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<v Speaker 1>Right, and there'll be some music and then it starts.

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<v Speaker 2>All right, make a little adjustment here, all.

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<v Speaker 1>Right, everybody, welcome to your on bookshow on this Monday,

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<v Speaker 1>July twenty first. And I am super happy to have

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<v Speaker 1>a join in Sulgient with me. You know, I've probably

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<v Speaker 1>most of what I know, if not all, of what

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<v Speaker 1>I know about money, monetary policy, banking and the way

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<v Speaker 1>you know, suddenly the history of banking, I have learned

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<v Speaker 1>from either George or his partner in many of his books,

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<v Speaker 1>Larry White. So it's a real pleasure to have to

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<v Speaker 1>have George here. So thanks for joining us.

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<v Speaker 2>George. Oh yeah, thank you for the fine compliment. And

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<v Speaker 2>I'm very happy to be here. Good.

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<v Speaker 1>So, you have a new book out. You've got a

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<v Speaker 1>lot of books out, but but you have a brand

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<v Speaker 1>new one out on the Great Depression, and you know,

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<v Speaker 1>specifically on kind of whether FDR, whether the New Deal

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<v Speaker 1>got us out of the Great Depression. But first I

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<v Speaker 1>want to ask you. I mean, there's been a lot

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<v Speaker 1>of there a lot of books in the Great Depression,

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<v Speaker 1>even quite a few books from kind of free market

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<v Speaker 1>advocates about the Great Depression. So why another book?

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<v Speaker 2>Well, first of all, I don't see my book as

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<v Speaker 2>a work of free market advocacy. I wrote it as

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<v Speaker 2>a scholarly assessment of the New Deal, but specifically of

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<v Speaker 2>the New Deal as a program for recovery, and so

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<v Speaker 2>the purpose of the book was to focus on how

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<v Speaker 2>the US recovered from the Depression and how the New

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<v Speaker 2>Deal contributed or held back that recovery. I wrote it

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<v Speaker 2>for University Chicago Press, so even if I had tried

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<v Speaker 2>to write a polemical book, I certainly wouldn't have gotten

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<v Speaker 2>through the gamut that they made me and all their

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<v Speaker 2>authors go through. They were very supportive of the effort,

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<v Speaker 2>by the way, and there aren't many books about that.

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<v Speaker 2>In fact, although there are many many shelves worth of

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<v Speaker 2>books on the New Deal and also on the Great Depression,

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<v Speaker 2>I was surprised to discovered that there was none that

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<v Speaker 2>specifically addressed the question of how the US recovered. And

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<v Speaker 2>more than that, I was conscious of the fact from

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<v Speaker 2>my learning on the subject, because I taught a course

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<v Speaker 2>on the Great Depression for some years when I was

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<v Speaker 2>a university professor. I was conscious of the fact that

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<v Speaker 2>the at least the popular explanations for how the US

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<v Speaker 2>got out of the depression were completely unsatisfactory, and some

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<v Speaker 2>of the scholarly explanations were at best incomplete. What I

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<v Speaker 2>mean by the popular explanations are two extreme views. One

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<v Speaker 2>is the view you alluded to that the New Deal

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<v Speaker 2>got us out of the depression, and that is simply untenable,

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<v Speaker 2>obviously untenable for those who know the chronology, because the

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<v Speaker 2>New Deal effect as an effective ongoing legislative program, had

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<v Speaker 2>ended by thirty eight. They had done all that they

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<v Speaker 2>could think of doing to end the depression, and by

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<v Speaker 2>then they weren't able to get any more radical legislation through.

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<v Speaker 2>Yet the depression was still raging. At the end of

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<v Speaker 2>the nineteen thirties. We still had over seventeen percent of

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<v Speaker 2>the labor force either unwork orly for unemployed in nineteen

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<v Speaker 2>thirty nine. The other popular explanation is World War two

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<v Speaker 2>got us out are There's some truth to that, as

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<v Speaker 2>I argue in the book, but it's not as simple as, oh,

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<v Speaker 2>the government spent a lot and enlisted a lot of

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<v Speaker 2>people who were unemployed in the armed services, and so

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<v Speaker 2>the depression ended. It's not that simple for the simple

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<v Speaker 2>reason that the war ended, and when the war ended,

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<v Speaker 2>the government spending ended that we went back down to

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<v Speaker 2>a percentage of government spending relative to GDP that was

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<v Speaker 2>roughly what it was putting all levels of government together

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<v Speaker 2>in nineteen And of course all the soldiers came back

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<v Speaker 2>looking for jobs. So the question, or rather the answer

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<v Speaker 2>to the question, how did the depression end, has to

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<v Speaker 2>refer to what happened after World War Two ended. It

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<v Speaker 2>can't just be what happened during the war. So for

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<v Speaker 2>these are some of the reasons why I felt a

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<v Speaker 2>book on that issue was called for great.

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<v Speaker 1>So before we get into kind of the details of

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<v Speaker 1>what the New Deal was and how it contributed or

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<v Speaker 1>not to recovery, maybe walk us through. I know this

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<v Speaker 1>is going to be have to be simplified. What caused

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<v Speaker 1>the Great Depression? What led to the Great Depression? Or

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<v Speaker 1>what caused it? You know, the three minute version?

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<v Speaker 2>Yeah, well I should say I don't even offer a

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<v Speaker 2>three minute version in my book. I scrupulously avoid the

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<v Speaker 2>question of what caused the depression, except somewhat indirectly. Of course,

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<v Speaker 2>have to address some of its causes, because one controversial

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<v Speaker 2>topic per book is enough, and a lot of people

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<v Speaker 2>have debated forever the causes. But if I had to

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<v Speaker 2>answer as I apparently do. I would say that the

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<v Speaker 2>biggest problem was the monetary disturbances and disarray that the

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<v Speaker 2>First World War left the world in upon its termination.

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<v Speaker 2>And to make a very long story short, many countries

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<v Speaker 2>had inflated like mad during the war. The belligerents had

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<v Speaker 2>almost all of them, the US less so than other

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<v Speaker 2>countries because it entered late, and most of them got

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<v Speaker 2>off the gold standard once again. The US was an

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<v Speaker 2>exception in that we didn't go off gold entirely, but

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<v Speaker 2>we did suspend restrict gold exports. All of this left

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<v Speaker 2>the world with a money supply in price level or

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<v Speaker 2>money supplies and price levels that were really not consistent

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<v Speaker 2>with the classical gold standard, and more particularly with the

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<v Speaker 2>actual availability of gold. You couldn't have the thing. You

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<v Speaker 2>couldn't restore the old gold parodies under those circumstances unless

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<v Speaker 2>there was going to be a lot of deflation or

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<v Speaker 2>there were going to be some devaluations. Now all of

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<v Speaker 2>these things, Both of those things happened, but they didn't

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<v Speaker 2>happen enough. There was resistance to both. England, for example,

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<v Speaker 2>refused to devalue the pound, and clever people politicians came

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<v Speaker 2>up with a third solution, a kind of gold standard

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<v Speaker 2>on the cheap, where most countries would not hold their

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<v Speaker 2>own gold reserves but would instead participate in a so

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<v Speaker 2>called gold exchange standard, where the Bank of England and

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<v Speaker 2>the Federal Reserve between them became sort of central banks

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<v Speaker 2>for all the other central banks. And what this did

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<v Speaker 2>was to allow us limited amount of gold reserves to

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<v Speaker 2>stretch further and sustain post war money supplies and price

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<v Speaker 2>levels at higher levels and would otherwise have been the case.

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<v Speaker 2>The problem with that arrangement is if the people who

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<v Speaker 2>are participating in it changed their mind. For example, if

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<v Speaker 2>the French decide they're going to cash in all their

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<v Speaker 2>deposits at the Bank of England, they can send the

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<v Speaker 2>whole house of cards tumbling down. And that's what happened

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<v Speaker 2>in the late nineteen twenties, and that precipitated a very

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<v Speaker 2>severe worldwide deflationary depression that then most countries had to

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<v Speaker 2>struggle to get out of. And we took longer than

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<v Speaker 2>every one of them except France, of the major economies

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<v Speaker 2>get out.

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<v Speaker 1>So how did it play out in the United State?

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<v Speaker 1>That is the what are the what are the things

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<v Speaker 1>that happened to kind of manifest the Great Depression from

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<v Speaker 1>twenty nine on.

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<v Speaker 2>Well, there were, of course, we faced the usual macroeconomic

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<v Speaker 2>consequences that essentially define the depression, a collapse in output

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<v Speaker 2>and a collapse in employment. At one point in nineteen

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<v Speaker 2>thirty three, the peak level of employment plus workers on

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<v Speaker 2>work relief was twenty five percent of the labor force,

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<v Speaker 2>a figure we haven't seen even half of since. So

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<v Speaker 2>a lot of people are out of work and a

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<v Speaker 2>lot of production is not happening. Factories are closed down.

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<v Speaker 2>Also behind all of this is a lack of spending.

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<v Speaker 2>That's kind of driving it all. The other thing that

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<v Speaker 2>is important in the US case, specifically, because all the

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<v Speaker 2>countries experienced severe macrick and other consequences, we had as

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<v Speaker 2>well a severe banking crisis. Many many, many thousands of

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<v Speaker 2>US banks failed. Now we had a lot to begin with.

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<v Speaker 2>We had over twenty thousand banks going into this event,

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<v Speaker 2>but a high proportion of them failed, and we had

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<v Speaker 2>banking crises, not just failures, but situations where panic spread,

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<v Speaker 2>culminating in a major banking crisis in February March nineteen

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<v Speaker 2>thirty three that only ended with the shutting down of

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<v Speaker 2>all US banks by Roosevelt as soon as he took

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<v Speaker 2>office in March.

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<v Speaker 1>So what is it So to what extent did what

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<v Speaker 1>Rosevil did when he came to office in thirty three,

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<v Speaker 1>To what extent did it moderate or improve situations? To

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<v Speaker 1>what extent did it make it worse? I mean he

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<v Speaker 1>did some big there was some big, big projects.

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<v Speaker 2>Well, the first thing Roosevelt did, and the first thing

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<v Speaker 2>he had to do, which of course he hadn't been

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<v Speaker 2>anticipating doing doing during his campaign or at any time

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<v Speaker 2>the year before, was to deal with the banking crisis,

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<v Speaker 2>because that broke out during the so called interregnum between

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<v Speaker 2>his election and his taking office. So he had to

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<v Speaker 2>deal with that, and he dealt with it pretty astutely.

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<v Speaker 2>As most historians agree, shutting down the banks was an

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<v Speaker 2>essential step, or at least it was part of an

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<v Speaker 2>overall plan for shutting them down and then gradually reopening them.

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<v Speaker 2>That worked. It worked. When the banks were reopened, generally speaking,

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<v Speaker 2>they were not faced with runs again. Various steps taken

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<v Speaker 2>during the so called National Bank Holiday had quelled people

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<v Speaker 2>speares or just as importantly, eliminated otherwise their incentive to

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<v Speaker 2>run on banks. One of those steps, for example, was

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<v Speaker 2>denying making it impossible for people to hoard gold. One

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<v Speaker 2>of the main causes of runs in February March was

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<v Speaker 2>fear of devaluation, so people were running on the dollar

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<v Speaker 2>to get gold, not necessarily running on banks because they

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<v Speaker 2>thought they were about to fail. And of course, by

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<v Speaker 2>first prohibiting gold ownership and also demanding forcing people to

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<v Speaker 2>bring the gold they'd taken out back, which they did

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<v Speaker 2>in various ways that I talked about in my book,

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<v Speaker 2>they eliminated this one incentive to run, but there were

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<v Speaker 2>other steps. Of course, there was ensuring bank deposits. Eventually.

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<v Speaker 2>What's interesting about this successful addressing of the bank holiday

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<v Speaker 2>from a historian's point of view, is that the whole

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<v Speaker 2>thing was actually planned, or most of it was planned

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<v Speaker 2>by the Hoover administration treasury team, many of from stayed

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<v Speaker 2>on to help the Roosevelt knew. Roosevelt folks, oh frankly,

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<v Speaker 2>had no plan at all coming into office. So what

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<v Speaker 2>Roosevelt did, wisely, he was to let the Hoover Treasury

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<v Speaker 2>experts let them help, because he didn't have to do that,

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<v Speaker 2>and then he helped execute the plan with his wonderful

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<v Speaker 2>fireside chat. The first one soothing depositors and all that.

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<v Speaker 2>So these first steps mark the turnaround. It's very important

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<v Speaker 2>to give the Roosevelt plus the Hoover administration credit for

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<v Speaker 2>stopping the rot, for stopping the down turn of the economy,

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<v Speaker 2>because of course, unless you did that, you couldn't even

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<v Speaker 2>begin to talk about recovery. So that was the early days. Unfortunately,

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<v Speaker 2>subsequent New de policies, which is the real New Deal,

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<v Speaker 2>the part that was not, as it were, a reaction

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<v Speaker 2>to events that couldn't be anticipated. Many of those proved counterproductive,

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<v Speaker 2>and that's where the New Deal really takes effect. And

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<v Speaker 2>much of it is unhelpful, not all of it. I

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<v Speaker 2>talked in my book about programs New Deal programs that

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<v Speaker 2>also were very I think constructive. So it isn't all that.

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<v Speaker 1>So if we take you know, the the NRA for example,

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<v Speaker 1>maybe walk us through this is a very controversial, big

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<v Speaker 1>part of that first administrations. Administration. What was it and

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<v Speaker 1>what was it trying to achieve? And you know what

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<v Speaker 1>was its fate?

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<v Speaker 2>Yes, Well, first of all, it's important to recognize that

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<v Speaker 2>the New Deal comprised three sorts of legislative efforts. Roosevelt

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<v Speaker 2>was very clear on this, aimed at the so called

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<v Speaker 2>three hours recovery, relief and reform. Recovery is obviously getting

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<v Speaker 2>out of the depression. Relief is providing aid and sustenance

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<v Speaker 2>to the people who would otherwise would be unemployed and

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<v Speaker 2>not have a way to make a living. And reform

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<v Speaker 2>was more long term, and the New Deal involved elements

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<v Speaker 2>of all three. I mentioned this because as a prelude

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<v Speaker 2>to saying that of the New Deal's original reform plans,

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<v Speaker 2>there were two major components. The first, and actually the

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<v Speaker 2>earliest to be implemented, was the Agricultural Adjustment Act the AAA,

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<v Speaker 2>and its complement, because these were meant to work together,

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<v Speaker 2>was the NRA. That's the National Recovery Administration, which was

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<v Speaker 2>passed as part of the NIRA, or National Industrial Recovery Act.

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<v Speaker 2>The alphabet stuff, the alphabet soup gets very confusing, very quickly.

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<v Speaker 2>The NRA was part of the Roosevelt team's efforts to

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<v Speaker 2>get prices back up. Now this here we have to

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<v Speaker 2>be very careful, because it is true that, like many economists,

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<v Speaker 2>they felt the Roosevelt people felt that getting prices up

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<v Speaker 2>was something they needed to do for recovery. The problem

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<v Speaker 2>is that unlike most economists, unlike Kines. Yes, but also

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<v Speaker 2>unlike the Chicago School economists and many others, and unlike me,

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<v Speaker 2>they weren't. They didn't want to do this by getting

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<v Speaker 2>making it possible for people to spend more. They were

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<v Speaker 2>particularly they were opposed the FDR, the New Dealers, especially

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<v Speaker 2>in that those first years. They were opposed to both

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<v Speaker 2>fiscal and monetary stimulus, which is the two main things

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<v Speaker 2>that we think of today as you know, what you

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<v Speaker 2>do for depression, and this is very important. Roosevelt was

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<v Speaker 2>a fiscal conservative. First of all. Yes, his deficits were

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<v Speaker 2>bigger than Hoover's, but as was the case with Hoover,

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<v Speaker 2>these deficits were inadvertent. He wasn't he wasn't willing to

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<v Speaker 2>dispense with relief, and because the depression was so bad,

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<v Speaker 2>the government ended spending a lot on relief, including public works.

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<v Speaker 2>But Roosevelt never believed the deficits per se were helpful.

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<v Speaker 2>He thought that they hurt, so he tried to avoid

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<v Speaker 2>them except if it would make people destitute. And on

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<v Speaker 2>monetary policy, Roosevelt didn't believe in monetary expansion. That's what

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<v Speaker 2>they called inflation in those days. Inflation was a word

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<v Speaker 2>that meant monetary expansion, just as the roth Bardians used

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<v Speaker 2>the term. Today most people don't use it that way.

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<v Speaker 2>But Roosevelt was against inflation. So how do you get

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<v Speaker 2>the price level up if you're not going to do

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<v Speaker 2>fiscal spent timulus, which is government spending deficit spending, or

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<v Speaker 2>you're not going to do monetary expansion, or you're trying

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<v Speaker 2>not to do it. Well, you come up with all

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<v Speaker 2>these other things that can get prices to rise, but

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<v Speaker 2>not necessarily with the same consequences. And the NRA was

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<v Speaker 2>one of those. The AA was another. In both cases,

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<v Speaker 2>the idea was to get prices up by restricting output.

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<v Speaker 2>In the case of the NRA, industries were commanded to

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<v Speaker 2>come up with industry wide codes that the government would

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<v Speaker 2>help enforce that would set prices higher, including the prices

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<v Speaker 2>of labor, wage rates and uh, and and enforce those

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<v Speaker 2>higher prices and wages, wage rates and the ideal And

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<v Speaker 2>of course to do this, what you're what they're doing

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<v Speaker 2>is forming legal cartels. Every industry is being cartilized. This

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<v Speaker 2>was understood, it is not and uh. There's a very

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<v Speaker 2>good book on this, by the way, called The New Deal.

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<v Speaker 2>In the Problem of Monopoly. It was a very famous

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<v Speaker 2>book that the deals just with this odd, odd aspect

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<v Speaker 2>of the new deal in the ni it anyway, they

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<v Speaker 2>they mandated higher prices and wage rates. But the problem

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<v Speaker 2>with doing that without monetary or fiscal stimulus is nobody's

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<v Speaker 2>earning more money. Firms aren't earning any more revenues. So

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<v Speaker 2>how are they going to and and how are they

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<v Speaker 2>going to pay workers higher wage rates? Well, they can

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<v Speaker 2>only do it if they hire fewer labor hours, and

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<v Speaker 2>that's exactly what happened. How are they going to sell

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<v Speaker 2>their products for higher prices, Well, they can do it

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<v Speaker 2>by restricting output, right, because you don't have demand pushing

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<v Speaker 2>up prices, you must have a supply contract to push

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<v Speaker 2>them up. Yep. So the the NRA is trying to

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<v Speaker 2>get the economy going again by restricting output and employment,

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<v Speaker 2>though they didn't see it as doing that, and in fact,

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<v Speaker 2>the only reason unemployment didn't go sharply up under the

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<v Speaker 2>NRA was because of another government program called work sharing

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<v Speaker 2>that required firms to divvy up existing jobs into larger

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<v Speaker 2>numbers of jobs with smaller hours or lower hours per week.

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<v Speaker 2>So that hid the actual unemployment from the standard statistics.

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<v Speaker 2>But in fact, if you look at total labor hours employed,

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<v Speaker 2>they go down. And all this time, with all these

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<v Speaker 2>people were looking for jobs, real wage rates had gone up.

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<v Speaker 2>They were going up while people were lining lining up

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<v Speaker 2>for jobs, and that can only happen with controls. So

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<v Speaker 2>that's the NR. Most economists think it was a disaster,

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<v Speaker 2>and even during the time many people concluded that it

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<v Speaker 2>was a disaster. Ultimately, including some New Dealers themselves, they're

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<v Speaker 2>not FDR. He tried to keep the thing alive.

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<v Speaker 1>Uh the does it come from economically? I mean, is

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<v Speaker 1>this just a you know, off the cuff. It was

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<v Speaker 1>the theory behind this, because.

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<v Speaker 2>There was a theory, well there was a theory. Particularly,

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<v Speaker 2>there were a couple of things that played input. One

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<v Speaker 2>was the idea that you know, we're now in the

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<v Speaker 2>managerial state and firms aren't working the way they used to.

