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

Notes on George Selgin in conversation with Tyler Cowen — Conversations with Tyler(https://conversationswithtyler.com/episodes/george-selgin/), 15 October 2025.

Four questions [Adler frame]

Q1 — What is it about as a whole? Selgin, a monetary economist and the author of False Dawn: The New Deal and the Promise of Recovery, 1933–1947, gives Cowen a policy-by-policy audit of the New Deal: which measures helped recovery from the Great Depression, which hurt, and which were irrelevant. The organising claim is that the New Deal did almost none of what popular memory credits it with — it was not a programme of fiscal or monetary stimulus — and that the dollar’s 1933–34 gold revaluation, not the alphabet-soup of new agencies, did the real work of reflation, until price-and-wage-fixing schemes and ‘regime uncertainty’ throttled the recovery it started.

Q2 — How is it argued? Rapid-fire, policy-by-policy: Cowen names a New Deal act or programme (Glass-Steagall, the Reconstruction Finance Corporation, the Agricultural Adjustment Act, the Banking Act of 1933, the Federal Reserve Act of 1935) and Selgin rates it helped/hurt/irrelevant with a one- or two-sentence mechanism. The method is comparative-institutional and counterfactual throughout — what would a ‘dictator Selgin’ have done instead — rather than statistical regression, though Selgin repeatedly defers to named empirical authorities (Douglas Irwin on Smoot-Hawley, Alexander Field on 1930s productivity growth) rather than asserting priority himself.

Q3 — Is it true, in whole or part? Selgin’s central claims — that gold revaluation, not fiscal stimulus, drove the 1933–34 recovery; that the NRA’s price-fixing killed that recovery’s momentum; that 1937–38’s downturn came from simultaneous monetary and fiscal tightening — sit within an active academic literature (compare Monetarism‘s Friedman-Schwartz account, which stresses bank-failure-driven monetary contraction as the Depression’s cause rather than New Deal price controls as the drag on its recovery: the two accounts are complementary rather than contradictory, addressing different phases). Selgin is candid about disagreement within his own camp — he breaks from Hayek and the Austrians on gold-standard austerity, and states his quantity-theory scepticism plainly. His verdicts on individual measures (Glass-Steagall irrelevant, AAA harmful, deposit insurance modestly positive) track the empirical New Deal historiography reasonably closely, though as a single-source interview none of it is independently checked here; treat contested causal claims — especially the size of regime uncertainty’s effect, which is inherently hard to measure — with [?].

Q4 — What of it? The interview supplies a rival, non-Keynesian causal story for how the Great Depression ended, built around policy predictability rather than aggregate demand as such — a genuine complement to the wiki’s existing monetary-economics material via Monetarism. It is also a compact primer on free-market monetary reform proposals (NGDP targeting, a rules-based ‘night-watchman Fed’, free banking under a fiat standard) from one of their leading living proponents.

Glossary

Regime uncertainty — a term (Selgin credits it to economic historian Robert Higgs) for uncertainty not about what a specific policy will do, but about what policy will exist at all — businesses cannot price an investment’s risk if they cannot even guess the rules it will operate under, so they simply withhold investment until the picture clarifies. [§ On causes of the Great Depression]

Free banking — a monetary system in which private banks, not a central bank, issue currency, competing with each other under ordinary commercial-law rules rather than a state monopoly on note issue; Selgin’s first book, The Theory of Free Banking (1988), argued it could be stable even without a gold standard, provided the monetary base itself were managed by a fixed, credible rule. [§ On dollarization]

The gold standard — a monetary system in which a currency’s value is fixed to a set weight of gold, and the central bank must hold enough gold to honour that promise on demand; Selgin regards the pre-First World War gold standard as genuinely excellent but considers any return to it now impossible, because a government that has already broken a gold promise once cannot credibly promise not to break it again. [§ On dollarization]

Monetary base — the narrowest measure of the money supply: physical currency plus the reserves banks hold at the central bank. Selgin’s ‘night watchman Fed’ proposal would fix its growth by rule (or even freeze it) rather than let a committee adjust it at discretion. [§ On central bank independence]

Quantity theory of money — the claim that the inflation rate tracks the growth rate of some measure of the money supply (e.g. M2) reasonably closely over time; Selgin calls it ‘badly misunderstood’ and no longer reliable since 2008, once the link between the monetary base and the overall ease of credit broke down. [§ On the quantity theory of money]

NGDP targeting — a monetary-policy rule under which the central bank manages the money supply or interest rates to keep the growth rate of nominal GDP (a country’s total spending, unadjusted for inflation) on a steady path, rather than targeting inflation or unemployment directly. Selgin has long advocated it. [§ On central bank independence]

Key claims by section

On what the New Deal did and didn’t accomplish [§ On what the New Deal did and didn’t accomplish]

The New Deal made ‘very little use of fiscal or monetary stimulus’ — the popular image of Roosevelt spending the country out of depression is largely myth.
The 1933 manufacturing-output surge (7–8% growth rates) had three unglamorous causes: firms front-running the NRA’s coming price controls, ordinary bounce-back from banking-crisis stabilisation, and gold flowing in from Europe — initially from devaluation, later from fear of Hitler and war. None of it was the New Deal working as designed.
Roosevelt’s own gold-purchase programme, based on George Warren’s theory that raising the gold price would drag other prices up with it, achieved almost nothing over many months; Keynes publicly criticised it at the time and, in Selgin’s account, was largely vindicated.

