George Selgin on the New Deal, Regime Uncertainty, and What Really Ended the Great Depression

What It Covers

George Selgin discusses his book "False Dawn" examining New Deal policies from 1933-1947, arguing that gold revaluation and regime uncertainty shaped recovery more than fiscal stimulus, while price controls and regulatory hostility toward business prolonged the Great Depression.

Key Questions Answered

• •Gold Revaluation Strategy: Roosevelt should have immediately devalued the dollar after suspending gold payments in 1933 instead of following George Warren's flawed gold purchase program for months, which failed to raise prices. Keynes correctly criticized this approach and recommended immediate devaluation for faster recovery.
• •Manufacturing Output Paradox: After gold revaluation in 1933, manufacturing output grew at 7-8% annually, but this boom was partly artificial as manufacturers rushed to produce inventory before National Recovery Administration price controls took effect. The real sustained growth came from European gold inflows driven by Hitler fears, not New Deal policies.
• •Regime Uncertainty Impact: Business investment remained depressed throughout the 1930s because Roosevelt's attacks on businessmen and unpredictable regulatory changes created uncertainty about future returns. Net investment was nearly zero for the entire decade, making investment recovery the critical missing piece, not consumption which recovered more easily.
• •1937-38 Depression Causes: The severe recession resulted from a perfect storm of simultaneous policy mistakes: the Fed doubled reserve requirements in three steps, Treasury sterilized gold inflows preventing reserve expansion, and fiscal policy tightened as officials mistakenly believed recovery was complete. This monetary and fiscal contraction happened concurrently.
• •World War II Recovery Mechanism: The war ended the depression not primarily through fiscal stimulus, but by transforming government-business relations from New Deal hostility to cooperation. This attitude shift restored business confidence, triggering a massive investment boom that offset declining wartime spending and prevented the predicted postwar depression.