The New Deal Episode transcript


The Last Best Hope? Understanding America from the Outside In
The New Deal Episode
Series 1 (Trinity term 2020)
Published 2 June 2020

NB the text below was transcribed automatically by

Adam Smith  00:09
Hello and welcome to the Last Best Hope? podcast from Oxford's Rothermere American Institute, in which we try to understand America from the outside in. I'm Adam Smith. We're in the midst of a global pandemic that has become a major economic crisis, probably the worst the world has experienced since the Great Depression of the interwar years. And in this episode, we're going back to that time and asking what we can learn from the New Deal when a new energetic administration rejected old shibboleths in economic policymaking and acted in new and bold ways. Today we have a Republican senate and president who insist that the federal government should not be in the business of trying to bail out the little guy and that recovery will come naturally when businessman are unshackled. This was also the view of Herbert Hoover, the Republican who was president in 1929, when the stock market crashed, and the United States was plunged into an economic slump of unprecedented magnitude. In the 1932 presidential election, Hoover was defeated in a landslide, by the jaunty well to do democrat Franklin D. Roosevelt, with his promise of a new deal for the American people. In his inaugural address in March 1933, Roosevelt began with his famous exhortation that the only thing we have to fear is fear itself. And then he explained in biblical language, that the whole economic system had been run for the benefit of bankers, and not for the people.

President Roosevelt Reading  01:58
The practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by the failure of credit, they have proposed only the lending of more money. Stripped of a lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations pleading tearfully for restored confidence. They only know the rules of a generation of self seekers. They have no vision. And when there is no vision, the people perish. Yes, the money changers have fled from their highest seats in the temple of our civilization. We may now restore that temple to the ancient truths.

Adam Smith  03:10
The years that followed saw a series of experiments in various forms of government activism, not all of which were consistent or successful. But the audacity of the New Deal was the attempt to do something no previous administration had tried: taking responsibility for the performance of the economy with a huge fiscal stimulus, and by managing the value of money. The Soviet Union was attempting to control the economy too, and so were fascists in Germany and Italy. But FDR – Franklin Roosevelt – was trying to do it while preserving capitalism and democracy. Indeed, for him, a revolution in economic policymaking was essential to avert a political revolution from the authoritarian Right or Left. His aim was not just to restore prosperity, but at least as important to restore public faith that the government was on their side. Roosevelt's New Deal was many things at once, but it was always ambitious, and almost always unorthodox, and to many around the world, the New Deal was therefore a rare source of hope. In 1933, very early in Roosevelt's administration, the Cambridge economist John Maynard Keynes wrote an open letter to the President.

John Maynard Keynes Reading  04:49
You have made yourself the trustee for those in every country, who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out. But if you succeed, new and bolder methods will be tried everywhere. And we may date the first chapter of a new economic era, from your accession to office.

Adam Smith  05:38
Keynes was by no means an uncritical friend of Roosevelt. But as someone who'd been railing against prevailing economic orthodoxies for 20 years or more, he saw or he hoped he saw a kindred radical spirit in the American president. It is not too much to say that for Keynes, at least at times, the American Franklin D Roosevelt represented the last best hope for the survival of the liberal capitalist order. So, does America and the world need a new New Deal? And if so, what lessons can we learn from how old orthodoxies in economic policymaking were challenged in the interwar period? Well, joining me now to discuss Roosevelt and his new economic thinking and what lessons it may hold for today is Eric Rauchway, distinguished professor of history at the University of California Davis. Eric is the author of numerous books including The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace and most recently, Winter War: Hoover, Roosevelt, and the First Clash Over the New Deal, both published by Basic Books and available at all good online booksellers, including ones that pay their fair share of taxes. Eric is also one of those historians who have called in recent weeks for a new New Deal, including in an opinion piece in The Guardian. Eric, it's, it's great to see you. Thanks so much for joining me.

Eric Rauchway  07:17
It's a pleasure.

Adam Smith  07:17
Let me throw a big question at you to start with – what had gone wrong in the global economy between the end of the Great War and the moment when Roosevelt came into office in March 1933?