On which New Deal policies helped, hurt, or didn’t matter [§ On which New Deal policies helped, hurt, or didn’t matter]

Glass-Steagall’s bank/investment-banking separation: irrelevant — mixing the two was never a cause of the Depression.
Reconstruction Finance Corporation: mostly hurt via its early lending programme (undermined by a disclosure requirement that scared banks off), but its later recapitalisation programme — buying bank shares directly rather than lending — genuinely helped stabilise the banking system.
Agricultural Adjustment Act: net harmful — it paid farmers to destroy output, a supply-reduction scheme dressed in aggregate-demand language that the evidence shows achieved little to nothing.
Banking Act of 1933 (deposit insurance): net positive but overrated — Roosevelt actually opposed it until forced to sign, and it was only one of several factors, not the main one, that got deposits back into banks.
Banking Act of 1935 (Fed reorganisation): concentrated monetary authority in Washington but wasted the opportunity — new chair Marriner Eccles was a fiscal-stimulus advocate who ran a flat-line, do-nothing monetary policy.

On what better fiscal policy would have looked like [§ On what better fiscal policy during the Great Depression would’ve looked like]

Selgin, given a free hand, would have run larger deficits, cut the regressive excise taxes the administration actually leaned on (not the ‘soak the rich’ taxes that got the press), and — above all — placed far more weight on monetary policy than fiscal policy, which he sees as harder to spend well and more prone to waste.

On causes of the Great Depression [§ On causes of the Great Depression]

Smoot-Hawley: Selgin defers to Douglas Irwin’s view that it was a small factor, not the depression-maker of popular memory.
Regime uncertainty, by contrast, was a large factor precisely because it is not a knowable, priceable policy risk but a fog over the rules of the game altogether — and it bore specifically on investment spending, which had collapsed far more than consumption during the 1930s.
The 1937–38 ‘second Depression’ came from an unplanned convergence of tightenings: the Fed doubling reserve requirements over three steps (fearing inflation from the same gold inflows that had driven recovery) at the same moment the Treasury sterilised those gold inflows and the administration pursued fiscal retrenchment to balance the budget.

On the influence of Keynes and other economists on Roosevelt [§ On the influence of Keynes and other economists on Roosevelt]

Selgin credits Keynes’s direct advice to Roosevelt — back off attacking business, prioritise recovery over reform, abandon the gold-purchase scheme, drop the NRA’s price controls, spend more — as consistently sound, distinct from some of Keynes’s more dubious general theoretical positions (e.g. on protectionism, on nationalising investment).
On whether FDR was a covert fascist (raised via John Flynn’s As We Go Marching): Selgin’s answer is comparative, not absolute — FDR looked moderate against genuine home-grown authoritarians of the period (Huey Long, Francis Townsend) whose popularity he was trying to defuse, even if he looks illiberal against an idealised classical-liberal baseline.
Hayek and the Austrians, in Selgin’s account, underperformed not on theory but on practice: Hayek’s own model implied you must stabilise aggregate spending during a collapse, yet he recommended gold-standard austerity and, in Britain, seemed willing to let the downturn discipline trade unions — a gap between theory and policy recommendation.
The Chicago School (Simons, Viner, Fisher) is graded unevenly: they backed public-works stimulus ahead of Keynes, but Simons’s proposal to abolish fractional-reserve banking entirely is judged a bad diagnosis — Canada kept fractional-reserve banking without a banking collapse, which Selgin attributes to better regulation, not to the absence of fractional reserves.

On the pros and cons of big banks [§ On the pros and cons of big banks]

Pre-1933, US banking instability came mainly from restrictions on what banks could do (no branching, limited diversification). Post-1933, deposit-guarantee schemes introduced a different problem — moral hazard — that turns freedoms that would once have been safely stabilising into risks banks can now exploit, because they are insured against the downside.
Selgin doubts a fully free banking system (no bailouts, no entry restrictions) would consolidate into a Canadian-style handful of giant banks; Canada’s concentration, he argues, came from strict entry restrictions, not branch-banking freedom per se.

On the quantity theory of money [§ On the quantity theory of money]

The ‘correct version’ — inflation roughly tracks the growth rate of a monetary aggregate like M2 — held up loosely across countries when Selgin taught it in the 1980s–90s, but the relationship depends on a stable velocity of money that financial and regulatory innovation keeps disturbing, and ‘all bets are off’ since 2008 once the monetary base decoupled from the overall ease of credit.

On central bank independence [§ On central bank independence]

Selgin’s own reform programme: since a full return to the gold standard is impossible (no government can credibly recommit after breaking a gold promise once), pursue free banking under a fiat standard instead, with the monetary base itself managed by a fixed rule — his ‘night watchman Fed’ image, a computer targeting NGDP stability rather than a discretionary committee.
On the live debate over folding the Fed under direct executive control: Selgin thinks this would tend toward ‘fiscal dominance’ — easier money to accommodate government spending without taxation — and would rather keep pressing an independent Fed toward NGDP targeting than risk that outcome.

On dollarization and stablecoins [§ On dollarization] [§ On stablecoins]

Dollarization is a lesser-evil option, not a general prescription, reserved for countries with a long track record of failing at both floating and pegged exchange-rate management; Selgin is unimpressed by ‘blackboard economics’ comparisons that measure real dollarization candidates against an idealised, perfectly managed independent central bank.
On the GENIUS Act debate over interest-bearing stablecoins: Selgin rejects the banking industry’s ‘this will hurt us’ argument on principle — competitive harm to an industry is not itself a case for restriction — while conceding stablecoins need genuine prudential regulation given some issuers’ poor track record.