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<v Speaker 2>It's all about planning. So it's either they're going to plan,

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00:21:39.359 --> 00:21:41.400
<v Speaker 2>or the government's going to plan, or they're going to

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<v Speaker 2>have some combination of the two do the planning. So

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<v Speaker 2>the planning mentality is very much at the forefront of

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<v Speaker 2>the early New Deal. The people in charge or leading

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<v Speaker 2>that phase of the New Deal are very much advocates

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<v Speaker 2>of planning, and because they think it's going to happen

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<v Speaker 2>one way or they are and if it's going to happen,

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<v Speaker 2>the government is more reliable in the saddle than the

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<v Speaker 2>businessman alone. And of course, in this particular case, the

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00:22:10.839 --> 00:22:13.759
<v Speaker 2>way they did it, the businessman, the big businesses were

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<v Speaker 2>very happy to cooperate because they say, we can cartelize.

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<v Speaker 2>The smaller firms are going to just have to go

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<v Speaker 2>along with it, because, as you would expect, the big

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<v Speaker 2>firms were able to exercise more control of the process,

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<v Speaker 2>but ultimately they all got sick of it. Because it

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<v Speaker 2>is the classic case of Bastiat's famous dictum that you

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<v Speaker 2>know that the stage is that fictitious entity by which

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<v Speaker 2>everybody tries to get rich at the expense of everybody else,

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<v Speaker 2>through which everybody tries that, and that's what's happening. Everybody's

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<v Speaker 2>trying to be a monopolist or a cartel but everybody

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00:22:56.519 --> 00:22:58.759
<v Speaker 2>has to face the fact that the costs that they

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00:22:58.799 --> 00:23:03.200
<v Speaker 2>bear are rising with everything else anyway. So the other

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<v Speaker 2>theory that's fueling the NRA, and particularly the wage components

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<v Speaker 2>of the NRA, is something called the high wage doctrine

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<v Speaker 2>that emerged in the nineteen thirties after the twenty twenty

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<v Speaker 2>one crisis, where the idea developed that if we pay

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<v Speaker 2>workers hire wages, I'm doing this on purpose, then they'll

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<v Speaker 2>have more to spend and that will help out get

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<v Speaker 2>achieve recovery. But wages is a terrible word because it

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<v Speaker 2>has two different meaning. One is the total wage bill,

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<v Speaker 2>or the number of dollars that are being received by workers,

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<v Speaker 2>the total mind, which is their incomes. The other is

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<v Speaker 2>the wage rates, which is how much you're having to

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<v Speaker 2>pay workers per hour. Now, if you increase wage rates,

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00:24:00.039 --> 00:24:03.759
<v Speaker 2>you don't necessarily increase the wage bill. In fact, unless

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<v Speaker 2>somehow firms can be earning more revenue, the only way

341
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<v Speaker 2>they can raise wage rates is by paying hiring fewer

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<v Speaker 2>labor hours. And so unless you have an independent policy

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<v Speaker 2>that is providing more spending, that is achieving more spending

344
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<v Speaker 2>and increasing total revenues in a depression, the firms are

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<v Speaker 2>not going to have a lot of profits that they

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00:24:32.079 --> 00:24:34.559
<v Speaker 2>can dig into in order to pay higher wage rates,

347
00:24:35.039 --> 00:24:39.880
<v Speaker 2>so you end up with more unemployment. It was a

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<v Speaker 2>very stupid policy, quite frankly, because you can draw the

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<v Speaker 2>supply and demand curves on the table nap and figure

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<v Speaker 2>out that raising wage rates doesn't give you more employment

351
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<v Speaker 2>on the contrary. Nevertheless, it caught on, partly caught on

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<v Speaker 2>because of Henry Ford paying workers hour than usual in

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<v Speaker 2>it and the idea that the seed they can all

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<v Speaker 2>now buy Fords. But it weren't able to buy Fords

355
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<v Speaker 2>because Ford was paying them high salaries. They were able

356
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<v Speaker 2>to buy Fords because other people were buying Fords and

357
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<v Speaker 2>otherwise spending a lot more money, and the revenues were good,

358
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<v Speaker 2>and Ford could afford to pay the higher wage rates.

359
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<v Speaker 2>And so anyway, very bad theory. I have a paper

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<v Speaker 2>about it.

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<v Speaker 1>Brought some thing about why Ford wrote it raised wages.

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<v Speaker 1>Why did you he doubled them?

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<v Speaker 2>Right? Yes, well, because he realized that he could get

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<v Speaker 2>good labor for that product that those wage rates. Remember

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<v Speaker 2>that Ford is also a pioneer with advances in assembly

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<v Speaker 2>line technology, so his workers are more productive than other

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<v Speaker 2>workers because they have this technology or management arrangements that

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<v Speaker 2>allow them to be more productive and be worth those

369
00:26:05.319 --> 00:26:10.160
<v Speaker 2>higher wage traits. So you really he could afford to

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<v Speaker 2>do it because his plants where his plants were productive. Anyway,

371
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<v Speaker 2>so you had all these theories that didn't form the NRA.

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<v Speaker 2>And also the AAA, and the AAA tried to get

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<v Speaker 2>agricultural prices up by telling farmers to quit farming so much,

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<v Speaker 2>by paying them to reduce their farm their acreage, and

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<v Speaker 2>by kill their piglets and et cetera. And of course

376
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<v Speaker 2>that will raise prices, but it does so by reducing

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<v Speaker 2>agricultural output. And when you reduce agricultural output, you hire

378
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<v Speaker 2>fewer workers. The people who really got screwed, if you

379
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<v Speaker 2>pardon the expression, but it's quite appropriate here by the

380
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<v Speaker 2>AAA the most where the poor sharehold and agricultural laborers,

381
00:27:03.960 --> 00:27:09.039
<v Speaker 2>particularly in the Common South, you had many of these

382
00:27:10.119 --> 00:27:17.680
<v Speaker 2>persons who didn't they legally some of them were entitled.

383
00:27:17.680 --> 00:27:20.359
<v Speaker 2>The shareholders were entitled to part of the payments for

384
00:27:20.440 --> 00:27:24.480
<v Speaker 2>reducing output. But guess what they farm owners took it all.

385
00:27:25.079 --> 00:27:29.400
<v Speaker 2>And so these people ended up with no jobs and

386
00:27:29.480 --> 00:27:32.880
<v Speaker 2>no opportunities to find them anywhere down South where they're

387
00:27:32.880 --> 00:27:36.599
<v Speaker 2>now farming less, and they ended up going to the

388
00:27:36.920 --> 00:27:41.279
<v Speaker 2>urban cities and usually joining the roles of the unemployed

389
00:27:41.359 --> 00:27:44.480
<v Speaker 2>unless they were lucky and got work relief. And the

390
00:27:44.519 --> 00:27:49.759
<v Speaker 2>black African American families, many of them, were part of

391
00:27:49.799 --> 00:27:54.440
<v Speaker 2>that exodus. It was a great tragic consequence of that

392
00:27:54.599 --> 00:27:57.960
<v Speaker 2>component of the new deal that's often forgotten about.

393
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<v Speaker 1>The nWay ultimately is ruled onun constitutional. Is that right

394
00:28:03.759 --> 00:28:04.359
<v Speaker 1>by the courts.

395
00:28:05.519 --> 00:28:09.359
<v Speaker 2>Yes, they were both ruled unconstitutional, the AAA and the NRA.

396
00:28:10.119 --> 00:28:14.240
<v Speaker 2>The AAA was ruled unconstitutional because of what was considered

397
00:28:14.279 --> 00:28:19.799
<v Speaker 2>a discriminatory tax that was used to raise the money

398
00:28:19.839 --> 00:28:24.359
<v Speaker 2>with which farmers were paid to not have farmed. And

399
00:28:26.240 --> 00:28:30.000
<v Speaker 2>and by the way, they recreated another AAA after that

400
00:28:30.079 --> 00:28:36.400
<v Speaker 2>one was struck down that avoided that particular constitutional issue.

401
00:28:37.319 --> 00:28:43.759
<v Speaker 2>The NRA was struck down unsimilar somewhat similar constitutional grounds,

402
00:28:44.759 --> 00:28:54.079
<v Speaker 2>particularly concerning whether the whether the actions of the NRA

403
00:28:54.319 --> 00:28:59.839
<v Speaker 2>of the National Recovery Administration were justified or warranted by

404
00:28:59.839 --> 00:29:03.000
<v Speaker 2>the commerce clause. And they found that it was not.

405
00:29:03.680 --> 00:29:08.839
<v Speaker 2>So that disappeared, and thank goodness, wasn't revived. Nothing quite

406
00:29:08.960 --> 00:29:11.519
<v Speaker 2>like it has ever been tried again since. By the way,

407
00:29:11.599 --> 00:29:17.319
<v Speaker 2>only one other country implemented reforms that resembled to address

408
00:29:17.400 --> 00:29:22.000
<v Speaker 2>the depression that resembled the NRA. And I think I

409
00:29:22.119 --> 00:29:25.000
<v Speaker 2>mentioned that France was the only other country that recovered

410
00:29:25.039 --> 00:29:28.440
<v Speaker 2>as slowly or perhaps a little more slowly than the USA.

411
00:29:28.480 --> 00:29:32.519
<v Speaker 2>And guess what they were the ones. So there's a

412
00:29:32.599 --> 00:29:37.640
<v Speaker 2>lot of evidence that that kind of planning solution to

413
00:29:37.759 --> 00:29:43.079
<v Speaker 2>the New Deal didn't work. And there are some economists

414
00:29:43.119 --> 00:29:48.359
<v Speaker 2>who contest this, but the vast majority then and now

415
00:29:48.880 --> 00:29:54.400
<v Speaker 2>I think the NRA was a big mistake, and often

416
00:29:54.440 --> 00:29:57.759
<v Speaker 2>the worst mistake of the New Deal. I think it

417
00:29:57.839 --> 00:30:01.119
<v Speaker 2>was probably the worst mistake. I hope we get a chance,

418
00:30:01.160 --> 00:30:03.519
<v Speaker 2>by the way to talk about the positive things, because

419
00:30:03.519 --> 00:30:05.680
<v Speaker 2>they wear some I don't want people to think that

420
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<v Speaker 2>I'm only cataloging the New deals bad attempts. That it

421
00:30:13.160 --> 00:30:15.680
<v Speaker 2>was certainly one of the worst things that was done.

422
00:30:16.240 --> 00:30:20.920
<v Speaker 1>So what happens, you know, a n O A. They

423
00:30:20.960 --> 00:30:23.920
<v Speaker 1>make things in a sense, wus not better, and yet

424
00:30:24.079 --> 00:30:27.440
<v Speaker 1>the economy doesn't do us. So what is going on?

425
00:30:28.000 --> 00:30:31.119
<v Speaker 1>Is the positive going on? That is that is offsetting

426
00:30:31.200 --> 00:30:33.079
<v Speaker 1>kind of in terms of the effects.

427
00:30:33.319 --> 00:30:37.279
<v Speaker 2>Well, most of the positive recovery is during the very

428
00:30:37.359 --> 00:30:43.000
<v Speaker 2>first early period, and there there's actually a big post

429
00:30:43.079 --> 00:30:47.839
<v Speaker 2>bank holiday uplift of the economy and things are looking

430
00:30:47.880 --> 00:30:51.480
<v Speaker 2>pretty good for a while. But it's actually after the

431
00:30:51.640 --> 00:30:56.960
<v Speaker 2>NRA and the AAA kick in, it takes. It takes.

432
00:30:57.039 --> 00:30:59.799
<v Speaker 2>There's a little bit of a delay, but that recovery

433
00:30:59.839 --> 00:31:02.559
<v Speaker 2>is starts to peter out, It starts to Peter up.

434
00:31:02.799 --> 00:31:08.640
<v Speaker 2>Now there is afterwards, there is another period of recovery.

435
00:31:09.319 --> 00:31:12.200
<v Speaker 2>But I would argue, and I think the evidence supports

436
00:31:12.240 --> 00:31:17.680
<v Speaker 2>the argument that the recovery that took place overall beyond

437
00:31:17.720 --> 00:31:22.119
<v Speaker 2>the initial phase where you have the advantage of getting

438
00:31:22.200 --> 00:31:28.599
<v Speaker 2>the bank situation resolved, which is very positive. Then though,

439
00:31:29.519 --> 00:31:33.319
<v Speaker 2>when the NRA first is announced and it's being expected,

440
00:31:33.359 --> 00:31:36.359
<v Speaker 2>you have another little mini boom. You have a mini boom.

441
00:31:36.359 --> 00:31:40.160
<v Speaker 2>But most economists think that that's because there was a

442
00:31:40.160 --> 00:31:46.279
<v Speaker 2>lot of anticipatory buying by producers stocking up on inventories

443
00:31:46.279 --> 00:31:48.480
<v Speaker 2>and inputs and other things because they know that the

444
00:31:48.519 --> 00:31:51.680
<v Speaker 2>prices are all going to be going up, and then

445
00:31:51.720 --> 00:31:54.200
<v Speaker 2>it peters out already in the fall, you have the

446
00:31:54.240 --> 00:31:58.440
<v Speaker 2>New dealers themselves noting that, Okay, now things are starting

447
00:31:58.440 --> 00:32:00.839
<v Speaker 2>to look a little bit shaky, but what's the art's happening?

448
00:32:00.920 --> 00:32:05.599
<v Speaker 2>Then that is driving the recovery from that point on

449
00:32:05.920 --> 00:32:10.440
<v Speaker 2>to the big Roosevelt downturn of thirty seven thirty eight.

450
00:32:11.039 --> 00:32:14.720
<v Speaker 2>Is a factor for which the New Deal is only

451
00:32:14.839 --> 00:32:20.920
<v Speaker 2>partially responsible. And that's gold. What we started talking about,

452
00:32:20.960 --> 00:32:23.759
<v Speaker 2>how lack of gold was part of the problem that

453
00:32:23.920 --> 00:32:28.279
<v Speaker 2>caused the Great Depression, and that's absolutely true. What many

454
00:32:28.279 --> 00:32:32.839
<v Speaker 2>people don't realize was that the United States was facing

455
00:32:32.920 --> 00:32:38.079
<v Speaker 2>an inundation of gold after nineteen thirty three, or actually

456
00:32:38.359 --> 00:32:43.160
<v Speaker 2>mostly after January nineteenth, after January nineteen thirty four, to

457
00:32:43.200 --> 00:32:48.799
<v Speaker 2>be precise, that's when Roosevelt finally devalued the dollar, and

458
00:32:48.880 --> 00:32:55.319
<v Speaker 2>that initially caused some increase in gold inflows into the

459
00:32:55.440 --> 00:32:58.480
<v Speaker 2>United States, because devaluing the dollar means you're raising the

460
00:32:58.519 --> 00:33:01.799
<v Speaker 2>price of gold and making it worth more. But the

461
00:33:01.920 --> 00:33:05.519
<v Speaker 2>main factor that has a temporary effect. For reasons I

462
00:33:05.559 --> 00:33:09.799
<v Speaker 2>discussed in my book, devaluation won't keep gold in flowing forever,

463
00:33:10.880 --> 00:33:14.200
<v Speaker 2>even if other countries don't devalue in turn. But there's

464
00:33:14.200 --> 00:33:17.240
<v Speaker 2>something else going on, and this is the biggest driver

465
00:33:17.400 --> 00:33:21.960
<v Speaker 2>of the recovery between nineteen thirty four and nineteen thirty seven.

466
00:33:23.200 --> 00:33:30.039
<v Speaker 2>It's Europe's war clouds. It's Hitler, mainly Hitler. Hitler becomes

467
00:33:30.119 --> 00:33:33.559
<v Speaker 2>chancellor around this actually a little bit before this time,

468
00:33:33.960 --> 00:33:41.160
<v Speaker 2>and increasingly there's fear of war, and these jitters are

469
00:33:41.759 --> 00:33:46.039
<v Speaker 2>become the main reason why gold starts heading in large amounts,

470
00:33:46.359 --> 00:33:50.319
<v Speaker 2>even larger than devaluation itself would have promoted to the

471
00:33:50.440 --> 00:33:56.759
<v Speaker 2>United States. In all that gold that is monetary stimulus,

472
00:33:56.359 --> 00:34:01.839
<v Speaker 2>but it's not on purpose. The Federal Reserve, the Federal

473
00:34:01.880 --> 00:34:06.359
<v Speaker 2>Reserve is passively having to accept not gold itself actually,

474
00:34:06.400 --> 00:34:09.920
<v Speaker 2>because now that gold ownership is illegal, even the FED

475
00:34:09.960 --> 00:34:12.920
<v Speaker 2>isn't allowed to have gold. Instead, the Treasury buys all

476
00:34:12.960 --> 00:34:15.159
<v Speaker 2>the gold that comes into the country and gives the

477
00:34:15.199 --> 00:34:19.559
<v Speaker 2>FED gold certificates, the piece of paper saying we have

478
00:34:19.679 --> 00:34:23.840
<v Speaker 2>this gold, and that becomes the Fed's asset. Anyway, the

479
00:34:23.880 --> 00:34:27.480
<v Speaker 2>FED is passively allowing this. It's not engaging in any

480
00:34:27.519 --> 00:34:32.719
<v Speaker 2>monetary stimulus on purpose. And here's the biggest irony. This

481
00:34:32.840 --> 00:34:36.480
<v Speaker 2>is helping to restore spending. This is doing what the

482
00:34:36.920 --> 00:34:40.360
<v Speaker 2>NRA isn't doing and the AAA isn't doing, and it's

483
00:34:40.400 --> 00:34:44.440
<v Speaker 2>making It is limiting the damage done by those programs,

484
00:34:44.480 --> 00:34:48.199
<v Speaker 2>which would otherwise be quite counterproductive. But then guess what

485
00:34:48.360 --> 00:34:53.400
<v Speaker 2>happens The government officials in the Treasury and elsewhere. Remember,

486
00:34:53.880 --> 00:34:58.280
<v Speaker 2>they don't like inflation monetary expansion, so they don't like this,

487
00:34:59.000 --> 00:35:02.400
<v Speaker 2>and they actually start are absolutely fearing that this is

488
00:35:02.480 --> 00:35:09.199
<v Speaker 2>going to cause inflation. Not sorry, they don't mind prices rising,

489
00:35:09.239 --> 00:35:12.679
<v Speaker 2>but they saying this is inflation. What they're really worried

490
00:35:12.719 --> 00:35:16.159
<v Speaker 2>about is monetary expansion. And particularly that the banking system

491
00:35:16.199 --> 00:35:18.800
<v Speaker 2>is going to expand they're sitting on tons of reserves,

492
00:35:19.480 --> 00:35:22.719
<v Speaker 2>and that that's going to cause another a stock market boom,

493
00:35:22.920 --> 00:35:25.320
<v Speaker 2>and it's all going to lead to a crash. So

494
00:35:26.079 --> 00:35:28.639
<v Speaker 2>you might say they're very Austrian about it, but the

495
00:35:28.719 --> 00:35:32.239
<v Speaker 2>sad reality is that here you had the one thing

496
00:35:32.280 --> 00:35:37.079
<v Speaker 2>that's really driving recovery. It's gold coming in doing what

497
00:35:37.159 --> 00:35:39.440
<v Speaker 2>gold a gold standard is supposed to do. Right, you

498
00:35:39.519 --> 00:35:43.039
<v Speaker 2>got low prices, you go comes in and it gots

499
00:35:43.119 --> 00:35:46.840
<v Speaker 2>things going again. They decided they needed to do something

500
00:35:46.880 --> 00:35:50.840
<v Speaker 2>about it, and so they did two things. The Treasury

501
00:35:50.920 --> 00:35:57.159
<v Speaker 2>and the Fed separately did these anti gold inflation things,

502
00:35:59.039 --> 00:36:02.039
<v Speaker 2>kind of with the it's not exactly talking to the other.

