George Selgin is a senior fellow and director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute and is also a long-time returning guest of Macro Musings. In this bonus segment from the previous conversation, George rejoins the podcast to talk about his new book project on the Great Depression titled, False Dawn: The New Deal and the Promise of Recovery. Specifically, David and George discuss the broad contours of the Great Depression, including its causes as well as the pros and cons of the New Deal solutions that followed.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: George, welcome back to the show for this bonus episode.

George Selgin: Thanks, David.

Beckworth: So George, why another book on the Great Depression? There are so many out there, so many takes. Why do this?

Selgin: Well, even though it's true, the literature on the Great Depression and on the New Deal is vast. I know because I've tried to read as much of it as I can, and of course I'll never read it all, don't suppose anybody could, but it's interesting that there is no book that is specifically about the New Deal's contribution to recovery from the Great Depression. What did it do? How did it do it? Which programs worked? Which ones didn't? That sort of thing. There's no book that exactly does that. Of course, there are books that say that the New Deal helped bring about recovery, and there are books that say that it didn't, that it delayed recovery, but there are no books that actually try to really systematically assess the role of the New Deal in the recovery process.

Selgin: And so in that sense, somehow, I think I found a niche that seemed to me worth filling. Especially because, and this is what inspired me to write the book, every time we have another crisis, another downturn, and of course we've had more than our fair share lately, the topic of the Great Depression always comes up as the paradigmatic bad downturn and then inevitably the New Deal comes up with the whole question raised once again about what it did or didn't do and how. So I thought a book like this, may not be on time for the... I hope it won't be on time for the next crisis because I hope it'll come out soon and that we won't have yet another one then, but it's probably going to be reasonably timely, unfortunately.

Beckworth: Okay. So we have the book, it focuses on the New Deal and the contribution and the role that it may or may not have played in getting us out of the depths of the Great Depression.

There are no books that actually try to really systematically assess the role of the New Deal in the recovery process. And so in that sense, somehow, I think I found a niche that seemed to me worth filling.

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Selgin: That's right.

Beckworth: And the motivation you've also shared with us, that is your frustration with the lack of history, just like in our previous show you talked about some of the history that's not understood about free banking and other categories. So you like to get to the bottom of it in this show. Now, George, for our listeners who aren't familiar with the Great Depression, I think many of them are, but for those who are not, just walk us through the broad contours of it. When did the great contraction happen in that second recession and when did we finally get out of it?

The Broad Contours of the Great Depression

Selgin: Well, conventionally, for the United States, the Depression is dated as having begun with or soon after the great stock market crash of 1929. That is not the NBER's dating of the episode, but it is the conventional start. And of course the recovery, well, it's trickier to date the recovery. Really, the Great Depression in the United States, because it was also a world depression, but in the United States it really consisted of two recessions. The first one was the one between 1929 and 1933, then there was a period of recovery, and then there was another very deep, very steep recession in 1937-38. And of course, that undid a lot of the recovery that had gone on before. As for when real, permanent recovery took place, some would say World War II, but there remained until the end of World War II extreme doubts about whether the nation would be plunged back into a depression once the big boost of war time spending ended. And so it's really only after World War II when that doesn't happen, that it's clear that recovery has been achieved.

Beckworth: Okay and just to lay out the facts, unemployment hit a peak of 25%, is that right?

Selgin: According to conventional measures, yes. Now those conventional, some would say now old fashioned, measures included people on relief, that is make-work programs, among the unemployed and that's quite controversial because obviously enough, they are working. Maybe they're leaning on shovels, but plenty of them are actually working. So calling them unemployed is, if nothing else, a little bit unfair. However, and I make this point in the book, if what you're interested in is the extent to which the economy is getting back on its feet, then a case can be made for looking at those old fashioned unemployment "numbers" because they still are providing a useful indicator of the extent to which the private marketplace is able to generate jobs along with ordinary government activities, but not including government programs that are simply designed to give jobs to people who normally would be employed but aren't because the economy's malfunctioning.

