Kibbe on Liberty: Episode 322 | Everyone Is Wrong About the New Deal
Guest: George Selgin
Release Date: March 5, 2025

Introduction

In Episode 322 of Kibbe on Liberty, host Matt Kibbe engages in a profound conversation with George Selgin, a renowned economist and a pioneering thinker in the free banking movement. The episode delves into Selgin's latest work, False Dawn: The New Deal and the Promise of Recovery, 1933-1947, challenging conventional narratives about the New Deal's role in America's recovery from the Great Depression.

Guest Background and Free Banking Expertise

[05:16] Matt Kibbe:
Kibbe prompts Selgin to outline his extensive career, emphasizing his contributions to monetary policy and free banking.

[05:42] George Selgin:
"If I had to say it in as few words as possible... understanding how free markets in money and banking work."

Selgin elaborates on his research focus: examining spontaneous monetary orders and critiquing misguided regulations that hamper banking systems. His journey began with a fascination for Friedrich Hayek’s Denationalization of Money, which sparked his interest in the interplay between government regulation and private sector innovation in monetary systems.

Exploring Economic Theories: Menger, Hayek, and Selgin

[10:14] George Selgin:
"Menger's story of how money can evolve spontaneously tells us that markets can even handle... there's no need for government to dictate what are the things we use as Money."

Selgin discusses Carl Menger’s insights on the spontaneous emergence of money, emphasizing that markets inherently find efficient mediums of exchange without governmental imposition. He contrasts this with Hayek’s more conservative stance, noting Hayek's support for private fiat money issuance—a concept Selgin and his colleague Larry White critically examine.

[12:02] Matt Kibbe:
"Maybe Hayek was as well, more conservative."

Selgin clarifies Hayek’s position, highlighting the philosopher's mixed legacy: advocating for competing private currencies yet opposing free banking where private firms issue redeemable IOUs.

Selgin's New Book: False Dawn

[22:05] George Selgin:
"The book is about the recovery from the Depression... no book out there that is all about answering the question, how did the United States actually recover from the Great Depression?" [22:05]

False Dawn seeks to provide a comprehensive examination of the factors that led to America's recovery from the Great Depression, challenging both the Keynesian view that credits the New Deal and the counterargument that World War II was solely responsible.

Reassessing the New Deal's Impact on Economic Recovery

Classic Narratives vs. Selgin’s Perspective

[25:30] Matt Kibbe:
Kibbe outlines the two prevailing narratives regarding the New Deal's effectiveness.

[25:33] George Selgin:
"The New Deal wasn't very Keynesian at all... the deficits were far too small to made any difference." [25:33]

Selgin critiques the traditional Keynesian attribution of recovery to New Deal spending, arguing that the fiscal stimulus was insufficient. Conversely, he also disputes the notion that World War II alone resolved the Depression, introducing a nuanced perspective that both extremes fail to capture the complete picture.

Mechanics of Recovery: Private Investment and Government Attitude

[30:04] George Selgin:
"Recovery requires that there be enough aggregate spending... private investment spending has to revive because after all, you've got to produce the goods." [30:04]

Selgin posits a twofold answer to the recovery question:

1. Aggregate Spending: Sufficient spending to allow producers to cover costs, aligning partially with Keynesian thought but emphasizing private investment's critical role.

2. Change in Government Attitude Toward Business: During World War II, the U.S. government shifted from hostility to cooperation with businesses, fostering an environment conducive to private investment. This transformation was pivotal in sustaining economic recovery post-war.

[34:32] George Selgin:
"The attitude of government toward businessmen dramatically changed... this is the beginning of the military industrial complex." [34:32]

Impact of Government-Business Relations on Economic Stability

[37:04] George Selgin:
"They didn't recognize how the changed attitude of government towards business would allow such a dramatic takeoff of private investment." [37:04]

Selgin discusses the sustained shift in government-business relations initiated during the war, which prevented a post-war recession by encouraging private sector confidence and investment. He underscores that this relationship never fully reverted to pre-war hostility, facilitating long-term economic growth.

Austrian Business Cycle Theory vs. False Dawn

[48:43] George Selgin:
"My book does not take a position on the causes of the Great Depression... recovery was a lot less than it would have been if the New Deal hadn't been counterproductive." [48:43]

While acknowledging elements of the Austrian Business Cycle Theory, Selgin argues that it only partially explains the Great Depression. He emphasizes the collapse in aggregate spending and the critical role of private investment recovery, which he believes was hindered by New Deal policies rather than solely driven by Austrian malinvestment.

Modern Implications and Reflections

[41:09] Matt Kibbe:
Kibbe draws parallels between historical economic policies and contemporary arguments, such as those made by neoconservatives regarding defense spending.

[43:12] George Selgin:
"We haven’t seen a revival of the kind of outright condemnation of business in general... crypto is an example of that." [43:12]

Selgin reflects on the enduring influence of war-induced government-business cooperation and its absence in contemporary policy debates. He comments on the targeting of specific industries like cryptocurrency, contrasting it with the broader, more consistent shift in government attitude post-World War II.

Conclusion

The episode wraps up with Selgin promoting his forthcoming book and reiterating his views on the nuanced factors that facilitated America's recovery from the Great Depression. Through a critical lens, Selgin challenges entrenched economic narratives, offering a blend of Keynesian and Austrian insights to explain historical and modern economic phenomena.

Notable Quotes:

• George Selgin [05:42]:
  "Understanding how free markets in money and banking work... a lot of problems in banking systems are due to misguided regulations."

• George Selgin [10:14]:
  "Menger's story of how money can evolve spontaneously tells us that markets can even handle... there's no need for government to dictate what are the things we use as Money."

• George Selgin [25:33]:
  "The New Deal wasn't very Keynesian at all... the deficits were far too small to made any difference."

• George Selgin [30:04]:
  "Recovery requires that there be enough aggregate spending... private investment spending has to revive because after all, you've got to produce the goods."

• George Selgin [34:32]:
  "The attitude of government toward businessmen dramatically changed... this is the beginning of the military industrial complex."

• George Selgin [37:04]:
  "They didn't recognize how the changed attitude of government towards business would allow such a dramatic takeoff of private investment."

• George Selgin [48:43]:
  "My book does not take a position on the causes of the Great Depression... recovery was a lot less than it would have been if the New Deal hadn't been counterproductive."

About the Guest

George Selgin is a Senior Fellow at the Cato Institute and Director Emeritus of the Center for Monetary and Financial Alternatives. An esteemed economist, Selgin has significantly influenced the free banking movement and monetary theory. His work challenges conventional economic policies, advocating for reduced governmental intervention and enhanced private sector roles in banking and monetary systems.

Further Information

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