503
00:36:02.239 --> 00:36:05.039
<v Speaker 2>So you get a double dose of efforts to keep

504
00:36:05.079 --> 00:36:11.760
<v Speaker 2>the gold from resulting in more spending. The FED doubles

505
00:36:11.800 --> 00:36:17.280
<v Speaker 2>reserve requirements, doubles them, and at the same time, the

506
00:36:17.400 --> 00:36:22.239
<v Speaker 2>Treasury starts sterilizing for a period gold inflows, so they're

507
00:36:22.280 --> 00:36:25.039
<v Speaker 2>not giving the Fed the gold certificates for that much

508
00:36:25.280 --> 00:36:29.760
<v Speaker 2>for gold for an extensive Between these two things and

509
00:36:29.840 --> 00:36:33.440
<v Speaker 2>also some government austerity, but mostly I think the sterilization

510
00:36:33.679 --> 00:36:36.920
<v Speaker 2>first of all, and then the reserve requires the recovery

511
00:36:36.920 --> 00:36:40.719
<v Speaker 2>stops because the thing driving it stops. There's no more

512
00:36:40.960 --> 00:36:45.360
<v Speaker 2>goods to me. And that precipitates the great so called

513
00:36:45.480 --> 00:36:49.199
<v Speaker 2>Roosevelt procession of nineteen thirty seven nineteen thirty eight, which

514
00:36:49.320 --> 00:36:53.320
<v Speaker 2>wipes out a huge part, not all, but a big

515
00:36:53.440 --> 00:36:57.760
<v Speaker 2>chunk of the recovery, the progress toward recovery that had

516
00:36:57.760 --> 00:37:00.800
<v Speaker 2>occurred in the preceding years. And it's all on New

517
00:37:00.840 --> 00:37:05.280
<v Speaker 2>Dealers because they were the ones who put the brakes

518
00:37:05.320 --> 00:37:11.000
<v Speaker 2>on that one important source of spending stimulus, golden flows.

519
00:37:11.039 --> 00:37:14.840
<v Speaker 2>It's very tragic. By the way, Caneskines was very good

520
00:37:14.880 --> 00:37:17.280
<v Speaker 2>on the depression. I know people hated when I say that,

521
00:37:17.360 --> 00:37:19.199
<v Speaker 2>but he was for the most part. If the New

522
00:37:19.239 --> 00:37:21.239
<v Speaker 2>Dealers had listened to Knes, we would have a much

523
00:37:21.639 --> 00:37:25.760
<v Speaker 2>more rapid recovery. Knes noted this golden flow. He noted

524
00:37:25.800 --> 00:37:30.039
<v Speaker 2>the connection between it and Stalin, by the way, was

525
00:37:30.079 --> 00:37:33.360
<v Speaker 2>another between Hitler and Stalin. They did more for recovery

526
00:37:33.400 --> 00:37:37.920
<v Speaker 2>at this time than Roosevelt. I'm only being semi facetious

527
00:37:37.960 --> 00:37:43.519
<v Speaker 2>when I say that Stalin was subsidizing gold mining, and

528
00:37:43.599 --> 00:37:46.840
<v Speaker 2>so he was their mind out. Their minds were putting

529
00:37:46.880 --> 00:37:49.440
<v Speaker 2>out tons of gold, much more than they had in

530
00:37:49.480 --> 00:37:51.440
<v Speaker 2>the twenties, and a lot of it was ending up

531
00:37:51.599 --> 00:37:54.400
<v Speaker 2>as part of that flow to the US via Europe.

532
00:37:54.840 --> 00:37:57.320
<v Speaker 2>And so anyway Keynes is noting, they say, what this

533
00:37:57.480 --> 00:38:00.920
<v Speaker 2>is ironic, but this might be. This is the thing

534
00:38:00.960 --> 00:38:05.440
<v Speaker 2>that's helping the recovery. And what he didn't anticipate when

535
00:38:05.480 --> 00:38:08.760
<v Speaker 2>he wrote about that was that the US authorities would

536
00:38:08.840 --> 00:38:13.639
<v Speaker 2>respond to this with policies designed to stop it. We

537
00:38:13.719 --> 00:38:19.079
<v Speaker 2>can't have all this gold, and I'm absolutely not exaggerating.

538
00:38:19.360 --> 00:38:24.719
<v Speaker 2>So this was a tragic response to what would have been.

539
00:38:26.360 --> 00:38:28.880
<v Speaker 2>And by the way, I'm not being radical here. Christina

540
00:38:28.960 --> 00:38:32.440
<v Speaker 2>Roemer is a very good economic historian who's written all

541
00:38:32.480 --> 00:38:34.599
<v Speaker 2>about how the gold then flows with a main thing

542
00:38:34.679 --> 00:38:41.280
<v Speaker 2>driving recovery, and she's not crazy the libertarian or anything

543
00:38:41.320 --> 00:38:47.159
<v Speaker 2>like that. But this was very tragic. So after that,

544
00:38:48.239 --> 00:38:52.440
<v Speaker 2>by thirty eight, as the economy is finally getting out

545
00:38:52.440 --> 00:38:56.039
<v Speaker 2>of this secondary depression, but by then the new Deal

546
00:38:56.119 --> 00:38:59.480
<v Speaker 2>kind of peters out. There's no more efforts in the

547
00:38:59.639 --> 00:39:03.480
<v Speaker 2>parts of the old Deal are being dismantled and found unconstitutional,

548
00:39:04.039 --> 00:39:06.360
<v Speaker 2>and so you end up that's why we end up

549
00:39:06.360 --> 00:39:10.280
<v Speaker 2>with seventeen point something percent of the labor force either

550
00:39:10.320 --> 00:39:12.760
<v Speaker 2>on work relief or unemployee. I want to add a

551
00:39:12.800 --> 00:39:16.360
<v Speaker 2>footnote here on if I may. There's some people say, oh,

552
00:39:16.400 --> 00:39:20.559
<v Speaker 2>you shouldn't count the people on work relief as being,

553
00:39:22.400 --> 00:39:27.559
<v Speaker 2>you know, among the unemployed, and I don't. They're not unemployed,

554
00:39:27.559 --> 00:39:30.599
<v Speaker 2>they're working, but they should be counted if you're trying

555
00:39:30.599 --> 00:39:34.920
<v Speaker 2>to assess how the recovery is going, because work relief

556
00:39:35.199 --> 00:39:40.360
<v Speaker 2>is a substitute for recovery. And Roosevelt and Company were

557
00:39:40.519 --> 00:39:43.880
<v Speaker 2>very clear on this. They said, look, you know, these

558
00:39:44.000 --> 00:39:47.760
<v Speaker 2>jobs are temporary, emergency jobs. It's a way of keeping

559
00:39:48.079 --> 00:39:52.039
<v Speaker 2>putting money in people's pockets. But it's relief, it's not recovery.

560
00:39:52.360 --> 00:39:55.719
<v Speaker 2>Recovery is getting them back to work in the factories

561
00:39:55.719 --> 00:39:59.760
<v Speaker 2>that are shuttered and getting those factories working again. That's recovery.

562
00:40:00.119 --> 00:40:06.760
<v Speaker 2>And that did not happen had not happened as of

563
00:40:06.840 --> 00:40:09.639
<v Speaker 2>nineteen thirty nine.

564
00:40:09.320 --> 00:40:15.000
<v Speaker 1>So from thirty nine on, is it basically a woy

565
00:40:15.039 --> 00:40:17.599
<v Speaker 1>economy that kind of generates the jobs?

566
00:40:17.639 --> 00:40:22.079
<v Speaker 2>And yes, it starts. It starts with the outbreak of

567
00:40:22.119 --> 00:40:28.480
<v Speaker 2>the war in Europe, where there's a very sharp increase

568
00:40:29.280 --> 00:40:34.599
<v Speaker 2>in the demand for war material in Europe, and the

569
00:40:34.719 --> 00:40:37.079
<v Speaker 2>US is happy to supply it. We have the means,

570
00:40:37.119 --> 00:40:41.800
<v Speaker 2>and that helps, that starts a recovery. That starts a recovery,

571
00:40:42.480 --> 00:40:48.199
<v Speaker 2>and of course it's not long before we start to militarize,

572
00:40:49.679 --> 00:40:53.719
<v Speaker 2>even prior to Pearl Harbor. And then the Pearl Harbor,

573
00:40:53.840 --> 00:41:03.079
<v Speaker 2>of course, causes US military spending to absolutely skyrocket, and

574
00:41:03.119 --> 00:41:09.280
<v Speaker 2>that in turn means that we have this temporary for

575
00:41:09.840 --> 00:41:15.400
<v Speaker 2>the time being. The depression is over because millions of

576
00:41:15.519 --> 00:41:19.440
<v Speaker 2>workers of unemployed, who would have been unemployed or who

577
00:41:19.440 --> 00:41:23.760
<v Speaker 2>are on work relief, they are drafted into the armed

578
00:41:23.800 --> 00:41:28.480
<v Speaker 2>services or they volunteer, and so that's the end of

579
00:41:28.559 --> 00:41:34.920
<v Speaker 2>unemployment as far as the statistics are concerned. And likewise

580
00:41:35.119 --> 00:41:39.000
<v Speaker 2>you have now a great increase in output of war

581
00:41:39.119 --> 00:41:45.440
<v Speaker 2>material plants being reopened or established newly established for the

582
00:41:45.519 --> 00:41:50.800
<v Speaker 2>purpose of building airplanes and such ships. And so the

583
00:41:50.840 --> 00:41:57.840
<v Speaker 2>depression is over except the war ends. The depression as

584
00:41:57.920 --> 00:42:02.840
<v Speaker 2>long as the war continues. But as soon as the

585
00:42:02.880 --> 00:42:07.199
<v Speaker 2>war ends, the government applied shock therapy, as it were,

586
00:42:08.159 --> 00:42:11.559
<v Speaker 2>It completely cut back war time spending. Yes, there were

587
00:42:11.599 --> 00:42:13.880
<v Speaker 2>things like the GI Bill and all, but the fact

588
00:42:14.000 --> 00:42:17.320
<v Speaker 2>is that total spending on all levels declined to the

589
00:42:17.480 --> 00:42:21.360
<v Speaker 2>share of GDP it had constituted before the war. That

590
00:42:21.440 --> 00:42:25.199
<v Speaker 2>is before the European War, and of course all those

591
00:42:25.239 --> 00:42:29.000
<v Speaker 2>workers are coming back demanding jobs. So in order to

592
00:42:29.119 --> 00:42:34.159
<v Speaker 2>explain the recovery, you have to explain why you didn't

593
00:42:34.159 --> 00:42:36.920
<v Speaker 2>have another depression as soon as the war ended, or

594
00:42:36.960 --> 00:42:40.039
<v Speaker 2>what you didn't see the economy lapse back into depression.

595
00:42:40.519 --> 00:42:44.639
<v Speaker 2>And that's a serious question. One way to engauge how

596
00:42:44.679 --> 00:42:48.480
<v Speaker 2>serious it a question it was, and why it's not

597
00:42:48.639 --> 00:42:54.400
<v Speaker 2>obvious is by noting that the administration's economists first, especially

598
00:42:54.840 --> 00:42:57.599
<v Speaker 2>this is the end towards the end of the war,

599
00:42:57.719 --> 00:43:01.840
<v Speaker 2>it's still the Roosevelt administration. Now most of those economists

600
00:43:01.840 --> 00:43:06.599
<v Speaker 2>are Kansians. The Kynesians have slowly gained importance, but it

601
00:43:06.639 --> 00:43:09.440
<v Speaker 2>should be noted that they were not important during most

602
00:43:09.440 --> 00:43:12.920
<v Speaker 2>of the New Deal. Canes had hardly any influence directly

603
00:43:13.000 --> 00:43:16.159
<v Speaker 2>or indirectly on the New Deal. But now there are

604
00:43:16.239 --> 00:43:20.000
<v Speaker 2>plenty of Kansians in the government, and they are for

605
00:43:20.039 --> 00:43:25.000
<v Speaker 2>the most part, almost all them predicting a terrible calamity,

606
00:43:25.199 --> 00:43:29.719
<v Speaker 2>a depression in many cases predicted to be worse than

607
00:43:29.719 --> 00:43:34.400
<v Speaker 2>it had been in the thirties unless the government gets

608
00:43:34.440 --> 00:43:38.920
<v Speaker 2>peace time spending up as high as wartime spending had been.

609
00:43:40.000 --> 00:43:44.280
<v Speaker 2>Particularly deficit spending, we are going to see a depression

610
00:43:44.840 --> 00:43:49.960
<v Speaker 2>that it is as bad or worse than in the thirties. Well,

611
00:43:50.039 --> 00:43:53.559
<v Speaker 2>of course, shock therapy was what they were arguing against. Right,

612
00:43:53.840 --> 00:43:56.880
<v Speaker 2>we can't do we can't just stop spending and not

613
00:43:56.920 --> 00:44:00.239
<v Speaker 2>do anything else. We can't just liberate prices. They were

614
00:44:00.599 --> 00:44:03.599
<v Speaker 2>arguing that all of this would be a disaster, with

615
00:44:03.679 --> 00:44:07.760
<v Speaker 2>some good reason because unless something changed, right, unless there

616
00:44:07.760 --> 00:44:13.360
<v Speaker 2>was some big change that had taken place between nineteen

617
00:44:13.440 --> 00:44:16.960
<v Speaker 2>thirty nine and the end of the war, some change,

618
00:44:17.000 --> 00:44:20.599
<v Speaker 2>it would not cause conditions to revert to where they'd been.

619
00:44:21.159 --> 00:44:23.519
<v Speaker 2>It was sensible enough to fear that it would be

620
00:44:23.719 --> 00:44:26.800
<v Speaker 2>you'd go right back to where you started. And yet

621
00:44:27.280 --> 00:44:31.559
<v Speaker 2>they were all horribly well, they were all fortunately wrong,

622
00:44:32.280 --> 00:44:38.239
<v Speaker 2>because there was nothing. The unemployment rate never went much

623
00:44:38.280 --> 00:44:43.280
<v Speaker 2>above four percent, which by their own by the keynesing

624
00:44:43.360 --> 00:44:46.639
<v Speaker 2>z Own estimates, it never never was far above after

625
00:44:46.679 --> 00:44:49.599
<v Speaker 2>the war, immediately after war, never rose far above what

626
00:44:49.679 --> 00:44:53.280
<v Speaker 2>they would consider full employed employment. Yeah, it was remarkable

627
00:44:53.360 --> 00:44:56.599
<v Speaker 2>that we avoided that. Something had to change. And one

628
00:44:56.599 --> 00:44:58.440
<v Speaker 2>of the things I try to explain in my book

629
00:44:58.519 --> 00:45:04.360
<v Speaker 2>is what else happened during the war that made it

630
00:45:04.360 --> 00:45:08.119
<v Speaker 2>may allowed the economy instead of having a renewed depression

631
00:45:08.639 --> 00:45:11.360
<v Speaker 2>to actually take off right after the war when the

632
00:45:11.400 --> 00:45:16.800
<v Speaker 2>government stops all this spending. So what was it. I'm

633
00:45:16.800 --> 00:45:21.440
<v Speaker 2>glad you asked what it was. I believe and I

634
00:45:21.480 --> 00:45:24.039
<v Speaker 2>think there's a lot of evidence for it. What it

635
00:45:24.079 --> 00:45:26.960
<v Speaker 2>was was a change in the government's attitude toward business,

636
00:45:27.519 --> 00:45:31.559
<v Speaker 2>major change. And there are books about this and brooks

637
00:45:31.639 --> 00:45:34.880
<v Speaker 2>end articles that are very good that I cite. Because

638
00:45:35.880 --> 00:45:38.400
<v Speaker 2>one of the problems one of the things that interfered

639
00:45:38.480 --> 00:45:41.960
<v Speaker 2>with recovery in the thirties. We've mentioned some others, but

640
00:45:42.360 --> 00:45:45.159
<v Speaker 2>one of the others, especially toward the last phase of

641
00:45:45.159 --> 00:45:50.400
<v Speaker 2>the New Deal, was what Bob Higgs calls regime uncertainty,

642
00:45:50.679 --> 00:45:55.320
<v Speaker 2>which is all the experimentation and the unpredictability of government

643
00:45:55.360 --> 00:46:01.000
<v Speaker 2>policy combined these days. Yes, indeed, very much combined with

644
00:46:02.400 --> 00:46:08.480
<v Speaker 2>outright fear of the hostility demonstrated by the Roosevelt administration

645
00:46:08.639 --> 00:46:12.199
<v Speaker 2>and Roosevelt personally towards businessman and his rhetoric and other

646
00:46:12.199 --> 00:46:15.000
<v Speaker 2>things that got very, very nasty. And there were some

647
00:46:15.159 --> 00:46:19.039
<v Speaker 2>policies that went along with a nasty rhetoric that, as

648
00:46:19.079 --> 00:46:22.760
<v Speaker 2>it were, implemented in a nasty rhetoric. The rhetoric was

649
00:46:22.840 --> 00:46:28.000
<v Speaker 2>mostly aimed at big businessmen, but the policies tended to

650
00:46:28.039 --> 00:46:32.280
<v Speaker 2>affect businessmen more generally. So there was a lot of

651
00:46:32.360 --> 00:46:36.119
<v Speaker 2>reason for businessmen to not be confident in the future,

652
00:46:36.639 --> 00:46:41.800
<v Speaker 2>to not be confident enough to invest and with the

653
00:46:41.840 --> 00:46:47.760
<v Speaker 2>hope of recouping of profiting from the investment. And so

654
00:46:47.920 --> 00:46:53.000
<v Speaker 2>what happens in the thirties is investment absolutely collapsed for

655
00:46:53.119 --> 00:46:57.880
<v Speaker 2>the whole decade. There was especially if you are looking

656
00:46:57.920 --> 00:47:02.880
<v Speaker 2>at net investment, right, not just replacement of depreciating capital,

657
00:47:02.960 --> 00:47:07.079
<v Speaker 2>but growth. There was none. It was essentially zero. Sometimes

658
00:47:07.079 --> 00:47:09.760
<v Speaker 2>it was negative. And that remained true during the war

659
00:47:09.880 --> 00:47:14.880
<v Speaker 2>because there's no private investment during the war. So something

660
00:47:14.960 --> 00:47:19.079
<v Speaker 2>has to happen to make businessmen confident again, and the

661
00:47:19.119 --> 00:47:23.440
<v Speaker 2>war did that. Now, by the way, Caines was very

662
00:47:23.480 --> 00:47:31.360
<v Speaker 2>good on this. You Canes was scolding Roosevelt for scaring businessmen,

663
00:47:31.559 --> 00:47:35.559
<v Speaker 2>and he was saying to them, look, everybody, all economists agreed,

664
00:47:35.559 --> 00:47:37.679
<v Speaker 2>you got to get investment going if you're going to

665
00:47:37.760 --> 00:47:40.880
<v Speaker 2>have her recovered. You know, you can't just have consumer

666
00:47:40.960 --> 00:47:44.000
<v Speaker 2>goods being consumed because you've got to make stuff. You

667
00:47:44.079 --> 00:47:46.800
<v Speaker 2>got to get the factories working again. So they all

668
00:47:46.840 --> 00:47:53.719
<v Speaker 2>agreed on that, but Kines was particularly It was particularly

669
00:47:54.039 --> 00:47:59.000
<v Speaker 2>scornful of new deal policies that intimidated businessmen or otherwise

670
00:47:59.079 --> 00:48:05.400
<v Speaker 2>made it difficult for them to be optimistic about the future.