Beckworth: Okay, so using these unemployment statistics, which have an asterisk on them…

Selgin: Yes.

Beckworth: So we hit a peak of 25%. What year was that when we got to that?

Selgin: That's 1933.

Beckworth: Okay, and then by the end of the decade it's still around 14%?

Selgin: Yes, 15% in 1939. And it's-

Beckworth: That's remarkable, it lasted that long and that high.

Selgin: Yes, we think we've had it bad lately and we have, but as far as the sheer magnitude of people who are either unemployed or on relief goes, this was the worst. And it was only spending related to World War II, or the preparations for it in Europe starting after '39, you start to see those unemployment numbers go down and ultimately to very, very low levels during the war. And as I said before, then the great fear was, it'll all come back when the war ended, which it didn't.

Beckworth: So we're going to get to the recovery part of that first part there and the role the New Deal may or may not have played, but before we do that, let's go to the point before that, what caused the Great Depression? What made it so severe? What are the standard stories given?

Causes of the Great Depression

Selgin: Well, I should say in advance, I don't talk a lot about the causes of the depression because I really wanted to focus on this question of the recovery, but really the chief culprit in the world depression, which sets the stage of course for the particular experience we had in the United States, or informs that experience, was the breakdown of the interwar gold standard. That led to a massive worldwide, almost worldwide, deflation crisis, a crisis throughout the gold standard world. The rot started there with Great Britain, but the fundamental problem was that the gold standard that was patched together after World War I was not the robust gold standard that had preceded that episode. Instead, it was a kind of jury rigged, gold exchange standard that was dependent upon the cooperation among the major central banks.

Selgin: And for a while that cooperation was sufficient to keep the thing going, but then the French, who always spoil these arrangements, decided they were going to go have a hard franc and that meant cashing in their chips at the Bank of England, and this put the Bank of England in desperate straits. Ultimately, it had to suspend the pound, which it had only... the convertibility of which into gold had only been restored less than six years before. So that precipitated a world crisis. In the meantime, though, it should be said, the United States had its own pretty serious home grown problems, particularly concerning its banking system which was an exceedingly fragile system. World War I also set the stage for those problems in that it led to extreme over investment in agriculture and we were growing crops because in Europe they couldn't, all the farmers were fighting and otherwise unable to participate in their harvest.

Selgin: And this overinvestment was followed throughout the '20s and the early '30s by the failure of many farms where farmers couldn't pay their mortgages and all the unit banks that were servicing those farm areas were in trouble. And thousands of them failed. And that continued into the 30s when the ripples came from overseas adding to these problems. We had a number of waves of banking crises culminating in the crisis of February, March 1933, which I should say, and this is one of the myths that needs addressing, that particular big wave of bank closures was actually a result of a run on gold because of fears that turned out to be more or less self-validating that when Roosevelt became president, he would eventually devalue the dollar. And that is in fact what happened.

The chief culprit in the world depression, which sets the stage of course for the particular experience we had in the United States, or informs that experience, was the breakdown of the interwar gold standard. That led to a massive worldwide, almost worldwide, deflation crisis, a crisis throughout the gold standard world.

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Beckworth: So we had a guest previously on the podcast, Doug Irwin, and he has a great paper on the role the French played in really undermining this end of our gold standard.

Selgin: Yeah I should've mentioned that.

Beckworth: And the US to an extent as well, they hoarded the gold reserves, which under a normal operating gold system should flow across borders, equalize prices and returns.

Selgin: That's right.

Beckworth: And they didn't do that. So they cheated the US to lesser extent. So I would encourage listeners to go back and check out that episode.

Selgin: I highly recommend Doug's work here. It's extremely important.

Beckworth: He's a great economic historian. So let me just ask this question about the crisis and we'll move on to your book. Were it not for the breakdown of the international gold standard of the time, would all these other homegrown problems emerged or have been as serious as to create something called the Great Depression?