Eric Rauchway  07:31
Oh, well, the short answer to that question is almost everything. Could be some details that I feel like, I mean, you know, there was the Great War, as you as you correctly suggest, was a big as an epoch changing event for a variety of reasons, not least because it dramatically altered the relations among countries in the world and specifically before the war. The general international financial pattern had been that Western European nations would lend money to developing countries that were pushing out their frontiers in exploiting new lands and new natural resources, and the United States was one of these. In fact, the United States was the biggest net borrower prior to 1914. And the war changed that relationship not only arithmetically, but also qualitatively, which is to say, during the war, the belligerent powers and increasingly over the course of the war, the Allies borrowed so much money from the United States that, that that relationship changed, the United States went from being the world's net borrower, biggest, biggest borrower to being the world's biggest net creditor over the course of the war. And as I say, there was a qualitative change because of course, the money lent the United States and other developing countries through the latter part of the 19th and early 20th centuries had been lent for broadly speaking, productive purposes. So that those were investments that paid back where of course the money lent during the war was literally for destructive purposes and absolutely blew up again, literally…

Adam Smith  09:02
It was much harder, so it’s much harder to pay back.

Eric Rauchway  09:04
Right, we have the capacity to pay things back was in terms of human and other kinds of capital. So everyone owes money to the United States and the United States, in turn, instead of kind of engaging with the rest of the world after 1918, increasingly hives itself off and so the global economy became less fluid than it had been in particularly, it became more difficult to engage with the American economy from overseas. European nations particularly couldn't sell their goods to American consumers because of protective tariffs, which meant that they couldn't get the dollars that they needed to pay back their loans to the United States. And this whole sort of system kind of stumbled forward through the 1920s based on continued lending and loan forgiveness from the United States and loan restructuring, led by the United States and it kind of you know, went on for about 10 years and then it began to fall apart in the late 1920s. The Federal Reserve Board raised interest rates in an effort to try to curb speculation that true investment back into the United States rather than going overseas. European countries went into recession then depression. And, you know, bad stuff ensued, basically. So as you say, by the time the United States – Roosevelt came into office, this malaise had crippled the American economy. Unemployment was up to the levels of probably 20 to 23% as best we can tell.

Adam Smith  10:34
And even higher, of course, in some sectors of the economy and in some parts of the country.

Eric Rauchway  10:40
Yeah, absolutely. There were. First of all, the prior to the 1929 crash, the agricultural sector of the American economy, had been suffering something very akin to a depression because it never really recovered from the overproduction after the war was over. And prices reached a peak in the middle 1920s. And they began to plummet for agricultural commodities. So you had an agricultural depression.

Adam Smith  11:07 are struggling because agricultural commodity prices are falling. There's deflation in the agricultural sector. So the income is going down for farmers. And that of course, as always happens in an economic downturn, it's the small businesses who always suffer the most. And these are often people who have very limited access to credit anyway. And so there are farm foreclosures, people aren't able to pay their mortgages happening on an extraordinary scale aren't that by the by the early 1930s? I mean, real hardship, especially in those agricultural areas as well as in as well as in urban centres where there's also very high unemployment.

Eric Rauchway  11:44
Yeah, I think we have a tendency today to underestimate the importance of the farm sector in the Great Depression when maybe, you know, one fifth of Americans or so derive their living from it. So as commodity prices fall, the purchasing power of the agricultural sector falls that means that people people who live in on farms aren't buying stuff from the industrial sector. And it becomes a very important drag on the American economy.

Adam Smith  12:08
Just a couple of months before the great stock market crash of 1929 a new president was inaugurated, who you might have thought was exactly the man for the job. He was a man who was a former engineer who'd been involved in the recovery, postwar recovery in Europe. He was a kind of can do character. He certainly had a high degree of belief in himself. His name was Herbert Hoover. So what went wrong?