671
00:48:06.039 --> 00:48:09.159
<v Speaker 2>He couched it in the general theory, especially in terms

672
00:48:09.159 --> 00:48:12.559
<v Speaker 2>of what he called animal spirits. He said, Look, the

673
00:48:12.599 --> 00:48:16.679
<v Speaker 2>way you have businessmen do their thing investing is you

674
00:48:16.760 --> 00:48:20.320
<v Speaker 2>can't have them thinking about what can go wrong. They

675
00:48:20.440 --> 00:48:23.679
<v Speaker 2>have to have this optimism. It's like, you know, you

676
00:48:23.719 --> 00:48:27.719
<v Speaker 2>can't go out and you can't live well if you're

677
00:48:27.760 --> 00:48:30.679
<v Speaker 2>constantly thinking you're going to die any minute. Right, But

678
00:48:30.880 --> 00:48:35.559
<v Speaker 2>he said, businessmen have to not fear the future. And

679
00:48:35.639 --> 00:48:41.039
<v Speaker 2>he said to Roosevelt, basically, quit picking on him. Coddle them,

680
00:48:41.519 --> 00:48:45.920
<v Speaker 2>make them feel happy, make them feel proud. He said,

681
00:48:46.000 --> 00:48:51.039
<v Speaker 2>all of these things. It's very very good because it

682
00:48:51.159 --> 00:48:56.000
<v Speaker 2>helps us understand how the recovery happened. Because World War

683
00:48:56.000 --> 00:48:59.719
<v Speaker 2>Two comes along American entry in particular, and all of

684
00:48:59.760 --> 00:49:03.320
<v Speaker 2>a US. So the administration is, oh, we need them,

685
00:49:03.880 --> 00:49:08.000
<v Speaker 2>we need them, and we need to then we need

686
00:49:08.039 --> 00:49:11.239
<v Speaker 2>to have them cooperate in the war effort. And the

687
00:49:11.280 --> 00:49:13.480
<v Speaker 2>next thing you know is all the businessmen are piling

688
00:49:13.519 --> 00:49:20.920
<v Speaker 2>into Washington taking power, and they produce the planes. They

689
00:49:21.400 --> 00:49:26.639
<v Speaker 2>you know the record of the production under the cordial

690
00:49:26.760 --> 00:49:31.519
<v Speaker 2>let's say, detante between the government and business. The result

691
00:49:31.599 --> 00:49:38.639
<v Speaker 2>of this is an incredible production of wartime materials, all

692
00:49:38.760 --> 00:49:42.639
<v Speaker 2>the planes Roosevelt promised and more. But there's more to

693
00:49:42.719 --> 00:49:46.079
<v Speaker 2>it than that. The new dealers themselves, working with these businessmen,

694
00:49:46.199 --> 00:49:49.480
<v Speaker 2>start saying, you know, maybe they're not so bad, and

695
00:49:50.119 --> 00:49:54.320
<v Speaker 2>other people are looking at all this saying maybe capitalism

696
00:49:54.440 --> 00:49:58.920
<v Speaker 2>isn't dead after all, and so everything changes. This is

697
00:49:58.960 --> 00:50:02.159
<v Speaker 2>not a small chain. It goes from one extreme of

698
00:50:02.760 --> 00:50:06.199
<v Speaker 2>hostility to business and believing that capitalism is doomed and

699
00:50:06.239 --> 00:50:09.800
<v Speaker 2>all that to the beginning of what becomes the military

700
00:50:09.840 --> 00:50:13.480
<v Speaker 2>industrial complex, which is where, if anything, the government and

701
00:50:13.599 --> 00:50:17.400
<v Speaker 2>business are much too cozy. But as far as recovery

702
00:50:17.440 --> 00:50:21.719
<v Speaker 2>is concerned, this is a very good development. The long

703
00:50:21.800 --> 00:50:26.000
<v Speaker 2>run implications may not have been so great, but for

704
00:50:26.119 --> 00:50:31.760
<v Speaker 2>the recovery it means a businessman and the war on

705
00:50:31.840 --> 00:50:38.000
<v Speaker 2>an upbeat view of the future, and investment takes off

706
00:50:38.119 --> 00:50:43.079
<v Speaker 2>like our rocket. And so basically it's like scissors. The

707
00:50:43.119 --> 00:50:45.599
<v Speaker 2>government spending is going I got to do it backwards.

708
00:50:45.679 --> 00:50:50.320
<v Speaker 2>Government spending is going and private investment is going shit.

709
00:50:50.760 --> 00:50:53.519
<v Speaker 2>And that's why you didn't need the government peace time

710
00:50:53.559 --> 00:50:57.039
<v Speaker 2>spending that the Keynesians thought would be necessary, because private

711
00:50:57.079 --> 00:51:02.360
<v Speaker 2>investment has taken off. This I think this aspect of

712
00:51:02.400 --> 00:51:04.719
<v Speaker 2>the war. So you can still tell a story where

713
00:51:04.719 --> 00:51:07.559
<v Speaker 2>World War II helps end the depression, but it is

714
00:51:07.639 --> 00:51:11.519
<v Speaker 2>not a simple story of government spending. It's a story

715
00:51:11.719 --> 00:51:15.639
<v Speaker 2>of more importantly, for the longer haul, for post war,

716
00:51:16.519 --> 00:51:20.119
<v Speaker 2>the post war revival. The big change isn't the spending,

717
00:51:20.679 --> 00:51:23.800
<v Speaker 2>it's not the lasting it's the change in attitudes that

718
00:51:23.920 --> 00:51:27.840
<v Speaker 2>gives businessmen the you know, warm fuzzy feeling that Caines

719
00:51:27.880 --> 00:51:30.480
<v Speaker 2>thought they needed if they were going to start doing

720
00:51:30.559 --> 00:51:33.480
<v Speaker 2>their investment thing again. So I think that's the part

721
00:51:33.519 --> 00:51:37.719
<v Speaker 2>of part of the recovery story that both critics of

722
00:51:37.800 --> 00:51:42.320
<v Speaker 2>the New Deal, both the conventional criticisms of the New

723
00:51:42.360 --> 00:51:48.800
<v Speaker 2>Deal UH and the champions of the New Deal argument

724
00:51:49.039 --> 00:51:52.679
<v Speaker 2>arguments in favor of the New New Deal omit. And

725
00:51:52.719 --> 00:51:55.599
<v Speaker 2>by the way, it has to be said that this

726
00:51:55.760 --> 00:52:01.119
<v Speaker 2>change and attitude is part of the abandonment of the

727
00:52:01.159 --> 00:52:05.840
<v Speaker 2>New Deal, it's not a new new deal. And Kansianism

728
00:52:05.960 --> 00:52:12.039
<v Speaker 2>helps here too, yarn, because remember Kaanesianism is saying just

729
00:52:12.119 --> 00:52:17.440
<v Speaker 2>have the government stimulate. Nowadays, it put the Knesian emphasis

730
00:52:17.480 --> 00:52:21.119
<v Speaker 2>on physical stimulus, but Kanes himself thought monetary stimulus was,

731
00:52:21.320 --> 00:52:28.559
<v Speaker 2>you know, another possibility. But for businessmen, this kind of

732
00:52:28.599 --> 00:52:32.599
<v Speaker 2>thing changing interest rates, having the government spend more, it's

733
00:52:32.719 --> 00:52:36.159
<v Speaker 2>not as oppressive as all that New Deal stuff. It's

734
00:52:36.199 --> 00:52:39.440
<v Speaker 2>not interfered with their decision making, it's not as scary.

735
00:52:40.079 --> 00:52:43.199
<v Speaker 2>So for businessmen, they may not like deficit spending, you know,

736
00:52:43.239 --> 00:52:48.679
<v Speaker 2>they don't like inflation, but they would rather have the

737
00:52:48.719 --> 00:52:54.119
<v Speaker 2>government pushing and pulling that one big lever than micromanaging

738
00:52:54.159 --> 00:52:59.400
<v Speaker 2>them or scaring them to death. So for business investment,

739
00:52:59.480 --> 00:53:03.280
<v Speaker 2>the Kanes revolution which is taking hold, that is the

740
00:53:03.360 --> 00:53:06.679
<v Speaker 2>idea that the main way you should combat recessions is

741
00:53:06.920 --> 00:53:10.920
<v Speaker 2>by government spending or monetary stimilus. For them, it's a

742
00:53:10.920 --> 00:53:14.360
<v Speaker 2>big relief that change, and we need to remember that

743
00:53:14.480 --> 00:53:18.000
<v Speaker 2>when we're being critical of gains.

744
00:53:19.400 --> 00:53:21.960
<v Speaker 1>Did that effect also the Fed? That is, did data

745
00:53:22.000 --> 00:53:25.599
<v Speaker 1>also cause a change in terms of the Fed's monetary

746
00:53:26.079 --> 00:53:30.079
<v Speaker 1>policy or the attitude towards monetary policy.

747
00:53:31.000 --> 00:53:37.039
<v Speaker 2>The truth is that monetary policy never really deliberately contributed

748
00:53:37.119 --> 00:53:40.679
<v Speaker 2>much to recovery even after the war. After the war,

749
00:53:41.480 --> 00:53:46.719
<v Speaker 2>the main concern of the monetary authorities and the Truman

750
00:53:46.719 --> 00:53:51.199
<v Speaker 2>administration was inflation and keeping a lid on it, because

751
00:53:51.400 --> 00:53:54.719
<v Speaker 2>of course prices had been kept down by wartime controls,

752
00:53:55.039 --> 00:53:57.840
<v Speaker 2>and once those controls were lifted, the tendency was for

753
00:53:57.880 --> 00:54:00.400
<v Speaker 2>them to go up, particularly when you have all this

754
00:54:01.000 --> 00:54:05.039
<v Speaker 2>private spending is kicking in, so you can't count on

755
00:54:05.119 --> 00:54:07.320
<v Speaker 2>the reduction and government spending. By the way, the government

756
00:54:07.440 --> 00:54:13.000
<v Speaker 2>went into surplus very quickly after the war, and fiscal surpluses,

757
00:54:13.320 --> 00:54:16.079
<v Speaker 2>which was the Keynesians thought, you know, this is the

758
00:54:16.159 --> 00:54:18.000
<v Speaker 2>last thing you're going to be able to get away

759
00:54:18.039 --> 00:54:23.159
<v Speaker 2>with without trouble. So the fact is that you had

760
00:54:24.639 --> 00:54:31.559
<v Speaker 2>renewed fiscal and monetary austerity, as it were relatively tight

761
00:54:31.639 --> 00:54:35.519
<v Speaker 2>regimes after World War Two. So neither neither of those

762
00:54:36.039 --> 00:54:41.760
<v Speaker 2>stimulus sources was contributing to the recovery, and that made

763
00:54:41.880 --> 00:54:45.360
<v Speaker 2>the recovery of private investment spending all the more important.

764
00:54:45.400 --> 00:54:49.719
<v Speaker 2>That should be said that many people think that what

765
00:54:50.400 --> 00:54:54.960
<v Speaker 2>was driving all this was consumer demand, because consumers were

766
00:54:55.039 --> 00:54:57.920
<v Speaker 2>forced to save a lot during the war. I mean,

767
00:54:57.960 --> 00:55:00.280
<v Speaker 2>the government is spending a lot and it's ending up

768
00:55:00.320 --> 00:55:03.840
<v Speaker 2>in consumers' pockets, but they and they saved a lot

769
00:55:03.880 --> 00:55:06.920
<v Speaker 2>because they couldn't. There weren't as many household goods to

770
00:55:07.159 --> 00:55:12.239
<v Speaker 2>produce with all the productive machinery of the economy oriented

771
00:55:12.280 --> 00:55:17.519
<v Speaker 2>towards wartime output. And so one theory says, Okay, after

772
00:55:17.559 --> 00:55:21.000
<v Speaker 2>the war, they dissaved, they took all these savings and

773
00:55:21.039 --> 00:55:24.320
<v Speaker 2>they went on shopping spree. But that actually didn't happen.

774
00:55:25.039 --> 00:55:31.079
<v Speaker 2>They they their savings rate fell after the war. They

775
00:55:31.119 --> 00:55:33.920
<v Speaker 2>weren't saving as much as a percentage of consumption, but

776
00:55:33.960 --> 00:55:37.840
<v Speaker 2>they didn't dissave after the war. And that's all the

777
00:55:37.880 --> 00:55:41.440
<v Speaker 2>more evidence that it's really the investment side of things

778
00:55:41.480 --> 00:55:45.960
<v Speaker 2>that sustaining the recovery, and it's it's what's allowing these

779
00:55:46.000 --> 00:55:49.400
<v Speaker 2>people to buy more without dissaving.

780
00:55:50.920 --> 00:55:54.719
<v Speaker 1>So anyway, if we go back to if we go

781
00:55:54.800 --> 00:55:58.440
<v Speaker 1>back to the beginning, you know, there's certain people I

782
00:55:58.480 --> 00:56:04.320
<v Speaker 1>think we know would say nothing should have been done, right,

783
00:56:04.880 --> 00:56:07.960
<v Speaker 1>you know, these things take care of themselves. Yeah, you

784
00:56:07.960 --> 00:56:11.880
<v Speaker 1>shouldn't do anything. Yes, So what's what's your view? I mean,

785
00:56:12.320 --> 00:56:15.840
<v Speaker 1>in terms of you're ninety thirty three, it is what

786
00:56:15.880 --> 00:56:16.280
<v Speaker 1>it is.

787
00:56:17.400 --> 00:56:21.920
<v Speaker 2>What I think plenty needed to be done. I don't

788
00:56:22.360 --> 00:56:27.760
<v Speaker 2>that argument makes little sense. Let's just let's just assume,

789
00:56:28.679 --> 00:56:33.679
<v Speaker 2>for the sake of argument, that are completely free market

790
00:56:33.760 --> 00:56:38.239
<v Speaker 2>economy with a proper gold standard and a good free

791
00:56:38.239 --> 00:56:42.920
<v Speaker 2>banking system of the sort I like had had been

792
00:56:42.960 --> 00:56:46.719
<v Speaker 2>in effect. You might say doing nothing should suffice. But

793
00:56:46.760 --> 00:56:48.880
<v Speaker 2>then again, in that sort of system, I think it

794
00:56:49.079 --> 00:56:51.119
<v Speaker 2>probably wouldn't have had the disaster.

795
00:56:50.800 --> 00:56:52.760
<v Speaker 1>That you yeah, you don't get it exactly.

796
00:56:53.519 --> 00:56:56.800
<v Speaker 2>Well, but so we had a disaster, Why well, we

797
00:56:56.880 --> 00:57:00.840
<v Speaker 2>have had monetary arrangements that had been done badly muddled

798
00:57:01.159 --> 00:57:05.559
<v Speaker 2>as I described early on, and those weren't going to

799
00:57:05.679 --> 00:57:09.480
<v Speaker 2>change instantly. So you know, if you're going to do nothing,

800
00:57:09.840 --> 00:57:12.280
<v Speaker 2>you have to start doing nothing, have to have a

801
00:57:12.360 --> 00:57:16.119
<v Speaker 2>good economic system in place, not while you still have

802
00:57:16.239 --> 00:57:19.320
<v Speaker 2>a lousy one in place, and certainly not while the

803
00:57:19.400 --> 00:57:24.400
<v Speaker 2>lousy one has just caused a massive collapse. That's not

804
00:57:24.639 --> 00:57:27.840
<v Speaker 2>the time to do nothing, because like it or not,

805
00:57:28.599 --> 00:57:32.440
<v Speaker 2>the same government that, as we're assuming for the sake

806
00:57:32.480 --> 00:57:37.000
<v Speaker 2>of argument, created the circumstances that allowed the economy to collapse,

807
00:57:37.320 --> 00:57:40.800
<v Speaker 2>is also the only agency in a position to try

808
00:57:40.840 --> 00:57:43.400
<v Speaker 2>to fix things, that is, to correct its own mistakes.

809
00:57:44.000 --> 00:57:47.320
<v Speaker 2>The banking system isn't one that's going to automatically recover

810
00:57:48.440 --> 00:57:52.679
<v Speaker 2>the debts that have suffered from deflation. Aren't automatically going

811
00:57:52.760 --> 00:57:56.880
<v Speaker 2>to just go away. The unemployment is not going to

812
00:57:57.119 --> 00:58:04.280
<v Speaker 2>quickly resolve itself through deflation because of rigid contracts, especially

813
00:58:04.360 --> 00:58:07.400
<v Speaker 2>debt contracts, but also because of other kinds of price

814
00:58:07.440 --> 00:58:10.960
<v Speaker 2>and flexibilities. Some of them are not part of the

815
00:58:11.000 --> 00:58:14.440
<v Speaker 2>market system, but are not going to go away. There's all.

816
00:58:14.960 --> 00:58:20.000
<v Speaker 2>The government had an absolute responsibility to take steps to

817
00:58:20.239 --> 00:58:24.119
<v Speaker 2>help end the recession, and those steps, many of them

818
00:58:24.559 --> 00:58:29.679
<v Speaker 2>that were necessary, were not going to happen otherwise. One

819
00:58:29.679 --> 00:58:33.599
<v Speaker 2>of the programs that was a good new deal program,

820
00:58:33.639 --> 00:58:37.000
<v Speaker 2>in my opinion, perhaps the best setting aside dealing with

821
00:58:37.039 --> 00:58:40.239
<v Speaker 2>the banking crisis, but this is the new deal proper

822
00:58:40.280 --> 00:58:44.119
<v Speaker 2>we're talking about, was the creation of the Home Loan

823
00:58:47.639 --> 00:58:54.840
<v Speaker 2>h Home Loan Mortgage Corporation h I always botched this

824
00:58:55.039 --> 00:59:01.840
<v Speaker 2>up and homeowners some homeowners Loan corporation. See now, what

825
00:59:01.880 --> 00:59:05.360
<v Speaker 2>this thing does is you have all these debtors with

826
00:59:05.480 --> 00:59:09.440
<v Speaker 2>mortgages and the I won't go into the structure of

827
00:59:09.440 --> 00:59:11.920
<v Speaker 2>the mortgages, but suffice to say these weren't going to

828
00:59:12.000 --> 00:59:15.880
<v Speaker 2>be easy to refinance, and they're all underwater, and the

829
00:59:15.960 --> 00:59:18.559
<v Speaker 2>lenders are in trouble because all they can get by

830
00:59:20.519 --> 00:59:23.880
<v Speaker 2>for closing is properties that's the price of which is

831
00:59:24.360 --> 00:59:27.599
<v Speaker 2>down and impossible to sell, and that's not going to

832
00:59:27.639 --> 00:59:33.519
<v Speaker 2>help them. What you ideally needed was refinancing, restructure all

833
00:59:33.559 --> 00:59:37.559
<v Speaker 2>these mortgages, pretend they'd write them the way they might

834
00:59:37.599 --> 00:59:41.239
<v Speaker 2>have been written if the depression had been anticipated. Well,

835
00:59:41.519 --> 00:59:47.320
<v Speaker 2>that's what the HLC did, very cleverly. They swapped. They

836
00:59:47.360 --> 00:59:50.679
<v Speaker 2>swapped their own the new agency swapped its own agency

837
00:59:50.719 --> 00:59:55.800
<v Speaker 2>bonds for the mortgages in terms that the mortgage lenders

838
00:59:55.880 --> 00:59:59.360
<v Speaker 2>were bound to consider better than sitting, than foreclosing or

839
00:59:59.400 --> 01:00:06.000
<v Speaker 2>holding these non performing loans. And then they refinanced the

840
01:00:06.360 --> 01:00:13.920
<v Speaker 2>mortgages on better terms, including introducing thirty year new loans

841
01:00:14.280 --> 01:00:20.880
<v Speaker 2>with its long loan terms mortisized terms, and they managed

842
01:00:20.920 --> 01:00:24.760
<v Speaker 2>to do it. They are relying on taxpayers because the

843
01:00:24.840 --> 01:00:30.800
<v Speaker 2>key to this, they're relying on implicit guarantees on loans

844
01:00:30.840 --> 01:00:33.960
<v Speaker 2>and the interests. So there's risk and taxpayers are bearing it.

845
01:00:34.360 --> 01:00:38.360
<v Speaker 2>But guess what, it's a macroeconomic crisis. It's a perfect

846
01:00:38.360 --> 01:00:41.880
<v Speaker 2>example of a public good because if this works, if

847
01:00:41.880 --> 01:00:45.239
<v Speaker 2>this works, taxpayers are going to be among the beneficiaries

848
01:00:45.960 --> 01:00:48.280
<v Speaker 2>getting out of it, helping get out of a depression.

849
01:00:48.760 --> 01:00:50.760
<v Speaker 2>And it works very well. In fact, the government didn't

850
01:00:50.760 --> 01:00:54.239
<v Speaker 2>lose any money at all it might have, but World

851
01:00:54.280 --> 01:00:59.400
<v Speaker 2>War Two raised the prices of mortgage of property, and

852
01:00:59.400 --> 01:01:02.559
<v Speaker 2>eventually the thing came out with very low cost. It

853
01:01:02.599 --> 01:01:05.280
<v Speaker 2>didn't actually profit. Some people claim it profited, but if

854
01:01:05.320 --> 01:01:08.039
<v Speaker 2>you get the accounting right, it lost a little bit

855
01:01:08.039 --> 01:01:10.320
<v Speaker 2>of money, but did a heck of a lot of good.