Selgin: That's a good question, David. It's a difficult question. I think our banking system was always very vulnerable, but it's not clear, to me at least, that we would've seen the severe crisis that ultimately took place if the world banking system had not also been in trouble. Because what tends to happen, of course, is when you have problems elsewhere under a gold standard, it becomes a scramble for gold everywhere. And so if you have domestic problems with your banks, that's one thing, but it doesn't mean that the banking system as a whole is having trouble holding on to its reserves. But in this case, you have all the banks scrambling for limited supply of gold reserves at the same time because of doubts about the exchange rates being sustainable. And that, of course, is a recipe for trouble everywhere, much more serious trouble. And so I think the answer is maybe we would've avoided it. I think we probably would certainly not have had as severe a crisis if it hadn't been for what was happening in the international monetary system.

Beckworth: Okay. Let's move on then to the New Deal and the role it may or may not have played in the recovery. So walk us through that. What are the arguments for it and what are your arguments against it, I believe is [the argument] you're going to make, right?

The Pros and Cons of the New Deal

Selgin: Well, I do both. I try to be fair. First of all, I'd like to say that usually the way this debate is usually framed, and this is a perennial debate, it never goes away, is with some people saying the New Deal slowed down recovery and other people saying, "No, of course it helped us recover faster." And neither of these theses is really very well framed. The reason is they both call for counterfactuals. The question... There's a question lurking behind either claim, which is well, what would've happened instead of the New Deal? And then the answer to that is fraught with problems. What would Herbert Hoover have done if he'd stayed in office? Nobody really knows. Nobody knew and even Franklin Roosevelt himself didn't know exactly what he was going to do until he was confronted with this banking crisis.

Selgin: So the counterfactuals are pretty insuperable. What if Huey Long had been elected or something? So I don't go there. I'm not trying to say, to answer the question of whether the New Deal made things better or made things worse, because I don't want to have to grapple with an impossible counterfactual. What I want to do is to look at these specific different New Deal programs, and of course at what's happening in the economy, and ask which of those programs is helping and which ones aren't and what policies are good and which ones are bad. So that's what I do. So there's no implicit assumption about what would have happened if there hadn't been a New Deal.

Beckworth: Well, let's start with the programs that made things worse, the part of the New Deal that made things worse.

Selgin: Well, the big stinker here, and I think most economic historians who've studied it at all carefully would say so, is the National Recovery Administration, the NRA, that of the famous Blue Eagle symbol. This was an elaborate price fixing scheme, cartelization scheme, and it was based on the premise that since we know that recessions and depressions tend to happen when prices are falling, that these things tend to be associated, well, if we can just raise prices, we can thereby stop the downturn and maybe create the basis for a recovery. Well, it's a crude fallacy, it's a fallacy that was in other ways manifested in policies under the Hoover administration.

I'm not trying... to answer the question of whether the New Deal made things better or made things worse, because I don't want to have to grapple with an impossible counterfactual. What I want to do is to look at these specific different New Deal programs, and of course at what's happening in the economy, and ask which of those programs is helping and which ones aren't and what policies are good and which ones are bad. So that's what I do.

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Selgin: But the fallacy is very simple. Yes, if you have inadequate purchasing power or if you have a collapse of the money supply, specifically as we did in the United States, 33% collapse of M2, then two things happen, prices fall, but output also falls because prices aren't fully absorbing the shock and because firms are not recovering their nominal costs, so they're nominal outlays. That's true. And it's also true that if you can get the money supply to grow again, get spending to recover again, prices will go up and output will tend to be revived. It doesn't follow, though, that raising prices by all means will have the same effect. So you can have prices rise because you restrict output, because you cartelize industry, or you can have wages go up because you impose minimum wages.

