that paid the soldiers in advance their bonuses that were actually originally due. Much later Roosevelt vetoed, but the Congress overrode it. That was the one big stimulus. Apart from that, there wasn't much in 38, Roosevelt signed the first spending package that was actually informed by Keynesian thinking. But even then he was kind of of two minds about it. It was a half hearted effort. So forget Keynes, this isn't about. And by the way, Keynes was also very critical of other aspects of the New Deal. He didn't think they spent enough. That was one criticism. But beyond that, Keynes was quite critical of the things that the New Deal actually did, especially for example, the National Recovery Administration, which he like most economists since considers to have been a big mistake. So anyway, we certainly didn't get out of the Great Depression while the New Deal was happening in 1939, right up until the war broke out in Europe. Between them, the number of persons who were absolutely out of work and those who were in work relief programs added up to like 17% of the labor force, which. That's a lot more unemployment than we had during COVID It's a lot more than we had at any time during the Great Recession. This is not recovery, it's not a recovered economy. World War II spending did end the unemployment for the time being. That spending, by the way, starts before Pearl harbor because of what's happening in Europe. And we're helping to arm Europe in that period between the outbreak of the war there and the US entry. But what people have to remember when it comes to assessing the hypothesis that, well, the war ended the Depression is that that wartime spending didn't last. As soon as the war ended, there was a drastic curtailment of the spending such that as a percentage of GDP and including all levels of government, it came almost down, almost to where it had been in 1939. So the question, the real question that has to be asked is what prevented another recession when the war ended? The answer to that question is the true answer to what allowed the US economy to really recover. So we haven't explained recovery either by saying The New Deal did it, or by saying, or time spending did it.
- [30:00]
Matt Kibbe
So what is the answer?
- [30:01]
George Selgin
Well, the answer, and this is the.
- [30:03]
Matt Kibbe
Entire basis of your book?
- [30:05]
George Selgin
Yes, the answer is twofold. First of all, well, recovery requires that there be enough aggregate spending in the economy to allow your average producer to recover costs. In saying this, I'm in agreement with the Keynesians, but mind you, I'm also in agreement with most economists. You didn't have to be a Keynesian to believe that, and plenty of non Keynesians believed it before the general theory appeared. But, and this is also something that many economists appreciated, it can't just be any spending if you're going to have a sustained recovery investment spending, private investment spending has to revive because after all, you've got to produce the goods. It's not enough to have people willing to spend money. You have to have production revive. And production was still stagnant in the private sector throughout the war. The level of private investment was basically, there was none, no net investment for most of the period of the 30s.
- [31:12]
Matt Kibbe
And during the war, I assume the wartime economy would have diverted even more private investments than was happening during the Great Depression.
- [31:21]
George Selgin
That's right. So, you know, you could hear, of course, how you account for spending on war materiel is important because this is being done by private firms. But we don't see a real increase in private investment, capital investment until after the war. And after the war it suddenly takes off. And it's because of this takeoff of private investment that the decline in government spending doesn't lead to another depression or to a return of depression, because the private spending, consisting not just of consumer spending but of investment spending between them, they grow enough to keep the economy humming. So now we're narrowing the question of recovery down to a still narrower version, which is why did private investment finally recover after the war when it hadn't done so for all those years? And here what's really relevant is the fact that the New Deal became a very hostile policy towards business. Here I'm appealing to, well, the idea that business confidence had to recover. That was the old way of referring to it. Other ways are Bob Higgs's notion of regime uncertainty, uncertainty about what was coming, what would happen to the proceeds of their investments, was preventing investment from recovering in the 30s. And another way of putting it is that the animal spirits were dimmed. This is Keynes way of putting it. And Keynes, by the way, was very eloquent about this. He specifically says that New Deal policies are scaring businessmen and preventing them from investing. So why did that change? After the US entered the war? Especially the attitude of government toward basis business dramatically changed. It went from the extreme of hostility to the opposite extreme of extreme coziness, where if anything, private enterprise is being coddled by government. This is the beginning of the military industrial complex. So ultimately the consequences of this aren't all good, but at least for the shorter run, it is the reason why when the war ends, business investment explodes, private investment. And so instead of having another depression, you have sustained recovery. So in that sense, World War II ended the Depression. But it isn't just government spending. It's about the attitude of government towards businessmen. That's very important.
- [34:29]
Matt Kibbe
The government needed business again, the government needed business again.