856
01:01:10.360 --> 01:01:12.599
<v Speaker 2>It kept a lot of people in their homes, It

857
01:01:12.760 --> 01:01:16.480
<v Speaker 2>saved a lot of the mortgage lenders, and by doing

858
01:01:16.519 --> 01:01:19.639
<v Speaker 2>these things it did help the recovery. It was one

859
01:01:19.639 --> 01:01:23.159
<v Speaker 2>of the best new deal programs in my opinion, because

860
01:01:23.159 --> 01:01:28.079
<v Speaker 2>it's essentially dealing with price rigidities that the marketplace wasn't

861
01:01:28.800 --> 01:01:31.880
<v Speaker 2>able to easily overcome. And they had a similar program

862
01:01:32.000 --> 01:01:37.079
<v Speaker 2>for farm mortgages, but the statistics don't allow us to

863
01:01:37.800 --> 01:01:43.760
<v Speaker 2>conclude that it was as successful. Moreover, it was kept

864
01:01:43.800 --> 01:01:47.360
<v Speaker 2>in place long after, in one form or another. It

865
01:01:47.400 --> 01:01:50.199
<v Speaker 2>became almost a permanent program, and then it ended up

866
01:01:50.239 --> 01:01:54.079
<v Speaker 2>wreaking havoc with aquaculture, and the whole thing went blotto

867
01:01:54.199 --> 01:01:57.519
<v Speaker 2>in the nineteen eighties, as people predicted it would. If

868
01:01:57.559 --> 01:02:00.800
<v Speaker 2>it wasn't eliminated after having done it should have done

869
01:02:00.800 --> 01:02:03.159
<v Speaker 2>in the thirties. So you don't want these things to

870
01:02:03.239 --> 01:02:04.280
<v Speaker 2>be perpetual.

871
01:02:04.719 --> 01:02:07.519
<v Speaker 1>Well, That is kind of the thirty three to thirty

872
01:02:07.519 --> 01:02:09.519
<v Speaker 1>four bank regulations, right, I mean they.

873
01:02:10.159 --> 01:02:15.039
<v Speaker 2>Well, those were meant to be permanent all along the AA,

874
01:02:15.079 --> 01:02:18.159
<v Speaker 2>you know, yeah, some programs were supposed to be temporary.

875
01:02:18.199 --> 01:02:21.639
<v Speaker 2>The AAA was supposed to be temporary. Roosevelt went back

876
01:02:21.679 --> 01:02:24.400
<v Speaker 2>on his word on it. He signed it off as

877
01:02:24.400 --> 01:02:26.559
<v Speaker 2>a temporary measure and then said, oh, we're not going

878
01:02:26.639 --> 01:02:29.000
<v Speaker 2>to We never thought this would be temporary. It was

879
01:02:29.119 --> 01:02:32.280
<v Speaker 2>very clear about it, and I think the AAA and

880
01:02:32.400 --> 01:02:36.760
<v Speaker 2>its post New Deal versions, of course, it ended up

881
01:02:36.800 --> 01:02:42.000
<v Speaker 2>being the basis for the whole drama and ordeal of

882
01:02:42.199 --> 01:02:46.000
<v Speaker 2>farm subsidies that were still not completely passed. Anyway, the

883
01:02:48.039 --> 01:02:52.639
<v Speaker 2>banking legislation was permanent, and it was sad because the

884
01:02:52.679 --> 01:02:57.480
<v Speaker 2>more astute observers of the situation understood that the reason

885
01:02:57.519 --> 01:03:01.320
<v Speaker 2>the US banking system was so we and so many

886
01:03:01.360 --> 01:03:04.199
<v Speaker 2>banks failed was the same reason why we had so

887
01:03:04.280 --> 01:03:06.400
<v Speaker 2>many in the first place, which was the lack of

888
01:03:06.480 --> 01:03:10.840
<v Speaker 2>branch banking, which the countries with strong banking systems allowed

889
01:03:10.880 --> 01:03:15.280
<v Speaker 2>their banks to branch are usually nationwide, and most countries

890
01:03:15.320 --> 01:03:18.280
<v Speaker 2>that suffered from the depression didn't have banking crises because

891
01:03:18.280 --> 01:03:22.039
<v Speaker 2>they had better banking systems. Canada, by the way, was

892
01:03:22.079 --> 01:03:24.719
<v Speaker 2>a very good example. So this was not simply a

893
01:03:24.719 --> 01:03:26.960
<v Speaker 2>matter of having a central bank that did the right thing.

894
01:03:27.320 --> 01:03:33.639
<v Speaker 2>Canada had none until thirty five. Anyway, what the banking

895
01:03:33.760 --> 01:03:37.760
<v Speaker 2>law did was to treat deposit solution as this way

896
01:03:37.760 --> 01:03:41.760
<v Speaker 2>of propping up these weak banks, because of course, if

897
01:03:41.840 --> 01:03:45.400
<v Speaker 2>you have if you were fully ensured, you don't worry

898
01:03:45.480 --> 01:03:47.840
<v Speaker 2>about your bank being weak, even if you know it

899
01:03:47.920 --> 01:03:50.440
<v Speaker 2>is right, you know these are this is the same

900
01:03:50.519 --> 01:03:55.079
<v Speaker 2>goddamn bank, that same sort of bank that collapsed a

901
01:03:55.079 --> 01:04:00.599
<v Speaker 2>few years ago. Nothing's basically changed. It's underdiversified. It can't

902
01:04:00.639 --> 01:04:04.679
<v Speaker 2>stand a shock to the farm sector in which it deals.

903
01:04:05.599 --> 01:04:09.519
<v Speaker 2>That's great, It's okay because we have insurance. The alternative,

904
01:04:09.599 --> 01:04:12.559
<v Speaker 2>of course, was still out branching, but there was a

905
01:04:12.599 --> 01:04:17.480
<v Speaker 2>glass Carter Glass wanted branching. Henry Stiegel was totally opposed

906
01:04:17.480 --> 01:04:21.119
<v Speaker 2>to it, so we ended up with this. Roosevelt didn't

907
01:04:21.239 --> 01:04:25.760
<v Speaker 2>like deposit insurance, and he fought the legislation that deposit

908
01:04:25.840 --> 01:04:29.920
<v Speaker 2>insurance component of the nineteen thirty three Act Banking Act.

909
01:04:30.079 --> 01:04:33.920
<v Speaker 2>He fought it till the eleventh hour when he finally

910
01:04:33.960 --> 01:04:38.039
<v Speaker 2>realized that the deck was stacked against him, that he

911
01:04:38.039 --> 01:04:40.440
<v Speaker 2>didn't want to veto the whole bill, and he probably

912
01:04:40.440 --> 01:04:45.599
<v Speaker 2>would have faced his veto being overturned, so he relented,

913
01:04:45.639 --> 01:04:48.719
<v Speaker 2>and of course, being a wise politician, he then took

914
01:04:48.719 --> 01:04:51.519
<v Speaker 2>credit for deposit insurance as if he'd wanted it all along,

915
01:04:51.559 --> 01:04:55.920
<v Speaker 2>But he didn't really, he never liked the idea. Truman, interestingly,

916
01:04:56.679 --> 01:04:59.840
<v Speaker 2>also hated depause insurance originally, but by the end, during

917
01:04:59.880 --> 01:05:02.480
<v Speaker 2>the banking crisis, he was saying, well, you know, maybe

918
01:05:02.480 --> 01:05:05.039
<v Speaker 2>this will be a lesser of two evils. So between

919
01:05:05.079 --> 01:05:08.280
<v Speaker 2>the two of them, it was Hoover who showed some

920
01:05:09.440 --> 01:05:14.400
<v Speaker 2>inclination to support deposit insurance. And by the way, when

921
01:05:14.440 --> 01:05:16.800
<v Speaker 2>I say this about FDR, that's not one of my

922
01:05:16.920 --> 01:05:21.599
<v Speaker 2>criticisms of him. I think that I think that his

923
01:05:21.760 --> 01:05:25.320
<v Speaker 2>criticisms of deposit insurance, which we should really call deposit

924
01:05:25.400 --> 01:05:28.840
<v Speaker 2>guarantees because it's not run like insurance, I think they

925
01:05:28.840 --> 01:05:32.480
<v Speaker 2>were perfectly sound, and they would many economists would say

926
01:05:32.480 --> 01:05:34.760
<v Speaker 2>that they were perfectly sound well.

927
01:05:34.679 --> 01:05:37.800
<v Speaker 1>And the consequences were felt in the eighties to two

928
01:05:37.840 --> 01:05:39.840
<v Speaker 1>thousand and eight and are still being felt right.

929
01:05:40.320 --> 01:05:45.119
<v Speaker 2>Eventually, Eventually, badly designed insurance systems, anyway, tend to lead

930
01:05:45.159 --> 01:05:49.320
<v Speaker 2>to trouble. We had dozens of them before the Great Depression,

931
01:05:49.320 --> 01:05:52.440
<v Speaker 2>and they all went belly up. They were state depositor,

932
01:05:52.480 --> 01:05:56.639
<v Speaker 2>they all failed, And so that was part of what

933
01:05:56.760 --> 01:06:01.639
<v Speaker 2>was informing both Trumen and Roosevelt's negative towards insurance. They'd

934
01:06:01.679 --> 01:06:05.559
<v Speaker 2>seen what it had done in various state attempts. So

935
01:06:05.639 --> 01:06:09.599
<v Speaker 2>it was perfectly reasonable for somebody who was and Roosevelt was,

936
01:06:09.800 --> 01:06:13.719
<v Speaker 2>you know, he was where he understood banking. He was

937
01:06:13.840 --> 01:06:17.280
<v Speaker 2>no economist, but banking he was familiar with, and so

938
01:06:17.559 --> 01:06:21.360
<v Speaker 2>I think his views on banking were quite sound, but

939
01:06:22.360 --> 01:06:25.880
<v Speaker 2>he accepted this as the best that could be had

940
01:06:26.400 --> 01:06:30.519
<v Speaker 2>in order to get the whole banking bill through. I

941
01:06:30.599 --> 01:06:33.880
<v Speaker 2>write about the other components of the Banking Act, including

942
01:06:33.920 --> 01:06:40.039
<v Speaker 2>this famous Glass Stiegal components writing, investment, and commercial banking,

943
01:06:40.480 --> 01:06:43.239
<v Speaker 2>but only to point out that those things did nothing

944
01:06:43.320 --> 01:06:47.199
<v Speaker 2>to help end the depression either. The pause insurance may

945
01:06:47.280 --> 01:06:51.639
<v Speaker 2>have contributed to stabilizing the banking system, it's controversial whether

946
01:06:51.679 --> 01:06:55.679
<v Speaker 2>it was really that important for that, But the other

947
01:06:55.760 --> 01:07:00.719
<v Speaker 2>components of the thirty three Banking Act did nothing, nothing

948
01:07:00.760 --> 01:07:04.920
<v Speaker 2>to help the recovery because the things they dealt with

949
01:07:05.039 --> 01:07:06.800
<v Speaker 2>weren't part of the problem at the time.

950
01:07:08.480 --> 01:07:11.840
<v Speaker 1>All right, So we've got a few questions here. Let's

951
01:07:11.920 --> 01:07:17.559
<v Speaker 1>let's go to those and see. Okay, Wes asks, what

952
01:07:17.599 --> 01:07:23.119
<v Speaker 1>are common misconceptions fallacies around banking and financing that drive

953
01:07:23.199 --> 01:07:23.920
<v Speaker 1>you crazy?

954
01:07:25.559 --> 01:07:29.880
<v Speaker 2>The policies around banking and financing financing.

955
01:07:29.719 --> 01:07:34.719
<v Speaker 1>I guess generally finance and banking did drive you crazy. Misconceptions?

956
01:07:35.079 --> 01:07:40.960
<v Speaker 2>Oh goodness, Well, the way I'm gonna I have to

957
01:07:41.000 --> 01:07:43.599
<v Speaker 2>be very selective here, because there's a long list of

958
01:07:44.920 --> 01:07:48.639
<v Speaker 2>things that drive me crazy in banking about banking in otherwise.

959
01:07:50.480 --> 01:07:54.760
<v Speaker 2>I think the biggest one, though, is the belief that

960
01:07:55.599 --> 01:07:59.119
<v Speaker 2>only a central banking system can be stable. That would

961
01:07:59.119 --> 01:08:02.519
<v Speaker 2>be not my number one. It's a belief that is,

962
01:08:04.280 --> 01:08:09.039
<v Speaker 2>if not completely uninformed by history, is informed by a

963
01:08:09.280 --> 01:08:17.640
<v Speaker 2>very limited knowledge of history, including people looking back at

964
01:08:18.439 --> 01:08:21.880
<v Speaker 2>the US history and concluding that all our troubles before

965
01:08:21.920 --> 01:08:25.920
<v Speaker 2>the FED were things that could not have been solved

966
01:08:25.960 --> 01:08:28.960
<v Speaker 2>without creating the FED. Now, apart from the fact that

967
01:08:29.000 --> 01:08:32.039
<v Speaker 2>the FED did not perform very well at all, especially

968
01:08:32.079 --> 01:08:37.560
<v Speaker 2>in its first few decades, and didn't perform any better

969
01:08:37.600 --> 01:08:41.319
<v Speaker 2>than the preceding systems really in almost any criterion you

970
01:08:41.319 --> 01:08:46.399
<v Speaker 2>could pick, the fact is that the pre FED problems

971
01:08:46.439 --> 01:08:50.039
<v Speaker 2>of the United States banking and currency system can all

972
01:08:50.079 --> 01:08:56.880
<v Speaker 2>be traced easily without a shoehorn or anything to misguided legislation.

973
01:08:57.119 --> 01:08:59.079
<v Speaker 2>Has to be remembered that we did not have a

974
01:08:59.119 --> 01:09:03.800
<v Speaker 2>free market banking system at any time in the US history. Instead,

975
01:09:03.920 --> 01:09:09.680
<v Speaker 2>we had various experiments with regulation, first at the state

976
01:09:09.760 --> 01:09:14.319
<v Speaker 2>level mainly, and then mainly or at least as much

977
01:09:14.319 --> 01:09:19.800
<v Speaker 2>on the federal level. And if you examine these regulations

978
01:09:20.079 --> 01:09:23.640
<v Speaker 2>both before the Civil War and since, you find a

979
01:09:23.680 --> 01:09:27.680
<v Speaker 2>lot of stuff that was god awful and that played

980
01:09:28.600 --> 01:09:32.960
<v Speaker 2>very important parts in all of the financial banking problems

981
01:09:33.279 --> 01:09:38.039
<v Speaker 2>currency problems. We mentioned the lack of branch banking. That

982
01:09:38.239 --> 01:09:40.760
<v Speaker 2>was the main reason why we didn't have a uniformed

983
01:09:40.800 --> 01:09:43.520
<v Speaker 2>currency before the Civil War. It wasn't because we had

984
01:09:43.560 --> 01:09:48.880
<v Speaker 2>a lot of separate, independent banks that issued banknote currency.

985
01:09:49.079 --> 01:09:52.199
<v Speaker 2>We know from other countries experience that you could have

986
01:09:52.279 --> 01:09:54.920
<v Speaker 2>that you wouldn't have thirty thousand of them, but you

987
01:09:55.039 --> 01:09:59.600
<v Speaker 2>might have dozens, and their notes would circulate at par

988
01:10:00.199 --> 01:10:02.760
<v Speaker 2>where in the nation because they had branches where they

989
01:10:02.760 --> 01:10:05.760
<v Speaker 2>could be redeemed everywhere in the nation. The US didn't

990
01:10:05.800 --> 01:10:10.199
<v Speaker 2>allow that, so we had this ridiculous system with thousands

991
01:10:10.279 --> 01:10:13.520
<v Speaker 2>of banks and notes that were worth different amounts depending

992
01:10:13.520 --> 01:10:16.279
<v Speaker 2>on where they were and all that. But I could

993
01:10:16.319 --> 01:10:18.960
<v Speaker 2>say the same you name me. I used to say

994
01:10:18.960 --> 01:10:21.760
<v Speaker 2>this to my money in banking students. That's another course

995
01:10:21.800 --> 01:10:26.880
<v Speaker 2>I talked for a long time. If you can name

996
01:10:27.000 --> 01:10:32.439
<v Speaker 2>a US banking or currency crisis and explain how it

997
01:10:32.560 --> 01:10:38.960
<v Speaker 2>happened without attaching an important role to some stupid regulation,

998
01:10:40.840 --> 01:10:42.840
<v Speaker 2>I will give you an A in this class. You

999
01:10:42.880 --> 01:10:46.119
<v Speaker 2>won't have to do any more work. No, you can't

1000
01:10:46.159 --> 01:10:51.720
<v Speaker 2>do it. No competent economic historian can do it none.

1001
01:10:51.359 --> 01:10:56.680
<v Speaker 2>So what bugs me is the inattention both to the

1002
01:10:56.720 --> 01:11:01.359
<v Speaker 2>details of US history and to experience elsewhere, which many

1003
01:11:02.600 --> 01:11:06.520
<v Speaker 2>US economists are very parochial, and that includes foreigners trained

1004
01:11:06.520 --> 01:11:09.880
<v Speaker 2>in the US and economics. They know a little tiny

1005
01:11:09.920 --> 01:11:14.279
<v Speaker 2>bit enough to be dangerous about US monetary history and

1006
01:11:14.359 --> 01:11:17.560
<v Speaker 2>nothing at all about other countries. Can't. You can't be

1007
01:11:17.600 --> 01:11:21.199
<v Speaker 2>a good monetary banking economist or historian if you don't

1008
01:11:21.279 --> 01:11:26.439
<v Speaker 2>know about the wide range of different experiences to be

1009
01:11:27.159 --> 01:11:30.560
<v Speaker 2>encountered beyond the US board. You just can't. So that

1010
01:11:30.640 --> 01:11:33.479
<v Speaker 2>drives me nuts. That's number one in my list. Do

1011
01:11:33.560 --> 01:11:34.720
<v Speaker 2>I need to come up with more?

1012
01:11:35.119 --> 01:11:40.439
<v Speaker 1>No? I think that's good. So you do this. What

1013
01:11:40.479 --> 01:11:43.079
<v Speaker 1>would be a good source one of your books or

1014
01:11:43.159 --> 01:11:46.119
<v Speaker 1>articles that cover kind of the history of free banking

1015
01:11:47.760 --> 01:11:50.960
<v Speaker 1>in other countries and the history in the United States,

1016
01:11:51.439 --> 01:11:53.760
<v Speaker 1>so that people can can dig deeper if they want to.

1017
01:11:54.479 --> 01:12:00.439
<v Speaker 2>Well. The best book on experiences around the world is

1018
01:12:00.760 --> 01:12:05.640
<v Speaker 2>a book edited by Kevin Dowd published by a new

1019
01:12:05.800 --> 01:12:10.279
<v Speaker 2>edition recently published by the Institute of Economic Affairs in London,

1020
01:12:10.920 --> 01:12:13.159
<v Speaker 2>which we would have published at CATO by the way,

1021
01:12:13.279 --> 01:12:16.119
<v Speaker 2>we had started the project, but a chapter got in

1022
01:12:16.159 --> 01:12:20.079
<v Speaker 2>there that the person in charge, meaning me, did not like,

1023
01:12:20.279 --> 01:12:22.000
<v Speaker 2>and Kevin wouldn't take it out, so we had a

1024
01:12:22.039 --> 01:12:27.479
<v Speaker 2>party of the ways anyway, that chapters and banking in Manchuria.

1025
01:12:27.640 --> 01:12:31.000
<v Speaker 2>I highly recommend the book, except for that chapter which

1026
01:12:31.720 --> 01:12:34.560
<v Speaker 2>GE's what free banking is all wrong? And it's called

1027
01:12:34.560 --> 01:12:38.840
<v Speaker 2>the Experience of free banking, so that's a very good

1028
01:12:38.840 --> 01:12:42.039
<v Speaker 2>place to start. It goes through a lot of episodes

1029
01:12:42.079 --> 01:12:44.640
<v Speaker 2>of relatively free. Of course, none of these systems are

1030
01:12:44.680 --> 01:12:50.800
<v Speaker 2>perfectly free of regulation, but relatively free banking systems and

1031
01:12:50.199 --> 01:12:53.119
<v Speaker 2>how they performed, and I think it includes a chapter

1032
01:12:53.279 --> 01:12:56.000
<v Speaker 2>did originally include a chapter in the United States. It

1033
01:12:56.039 --> 01:12:58.520
<v Speaker 2>talks about all the ways in which we did not

1034
01:12:58.680 --> 01:13:01.000
<v Speaker 2>have free banking, even though we had laws that were

1035
01:13:01.000 --> 01:13:04.760
<v Speaker 2>called free banking lists that would be probably the most important.