Eric Rauchway  12:34
Yeah, as you rightly say, Herbert Hoover had been associated with efforts to relieve disasters. You know, prior to this, he had been part of the Belgian Relief Fund. In the war, he had managed the food administration within the United States. After the war, he was involved in relief efforts to Bolshevik Russia and the Soviet Union and then in 1927, he led a relief effort for the Mississippi flood and the United States. And so you might say this is just, just the fella that we need for circumstances like this. So what went wrong? Well, the natural disaster, the cataclysm, the war, these were the kinds of things that Hoover could get his mind around as things that required an intervention. And he also wanted to intervene by organising existing institutions, you know, again, to look at the flood relief effort, the Red Cross was one of his most important resources there. So it was, you know, a private enterprise, right. And so it wasn't specifically what you might call a state effort as maybe a state led effort. And again, it was in response to a natural disaster. Hoover didn't take the view, that an economic collapse was a natural disaster, requiring a response at all. And when he did finally relent, in that view, the response that he wanted to have was this sort of state led private effort and specifically, he viewed his role as being a kind of confidence instiller, to be slightly less charitable, maybe a cheerleader for capitalism. So he did a lot quite a bit of that. And so he's saying we need to have confidence. Anyone who doesn't have confidence is foolish. So he's a bit skull D as well. And he went so far even very early on and continuing through his presidency as to use made up unemployment data that showed things looking better than they actually were which got…

Adam Smith  14:28
Really that's hard to imagine! So you've got a president in the White House giving out data to journalists that that is demonstrably untrue.

Eric Rauchway  14:36
Actually no, it's a shock to hear this sort of thing. And and you know, being called out more than once didn't seem to really have the, the what you would expect

Adam Smith  14:43
The slump that really gripped the United States after 1929 was of an unprecedented severity. But it was hardly the first time the United States had had confronted an economic downturn. Every 20 years from the beginning of the 19th century in 1819, 1837, 1857, 1873, 1893, 1907. In all of these years, there was a, there was a business slump which created unemployment. It's almost as if, well, we've been here before. In none of these previous slumps has the government intervened in any dramatic way. Previously, we've always just kind of accepted that these hard times, to use the 19th century phrase that was still being used in the interwar period, these hard times come upon us, there's just something natural about it. And we just have to get through it through belief in God and community spirit and hope and faith and good times will return. So in that sense, he was simply doing what any of his predecessors as president would have done.

Eric Rauchway  15:45
I think that's correct, to an extent and, and there's no question that Herbert Hoover, you know, suffered a stroke of bad luck, although that's how Herbert Hoover would have seen it, that he personally suffered a stroke of bad luck, not the American workers or the world.

Adam Smith  16:00
Again, it's hard to imagine him, so a president in the face of other people's massive suffering is thinking about it in terms of how it's impacting himself and his chances of reelection.

Eric Rauchway  16:10
Somebody who is really quite markedly impressed with his own talents to to add to your shocking comparison points there. Yeah. You wouldn't expect anyone in his spot to immediately react forcibly, and in the latter part of 1929, but there certainly does come a point, 1930 1931 1932 when you might have expected a more vigorous response and of course, Hoover, dug his heels in even against his own advisors, and absolutely refused either to have federal aid to the unemployed on anything like the scale that was required. He did sign off on a on a little bit of a public works programme, but it was, you know, minuscule compared to what the need was. He gave a speech in which he pointed out that they'd hired 700,000 workers which is great, I suppose, but then there were probably at that time about 7 million people unemployed in the United States, and he said, well, now the federal government has done its part, you know, it's time for private enterprise to step up. And that was his general attitude there. And then maybe more importantly, he refused to intervene in the banking crises.

Adam Smith  17:14
When Roosevelt came into office in those first few days and weeks, what were the ways in which he changed direction in government economic policymaking?