Selgin: What the NRA did was to have an elaborate set of codes for both pricing of goods and quality and other things. And the hope was that by restricting output and raising prices that way, you would help to boost recovery by giving people more purchasing power. And the fallacy is that higher prices and more purchasing power are not the same in this case. Higher prices are happening, but output's being restricted, nominal outlays aren't growing and in fact, the only way you can hire more people is by dividing the jobs up into smaller little bits because the nominal earnings aren't there. And that's what the NRA tried to do. In fact, all of the improvement in unemployment that occurred under the NRA in those first years, there was an increase in employment, but it was entirely due to job sharing. So they broke jobs up into fewer hours.

Selgin: So by virtue of doing that, they were able to get more people employed, but there was no actual increase in total employment hours. Very good work has been done on this by Jason Taylor. And so it's a bit of a mirage. You're spreading jobs out more among a larger number of workers, and there may be a good case for doing that from a welfare or ethical perspective, but there's no recovery in a really fundamental sense. By the way, I should say that one of the things I try to do with this book is to muster together the results of a whole lot of research by economists and economic historians, as well as others, that has never been synthesized. So I try to make use of that to build on that. I don't do a lot of original research in the book, but I think I'm putting it all together in an original way.

Beckworth: I'll mention Jason Taylor was also a previous guest on the show, so we'll provide a link to his discussion. So that's the big one you said, the big stinker. Any other ones you want to note before we move on to the ones that were successful?

Selgin: Well, I think there are three things that where you might say stinkers. The NRA was the biggest. The fiscal policy deserves some attention here, not because they tried aggressive Keynesian fiscal policy and it failed, but because they didn't resort to any. I should say, neither fiscal nor monetary policy was particularly expansive under the Roosevelt administration. It's amazing how little fiscal stimulus or monetary stimulus took place. As far as fiscal policy is concerned, FDR and many of the people in his administration were actually very, very much dedicated to keeping deficits as small as possible, given the desire to maintain relief programs, which quite rightly FDR... He said, "I'm not going to balance the budget if it means people have to starve." But except for that proviso, he was determined to try to balance the budget. So you had very skimpy deficits. Actually, the one big deficit, the only one that really moves the charts, is 1936 and that's only because of the bonus payment made that year over FDR's veto. His veto of that expenditure was overridden. And that's the one deficit, but it really pales in magnitude compared to the kinds of fiscal stimulus we see during recessions today, even…

Beckworth: That was the bonus payment to War-

Selgin: Bonus payment. Oh, these are the World War I-

Beckworth: Veterans.

Selgin: ... veterans who were owed bonus payments in 1945 and kept trying to get them paid in advance during the Depression and the bills were defeated, defeated, defeated, usually with FDR's veto. In '36, Congress overrode the veto and you had this big spike in spending that, again, the deficit's still not big.

Beckworth: So it wasn't explicit countercyclical fiscal policy.

Selgin: There was no resort to countercyclical, deliberate Keynesian if you like, fiscal policy. The closest that we got to that, not counting World War II, which was also not inspired by Keynesianism, it was inspired by the need to pay for the war, but the closest was in one year in '38. By that time, after the '37, '38 crisis, there was some rethinking on Roosevelt's part, certainly, and some others. And there was more of an effort to engage in deliberate fiscal stimulus. It still wasn't very big. It was smaller than the accidental stimulus of the bonus payment in '36. So fiscal policy didn't do much.

Beckworth: Okay, that's number two.

Selgin: Yeah. And monetary policy didn't do much. The Fed's balance sheet doesn't grow at all. Practically speaking, there's hardly any expansion by the Fed, except passively. I said the balance sheet didn't grow, that's false. But the Fed didn't acquire a lot of interest earning assets, didn't do much discounting, hardly any. It's basically flat on its asset purchases except one big exception, gold. Gold is flowing into the US economy after the devaluation of '34. Devaluation, it comes out with a plus on it as far as if you want to call that New Deal policy. But after that... but also because of war jitters in Europe that become more and more serious, gold starts flowing in in big amounts. Christina Romer writes very eloquently about this. The only real stimulus, fiscal or monetary, of any significance that's pretty persistent is from these European gold flows.

There's this misconception that the New Deal was by and large a Keynesian experiment or inspired by Keynes. In fact, Keynes's thinking had very little bearing on the New Deal.