1036
01:13:05.000 --> 01:13:07.640
<v Speaker 2>On the Scottish system, of course, I'm bound to recommend

1037
01:13:07.920 --> 01:13:11.000
<v Speaker 2>that's the most one of the most well studied, Lawrence

1038
01:13:11.039 --> 01:13:14.399
<v Speaker 2>White's class now classic study of free banking in Britain.

1039
01:13:14.439 --> 01:13:18.079
<v Speaker 2>That's all on the Scottish system. Otherwise, on the United States,

1040
01:13:18.119 --> 01:13:21.039
<v Speaker 2>I would recommend the book of essays I put together

1041
01:13:21.680 --> 01:13:26.640
<v Speaker 2>called Money Free and Unfree, published with the Cato Institute,

1042
01:13:26.920 --> 01:13:30.880
<v Speaker 2>and that has a lot of chapters on various aspects

1043
01:13:30.920 --> 01:13:34.760
<v Speaker 2>of US banking and currency history. So those three I

1044
01:13:34.840 --> 01:13:36.359
<v Speaker 2>think would cover things very well.

1045
01:13:36.760 --> 01:13:40.960
<v Speaker 1>Great, all right, Limo asks, can you explain how bond

1046
01:13:41.039 --> 01:13:45.159
<v Speaker 1>collateral banking wooked and how it contributed to the Great Depression?

1047
01:13:47.159 --> 01:13:53.000
<v Speaker 2>Well, okay, bond collateral banking, this is I think we

1048
01:13:53.119 --> 01:13:57.319
<v Speaker 2>mainly want to talk about. Bond collateral banking goes back

1049
01:13:57.359 --> 01:13:59.920
<v Speaker 2>before the Civil War. In fact, all those free bank

1050
01:14:00.239 --> 01:14:04.000
<v Speaker 2>laws that people confused with truly free banking. About a

1051
01:14:04.039 --> 01:14:08.279
<v Speaker 2>dozen states had these laws. All their banks were required

1052
01:14:08.680 --> 01:14:14.159
<v Speaker 2>to back their banknotes, their circulating currency, with specific securities,

1053
01:14:14.399 --> 01:14:20.640
<v Speaker 2>which included typically state government bonds. Naturally, because the states

1054
01:14:20.760 --> 01:14:24.439
<v Speaker 2>wanted to sell their securities, but sometimes included other sorts

1055
01:14:24.439 --> 01:14:28.720
<v Speaker 2>of bonds, and those caused trouble in those free banking

1056
01:14:28.840 --> 01:14:31.359
<v Speaker 2>so called free banking systems, but let's not go into that.

1057
01:14:31.880 --> 01:14:38.159
<v Speaker 2>During the Civil War, the Union government did two things.

1058
01:14:38.720 --> 01:14:42.640
<v Speaker 2>They created a new system of national banks, and they

1059
01:14:42.680 --> 01:14:46.840
<v Speaker 2>eventually taxed state banks out of the currency business. So

1060
01:14:46.880 --> 01:14:51.119
<v Speaker 2>the only banknote currency from then on until the FED

1061
01:14:52.920 --> 01:14:56.479
<v Speaker 2>was notes of national banks, and they all had to

1062
01:14:56.520 --> 01:15:01.479
<v Speaker 2>be secured by United States government bonds. Once again, by

1063
01:15:01.520 --> 01:15:04.159
<v Speaker 2>the way, that that big part of the motivation is

1064
01:15:04.239 --> 01:15:08.439
<v Speaker 2>not making the bank safe, it's financing the government the

1065
01:15:08.520 --> 01:15:13.720
<v Speaker 2>Union war effort. So keep that in mind. Now, what

1066
01:15:13.960 --> 01:15:18.600
<v Speaker 2>happened in that system was kind of very different from

1067
01:15:18.600 --> 01:15:21.159
<v Speaker 2>what happened in the state systems because in the state

1068
01:15:21.199 --> 01:15:24.079
<v Speaker 2>systems a lot of the securities that banks were required

1069
01:15:24.079 --> 01:15:26.239
<v Speaker 2>to hold turned into junk, and it was the main

1070
01:15:26.319 --> 01:15:30.319
<v Speaker 2>cause of free pre bank set failures. In the case

1071
01:15:30.359 --> 01:15:34.279
<v Speaker 2>of the national bank currency, something opposite. But just as

1072
01:15:34.319 --> 01:15:38.239
<v Speaker 2>that happened, which is this, so the currency supply is

1073
01:15:38.520 --> 01:15:42.760
<v Speaker 2>tied to the availability of certain US government securities that

1074
01:15:42.960 --> 01:15:46.319
<v Speaker 2>have to back the notes. The banks have to buy

1075
01:15:46.359 --> 01:15:48.600
<v Speaker 2>these securities. In fact, they have to have more than

1076
01:15:48.640 --> 01:15:53.600
<v Speaker 2>one hundred percent face value of securities to cover their

1077
01:15:53.640 --> 01:15:59.640
<v Speaker 2>note issues. What happens is, after the war ends for decades,

1078
01:16:00.000 --> 01:16:04.840
<v Speaker 2>government's running surpluses, so the availability of these securities is shrinking.

1079
01:16:05.560 --> 01:16:08.560
<v Speaker 2>On the other hand, the economy is growing and it

1080
01:16:08.640 --> 01:16:16.279
<v Speaker 2>needs more currency, not less.

1081
01:16:12.720 --> 01:16:12.800
<v Speaker 3>And.

1082
01:16:14.800 --> 01:16:18.720
<v Speaker 2>So you have essentially the conditions for a sort of

1083
01:16:19.319 --> 01:16:24.520
<v Speaker 2>supply demand train wreck where demand's growing, supply is secularly shrinking.

1084
01:16:25.640 --> 01:16:27.640
<v Speaker 2>By eighteen just to give you an idea of the

1085
01:16:27.680 --> 01:16:33.960
<v Speaker 2>secular story, by eighteen ninety, the supply of national banknote

1086
01:16:34.000 --> 01:16:37.520
<v Speaker 2>currency is half what it was in eighteen eighty in

1087
01:16:37.560 --> 01:16:43.680
<v Speaker 2>a growing economy. Okay, Now, economies are very capable of

1088
01:16:43.720 --> 01:16:46.119
<v Speaker 2>adapting to a lot of things. They can handle a lot,

1089
01:16:46.239 --> 01:16:49.840
<v Speaker 2>and so there was some long run secular adaptation. What

1090
01:16:50.039 --> 01:16:53.039
<v Speaker 2>there wasn't was a capacity of the system to deal

1091
01:16:53.119 --> 01:16:56.680
<v Speaker 2>with short run spikes in demand, particularly those that happened

1092
01:16:56.680 --> 01:16:59.520
<v Speaker 2>in the harvest season when there'd be a big peak

1093
01:16:59.560 --> 01:17:02.479
<v Speaker 2>demand for currency to pay migrant workers and of course

1094
01:17:02.520 --> 01:17:06.960
<v Speaker 2>don't have bank accounts. And since it was given the

1095
01:17:07.039 --> 01:17:11.199
<v Speaker 2>high price of the rare securities, increasingly rare securities banks

1096
01:17:11.199 --> 01:17:14.920
<v Speaker 2>had to have to secure notes, and the fact that

1097
01:17:14.520 --> 01:17:19.760
<v Speaker 2>that made it absolutely prohibitively costly for banks to acquire

1098
01:17:19.840 --> 01:17:25.960
<v Speaker 2>the necessarity necessary collateral to meet temporary peaks in demand

1099
01:17:26.000 --> 01:17:29.439
<v Speaker 2>for currency, like the harvest time peak. So every time

1100
01:17:29.520 --> 01:17:34.680
<v Speaker 2>the harvest would occur, and with increasing severity over time,

1101
01:17:35.640 --> 01:17:40.840
<v Speaker 2>you tended to have spikes and interest rates. Why because

1102
01:17:41.359 --> 01:17:43.439
<v Speaker 2>when the farmer comes to his bank and says, I

1103
01:17:43.479 --> 01:17:45.760
<v Speaker 2>need currency to pay my workers, and the bank says

1104
01:17:45.880 --> 01:17:50.359
<v Speaker 2>we can't issue any more of our own IOUs, he says, okay,

1105
01:17:50.479 --> 01:17:52.600
<v Speaker 2>I'll have some legal fender. I'll take some of your

1106
01:17:52.640 --> 01:17:55.760
<v Speaker 2>reserves up, which he's entitled to do, and that leads

1107
01:17:55.840 --> 01:18:00.159
<v Speaker 2>to a contraction of credit. So credit titans, interest rates

1108
01:18:00.199 --> 01:18:03.560
<v Speaker 2>go up. Now, in the good years, that's all that happens.

1109
01:18:03.680 --> 01:18:07.840
<v Speaker 2>Interest rates seasonally spike, But in some occasions you had

1110
01:18:07.920 --> 01:18:13.039
<v Speaker 2>severe currency panics and shortages eighteen eighty four, eighteen ninety three,

1111
01:18:13.600 --> 01:18:15.720
<v Speaker 2>the worst of all in nineteen oh seven. In each

1112
01:18:15.760 --> 01:18:19.600
<v Speaker 2>case there were other aggrevating factors. But behind resting behind

1113
01:18:19.640 --> 01:18:24.039
<v Speaker 2>it all is this inelastic supply of currency that is

1114
01:18:24.800 --> 01:18:29.880
<v Speaker 2>a consequence of the bond deposit requirement combined with the

1115
01:18:29.920 --> 01:18:36.399
<v Speaker 2>increasing scaragecity of eligible securities. So now that explains crises

1116
01:18:36.479 --> 01:18:39.399
<v Speaker 2>leading up to the FED which was established for the

1117
01:18:39.479 --> 01:18:44.279
<v Speaker 2>purpose of supplying an elastic currency. There's no magic behind

1118
01:18:44.319 --> 01:18:48.680
<v Speaker 2>this reform. Basically, the newly established twelve Federal Reserve banks

1119
01:18:48.880 --> 01:18:52.840
<v Speaker 2>were exempt from the bond collateral requirement, and so the

1120
01:18:52.920 --> 01:18:55.199
<v Speaker 2>other banks could come up to the FED with their

1121
01:18:55.239 --> 01:19:00.560
<v Speaker 2>other assets commercial paper mainly which were not eligible backing

1122
01:19:00.600 --> 01:19:03.680
<v Speaker 2>for notes, and they could say, please, sir, here are

1123
01:19:03.720 --> 01:19:07.039
<v Speaker 2>my here's my commercial paper which you discounted for me,

1124
01:19:07.119 --> 01:19:09.439
<v Speaker 2>and give me some Federal Reserve notes so I don't

1125
01:19:09.479 --> 01:19:11.520
<v Speaker 2>have to dip into my recitt That's how the FED worked.

1126
01:19:12.359 --> 01:19:16.319
<v Speaker 2>It's rather like the scene people are now too young

1127
01:19:16.359 --> 01:19:20.399
<v Speaker 2>to remember the movie Misery with Kathy Bates and James

1128
01:19:20.479 --> 01:19:25.319
<v Speaker 2>kan He's a writer, famous writer gets in a car

1129
01:19:25.359 --> 01:19:29.079
<v Speaker 2>crash and she happens to rescue him, and she's a

1130
01:19:29.079 --> 01:19:32.199
<v Speaker 2>big fan. She's obsessed with him. Well, he starts and

1131
01:19:32.239 --> 01:19:35.159
<v Speaker 2>she loves taking care of him as he's recuperating. But

1132
01:19:35.199 --> 01:19:37.319
<v Speaker 2>at one point he looks like he's ready to get out,

1133
01:19:37.359 --> 01:19:40.039
<v Speaker 2>so she smashes his legs with a sledgehammer to keep

1134
01:19:40.079 --> 01:19:42.760
<v Speaker 2>him around a little more so she can cure him longer.

1135
01:19:43.239 --> 01:19:45.880
<v Speaker 2>And that's sort of what the federal government did with banking.

1136
01:19:45.920 --> 01:19:48.479
<v Speaker 2>They smashed the legs and the national banks, and then

1137
01:19:48.720 --> 01:19:51.000
<v Speaker 2>Kathy Bates and the form of the Fed comes along,

1138
01:19:51.039 --> 01:19:57.000
<v Speaker 2>and you know it saves saved. Yeah. Anyway, but you

1139
01:19:57.079 --> 01:20:02.680
<v Speaker 2>asked about the Great Depression, and at that point the

1140
01:20:02.680 --> 01:20:07.239
<v Speaker 2>Federal Reserve is starting to take over currency supply. So

1141
01:20:07.680 --> 01:20:12.520
<v Speaker 2>although it's technically true that the national banks might have

1142
01:20:13.079 --> 01:20:16.199
<v Speaker 2>done more to avert the depression had they been able

1143
01:20:16.239 --> 01:20:19.920
<v Speaker 2>to issue more of their notes, the fact is that

1144
01:20:20.840 --> 01:20:23.680
<v Speaker 2>by the time of the Great Depression, their note issuing

1145
01:20:23.720 --> 01:20:28.319
<v Speaker 2>ability is very, very limited, and the government has come

1146
01:20:28.359 --> 01:20:33.600
<v Speaker 2>to rely almost exclusively, not quite on the Federal Reserve

1147
01:20:33.680 --> 01:20:37.560
<v Speaker 2>to supply all currency, not just emergency correct. It's taking

1148
01:20:37.600 --> 01:20:40.880
<v Speaker 2>over as the sole supply. By nineteen thirty five, the

1149
01:20:40.960 --> 01:20:45.000
<v Speaker 2>last national banknotes are issued. But here's an interesting footnote.

1150
01:20:45.399 --> 01:20:48.680
<v Speaker 2>At some point during the depression, before thirty five, a

1151
01:20:48.760 --> 01:20:52.399
<v Speaker 2>law was passed that relaxed the bound requirement. So they

1152
01:20:52.439 --> 01:20:56.000
<v Speaker 2>really did relax and guess what it helped. There was

1153
01:20:56.039 --> 01:21:00.800
<v Speaker 2>a substantial increase in the supply of national bank notes

1154
01:21:01.239 --> 01:21:04.920
<v Speaker 2>on collateral that wasn't the usual bonds, but unfortunately it

1155
01:21:04.960 --> 01:21:08.119
<v Speaker 2>was too little to make any big difference. I've always

1156
01:21:08.119 --> 01:21:10.600
<v Speaker 2>wanted to write a paper about this episode, because in

1157
01:21:10.640 --> 01:21:12.840
<v Speaker 2>my opinion, if it's said, if they had said to

1158
01:21:12.880 --> 01:21:15.239
<v Speaker 2>the national banks or to the state banks, it still

1159
01:21:15.279 --> 01:21:18.239
<v Speaker 2>existed for that matter, because said you can issue all

1160
01:21:18.279 --> 01:21:22.960
<v Speaker 2>your banknotes that you want. It would have alleviated the

1161
01:21:23.039 --> 01:21:26.319
<v Speaker 2>crisis of the early nineteen thirties. It would have helped.

1162
01:21:26.840 --> 01:21:29.680
<v Speaker 2>But that the Fed said, no, you leave it to us,

1163
01:21:30.079 --> 01:21:33.439
<v Speaker 2>We'll supply all the good bet are reserved notes that

1164
01:21:33.760 --> 01:21:37.800
<v Speaker 2>are needed, which, of course, as Milton, Friedman and Schwartz

1165
01:21:37.800 --> 01:21:42.399
<v Speaker 2>have demonstrated at great length, it did not do. It

1166
01:21:42.439 --> 01:21:45.479
<v Speaker 2>did not do its job as meeting the needs of

1167
01:21:45.520 --> 01:21:48.920
<v Speaker 2>the early nineteen thirties avoiding a monetary collapse.

1168
01:21:50.199 --> 01:21:53.359
<v Speaker 1>So have a few more questions here from listeners. I

1169
01:21:54.000 --> 01:21:58.159
<v Speaker 1>but that you know sparked in me a question of

1170
01:21:59.199 --> 01:22:01.439
<v Speaker 1>you know this idea of the notes being backed by

1171
01:22:01.840 --> 01:22:05.479
<v Speaker 1>GUP and bonds. What are your thoughts on this new

1172
01:22:05.560 --> 01:22:07.039
<v Speaker 1>legislation around stable coins.

1173
01:22:08.279 --> 01:22:12.279
<v Speaker 2>Well, here here I'm going to appear to contradict myself.

1174
01:22:13.359 --> 01:22:16.800
<v Speaker 2>I wrote a paper a few years ago while at

1175
01:22:16.840 --> 01:22:24.279
<v Speaker 2>CATO called what's it called anyway, a narrow Path to

1176
01:22:25.239 --> 01:22:29.319
<v Speaker 2>Efficient stable Coins or something like that, where I argued

1177
01:22:29.359 --> 01:22:34.920
<v Speaker 2>that rather than suppress stable coins altogether, the government should

1178
01:22:36.439 --> 01:22:40.640
<v Speaker 2>embrace them, specifically by allowing stable coin issuers to take

1179
01:22:40.720 --> 01:22:45.760
<v Speaker 2>part in the Federal Reserves clearing and settlement system, to

1180
01:22:45.920 --> 01:22:51.039
<v Speaker 2>have master accounts and treat stable coins like so many

1181
01:22:51.800 --> 01:22:55.720
<v Speaker 2>banknotes of your But since I knew they were never

1182
01:22:55.800 --> 01:22:58.560
<v Speaker 2>going to just allow them to do that without regulating

1183
01:22:58.560 --> 01:23:00.920
<v Speaker 2>them otherwise, they said, well, let's say, least, you know,

1184
01:23:01.079 --> 01:23:03.000
<v Speaker 2>allow them to do it as long as they hold

1185
01:23:03.039 --> 01:23:06.960
<v Speaker 2>one hundred percent reserves at the FED one hundred percent.

1186
01:23:07.000 --> 01:23:10.239
<v Speaker 2>So I said, let's have narrow banking for stable coins. Yep,

1187
01:23:11.039 --> 01:23:16.920
<v Speaker 2>a compromise. Now this isn't bound deposit, right, this is

1188
01:23:16.920 --> 01:23:22.079
<v Speaker 2>one hundred percent reserves. It's not the same thing. But

1189
01:23:22.199 --> 01:23:24.880
<v Speaker 2>it does of course mean that you can't issue stable

1190
01:23:24.920 --> 01:23:29.680
<v Speaker 2>coins for which you don't have full reserves. The because

1191
01:23:29.720 --> 01:23:32.399
<v Speaker 2>one of the big problems with stable coins as they've

1192
01:23:32.479 --> 01:23:36.359
<v Speaker 2>existed is that, in fact, many of them claim to

1193
01:23:36.439 --> 01:23:39.920
<v Speaker 2>have one hundred percent reserves, but they don't. They don't

1194
01:23:40.319 --> 01:23:43.880
<v Speaker 2>they have other stuff, They have cash equivalents, And it

1195
01:23:43.960 --> 01:23:46.560
<v Speaker 2>turns out the closer you look at these things, the

1196
01:23:46.640 --> 01:23:51.399
<v Speaker 2>less they look equivalent to cash. And so and you've had,

1197
01:23:51.399 --> 01:23:55.680
<v Speaker 2>of course, a few disasters where people had reason to

1198
01:23:55.680 --> 01:23:58.920
<v Speaker 2>suspect that their banks were fully liquid and found out

1199
01:23:58.960 --> 01:24:01.640
<v Speaker 2>the hard way their stable coins were fully liquid, found

1200
01:24:01.680 --> 01:24:05.119
<v Speaker 2>out the hard way that they went. So in my opinion,

1201
01:24:05.159 --> 01:24:11.560
<v Speaker 2>it was a reasonable compromise to preclude any more drastic

1202
01:24:12.000 --> 01:24:15.560
<v Speaker 2>opposition to stable coins at least give them at least

1203
01:24:15.600 --> 01:24:21.239
<v Speaker 2>give them the opportunity to exist and take part in

1204
01:24:21.279 --> 01:24:24.960
<v Speaker 2>the Federal Reserve system if they have one reserves, which

1205
01:24:25.319 --> 01:24:28.359
<v Speaker 2>and the other thing about that arrangement is unlike the

1206
01:24:28.439 --> 01:24:32.680
<v Speaker 2>case with actual stable coins, monitoring is a cinch. The

1207
01:24:32.680 --> 01:24:37.880
<v Speaker 2>Federal Reserve always knows if you're holding what your reserves

1208
01:24:37.479 --> 01:24:43.760
<v Speaker 2>its participants have because it's the reserves are in an

1209
01:24:43.800 --> 01:24:46.720
<v Speaker 2>account at the Fed. So they don't know. Nobody knows.