Eric Rauchway  17:28
Well, during the course of the campaign, he promised a philosophical shift. You know, he spoke in terms that we would find very familiar today, which is to say he rejected what he called, quote, trickle down, unquote, prosperity, that instead he preferred policies of what he called, again with quotations, social justice, that he thought that it was necessary that the government take responsibility for improving the average run of its citizens and then that prosperity will rise upwards from from them as he, as he said, as yeast through the ranks. So he promised a shift. He also promised a series of policies that would support that shift. So he promised, most importantly, a massive public works programme, that indeed, he said that that would extend to but we nowadays would call a jobs guarantee to permanence of employment for American citizens never able to deliver on that, but that's what he promised. He promised sort of ecological policies for moving to more sustainable methods of agriculture, to replanting, with forest, you know, marginal lands, to hydroelectric power, that would be publicly owned…

Adam Smith  18:39
So it's a big philosophical change he's offering he's promising the American people that's part of the New Deal. It's about shifting the whole focus of government towards what is going to benefit the little guy, to use the kind of the sort of language of the time, right?

Eric Rauchway  18:53
That's right.

Adam Smith  18:54
In Franklin Roosevelt's inaugural address, the one that in which near the beginning he found as he said, the only thing we have to fear is fear itself. And shortly afterwards, he says this: "the money changers have fled from their high seats in the temple of our civilization, we may now restore that temple". What did he mean by that?

Eric Rauchway  19:18
Well, this was the last time that the United States President was inaugurated in March, March 4 1933, is when Roosevelt gives that address. And there had been a very long period, then between his election in November and his inauguration in March. And that period had seen a cascade of panics that made, although people probably couldn't have believed that were possible at the time, the depression even worse. So beginning just before the election, actually in November of 1932, and then extending right through to March, there was the last of a series of waves of bank collapse. So when Roosevelt actually says, the only thing we have to fear is fear itself, he's talking specifically about bank panics, about this, you know, this rush to get your money out of the bank. And there's it's compounded also by people losing faith in the American dollar itself. They're taking the paper money out of the bank, and then they're taking that paper money to the Federal Reserve and saying, Give me gold for my paper money, and they're sitting on gold in the hopes that that would survive any civilizational collapse. So not only are the banks falling apart, but also the Federal Reserve System is teetering on the brink of collapse at the time that Roosevelt takes office. So this is what he's saying, you know, the money changers need to get out. You know, the bankers have proven that they can't run their own affairs. We need to start rethinking how we run banking and money so that it serves people rather than people being sort of shackled to the gold standard, which is dragging everything down.

Adam Smith  20:47
The gold standard was the principle that $1 was worth a fixed amount of gold – literally established in statute – and that everybody knew that, everybody could rely on it. And that wasn't just the system that the United States that operated for most of the 19th century it was the system that that Britain and France and other countries had operated as well. So there was stability in exchange rates. Everybody knew the value of money. You couldn't spend a pound in the United States. So you couldn't spend a franc spend a franc in Britain, but you knew what a franc was worth in gold, and you knew what $1 and a pound was worth. And so in effect, all currencies were exchangeable at fixed and predictable rates. This gave businessmen confidence, it meant that you knew what your money was worth. Roosevelt went off the gold standard effectively in the first few weeks of coming into office. Why did he do that? How did he think it would help?