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Selgin: And, honestly, allowing that the devaluation in '34 had some bearing on it, of course, because it meant the nominal value of gold has gone up in the United States. Allowing for that, and mostly these gold inflows were a result of European developments. And so to put it rather starkly, and ironically, the recovery, as far as fiscal or monetary factors are concerned, had more to do with Hitler and Stalin than with FDR. Hitler, obviously his contribution was very clear. He had the Europeans worried about war and sending gold to the United States for that reason where we were of course buying it for the now higher price. But Stalin in the meantime is subsidizing gold mining in Russia, so they're producing a ton of gold and it keeps going up. So that gold movement is contributing a lot to recovery, but mostly it hasn't got anything to do with the New Deal.

Beckworth: So it's accidental?

Selgin: Yeah, it's mostly nothing to do with the New Deal. Okay. I was going to say one other thing that was negative, and this is very important. I'll set the context by pointing out that a big part of my book is attempting to clarify the record of Keynes, the contribution or the role of Keynes, in the Depression, but especially in the New Deal. Because there's this misconception that the New Deal was by and large a Keynesian experiment or inspired by Keynes. In fact, Keynes's thinking had very little bearing on the New Deal. There were a few people associated with the New Deal, particularly later on, like Marriner Eccles and Lauchlin Currie, who were, if you will, Keynesians, though they were Keynesians before Keynes, or independently of Keynes, and they had some influence. But for the most part, Keynesian theory, to call it that, whether it came from Keynes or from others, didn't have a big influence in the administration, certainly not before '38.

Selgin: But Keynes himself tried to have some influence. He wrote famous open letters, he had one meeting with FDR and then he had some follow-up correspondence as well as some things that he wrote that were not letters but were publications. And in all of this, he gave a lot of good advice, highly critical actually, of many aspects of the New Deal. He did say there should be more deficit spending, a lot more than there was, and we've already talked about that. But the other thing that's neglected is, that he emphasized, was that the New Deal involved several components, or several goals. Recovery was only one of them. The others were relief, which was important, and reform. There were all these reforms they tried to get through. And Keynes remarked correctly that a lot of these reform ideas, which were not inspired by the Depression, they predated the Depression, these were things that reformers wanted done, were contrary to the goal of recovery because, among other things, they were scaring the bejeebees out of businessmen.

Selgin: And Keynes wrote very eloquently about how if he wanted recovery to happen, FDR had to not be attacking businesses, which he did more and more throughout the regime because businessmen are very fickle, animal spirits need to be coddled, otherwise you're not going to get investment to revive. I think that part of Keynes's advice was very important, but it was neglected, as was his advice about bigger deficits. Both of them, both these big chunks of Keynesian advice were not heeded very much under the New Deal and I think that those were failures of the New Deal that deserve more attention. So to sum it up, I am critical of the New Deal, and people usually assume that that means you're critical of Keynesian economics. I'm not critical of Keynesian economics. I wish that the New Deal had been informed by Keynesian economics, or more specifically by Keynes's direct advice to Roosevelt. I think if that advice had been followed, things would've been a lot better.

Beckworth: Okay. So the three critiques, if I summarize them correctly, is the NRA, the lack of fiscal policy, intentional countercyclical fiscal monetary policy, it was all accidental, whatever did happen, and finally, Keynes himself was ignored on his policy prescriptions that he gave to FDR.

Selgin: Particularly not just on fiscal policy, which he was not-

Beckworth: But the reform part.

I am critical of the New Deal, and people usually assume that that means you're critical of Keynesian economics. I'm not critical of Keynesian economics. I wish that the New Deal had been informed by Keynesian economics, or more specifically by Keynes's direct advice to Roosevelt. I think if that advice had been followed, things would've been a lot better.

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Selgin: But the idea of putting off… Keynes wasn't against the New Dealers reform efforts, but basically he said, "Not now. Not now."

Beckworth: Let's move on to the areas where the New Deal did work. So walk us through those.