1210
01:24:47.159 --> 01:24:49.840
<v Speaker 2>So that was my suggestion. So it's not I'm not

1211
01:24:49.960 --> 01:24:56.800
<v Speaker 2>advocating bond deposit requirements, which are a different kettle of fish.

1212
01:24:57.000 --> 01:25:01.439
<v Speaker 2>And by the way, bond values suctuate, so they're not

1213
01:25:01.600 --> 01:25:05.359
<v Speaker 2>the same. If you're holding a long maturity bond with

1214
01:25:05.399 --> 01:25:09.399
<v Speaker 2>a coupon of x percent in rates go up, that

1215
01:25:09.479 --> 01:25:14.399
<v Speaker 2>bond is going to depreciate. The bank discovered that, right, yes,

1216
01:25:14.439 --> 01:25:17.520
<v Speaker 2>and the Federal Reserve has discovered it. It's taken the

1217
01:25:17.640 --> 01:25:21.359
<v Speaker 2>men's losses, but of course, not being your average bank,

1218
01:25:21.760 --> 01:25:25.359
<v Speaker 2>it doesn't have to worry about it. But bonds are

1219
01:25:25.399 --> 01:25:30.760
<v Speaker 2>not the same as reserves as actual cash reserves. Anyway,

1220
01:25:30.840 --> 01:25:34.640
<v Speaker 2>what I think about the legislation is that I think

1221
01:25:34.680 --> 01:25:38.119
<v Speaker 2>of it in the same spirit. Is my suggestion. If

1222
01:25:38.159 --> 01:25:44.319
<v Speaker 2>it's either that or have stable coins suppressed entirely or

1223
01:25:44.359 --> 01:25:48.560
<v Speaker 2>regulated out of existence, I would prefer this legislation. And

1224
01:25:49.359 --> 01:25:52.760
<v Speaker 2>the reason is because the reason is that I think

1225
01:25:52.800 --> 01:25:57.600
<v Speaker 2>stable coins have the potential to be beneficial, and we

1226
01:25:57.640 --> 01:26:01.239
<v Speaker 2>should give them a chance. Rule out the worst possible

1227
01:26:03.039 --> 01:26:08.399
<v Speaker 2>disasters and fraud and all that, but don't rule them

1228
01:26:08.439 --> 01:26:12.600
<v Speaker 2>out altogether, because we really haven't seen them achieve what

1229
01:26:12.680 --> 01:26:14.680
<v Speaker 2>they might achieve. Let's give them a chance.

1230
01:26:18.560 --> 01:26:20.479
<v Speaker 1>If you have a few more minutes, We've got a

1231
01:26:20.479 --> 01:26:24.000
<v Speaker 1>few more questions that. Okay, sure, go ahead, Sure molten

1232
01:26:24.079 --> 01:26:27.159
<v Speaker 1>has Why did the Great Depression last as long as

1233
01:26:27.159 --> 01:26:30.079
<v Speaker 1>it did. What would have been the best and most

1234
01:26:30.079 --> 01:26:33.560
<v Speaker 1>effective response to offset the depression and effect your recovery

1235
01:26:33.960 --> 01:26:35.079
<v Speaker 1>and effectuate recovery?

1236
01:26:35.399 --> 01:26:38.640
<v Speaker 2>Yeah, well, I talked about some of that. Let me

1237
01:26:38.760 --> 01:26:45.960
<v Speaker 2>just remind our questioner that the length of the depression

1238
01:26:46.119 --> 01:26:49.159
<v Speaker 2>varied a lot from country to country, and as I

1239
01:26:49.239 --> 01:26:52.880
<v Speaker 2>mentioned earlier there were two countries that were the biggest laggards,

1240
01:26:52.960 --> 01:26:55.199
<v Speaker 2>and one of them was the United States and the

1241
01:26:55.239 --> 01:27:00.600
<v Speaker 2>other one was Friends And the reason they were laggarts

1242
01:27:00.680 --> 01:27:07.319
<v Speaker 2>was because, to a large extent, because they pursued poor

1243
01:27:08.279 --> 01:27:10.840
<v Speaker 2>solutions to recovery. That should be said that in the

1244
01:27:10.920 --> 01:27:13.680
<v Speaker 2>United States case, we also had a deeper depression because

1245
01:27:13.720 --> 01:27:16.520
<v Speaker 2>of our banking crisis. That might have made our recovery

1246
01:27:16.600 --> 01:27:19.439
<v Speaker 2>take longer anyway, but it didn't have to take as

1247
01:27:19.479 --> 01:27:25.319
<v Speaker 2>long as it actually did. And now, ending a depression

1248
01:27:25.399 --> 01:27:28.880
<v Speaker 2>takes time. If it's deep, it's going to take longer.

1249
01:27:29.439 --> 01:27:32.920
<v Speaker 2>There's no way around that. But as far as what

1250
01:27:33.039 --> 01:27:35.640
<v Speaker 2>I consider the best remedies, I've already said that I

1251
01:27:35.680 --> 01:27:40.000
<v Speaker 2>don't think doing nothing is acceptable or workable. I think

1252
01:27:40.039 --> 01:27:43.600
<v Speaker 2>you have to get spending up. You have to get

1253
01:27:43.640 --> 01:27:48.800
<v Speaker 2>depressions involved, at least approximately a collapse in spending. People

1254
01:27:48.880 --> 01:27:53.920
<v Speaker 2>spend less, firms, earn less, firms, higher less, and so on.

1255
01:27:54.720 --> 01:27:57.600
<v Speaker 2>You've got to get spending back up because getting prices

1256
01:27:57.640 --> 01:28:01.800
<v Speaker 2>to all adjust down without being able somehow to magically

1257
01:28:01.840 --> 01:28:08.520
<v Speaker 2>rewrite long term contracts painlessly is not practical. And to

1258
01:28:08.600 --> 01:28:14.840
<v Speaker 2>get spending up there are various possibilities. The most desirable

1259
01:28:15.000 --> 01:28:20.479
<v Speaker 2>is monetary expansion because it involves less interference with the

1260
01:28:20.640 --> 01:28:24.880
<v Speaker 2>forms that spending takes. What gets what money gets spent on,

1261
01:28:25.199 --> 01:28:30.159
<v Speaker 2>There's less opportunity for waste. That's not to say that

1262
01:28:30.199 --> 01:28:34.039
<v Speaker 2>there should be no role for fiscal policy, which is

1263
01:28:34.079 --> 01:28:40.319
<v Speaker 2>government increasing its spending on fiscal policy. I see a

1264
01:28:40.319 --> 01:28:42.760
<v Speaker 2>lot of merit in what was a very old fashioned

1265
01:28:42.960 --> 01:28:46.800
<v Speaker 2>approach to countercyclical fiscal policy was the one Hoover favored

1266
01:28:46.840 --> 01:28:49.439
<v Speaker 2>in many econdoms favors. It's you save up for a

1267
01:28:49.520 --> 01:28:53.680
<v Speaker 2>rainy day. You don't save up. You may run surpluses.

1268
01:28:53.720 --> 01:28:57.840
<v Speaker 2>But saving up here means keep some government public works

1269
01:28:57.840 --> 01:29:01.079
<v Speaker 2>and other projects that it has to undertake anyway, keep

1270
01:29:01.079 --> 01:29:03.800
<v Speaker 2>them aside, and then really do them all when you

1271
01:29:03.880 --> 01:29:07.439
<v Speaker 2>get a downturn in the economy. And I think that's

1272
01:29:07.479 --> 01:29:11.960
<v Speaker 2>a perfectly reasonable thing for governments to do. Is a

1273
01:29:12.079 --> 01:29:17.600
<v Speaker 2>fiscal answer. I'm also a believer in relief spending. If

1274
01:29:17.640 --> 01:29:21.640
<v Speaker 2>people can't get jobs any other way, give them other jobs, certainly,

1275
01:29:21.640 --> 01:29:25.159
<v Speaker 2>give them a check, don't let them starve, And that

1276
01:29:25.560 --> 01:29:30.039
<v Speaker 2>itself is a source of demand. But most of all,

1277
01:29:30.079 --> 01:29:34.920
<v Speaker 2>I think the most effective, potentially and most desirable solution

1278
01:29:35.199 --> 01:29:39.199
<v Speaker 2>is monetary stimulus. It's not always easy. If interest rates

1279
01:29:39.239 --> 01:29:43.800
<v Speaker 2>hit zero, it can be very hard to use monetary stimulus.

1280
01:29:45.000 --> 01:29:48.159
<v Speaker 2>But there are also ways to try to avoid having

1281
01:29:48.199 --> 01:29:51.880
<v Speaker 2>an economy reach the zero lower round so that you

1282
01:29:51.920 --> 01:29:55.560
<v Speaker 2>don't have to deal with that contingency. Anything that gets

1283
01:29:55.640 --> 01:29:58.359
<v Speaker 2>real interest rates up high and makes the economy more

1284
01:29:58.399 --> 01:30:05.119
<v Speaker 2>productive reduces the odds of that happening for starters. So obviously,

1285
01:30:05.399 --> 01:30:08.800
<v Speaker 2>from my talk with Yarn, there are many things I

1286
01:30:08.840 --> 01:30:11.640
<v Speaker 2>think you have to avoid to not make a depression worse,

1287
01:30:12.479 --> 01:30:17.039
<v Speaker 2>and that includes interfering with price adjustment to the extent

1288
01:30:17.119 --> 01:30:19.439
<v Speaker 2>that prices are trying to struggle their way to a

1289
01:30:19.479 --> 01:30:24.880
<v Speaker 2>new equilibrium levels that don't interfere with that. Certainly, don't

1290
01:30:24.960 --> 01:30:29.880
<v Speaker 2>try to force firms to pay higher wage rates or

1291
01:30:30.079 --> 01:30:36.560
<v Speaker 2>raise their product prices. Let them be induced to do

1292
01:30:36.680 --> 01:30:40.560
<v Speaker 2>those things by the fact that their revenues are being

1293
01:30:41.640 --> 01:30:46.359
<v Speaker 2>increased through other kinds of policies. So these are some

1294
01:30:46.439 --> 01:30:50.600
<v Speaker 2>of the steps. In the nineteen thirties, of course, it

1295
01:30:50.720 --> 01:30:53.560
<v Speaker 2>was very important to let that goal come into the

1296
01:30:53.600 --> 01:30:57.000
<v Speaker 2>country and make sure it does as much to stimulate

1297
01:30:57.119 --> 01:31:03.560
<v Speaker 2>bank credit, lending and spending as possible. Instead of worrying

1298
01:31:03.720 --> 01:31:08.279
<v Speaker 2>that it's going to cause an artificial boom. Kanes Knes

1299
01:31:08.359 --> 01:31:10.479
<v Speaker 2>is said to have equipped I can never find I

1300
01:31:10.479 --> 01:31:14.359
<v Speaker 2>can't find a primary source for this that when the

1301
01:31:14.399 --> 01:31:20.079
<v Speaker 2>authorities put the brakes on gold stimulus, he said, they

1302
01:31:20.199 --> 01:31:23.920
<v Speaker 2>profess to fear that for which they dare not hope,

1303
01:31:24.560 --> 01:31:29.680
<v Speaker 2>meaning rising price it and and the boom boom.

1304
01:31:29.840 --> 01:31:31.840
<v Speaker 1>Right, quite articulate.

1305
01:31:32.479 --> 01:31:37.720
<v Speaker 3>Yeah, a boom is what you want to have, a boodresion.

1306
01:31:38.439 --> 01:31:41.079
<v Speaker 3>You know, maybe you don't want it to go too far,

1307
01:31:41.279 --> 01:31:43.640
<v Speaker 3>but you sort of want it to want to have

1308
01:31:43.720 --> 01:31:47.359
<v Speaker 3>it something boom.

1309
01:31:47.399 --> 01:31:50.279
<v Speaker 2>So so there are a lot of both negative lessons

1310
01:31:50.319 --> 01:31:53.119
<v Speaker 2>and positive lessons to be learned from the nineteen thirties.

1311
01:31:53.439 --> 01:31:55.359
<v Speaker 2>If I had to say, though, one of one of

1312
01:31:55.359 --> 01:31:59.159
<v Speaker 2>the biggest lessons for that people should remember is this.

1313
01:32:00.000 --> 01:32:02.840
<v Speaker 2>Every time we have another depression or recession, people say, oh,

1314
01:32:02.960 --> 01:32:05.000
<v Speaker 2>let's look at the new Deal. They solved it. Let's

1315
01:32:05.000 --> 01:32:09.319
<v Speaker 2>do what they'd do. No, the biggest lesson we can

1316
01:32:09.399 --> 01:32:13.920
<v Speaker 2>have from the New Deal is that we know more

1317
01:32:13.960 --> 01:32:17.560
<v Speaker 2>than they did about fighting recessions. We're still not very

1318
01:32:17.560 --> 01:32:21.079
<v Speaker 2>good at it, but know about fiscal stimulus. They didn't

1319
01:32:21.119 --> 01:32:23.600
<v Speaker 2>know about monetary stimulus. They knew all kinds of things

1320
01:32:23.600 --> 01:32:27.079
<v Speaker 2>that were wrong. And so that is generally speaking, with

1321
01:32:27.119 --> 01:32:30.640
<v Speaker 2>some few exceptions, there is very little that the New

1322
01:32:30.640 --> 01:32:34.319
<v Speaker 2>Dealers have to teach us about fighting depressions. So if

1323
01:32:34.319 --> 01:32:39.239
<v Speaker 2>we need innovative steps, let's not look there. That's not

1324
01:32:39.600 --> 01:32:43.760
<v Speaker 2>Maybe we do need new innovative ideas for fighting depressions.

1325
01:32:43.920 --> 01:32:46.239
<v Speaker 2>I'm sure we could use some, but that is not

1326
01:32:46.359 --> 01:32:48.520
<v Speaker 2>where you're going to get them. That's the place to

1327
01:32:48.520 --> 01:32:52.840
<v Speaker 2>look for innovative ideas that didn't work, and for the

1328
01:32:52.960 --> 01:32:57.680
<v Speaker 2>failure to use things that arguably do help.

1329
01:32:59.359 --> 01:33:02.720
<v Speaker 1>Hey, let's take that for what is your essentialized evaluation

1330
01:33:02.840 --> 01:33:06.079
<v Speaker 1>of panics depressions in the ninteenth century? What are the

1331
01:33:06.079 --> 01:33:08.600
<v Speaker 1>most important things to know about them?

1332
01:33:09.039 --> 01:33:11.920
<v Speaker 2>Well, I think I already answered that yarn by saying

1333
01:33:11.960 --> 01:33:18.079
<v Speaker 2>that bad currency and banking laws were a very important

1334
01:33:18.640 --> 01:33:22.359
<v Speaker 2>part of the problem. You know a lot of people say, oh,

1335
01:33:22.399 --> 01:33:25.079
<v Speaker 2>the gold standard. Look at all the crises in the

1336
01:33:25.159 --> 01:33:29.640
<v Speaker 2>United States that happened under the gold standard before the

1337
01:33:29.920 --> 01:33:33.279
<v Speaker 2>meaning before the Federal Reserve Chris passed and the Fed

1338
01:33:33.359 --> 01:33:37.640
<v Speaker 2>supposedly was going to fix everything. But they don't understand

1339
01:33:37.680 --> 01:33:40.880
<v Speaker 2>that this couldn't it couldn't be the gold standard. How

1340
01:33:40.920 --> 01:33:43.119
<v Speaker 2>do I know it couldn't be the gold tender. Well,

1341
01:33:43.720 --> 01:33:48.760
<v Speaker 2>Canada was on the very same gold dollar. Yep, Canada

1342
01:33:48.880 --> 01:33:51.720
<v Speaker 2>was bound to be buffeted by the way by anything

1343
01:33:51.920 --> 01:33:56.199
<v Speaker 2>bad that happened to the US economy. Yet for the

1344
01:33:56.239 --> 01:33:59.600
<v Speaker 2>most part, they evaded all of those crises. They simply

1345
01:33:59.640 --> 01:34:01.840
<v Speaker 2>didn't have. We have the record of banking crises that

1346
01:34:01.880 --> 01:34:03.880
<v Speaker 2>we had. Now, how could they escape with the same

1347
01:34:03.920 --> 01:34:08.159
<v Speaker 2>called dollar. Well, the answer is there were other differences

1348
01:34:08.199 --> 01:34:12.239
<v Speaker 2>between the Canadian banking and currency system and the US system.

1349
01:34:12.239 --> 01:34:13.720
<v Speaker 2>And so if you want to know why we had

1350
01:34:13.760 --> 01:34:16.239
<v Speaker 2>crisis in the US, you better look at those other things.

1351
01:34:16.800 --> 01:34:18.920
<v Speaker 2>And there were plenty of them, and they were bad.

1352
01:34:19.319 --> 01:34:23.159
<v Speaker 2>We had stupid banking laws, we had really bad banking life.

1353
01:34:23.560 --> 01:34:25.560
<v Speaker 2>That I think is the most important thing to learn

1354
01:34:25.600 --> 01:34:29.279
<v Speaker 2>about US history, at least to judge by the wrong

1355
01:34:29.399 --> 01:34:32.439
<v Speaker 2>things people often say. And this goes back to that

1356
01:34:32.560 --> 01:34:36.960
<v Speaker 2>insolarity I was complaining about before. These people who say, oh,

1357
01:34:37.000 --> 01:34:40.600
<v Speaker 2>the gold standard was the problem before the creation of

1358
01:34:40.640 --> 01:34:43.640
<v Speaker 2>the FED, or only the creation of the FED could

1359
01:34:43.680 --> 01:34:48.520
<v Speaker 2>have addressed the banking crisis, they don't know the reality

1360
01:34:48.520 --> 01:34:51.199
<v Speaker 2>of what was causing US crises, and they know nothing

1361
01:34:51.239 --> 01:34:54.760
<v Speaker 2>about even the country just to the north of US

1362
01:34:55.039 --> 01:34:59.720
<v Speaker 2>and what happened there. If they did, they would be aware.

1363
01:35:00.159 --> 01:35:06.279
<v Speaker 2>Their arguments are really not very satisfactory explanations for what happened.

1364
01:35:08.560 --> 01:35:12.319
<v Speaker 1>So Remo asks thoughts on libertarians who against fraction with

1365
01:35:12.399 --> 01:35:12.920
<v Speaker 1>their banking.

1366
01:35:16.520 --> 01:35:19.079
<v Speaker 2>Well, I won't just limit There are other people who

1367
01:35:19.079 --> 01:35:21.680
<v Speaker 2>are opposed to fractioners are banking too, so let's not

1368
01:35:21.760 --> 01:35:27.159
<v Speaker 2>just limit this to libertarians. And of course many libertarians aren't.

1369
01:35:27.319 --> 01:35:31.600
<v Speaker 2>But I'll talk mainly about the Rothbardians because they are

1370
01:35:31.720 --> 01:35:38.600
<v Speaker 2>the most notorious the followers of Rothbart, of whom there

1371
01:35:38.600 --> 01:35:44.479
<v Speaker 2>are many, of course, And the big problem with them

1372
01:35:44.640 --> 01:35:48.479
<v Speaker 2>and with the Rothbart himself, is that they've made a

1373
01:35:48.520 --> 01:35:53.039
<v Speaker 2>complete botch job of the banking law. They just don't

1374
01:35:53.119 --> 01:35:57.800
<v Speaker 2>understand how fractioners are banking works, what its legal foundation is.

1375
01:35:59.239 --> 01:36:01.880
<v Speaker 2>They're very con fused about what it is that a

1376
01:36:02.039 --> 01:36:05.239
<v Speaker 2>bank deposit in titles. It's older too. It's not a

1377
01:36:05.439 --> 01:36:08.159
<v Speaker 2>property right to the money you brought to the bank.