Eric Rauchway  21:49
Well, everything you've been saying about the gold standard is of course absolutely correct, that it creates confidence that you know what you'll get for your dollar in the case of the United States, $1 was fixed in statute. To $20 and 67 cents to an ounce of gold, if you wanted to, you could take your paper money to the Federal Reserve and you could get that gold if it made you feel better. People generally didn't, because gold is you know, it's very heavy, gold coins are quite soft, they dent, you know, you don't want to carry them around if you don't have to. But the fact that you know that you could says to you that there is an intrinsic value to this dollar, that it's worth that much. And you know that there's only so much gold in the world, right? There's this so that no money issuing authority that's on the gold standard can print too much money because they know that they have to be prepared to redeem it and gold. So it's, it's a break on inflation. And that points out sort of one of the chronic problems with the gold standard, which is to say there's only so much money in the world. Because there's only so much gold in the world and yet there keep being more and more people in the world which means that there is more and more economic activity. So there's more and more stuff being produced in the world with a relatively fixed supply of gold. And then you could add layer on to that, of course, all of the technological innovations in the late 19th century in the industrial revolution that makes even more stuff being produced by this larger quantity of people. What that means is the gold standard is on a long timescale deflationary, which is to say, your bit of gold is worth more and more and more in terms of the stuff it can buy, because there's more and more stuff and yet, it's about the same amount of gold. If you happen to have gold, this is fantastic. You know, if you are a person who has money, this is great, because with deflation, your money is worth more and more and more with every day that goes by and you're very happy. As it happens, most people don't have money, per se, they make stuff and then they get money for it, right. So particularly if you have to go into debt to make your stuff to get your money, you're very unhappy with deflation because the money that you earn later is worth less than the money that you borrowed and So you're just stuck here, you're getting this. So this is chronic. This typically applies to farmers, right? You have to borrow money to get your crop in the ground, you have to borrow money to get your crop out of the ground. You have to borrow money to get your crop to market. It's a big rush and then prices for your crop have gone down, and you are stuck owing a terrible amount of money. Probably also in the meantime, the dustbowl has come and blown your topsoil away. And so and locusts have maybe eaten some part of it. And basically, you're very, very sad by this chronic deflation and environmental degradation if you happen to be a farmer. And, in general, if you're not a dealer in money, which is to say if you're not a banker, deflation is bad. And so Roosevelt comes to speak for the large number of Americans who are not bankers, who feel that deflation is bad and the thing to do therefore is to have more money produced. Now you might be thinking to yourself, this is actually a very old idea in American history, we can think to William Jennings Bryan and the cross of gold speech which was a course in anti Gold Standard speech,

Adam Smith  25:02
He said, I do not want to see mankind crucified on a cross of gold. And that was back in 1896, wasn't it, in a previous depression, when Bryan, again speaking for the farmers of the Midwest, was saying, let's mine silver too. And let's make a silver dollar so that we get more money in circulation and prices rise. So as you say, this was a long standing argument in American history.

Eric Rauchway  25:25
It was a long standing argument and it kept returning at times of economic recession or depression, when of course deflation set in and the broad problem with the gold standard, the chronic problem with the gold standard became acute at those moments. So there had been the Bryanite moment, it was relieved by discoveries of gold in the late 1890s. And so, you know, it was sort of relieved by exogenous factors. Well, there was no exogenous factor during the Depression 1929-1933 so a lot of countries, the United States was not the first, went off the gold standard. Britain as you know went off in 1931 on the same logic that it was going to relieve this downward pressure on prices by simply stopping to redeem the pound in gold. And so Roosevelt was going to follow suit in 1933. It's also fair to say that Roosevelt's thinking went beyond that, he wasn't going to go back either. The, Britain going off gold in 1931 was largely understood as a temporary move. And in fact, British politicians were talking about going back on I mean, they'd gone off during World War One and then they went back on in the middle of the 1920s. Then they went off in 1931. And the idea is, well, they'll go back on when things stabilise. Roosevelt was falling in a very different tradition, a sort of Bryanite tradition, but also a more modern tradition, as would have been prescribed by John Maynard Keynes, is that you go off and you don't go back on instead, you permanently adopt a policy of managing the value of the currency so as to promote economic activity. And that is in fact what he did.

Adam Smith  26:58
You mentioned John Maynard Keynes, who even at this time was a, was a famous economist. And he was a radical in the sense that he had spent his whole career and especially since 1919, railing against prevailing economic orthodoxy. Were Keynesian ideas directly influential, was that was that part of the milieu in which Roosevelt was, was operating, was he understanding his shift off the gold standard in those kinds of theoretical terms?