- [34:33]
George Selgin
And of course books have been written about this. This attitude toward businessmen, this change in attitude which was a fundamental component of our strategy for getting the B17s produced and all that was a huge, a smashing success. So no one can say that it wasn't the right, that change in attitude was not a good idea for its original purpose, which is getting the war material produced. But it turns out to have been a very useful change for helping the economy stay on its feet or get back on its feet after the war ends. Despite, despite, I should stand back and say all the Keynesian economists were predicting disaster if wartime spending was cut back. And they even outlined what they considered to be the worst possible scenario, which is that spending is cut back immediately, the soldiers are all thrown back in a short length period of time into the labor force, price controls and other rationing devices are lifted. The last thing we want to do is all that if all these things happen, then we are going to have a depression that by some estimates, quite a few estimates, going to be even worse than it was in the 30s. And they were all wrong because all the worst case scenario is exactly what happened. But what they did not figure out was how the changed attitude of government towards business would allow such a dramatic takeoff of private investment as was needed to make up more than make up for the retrenchment of government spending. It's an amazing story.
- [36:20]
Kibbe
If you made it this far into the show, it means I must be doing something right. Key Beyond Liberty is just one of the amazing products we create at Free the People. We tell emotionally compelling stories and produce educational videos for the Liberty Curious. Our award winning documentaries personalize all things liberty, independence, creativity, hard work, integrity and perseverance. After the show, check out our work@freethepeople.org and if you like what you see, donate to support what we do. That's freethepeople.org now back to the show.
- [36:56]
Matt Kibbe
It's fascinating that the Keynesians were basically the handmaids of what became the military industrial complex.
- [37:05]
George Selgin
They were. And they weren't, Matt, because they were fearing, they weren't cognizant of how the change in attitude was going to prevent a depression from recurring. They predicted that a depression, a severe one, would recur. They thought that the government would have to keep on spending a whole lot of money, would have to keep its share of GDP close to wartime levels if the economy was going to avoid collapsing back into a depression with very, very high unemployment. So they didn't recognize, they didn't see any virtue in the emerging industrial military industrial complex because they had not reckoned on that happening. That is, they hadn't considered how the changed attitude toward business during the war would continue to be a factor in how the economy worked afterwards. That was not part of their calculations.
- [38:07]
Matt Kibbe
You know, I hear these. I'm thinking about more modern times, and I wonder if you would link these at all. But there are plenty of neoconservatives who argue against scaling back weapon productions and our involvement in any number of international conflicts very explicitly making a Keynesian argument that, you know, every bomb we make in Ohio is feeding the economy and feeding jobs, and if we scale that back, we are going to have recession. Can you remember the guy's name? Logan? There's a guy that writes for the Washington Post. He's Walter Durante. No, this is.
- [38:46]
George Selgin
No, that's the New York Times back in the 30s. Yeah.
- [38:48]
Matt Kibbe
And then the other thing I'm thinking of, which is a little bit older, is the argument by who's the most reviled Keynesian of our modern times. I'm not blanking on his name, but he's.
- [39:04]
George Selgin
You don't mean Paul.
- [39:05]
Matt Kibbe
Paul Krugman made this argument that the government, and he's maybe being facetious, but maybe not, that the government should pretend an alien invasion to get us out of the economic doldrums.
- [39:18]
George Selgin
You're right. Shades of the mouse that roared. Well, but these are not the lessons that come out of our experience with the Great Depression. On the contrary, this is the kind of thinking that was behind the Keynesian predictions that a retrenchment of wartime spending would lead to another renewal of the Great Depression. Right. So they're saying we have to keep the spending up. They're not necessarily saying, let's just keep on making bombs and B17s and just let them pile up in a warehouse somewhere. They're not exactly saying that, but they're saying that we need to have something artificial, that we need to have government continue spending in order to avoid depression. But that is exactly what was proven unnecessary. What was necessary was that private businessmen would feel confident enough about the future, about the regulatory environment that they were going to confront in the post war world to to start investing on their own on producing private goods. The revival that happened, that is, the sustained revival of peacetime economic activity was possible because of private businessmen being willing to invest in the future of a peacetime economy. Not, it wasn't that they were thinking, oh, we're going to have a permanent war economy. And we didn't. Of course, we did have the Korean War, but by the time the Korean War broke out, it was already enough time had passed to show that in fact, the economy was able to go on its own without war to sustain it.
- [41:10]
Matt Kibbe
Yeah, it may be that like obviously opportunists who want to grow the power of government and want to continue pushing for endless wars are not necessarily interested in the lessons from history and more interested in the rationale, the political rationale for doing what they want to do.
