BY JAMES P. PROUT
BOOK REVIEW
False Dawn By George Selgin The University of Chicago Press, 2025 370 pages, with notes and index $ 35.00
The 1930s was a grim decade for the United States. Bread lines, unemployment, business failures. We’ d had plenty of depressions and recessions before, but the depth of the Great Depression was like no other. Now, almost a 100 years later, there is no one answer as to where it came from.
Just as puzzling is why— with all the focus and efforts of the New Deal— the Great Depression lasted so long. Despite the efforts of President Franklin D. Roosevelt, his“ brain trust” of advisors and dozens of new“ alphabet soup” federal agencies and programs, economic vitality came back grudgingly in the 1930s.
In False Dawn, George Selgin of the University of Georgia tries to sort out what worked and what didn’ t in New Deal efforts to end the depression. Yearto-year and month-to-month, Selgin is in the details of the policies, agencies and economic debates of the New Deal. Did the New Deal hasten the end of the depression, or did the policies slow the recovery?
Selgin first reminds readers that the New Deal was defined by FDR as being more than just a tool to alleviate the country’ s immediate economic woes.“ Relief” was only the first of the three Rs on which he“ sold” the federal government’ s efforts.“ Recovery,” that is, restoring business activity to pre-depression levels, was next. And, finally,“ Reform,” whereby practices identified as causing or contributing to the depression were stopped or regulated. While these sound like they should work together easily, Selgin points out that they were often at odds with each other.
The US banking system was in bad shape when FDR took office in 1933, and it was the sector where immediate action was required. It was still very much a local business, with little oversight of branch loan practices leading to regular bank failures. Herbert Hoover had started programs to shore up banks, but New Deal efforts picked up the tempo to stop the“ wave of fear” that had rippled through the American economy and sown doubt among savers. One unintended factor contributing to the slow build-back of bank capital was the increasing chaos and fear of instability in Europe. This sped net inflows of gold into the US banking system, which led to expanded credit.
The New Deal spawned many federal agencies. Selgin digs deep into the workings of the Agricultural Adjustment Administration( AAA), the National Recovery Administration( NRA) and the Home Owners Loan Corporation( HOLC). These were just three of many New Deal programs aimed at stabilizing key economic sectors and getting employment and purchasing power back on track. In Selgin’ s view, the NRA( which attempted to regulate industry practices nationwide) was an overall non-starter, confusing and regressive. The AAA and HOLC served their purposes by putting programs of guaranteed crop prices in place and slowing housing foreclosures. Both delivered on their goals but ended up taking on lives of their own, in existence well after the immediate need had ended.“ Mission creep” is a continuing theme of Selgin’ s narrative of the New Deal.
As the author details the activities of agencies and individuals involved in the New Deal, he stops periodically to explore the intellectual rigor and debates behind it. It turns out, there was no overarching plan; no grand strategy. FDR comes across as sort of a pedestrian, reacting to suggestions from his advisors, his views changing by the week. Of course, it is hard to fault him for trying almost anything, given the economic conditions.
One area where FDR was consistent was his belief that the business community held a big share of the blame for the Great Depression. And he continued to express this attitude publicly as the country slipped into the“ Roosevelt Recession,” another stall in business activity, in 1937. Selgin points to a pull back in government spending and bank lending, as well as the lack of investment by industry, to explain this setback for recovery. In 1938, business starts to find its footing and activity picks up.
Selgin spends some time de-bunking what he calls the“ Keynesian myth,” the idea that Keynes’ s theories of enhanced government spending played a key role in recovery. Keynes did meet with FDR, but to little effect. Yes, there were increases in federal budgets, but these were nothing compared to the spending that commenced after Pearl Harbor and paced the economy through WWII.
Even as the New Deal unfolded there were debates and disagreements among economists and administrators on the efficacy and impact of the government programs. The“ brain trust”( mostly academics who would spend relatively short times in government) had strongly held opinions, many of which Selgin recounts and explores. Hardly a page in False Dawn is without reference to another paper or interview with a participant. The book is a compendium of New Deal theory and practice.
So? Did the New Deal“ medicine” cure the patient, or prolong the sickness? Selgin is even handed, giving credit where it is due. But it is clear he doubts that broad government intervention is the answer. We will have another financial crisis. He cautions that regulatory overreach is no match for the power and vibrancy of the free markets to pace economic activity.
James P. Prout is a lawyer with more than 30 years of capital market experience. He can be reached at jpprout @ gmail. com.
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