Eric Rauchway  27:33
Well, Roosevelt was a keen student of economics and history, especially after he contracted polio and sort of isolated for a while, he did an awful lot of reading and people noted this at the time. And he made notes in his books, and we have some of them, you know, we have a sense of what he was going through and what he was thinking. He wasn't what we would call an intellectual though, you know, he was a very practical thinker and very flexible thinker. And he wanted to do what would work very early on in his process of trying to figure out what to do with $1. He compared himself to the quarterback in American football, which he said that, you know, the quarterback knows he wants to go downfield and score a touchdown. He maybe knows he's going to try a run first on this play. He doesn't know what he's gonna do in the next play, because it depends on how this play turns out. So I'll tell you how we'll get there. But we're good. We know where we're going that and that was the, that was literally, I mean, I'm paraphrasing, but he did use that, that that analogy and that that's fair, he was aware of Keynesian ideas. Certainly people around him were promoting Keynesian ideas, and also some people around him were telling him, stay, stay away from Keynesian ideas. But so he was certainly aware of those ideas, and particularly through Felix Frankfurter, the Harvard lawyer and later Supreme Court Justice, who was very versed in Keynes’s views and expressly pressed them on Roseville.

Adam Smith  29:00
Keynes was, up to a point at least, a great admirer of Roosevelt, even in these these early years, and he wrote a famous open letter to the President, which was published in the New York Times in which he began by calling Roosevelt, the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment. So he was looking to Roosevelt for leadership. But he also was apparently very critical, appeared to be very critical of Roosevelt's monetary policy. He said, the recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams. What was he, what was Keynes unhappy about?

Eric Rauchway  29:48
Well, first of all, Keynes, like all academics think that the best kind of politician is the one that will do what they say and so whenever he didn't, which was pretty much all the time he was to some extent disappointed. Um, but the, you know, Keynes was an antagonist of the gold standard right, he, this went all the way back to his very earliest writings on the Indian management of currency and continued right through the 1920s. He said the gold standard was a barbarous relic again, he regarded it as chronically deflationary. He thought therefore, that it was a capitalism killer because while you know, mild inflation, or rather inflation generally could be a problem for capitalism and deflation actually stopped economic activity cold and therefore, you what you really wanted was a mild inflation so that people would expect prices to go up and therefore would be inclined to spend their money. And so that was the main managed currency that Keynes wanted. And he wanted an international version of it. That you know, countries would agree, essentially to to stabilise the values of the currency as well while knowing that they would feel free to alter their values within a certain range, so as to promote both stability and also the ability to respond to economic crises. So Keynes was a long proponent of this going a long way back before 1933. And when Roosevelt came into office, went off the gold standard, as we said, and then first he thought, well, maybe that by itself will cause the sufficient rise in prices to promote economic activity. And and, and he was right to a degree, right, we can look back and we can say that recovery began almost immediately upon Roosevelt taking office in March of 1933. And it's because people had an expectation of inflation that was borne out so they, people who had money, were prepared to spend it all of a sudden in a way that they hadn't been in the year of deflation, but it wasn't sufficient unto itself. And so he began to manipulate the dollar, by a series of gold purchases at varying prices, but that had an upward trend in the latter part of 1933. And this is what Keynes is referring to as the gold standard on the booze, this kind of arbitrary raising of the price of the value of the dollar.

Adam Smith  32:11
I'm asking you about monetary policy, in part because it was the most dramatic way in which Roosevelt appears to have broken from prevailing economic orthodoxy in the first weeks and months of his administration. And also because it was a policy shift that required huge political courage because the opposition to it from powerful and influential people, including in his own party, was really strong, wasn't it? I mean, this was, after all, in effect, a partial default. If you if you were a creditor, you're going to get less back as a result of the devaluation of the money. So this, this was really important stuff and people got very emotional about it. I mean, you quoting in your book, people telling Roosevelt for his face that this was literally the end of Western civilization, Roosevelt was going to go off the gold standard. So just if you can, can you just sketch out for us? How did Roosevelt manage to build a consensus not just around this individual policy necessarily, but around the change of direction of economic policy as a whole that he that he brought in after 1933. He won in a landslide in 32. And he won in landslide again in 36. But he faced serious opposition from the left. And from the right, this was not some period of cosy consensus, he had to fight hard didn't he to build support for these policies. I know it's a big question, but how did he do it and do it so well, apparently?