Selgin: So what you count on the positive side of the ledger for the New Deal depends a lot on how you define it. And here I've got to allow some leeway because, here, reasonable people can disagree. The bank holiday is, I think, was the brightest spot in the record of the Roosevelt administration as far as combating the Depression was concerned. Now notice how I put that. I didn't say it was the brightest spot in their New Deal. I said it was the brightest spot in Roosevelt's record, particularly in his first administration. But was it really the New Deal? No, I don't think so, because the holiday, as it was executed, had actually been planned by Hoover's Treasury people because the banking crisis was happening under their watch. Hoover didn't take the emergency steps he might have taken to implement a national bank holiday and stop the collapse of the banking system.

Selgin: And he's been properly faulted for that. For his part, he blamed FDR because he wanted FDR's blessing, basically, and he felt that as a lame duck president, he might not have the ability to put the plan that they'd come up with into effect. Well, neither of these two behave very well under the circumstances. Each was concerned about his own legacy and that sort of thing. Anyway, though, as soon as FDR takes office, his men and the Hoover Treasury people, who are the ones who really know what to do, who've really come up with a plan, I should say, work together, they shut down the banks, they use the War Powers Act, which is something that the Hoover administration had considered doing but hadn't done, to do that, and they arrange for the gradual reopening of the banks. But it's really not a New Deal plan. Even the famous fireside chat that FDR uses to explain what's going on to the public and to calm them, which it does, was written mostly in its original draft by a Hoover Treasury person, but delivered with-

Beckworth: Interesting, I didn't know that.

Selgin: ... delivered with great skill, it should be said, by FDR. We can't imagine anyone doing it better. And FDR did modify it in small ways. So counting this all as a New Deal thing, it's not really clear that it deserves to be seen that way. Anyway, there's that. The gold standard had to be suspended, which it was. Devaluation was pretty much inevitable and if that hadn't been done I think it would've been a big problem. It should be said though, that FDR's policy of messing around with the gold standard prior to the official devaluation of January, 1934 was probably a mistake. It would've been better to just let the dollar float, perhaps for a period, and then devalue without any gold purchase program, that sort of thing. I disagree with Scott Sumner on George Warren's theories. I'm with the majority who think it they were half crazy. But I won't go into any detail on that.

The bank holiday is, I think, was the brightest spot in the record of the Roosevelt administration as far as combating the Depression was concerned.

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Selgin: The AAA is an interesting case, the Agricultural Adjustment Act, which was actually passed prior to the NRA. There was a lot more logic to that than to the NRA because it was meant to particularly address the problems of the farmers, and we know that the farm problems were a very crucial part of the story of the Depression in the United States. Well, on that, I rely, for my analysis of the AAA and the NRA both, I rely very heavily on studies done by Brookings at the time. Now, most of this time I'm trying to rely on recent research and I do for these subjects as well. But it so happens that the Brookings Institution did some fantastic work back then on both of those programs. They have these books that are actually, now, generally neglected and it's a shame and you can't even find them on Brookings' site. You have to really hunt hard to find electronic copies. In one case, I think I actually had to buy a hard copy, find an old hard copy on the AAA.

Selgin: Anyway, they're splendid analyses and Brookings comes out, basically lambasting the NRA, but saying that the AAA probably did some good. So I would put it on the plus side, but with a very important qualification because the AAA created a sort of Frankenstein monster and we know that farm subsidies and all that are a legacy of that. And they've proven very, very costly over time. So we've had to pay a big price for whatever contribution the AAA made to recovery from the Great Depression. But the people at the time may have been helped by it. So we'll give that a little bit of a plus column.

Beckworth: Any other wins with the New Deal?