- [41:31]
George Selgin
Of course. Well, so we have government being nice to business during the war, and particularly not particularly nice to be businessmen who are helping to produce wartime material. But fortunately, the attitude toward business generally has now changed. And this doesn't just include. This isn't just a matter of, okay, let's put up with these businessmen. What happened was, as a result of this cooperative attitude, however pragmatic it was at first, even many New Dealers, they changed their views of the private sector. They realized, as one writer put it, that businessmen don't necessarily have horns. And so this was a real change in outlook. And as a result, it wasn't just the businessmen who made B17s who were treated well. It was business in general that got treated differently after the war. So when the war time spending stopped, of course the war industries may have suffered from that, but it was relatively easy for them to gear up for peacetime production and count on the government allowing them to profit by doing so. This wasn't just a question of firms being treated well, business being treated well. If they produced stuff that the government wanted, they were just treated differently on the whole than they had been during the 1930s.
- [43:05]
Matt Kibbe
How long did that shift in attitude sustain itself? Because there was a period of substantial growth following this episode.
- [43:13]
George Selgin
I think it. I mean, I'm not sure it ever ended, frankly. We never returned to the kind of outright hostility of Government to business. That was witnessed particularly during the second New Deal. Between the end of the first New Deal, which is roughly when the NRA is struck down, and soon after the aa, between that time and the outbreak of the war in Europe. That's when you have. That's the low point in government business relationships. That's when, with occasional exceptions, because Roosevelt wasn't consistent here, he would sometimes back off and sometimes he would attack a lot of his attacks. But this was in general the period when government business relations were as sour as they got and when businessmen had the most reason to resist or to hold back on investment. That is to wait and see if the environment got better. A lot of the hostility, by the way, was calculated. We have to remember that this was at a time when there were rival politicians like Huey Long and people like Father Coughlin who were even more. Who took an even more aggressive anti capitalist stand. And Roosevelt had to counter them and he felt he had to play the same tune in order to not find himself losing the election. So there's a calculation going on here, but it's a calculation that it may be saving us from more extreme kinds of policies. There's a lot of truth to the claim that the New Deal may have saved us from fascism, for example, or communism, but it's saving us by, to some extent subjecting the economy to the same medicine in smaller doses. And it's still harmful for investment spending.
- [45:32]
Matt Kibbe
So you may not have an opinion on this or you may have followed it in intimately. Maybe. One exception to the less hostile attitude of government towards business is a recent phenomenon where it seems like the crypto industry has very much been targeted.
- [45:50]
George Selgin
Oh yes, don't get me wrong. I'm not saying that ever Since World War II, government has been gold sculptured. That government has been been uniformly nice to businessmen, encouraging, playing the free market game. Of course that's not true. But we haven't seen a revival of the kind of outright condemnation of business in general or at least rich businessmen who in practice. In practice, if you were attacking the plutocracy, nobody knew where the line was between the rich two rich businessmen and the okay, businessmen. So you were attacking business in general that has that. We haven't seen a renewal of that kind of overt hostility, blanket hostility. Of course, particular kinds of business have been objects of government hostility and crypto is an example of that. I don't want to put too much emphasis on the permanence of whatever sea change took place during World War II, but it certainly lasted long enough to allow for a very sustained recovery of private investment and of the private economy in general. And that recovery kept going for a long, long time time. And the investment spending, if you look at net private domestic investment, that's the best statistic here. It's the thing that allows the economy not only to sustain production but to grow over time. That thing zoomed up after the war and stayed high for two decades. Memoir actually kept going and through the 60s. And so whatever changed that is really an important part of the story of the Great Depression and its end.
- [48:00]
Matt Kibbe
So we jumped into recovery and you've outlined this theory that sort of adds to the literature and the understanding of what got us out of the Great Depression. But I wonder, going back to Ludwig von Mises and the understanding of the business cycle, you do start out explaining some of the monetary reasons that we ended up in this crisis. Do you think your story is consistent with the Austrian story about malinvestment? And Mises says the only way to get out is to let markets work?