Eric Rauchway  33:44
I think that, you know, to some extent, obviously, he was the beneficiary of circumstances. The depression was so deep and the crisis so great that a lot of people were willing to go along with him who otherwise wouldn't have been willing to do so. And specifically in the case of the gold standard, there are a lot of people who are willing to go on with an abandonment of it, believing that it would be temporary, not knowing that he would, you know, stick by that and never again redeem, you know, the paper dollar to the ordinary person in terms of gold. And so they they, they stuck with him, and then they fell away from his when they saw that he really meant to make this permanent radical change. So at the outset, he really had the support, broad support across the board, and sort of lost it gradually, as it became clear that he was going to go in a more radical direction. So that's part of the answer to your question. Another part of the answer, and I think this is this is this is terribly important, is that the depression laid bare the extent to which economic orthodoxy of the day, of which gold standard is an excellent example, but not the only one, protective tariffs might be another one, really entailed policies that benefited a minority of the population. Deflation is great, again, if you already have money. Most of us don't, you know, most of us don't. And so it's it's, the gold standard is a policy that benefits someone already, you have to cloak it in the kind of mystique and say it's about integrity, it's about probity, it's about Western civilization, in order to get people to buy onto it. And when it's actually killing people, all of that becomes very unattractive or insufficiently attractive and people are willing to check it. You know, you're quite right that going off the gold standard, devaluing the dollar was, in a sense, a default, you know, the people who were owed money, were going to be paid back in dollars that were worth less than the ones that they lent, but as Roosevelt very specifically pointed out, well, it had been the other way around for decades that they were benefiting from deflation they were being paid back in dollars worth more than the ones who like why is this any you know, more unfair and in fact, this disadvantage is a smaller number of people right, then, then the then the policy of deflation. So Roosevelt In that sense, a small d Democrat, which is to say that these policies, especially at a moment of crisis, you know, had a broader appeal than their alternatives. And I think as I say, it's important to point that out because the only way ultimately the conservatives were able to claw back lost ground was by trying to recreate the mystique of these policies that benefited a minority of the population. Say that, well, yes, the New Deal is, you know, may have been fine in the moment of crisis, but broadly speaking, it's un-Christian, you know, that it says, and then therefore, you know, true Christians will oppose that kind of policy. And, you know, they began to build from what we now would call sort of culture war premises, knowing that they were going to lose if they had to make the argument on economic policy.

Adam Smith  36:48
Eric, finally, you said earlier that Keynes was continually disappointed, like all academics were when politicians didn't take their advice. Let's just, let's just take a moment to imagine a hypothetical scenario where a Democrat wins the White House in November 2020, takes over a country reeling from this pandemic and the economic chaos that it's caused, but also a pandemic that has, that has unveiled some of the deep structural inequalities in American society. And let's just imagine that that new president, whoever he or, who knows, she is, calls on you and says, Professor Rauchway, will you be my Keynes? What advice would you give that new president in in, in January 2021, drawing on your understanding of the New Deal era?

