The Money Makers

Eric Rauchway’s new book The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace will interest most of you who read this blog. The economic parallels between the 1930s and recent years are more instructive than we may care to admit.

Eric Rauchway is a professor of history at the University of California-Davis. He spoke at the CFS conference at Bretton Woods last year, giving a foretaste of some of the material in the book. The subtitle gives a pretty complete idea of what the book is about. Franklin Delano Roosevelt is first in the subtitle as he is dominant in the book. Rauchway is determined to rescue FDR’s reputation from former advisers who had their own agenda to promote when they wrote, years later, that FDR was a dilettante with no real understanding of monetary policy. Rauchway argues that FDR had coherent ideas and that his policy on the gold standard through the whole of his administration was well considered both in its economics and its politics. Rauchway points out that FDR made some formal study of economics as a student at Harvard; that well before his presidential bid he showed interest in monetary questions; and, perhaps most important of all, he was open to ideas and sources considered unorthodox, such as the Cornell University professor George Warren Pearson.

As one who is no expert on FDR but who has worked for two politicians, I have observed that politicians rarely have the time or inclination to become expert on the arcana of monetary theory and policy. However, the astute ones—and FDR was a superlatively astute politician—have an ability to rank issues, examine varying views on them more open-mindedly than many experts (because they are less attached to particular approaches), and gauge whether public opinion on them is ripe for change. FDR came into office facing economic catastrophe, and he found a way out that worked.

A generation later, Milton Friedman and Anna Schwartz would argue that the Federal Reserve bore a large measure of blame for the Depression, and that different policy by the Fed would have avoided deflation and limited the downturn to being an ordinary recession. Over the course of another generation, other economists would come to accept their argument. In 1933, FDR did not have the luxury of waiting for those conclusions and he lacked control of the Fed. The gold policy was the one tool at his disposal. I think Rauchway exaggerates the depth of FDR’s monetary thought, but he is correct that FDR’s gold policy—which jolted the American economy back to life—showed a high level of strategic thinking. The advisers who later branded FDR a dilettante misunderstood that he was in reality an experimenter, willing to be unorthodox and eclectic because the times called for experimentation.

What FDR gave with one hand, though, he partly took away with the other. Many of the regulatory policies of the New Deal hampered recovery, working against the benefits of appropriately loose monetary policy. As with the responsibility of the Federal Reserve for creating or at least greatly aggravating the Depression, Rauchway glosses over the clumsiness of New Deal regulation and the harm it did.

The book really shines in its weaving of the interplay between monetary policy, wider economic policy, domestic politics, and geopolitics. The Depression was more than an economic calamity: it threatened to cast the world political order into the flames. FDR understood the dangers posed by aggressive dictatorships and the role that economic policy could play in helping contain them in peace and winning the fight against them in war. Rauchway assesses the interplay between the economic and political forces of the time more judiciously than any previous account I have read.

I will not discuss Keynes, who also appears in the book’s subtitle, because here both Rauchway and I have less to say that might be new to you, though it will be new to the average reader. Suffice it to say that, as with the material on Roosevelt, it ably assesses both the economics and the politics of the time.

Did I mention that Rauchway can really write? He has an ability to keep different narrative threads clear through the warp and woof of events. He also has a knack for crisp summary (example: in 1944 “The United Nations was still very much a notion; so too were many of the nations in it” under German or Japanese occupation.)

The book is pleasing to the eye and to the hand. I have only one complaint for the publisher: having met Eric Rauchway in person, I can attest that the jacket photo does not do him justice. Something to be corrected for the paperback edition, perhaps.

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About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.