- [48:43]
George Selgin
Well, no, in that if the Austrian business cycle theory is relevant, is part of the story. It's only that it's only part of the story of the Great Depression. My book does not take a position on the causes of the Great Depression, although recognizes among those causes the collapse of overall spending that took place as a result of the banking crisis. Especially it sees a revival of spending as part of the requirements for recovery. The Austrian theory adds to this that before there was a banking crisis, before there was a collapse in spending, there was a malinvestment boom in the 20s, especially the late 20s. And there's some evidence that there may have been, and I do refer to it, but I believe that if there hadn't been a monetary collapse, a collapse of spending as a result of the banking system going big, parts of it going belly up, I don't think we would have had the severe crisis that we had. And I think we would have had a much more rapid recovery, even with a New Deal, though maybe still too slow. But I don't have much sympathy for stories of the Great Depression that try to make make the Austrian business cycle theory explain the whole thing. Certainly that won't do in the United States, won't do at all. And I don't have even less sympathy for the argument based on those stories that the last thing we needed was for the government to be spending more. Ideally, of course, private spending would itself not have collapsed and there would have been no need for any kind of government spending. But I am enough of a Keynesian. I don't mind saying that. I think that there had to be, whether it was monetary or fiscal policy, there had to be something that revived aggregate demand to keep the economy me from staying permanently depressed. It didn't have to be fiscal policy. I mean, it could have been in principle, monetary policy. I talk about the open market operations of 1932. What's amazing, which is of course, when Hoover is still in power, Hoover did more for monetary stimulus than Roosevelt did. What's amazing, amazing about the Roosevelt administration and the New Deal is how neither monetary nor fiscal stimulus, the two things that would most quickly be recommended for dealing with recessions or depressions today, neither of them was an important part of the New Deal. As I said, the deficits in the New Deal were mostly inadvertent, I.e. deficits that were not part of a deliberate policy of deficit spending. And monetary policy was a disaster. The Federal Reserve did not make any effort to expand the money supply in the 1930s. However, such recovery as took place during the 30s was a result of monetary expansion, not fiscal policy. But that's because gold started flowing into the country after 1933. And it was this gold flowing in that was the only real reason why aggregate spending expanded during the 30s. Fiscal policy didn't contribute much and the gold was mostly flowing in after 1933 because of European war jitters, because of Hitler. Stalin was helping because he was subsidizing gold mining in Siberia. So between them, Hitler and Stalin did more for monetary stimulus in the United States economy than Roosevelt and company did. It's absolutely true. But even with all the gold flooding into the country, various New Deal policies were so counterproductive that the amount of recovery recovery had sponsored was much less than might have been the case. The nra, the National Recovery act, countered the effects of gold inflows by imposing price and wage increases by mandate. And the result of this was that the spending didn't do as much to increase employment as it would have. Right. You can hire more workers with more spending, but not if you're also paying higher wage rates. That's going to reduce the employment effect. So that was one thing. The other thing is that in the 1937, the government started sterilizing the gold inflow. And they also took other steps like raising banks reserve requirements to make the gold inflow less potent in spite sponsoring more bank lending. And those two policies between them and some others besides helped trigger the 1907 collapse. So summarizing what recovery did took place in the 30s was mostly a result of gold flowing in to the US Economy for reasons that had nothing to do with deliberate policy. Well, I take that back. The devaluation of the dollar was was a factor in forming the gold inflows, temporarily at least. But the recovery was a lot less than it would have been if the New Deal hadn't done other hadn't been counterproductive. And then, of course, the real recovery is what happens afterwards.
- [54:54]
Matt Kibbe
Okay, we are running out of time. Tell me about your publisher. And I'm assuming that people can find this book everywhere books are sold or what is.
- [55:07]
George Selgin
Yeah, well, the book is being published by University Chicago Press and it's available on Amazon. It should be available on most online book sources. I hope it shows up on actual bookshelves bookstore shelves, but who knows? I think the better bookstores people have a decent chance of finding it there.
- [55:32]
Matt Kibbe
And you still do work with the Cato Institute. You were a senior fellow there?
- [55:37]
George Selgin
Yes, I'm senior fellow at the Cato Institute. And the other title I have is Director Emeritus of the center for Monetary and Financial Alternatives at Cato, which means I used to be the director, but I'm not anymore.
- [55:52]
Matt Kibbe
Yeah. And are you on social media?
- [55:55]
George Selgin
I am. I'm on X and I'm on Facebook and I think my full name, George Seljian in some version, is my handle on both of those.
- [56:07]
Matt Kibbe
Okay. Well, thank you for doing this. I loved it.
- [56:10]
George Selgin
Oh, thank you, Matt.
- [56:12]
Kibbe
Thanks for watching. If you liked the conversation, make sure to like the video, subscribe and also ring the bell for notifications.
- [56:20]
George Selgin
And.
- [56:20]
Kibbe
And if you want to know more about Free the people, go to freethepeople.org.