Eric Rauchway  37:47
So that first of all, if you're asking me, we're obviously all in very big trouble, but, you know, it's…obviously, Adam, the first thing is, you've got to get the public health response to the pandemic right, which we clearly have not done and so that that if you don't do that you got nothing, right. So we need some serious public health measures that I'm just gonna set aside for a second, because that's not really at all my area. But assuming that we could have that, which is, again, the big assumption, but we obviously will need some kind of economic recovery measure, I think it's very clear now that we've already lost a tremendous number of jobs that simply aren't going to come back just because even if the pandemic were to end, right, right now, we'd still have lost quite a quite a few jobs. And we're going to need some kind of recovery. And there's there's talk already, of course, of a big stimulus, which is one of the Keynesian ways of talking about things and, you know, just injecting massive amounts of money into the economy. It's my view that the lesson of the New Deal is that certainly a big stimulus is good, and that the New Deal, in fact, in terms of fiscal policy was never big enough. For all the good that it did, it should have been much bigger. That's the lesson that we can draw from, I'm looking at how the even bigger hiring programmes that came with military mobilisation in the latter part of the 1930s did kind of do away with the depression in a way the New Deal had never been big enough to do. So yes, a big fiscal stimulus, a big hiring programme, would be would be good. But I think also that we need to be clear that mere stimulus is not enough, right? Merely injecting liquidity into the system is not enough that we need a redress of the deeper structural problems that we are suffering from. I mean, we never in the United States fully recovered from the last catastrophe, the 2008 and ’9 crisis, precisely because we had a kind of big but inadequate stimulus and then not much else. And precisely because bankers were made whole and many of the rest of us were not, and that would be, the advantage of a major New Deal style public works programme is, that would engage ordinary people in doing work of redeeming social value to pick up on some threads that I think you know are out there and especially in terms of, you know, adapting the infrastructure to a more sustainable one in light of our era of climate change and, you know, killing pandemics so that we could make needed reforms to the manmade world as Roosevelt would, did call it, while also giving people jobs and not only there for money, but also the dignity of doing socially valuable work. I think those would be vitally important. I think, also, you know, what would be truly wonderful, and I fear we are unlikely to get, would be the articulate expression from the highest parts of the American political and cultural establishment of a unified purpose that is genuinely small d democratic in nature, that sweeps in all of us in in making our lives better. I mean, I think this is something that we forget, especially when we talk about, you know, did the New Deal really fix the you know, the economic crisis that's, that's not the most important thing that it either did or was meant to do. The most important thing that it did and was meant to do was to restore faith in democracy, and to prove that the government would work for the vast quantity of citizens which, you know, people have reason to doubt then and I'm afraid have reason to doubt now.

Adam Smith  41:25
I think, I think I think they really do, and you've got a, you make a powerful case there, among other things, for the importance of presidential leadership, don't you, you can have a lot of a lot of other things in place. You can have brilliant advisors, you can have a civil society that is pushing for certain things. You can even have election victories for one set of policies over another but in the end, one of the things that characterised the United States after 1933 was the way in which Franklin Roosevelt articulated that sense of common purpose, and that does seem to be something that we're so obviously lacking in the present moment, doesn't it?

Eric Rauchway  42:09
Yeah, for all of Roosevelt's failings, and they were considerable and this is not the subject of our conversation, but let's let's note that they exist and bracket that he did repeatedly articulate a vision of an improved society, maybe most potently, when he got into the war years and began to talk about the four freedoms that should obtain everywhere in the world and to say, you know, people talk about going back to the good old days. I have my doubts about how good the good old days were, we need to move forward to better things. And you know, he was good at that. And the current occupant of the office really isn't

Adam Smith  42:47
Eric Rauchway, thank you so much for joining me in this conversation. I really appreciate it. Thank you.

Eric Rauchway  42:53
It's a pleasure. Thank you very much.

Adam Smith  42:56
Eric Rauchway, whose most recent book is Winter War: Hoover, Roosevelt, and the First Clash Over the New Deal. So, in thinking about the big shift in government that took place in 1933, three things stand out for me. First, that at the heart of the New Deal was a willingness to challenge the boundaries of what was politically thinkable and therefore, doable. Second, that in challenging old orthodoxies, the New Deal was taking on powerful forces in American society who had been lauded before the depression as the embodiment of the American way, including wealthy bankers and businessmen. Perhaps therefore, like all big political shifts, the New Deal had to change the country's sense of what it stood for, and hence of what patriotism meant. And third, that all this was done with the aim not just of restoring prosperity, though that was of course important, but of restoring the faith of the majority of the American people, that in the end, the government was on their side. And in that, despite its many failings, the New Deal for a while succeeded. It restored an old 19th century idea that in the United States government was not just supposed to be run for the people, but in some profound sense was of the people that when people spoke of their government, they didn't mean some folks in Washington or someone somewhere else, but the whole system of self rule. One of the things we have to fear today is that understanding of what government is or could be, now seems so remote. And on that note, that's it for this episode of the Last Best Hope from Oxford's Rothermere American Institute. I'm Adam Smith. Goodbye.