Selgin: As far as combating the recession, I would say no. But here I have to say that it is exceedingly important to distinguish, as FDR did, relief from recovery. Many of the New Deal programs where relief programs, the various work relief programs like the WPA and many others… the Civilian Conservation Corps, on a small scale. A lot of these programs were, I think, well-conceived, they really helped keep people gainfully employed, some of them produced valuable stuff. And they did all this without making people feel like they were losers, failures and all that. So it was much better than just handing out checks and that sort of thing. But these efforts shouldn't be confused with recovery. And I think I feel safe in insisting on that because FDR himself did. He did not think these programs where themselves recovery. He didn't want to see them continue forever. He repeatedly stressed that we're doing these things now until the economy gets back on its feet. That's why they were called emergency programs. And he actually kept separate budgets where the emergency programs were separated from other government programs because his idea was that you shouldn't have to run deficits once the emergency is over.

Beckworth: So do you think people confuse the relief and the reform side of the New Deal with the recovery?

Selgin: Absolutely. Absolutely.

We've had to pay a big price for whatever contribution the AAA made to recovery from the Great Depression. But the people at the time may have been helped by it. So we'll give that a little bit of a plus column.

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Beckworth: So your point is very narrow. What part of the New Deal contributed to the recovery? So I'm just thinking right now like a Social Security, that was a big reform and people probably look at that, "Hey, that was a great innovation."

Selgin: Absolutely.

Beckworth: But that didn't have anything to do with the recovery from the depths of the recession?

Selgin: Not at all. In fact, it was pro-cyclical. Social security was pro-cyclical because when it went into effect, it taxed people, they had to pay the social security tax, and it didn't start paying benefits for some time after. So the initial macroeconomic, or fiscal, consequence of social security, just looking at the fiscal stimulus side, is negative. It's going in the wrong direction. It may have been, and this is an example of the sort of thing Keynes was talking about, this may be a great idea, it may be something that's going to give people a lot more security, but this is not the right time to be implementing it from a Keynesian point of view because it's a negative fiscal step.

Selgin: So no, you can't count that. And I'm afraid that you're quite right, a lot of the heat generated in these discussions about whether the New Deal helped end the Great Depression is a result of confusion of the merits of New Deal reforms, with the question of the New Deal as a recovery program. And I'm only interested in that second question. So the New Deal programs could have been, in many other respects, the greatest thing since sliced bread, but I'm not going to say that they helped the recovery unless that's what they did.

Beckworth: Well, one last question, we're going to wrap this up. I had a guest on the podcast a few years ago, Sebastian Edwards, and he had a book called American Default, and it's about FDR's undoing of these gold clauses so you didn't have to get paid in gold if the contract was violated. Did that play a meaningful role?

A lot of the heat generated in these discussions about whether the New Deal helped end the Great Depression is a result of confusion of the merits of New Deal reforms, with the question of the New Deal as a recovery program. And I'm only interested in that second question. So the New Deal programs could have been, in many other respects, the greatest thing since sliced bread, but I'm not going to say that they helped the recovery unless that's what they did.

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Selgin: Yes, it did, and it's all connected with devaluation. And it's a difficult topic to address. I think Sebastian's book is great, by the way. This is one of those cases where I feel a little bit torn from an ethical point of view. A contract's a contract, a promise is a promise, and these are very specific promises that the government is reneging upon. On the other hand, had people been able to insist on payment of their debts in gold terms and the devaluation, of course would, to that extent, have been essentially moot, it wouldn't have done anything. So from a macroeconomic point of view...

Beckworth: It was essential for the devaluation to work, right?

Selgin: To work as completely as it might have. But the devaluation shouldn't be overrated. When they devalued the dollar, they might have automatically, by doing so, have expanded the Federal Reserves' nominal assets to that extent. But that's not what they did. First they took the gold from the Fed, then they devalued. So the whole increase in the nominal value of gold went to the Treasury and was used mostly to build the exchange stabilization fund. None of it went to the Fed, none of it contributed to monetary stimulus directly.

Beckworth: Okay, well, we'll put a link to that show. And George, thank you for coming on to provide a bonus episode. And again, best wishes on your trip to Spain.

Selgin: Thanks a lot, David.

Photo by Paul J. Richards via Getty Images