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Money Matters: Eric Rauchway on FDR, Keynes, and the Politics of Inflation

image_normalWhat lessons can be learned from the Great Depression? For decades, the question has intrigued economists seeking to avoid repeating the financial and political tumult of the 1930s and 40s. While such queries seemed somewhat trivial during the economic expansion of the 1990s, they have gained renewed currency in the wake of the crises of 2007—2009.
For historian Eric Rauchway, the parallels between past and present economic malaise are clear. On Wednesday, May 11, Rauchway visited the DHI Brown Bag Book Chat series to discuss his new book, The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace (Basic Books, 2015). Rauchway’s talk was co-sponsored in partnership with the Institute of Social Sciences Noon Lecture series.
Overlaying economic data from the so-called Great Recession with statistics compiled from the Great Depression, Rauchway noted that the economy cratered much more severely during the Roosevelt era. Nevertheless, a comparison of both periods reveals that the financial recovery of the late 1930s and 40s was considerably stronger than the tepid expansion of our own moment of “current unpleasantness.” Present day policy makers, in other words, have fared less well than their historical counterparts in expanding employment and income levels.
5139UqIvETLAs Rauchway argues in his book, economic policy (in)action always betokens political consequences. In the 1930s—and indeed, in the present day—right-wing parties stood to gain from prolonged economic uncertainty. When Roosevelt took office in March 1933, his advisors feared that a policy of deflation would encourage fascist political rhetoric in the United States. For FDR economic advisor George Warren, the repercussions of monetary policy were apparent: “It seems to be a choice between a rise in prices or a rise in dictators” (Rauchway, 80). From 1933 onward, Roosevelt enacted a policy of inflation in order to jumpstart the economy and to end the spiraling cycle of unemployment.
Inspired by the work of British economist John Maynard Keynes, Roosevelt quietly took the United States off of the gold standard. Keynes also supported American-led efforts to develop an imaginary, international currency to spur monetary exchange between nations. Roosevelt’s pursuit of inflationary monetary policy belies popular assumptions that a boom in manufacturing during World War II ultimately revived the U.S. economy. Economic policy thus acted as a long-term guarantor of American influence and power.
Ruminating further on “current unpleasantness,” Rauchway sought to account for the recent rise of right-wing parties in Europe and the United States through the lens of economic history. Along with austerity policies enacted in Europe, a lack of New Deal-style reforms in the United States has hampered economic expansion. As in the 1930s, economic disillusionment has fed inward-facing, nationalist rhetoric.
What political fallout awaits middling economic growth in the United States and Europe? The story of our own twenty-first century predicament might not necessarily be found in the pages of The Money Makers. Nevertheless, in reflecting on the lessons of the past, Rauchway invites his audience to imagine themselves as present-day agents of their own political and economic history. Amidst the growing din of making America “great again,” we would do well to heed his words.
Michael Accinno, DHI Graduate Student Researcher and doctoral candidate in Musicology

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