1378
01:36:08.840 --> 01:36:12.800
<v Speaker 2>It is a deposit credit that entitles you to a

1379
01:36:12.800 --> 01:36:16.039
<v Speaker 2>certain sum on demand the money you bring to your

1380
01:36:16.079 --> 01:36:21.039
<v Speaker 2>bank that goes that that you the banker takes possession

1381
01:36:21.079 --> 01:36:24.039
<v Speaker 2>of that. And this has been true since this has

1382
01:36:24.079 --> 01:36:26.720
<v Speaker 2>been legally the case since ancient dis goes all the

1383
01:36:26.760 --> 01:36:32.239
<v Speaker 2>way back to ancient law. Basically, h if you went

1384
01:36:32.399 --> 01:36:35.880
<v Speaker 2>to a money change or a bank or anyone else,

1385
01:36:36.359 --> 01:36:38.520
<v Speaker 2>there were two things you could do with a bag.

1386
01:36:38.640 --> 01:36:40.800
<v Speaker 2>You have a you have a bunch of coins. All right,

1387
01:36:40.880 --> 01:36:42.239
<v Speaker 2>let's see, you have a bunch of money. I write

1388
01:36:42.239 --> 01:36:44.800
<v Speaker 2>about this in an article that the title of which

1389
01:36:45.079 --> 01:36:48.920
<v Speaker 2>it's called the bagging the bagging rule, bagging law. If

1390
01:36:48.920 --> 01:36:52.560
<v Speaker 2>you went to a bank with a bunch of loose

1391
01:36:52.640 --> 01:36:55.399
<v Speaker 2>coins and put them over the counter and said here,

1392
01:36:56.359 --> 01:37:00.039
<v Speaker 2>those coins became the property of the bank. Now he

1393
01:37:00.199 --> 01:37:04.079
<v Speaker 2>might give you. Presumably he would give you a little something,

1394
01:37:04.199 --> 01:37:09.439
<v Speaker 2>a banknote or a little contract that says you can

1395
01:37:09.520 --> 01:37:13.800
<v Speaker 2>have an equivalent amount of coins anytime you want it.

1396
01:37:14.000 --> 01:37:16.760
<v Speaker 2>That would be a demand deposit. Or if you had

1397
01:37:16.760 --> 01:37:22.199
<v Speaker 2>the banknote, then you have you know that the right

1398
01:37:22.239 --> 01:37:25.199
<v Speaker 2>to redeem that note, or someone else who gets it

1399
01:37:25.239 --> 01:37:28.359
<v Speaker 2>can do so. And that's all. But those coins aren't

1400
01:37:28.359 --> 01:37:31.479
<v Speaker 2>yours anymore. And there was a very practical reason for this,

1401
01:37:31.720 --> 01:37:35.159
<v Speaker 2>because the only way the bank could honor the commitment

1402
01:37:36.159 --> 01:37:39.319
<v Speaker 2>to give you back your property would be by giving

1403
01:37:39.319 --> 01:37:44.439
<v Speaker 2>you back exactly the same coins. So what if you

1404
01:37:44.479 --> 01:37:46.640
<v Speaker 2>don't want the banker to own your money. Well, the

1405
01:37:46.720 --> 01:37:49.600
<v Speaker 2>law was very simple on that and very specific. You

1406
01:37:49.760 --> 01:37:52.920
<v Speaker 2>bring them in a sealed container, could be a bag,

1407
01:37:53.079 --> 01:37:56.520
<v Speaker 2>could be a box, and you say here, I want

1408
01:37:56.560 --> 01:37:59.239
<v Speaker 2>you to store these coins for me, and then they're

1409
01:37:59.279 --> 01:38:02.399
<v Speaker 2>not going to touch them. Then there's still your property.

1410
01:38:02.680 --> 01:38:06.920
<v Speaker 2>And you get a bailment contract, which is a storage contract.

1411
01:38:07.039 --> 01:38:09.920
<v Speaker 2>And I've had articles on this too. The two types

1412
01:38:09.960 --> 01:38:14.079
<v Speaker 2>of contracts very easy to see the difference. A banknote

1413
01:38:14.159 --> 01:38:17.039
<v Speaker 2>doesn't say the same thing as a bailment contract. It

1414
01:38:17.079 --> 01:38:19.960
<v Speaker 2>says we promise to pay the bearer on demand X amount.

1415
01:38:20.239 --> 01:38:23.760
<v Speaker 2>A bailment contract says we have this stuff for you

1416
01:38:23.880 --> 01:38:28.439
<v Speaker 2>in our warehouse and we're storing very different. A Rothbard

1417
01:38:28.520 --> 01:38:32.800
<v Speaker 2>and company have totally twisted all this history, and it's

1418
01:38:32.880 --> 01:38:37.159
<v Speaker 2>tempting to say, I will say it they lie. And

1419
01:38:38.439 --> 01:38:41.520
<v Speaker 2>so you have people like Hans Herman Hoppy running around saying, oh,

1420
01:38:41.560 --> 01:38:45.039
<v Speaker 2>the banks are replicating titles to the same property. No,

1421
01:38:45.680 --> 01:38:48.119
<v Speaker 2>when I bring money to a bank, when you bring

1422
01:38:48.159 --> 01:38:52.560
<v Speaker 2>money to your bank, you are parting with that property

1423
01:38:52.880 --> 01:38:56.439
<v Speaker 2>and you're getting something else, a financial instrument in exchange

1424
01:38:56.479 --> 01:38:59.199
<v Speaker 2>that doesn't title you to money, but doesn't entitle you

1425
01:38:59.239 --> 01:39:02.239
<v Speaker 2>to that same money because you don't have property rights

1426
01:39:02.279 --> 01:39:06.079
<v Speaker 2>to that anymore. So there's no duplication of titles. By

1427
01:39:06.119 --> 01:39:09.720
<v Speaker 2>the way, most not all, but most banking contracts, you

1428
01:39:10.119 --> 01:39:13.880
<v Speaker 2>look at your depositor agreement with your bank. Many of them,

1429
01:39:14.199 --> 01:39:16.399
<v Speaker 2>I don't say all, because I've seen some exception. Many

1430
01:39:16.399 --> 01:39:19.720
<v Speaker 2>of them very clearly state hey, this is not a

1431
01:39:19.720 --> 01:39:26.000
<v Speaker 2>bailment contract. We are your debtor and you are our creditor.

1432
01:39:26.359 --> 01:39:30.119
<v Speaker 2>That very clearly means that you've made a loan to

1433
01:39:30.199 --> 01:39:33.479
<v Speaker 2>them of money and you're entitled to get the same

1434
01:39:33.640 --> 01:39:37.680
<v Speaker 2>value of money back with interest or whatever. It does

1435
01:39:37.960 --> 01:39:41.880
<v Speaker 2>not have anything to do with storage anyway. They're all

1436
01:39:41.920 --> 01:39:46.239
<v Speaker 2>wrong about that. Now they're also wrong about the economic

1437
01:39:46.319 --> 01:39:49.960
<v Speaker 2>consequences of fractional vers are banking. I don't mind the

1438
01:39:50.000 --> 01:39:53.800
<v Speaker 2>mistakes they make there because they're less part they're more pardonable.

1439
01:39:55.119 --> 01:39:59.960
<v Speaker 2>But when it comes to claiming that there's a fraudulent

1440
01:40:00.159 --> 01:40:06.199
<v Speaker 2>basis to all banking, it's just false and there's no

1441
01:40:06.600 --> 01:40:12.079
<v Speaker 2>two ways around it. It's bad banking history, bad banking law.

1442
01:40:12.399 --> 01:40:16.479
<v Speaker 2>And this again I go back, goes back to ancient times.

1443
01:40:16.680 --> 01:40:21.760
<v Speaker 2>So this is not some innovation that some crooked judge

1444
01:40:21.800 --> 01:40:25.279
<v Speaker 2>came up with in the Victorian era. This another story

1445
01:40:25.359 --> 01:40:30.720
<v Speaker 2>Rothbard tells about a case where the judges perverted the law. No,

1446
01:40:31.239 --> 01:40:36.720
<v Speaker 2>you look at that case. He is simply abiding by

1447
01:40:37.520 --> 01:40:42.680
<v Speaker 2>legal doctrines that already were many centuries old by the time.

1448
01:40:45.039 --> 01:40:48.239
<v Speaker 1>Paul asks what effect did tariffs have on the Great Depression?

1449
01:40:49.520 --> 01:40:52.880
<v Speaker 2>Oh gosh, this is something people debate a whole lot.

1450
01:40:53.439 --> 01:40:56.720
<v Speaker 2>I can't claim to have any novel opinions about this.

1451
01:40:57.560 --> 01:41:00.840
<v Speaker 2>I will simply say that the terror in question of

1452
01:41:00.880 --> 01:41:05.239
<v Speaker 2>the smooth so called smooth Heart Hawley tariffs passed under

1453
01:41:05.239 --> 01:41:08.279
<v Speaker 2>the Hoover administration nineteen thirty two, and they wear a

1454
01:41:08.359 --> 01:41:11.840
<v Speaker 2>pretty serious round of tariffs, to be sure, though not

1455
01:41:11.920 --> 01:41:15.800
<v Speaker 2>as bad as trumps. And they started with Hoover trying

1456
01:41:15.840 --> 01:41:18.960
<v Speaker 2>to get some protection for farmers who are struggling, had

1457
01:41:19.000 --> 01:41:21.800
<v Speaker 2>been struggling ever since the end of World War One,

1458
01:41:22.239 --> 01:41:25.439
<v Speaker 2>and it ballooned into a much more widespread set of

1459
01:41:25.520 --> 01:41:29.000
<v Speaker 2>tariffs thanks to log rolling, and then of course that

1460
01:41:29.079 --> 01:41:33.640
<v Speaker 2>invited retaliation by the countries that the teriffs were imposed upon,

1461
01:41:33.760 --> 01:41:36.479
<v Speaker 2>So he really ended up with a big tariff mess,

1462
01:41:37.079 --> 01:41:40.000
<v Speaker 2>and many people think that it did a lot of harm.

1463
01:41:41.279 --> 01:41:45.920
<v Speaker 2>I would be inclined to think so, except that person

1464
01:41:46.039 --> 01:41:50.359
<v Speaker 2>whose work on this subject I trust mote most, which

1465
01:41:50.399 --> 01:41:55.239
<v Speaker 2>is Doug Irwin's, and he's no friend of Tariff's. He

1466
01:41:55.479 --> 01:41:58.840
<v Speaker 2>says he doesn't think the effect of the contribution to

1467
01:41:58.880 --> 01:42:02.880
<v Speaker 2>the depression was very great, and if Doug says it,

1468
01:42:02.960 --> 01:42:10.199
<v Speaker 2>I hesitate to say otherwise. I'm not sure, but I'm

1469
01:42:10.000 --> 01:42:13.720
<v Speaker 2>I'm just not sure. But I do think that Doug's

1470
01:42:13.760 --> 01:42:19.720
<v Speaker 2>opinion should be taken seriously. They didn't have a positive effect.

1471
01:42:19.720 --> 01:42:22.600
<v Speaker 2>We know that, and then it's numble no, we can

1472
01:42:22.720 --> 01:42:27.439
<v Speaker 2>rule that out. The question is how big the negative? Yeah, yeah, yeah, This.

1473
01:42:27.520 --> 01:42:30.720
<v Speaker 1>Is the last question. What is it?

1474
01:42:30.840 --> 01:42:31.199
<v Speaker 2>What is it?

1475
01:42:31.279 --> 01:42:33.880
<v Speaker 1>It's actually a good last question. What is an achievable

1476
01:42:33.960 --> 01:42:37.319
<v Speaker 1>first step towards free of banking that advocates could focus

1477
01:42:37.359 --> 01:42:41.359
<v Speaker 1>on today, one which wouldn't cause major displacement and disruption

1478
01:42:41.760 --> 01:42:43.600
<v Speaker 1>and might be actual chance of passing.

1479
01:42:45.439 --> 01:42:48.159
<v Speaker 2>Well, you know, there's a lot of confusion about what

1480
01:42:48.199 --> 01:42:52.199
<v Speaker 2>free banking means, and that's because free banking today doesn't

1481
01:42:52.279 --> 01:42:54.840
<v Speaker 2>mean what it meant in the nineteenth century. In the

1482
01:42:54.920 --> 01:42:57.840
<v Speaker 2>nineteenth century, under the gold Standard, it meant there was

1483
01:42:57.880 --> 01:43:02.079
<v Speaker 2>no central bank. There's an alternative to central banking. Where

1484
01:43:02.720 --> 01:43:06.680
<v Speaker 2>banknotes are competitively issued. There's no one source of currency,

1485
01:43:07.399 --> 01:43:12.880
<v Speaker 2>and there's no bank that is supplying reserves of any

1486
01:43:12.960 --> 01:43:16.159
<v Speaker 2>kind any other bank. Now today, of course, the gold

1487
01:43:16.199 --> 01:43:22.880
<v Speaker 2>standard's gone. Our basic basic money is the fiat money

1488
01:43:22.920 --> 01:43:26.960
<v Speaker 2>issued by the Federal Reserve system. There isn't anything else,

1489
01:43:27.800 --> 01:43:32.079
<v Speaker 2>and so our dollar rests on this foundation of as

1490
01:43:32.079 --> 01:43:37.119
<v Speaker 2>it were, Federal reserve paper and digital book entries and

1491
01:43:37.159 --> 01:43:41.039
<v Speaker 2>nothing more. So now you can have free banking on

1492
01:43:41.159 --> 01:43:47.239
<v Speaker 2>a federal reserve fiat dollar where you let the banks

1493
01:43:47.239 --> 01:43:50.520
<v Speaker 2>issue IOUs that are claims to dollars. It could be banknotes,

1494
01:43:50.560 --> 01:43:52.800
<v Speaker 2>but it more likely would be stable coins, right, And

1495
01:43:52.800 --> 01:43:55.600
<v Speaker 2>that's what we're talking about with the legislation. Of course,

1496
01:43:55.640 --> 01:43:57.439
<v Speaker 2>to have true free banking you have to get rid

1497
01:43:57.520 --> 01:44:00.840
<v Speaker 2>of other obnoxious regulations. We have gotten rid of some.

1498
01:44:01.439 --> 01:44:03.920
<v Speaker 2>We got rid of barriers to branch banking, which used

1499
01:44:03.920 --> 01:44:09.159
<v Speaker 2>to be extremely obnoxious. On the other hand, we've introduced

1500
01:44:09.800 --> 01:44:15.399
<v Speaker 2>and ratcheted up deposit guarantees in a big way. The

1501
01:44:15.680 --> 01:44:22.239
<v Speaker 2>biggest departure today of our modern system from free banking,

1502
01:44:22.279 --> 01:44:24.520
<v Speaker 2>apart from the fact that we have a fiat standard,

1503
01:44:24.520 --> 01:44:31.079
<v Speaker 2>it's just huge, is that we have both deposit insurance

1504
01:44:31.239 --> 01:44:36.359
<v Speaker 2>and tremendous implicit guarantees to banks that are too big

1505
01:44:36.399 --> 01:44:40.039
<v Speaker 2>to fail. You can't have free banking unless you roll

1506
01:44:40.079 --> 01:44:42.680
<v Speaker 2>those things back. So now I'm in a bit of

1507
01:44:42.680 --> 01:44:45.439
<v Speaker 2>a I'm in a quandary because the question was what

1508
01:44:45.520 --> 01:44:49.720
<v Speaker 2>can we most easily accomplished, and now I'm talking about

1509
01:44:49.720 --> 01:44:53.279
<v Speaker 2>what most badly needs to be accomplished, which is to

1510
01:44:53.319 --> 01:44:58.159
<v Speaker 2>get rid of these guarantees implicit and explicit, or you're

1511
01:44:58.239 --> 01:45:01.960
<v Speaker 2>not the main problems in the US banking system today,

1512
01:45:02.079 --> 01:45:05.119
<v Speaker 2>Instead of being lack of branch banking and other pesky

1513
01:45:05.239 --> 01:45:09.000
<v Speaker 2>regulations that interfere with what banks can do today, the

1514
01:45:09.039 --> 01:45:13.479
<v Speaker 2>main problem is government guarantees that let that encourage them

1515
01:45:13.600 --> 01:45:17.319
<v Speaker 2>to take excessive risk. That is number one. Now it's

1516
01:45:17.359 --> 01:45:23.000
<v Speaker 2>really changed since before the thirties. The government's screwing things

1517
01:45:23.079 --> 01:45:25.000
<v Speaker 2>up one way or the other, but it's changed the

1518
01:45:25.000 --> 01:45:28.039
<v Speaker 2>way it doesn't now. I don't know any easy way

1519
01:45:28.079 --> 01:45:31.960
<v Speaker 2>to get rid of these guarantees. I really don't. I

1520
01:45:32.159 --> 01:45:36.840
<v Speaker 2>have argued, and most recently my colleagues at CATO have

1521
01:45:37.000 --> 01:45:41.439
<v Speaker 2>argued again that the FED really doesn't need to be

1522
01:45:41.560 --> 01:45:44.520
<v Speaker 2>in the last resort lending business, in the sense of

1523
01:45:44.680 --> 01:45:49.840
<v Speaker 2>providing loans to any specific institutions. It should stick to

1524
01:45:49.920 --> 01:45:54.720
<v Speaker 2>providing liquidity in the marketplace through its open market operations

1525
01:45:54.800 --> 01:45:58.279
<v Speaker 2>when necessary, quantitative easing, whatever you want to call it,

1526
01:46:00.079 --> 01:46:05.039
<v Speaker 2>and of course regulating interest rates, but through nowadays through

1527
01:46:05.279 --> 01:46:09.960
<v Speaker 2>setting interest rate unreserved. It should be taken out of

1528
01:46:10.000 --> 01:46:14.479
<v Speaker 2>the business of direct blending. That can be done, and

1529
01:46:14.560 --> 01:46:21.640
<v Speaker 2>it shouldn't prevent It shouldn't prevent banks. It shouldn't make

1530
01:46:21.680 --> 01:46:26.920
<v Speaker 2>it easy for solvent banks to fail solvent. If there's

1531
01:46:27.000 --> 01:46:30.319
<v Speaker 2>enough liquidity in the marketplace, solvent banks can borrow from

1532
01:46:30.359 --> 01:46:36.279
<v Speaker 2>other solvent banks, and that's been demonstrated many, many times

1533
01:46:36.319 --> 01:46:39.960
<v Speaker 2>in the past. It's also been demonstrated historically that there

1534
01:46:39.960 --> 01:46:43.199
<v Speaker 2>are very few banks that suffer and fail simply because

1535
01:46:43.319 --> 01:46:47.039
<v Speaker 2>people run on them out of sheer panic. Bank bank

1536
01:46:47.279 --> 01:46:51.920
<v Speaker 2>runs are almost always runs on banks that are already

1537
01:46:51.920 --> 01:46:54.560
<v Speaker 2>in trouble, and they usually start by the way they

1538
01:46:54.600 --> 01:46:57.079
<v Speaker 2>start with the smart money. The people you see lined

1539
01:46:57.159 --> 01:46:59.680
<v Speaker 2>up at the bank, they're the last ones. It's the

1540
01:46:59.720 --> 01:47:02.279
<v Speaker 2>smart art money has already wired its money away by

1541
01:47:02.319 --> 01:47:05.560
<v Speaker 2>the time they show up at the front door. And

1542
01:47:05.640 --> 01:47:11.399
<v Speaker 2>that's that smart money knows, knows, usually knows when banks

1543
01:47:11.399 --> 01:47:13.840
<v Speaker 2>are sounded when they aren't, and stages runs on the

1544
01:47:13.920 --> 01:47:17.520
<v Speaker 2>unsound ones. So we need more bank runs actually and

1545
01:47:17.680 --> 01:47:21.479
<v Speaker 2>less last resort lending by the FED. And those are

1546
01:47:21.720 --> 01:47:24.199
<v Speaker 2>some of the central steps and very hard to take

1547
01:47:24.239 --> 01:47:27.119
<v Speaker 2>steps to get toward free banking. I wish I could say,

1548
01:47:27.760 --> 01:47:30.920
<v Speaker 2>you know, the things that are easy are far less important.

1549
01:47:31.399 --> 01:47:34.359
<v Speaker 2>You know a lot of dumb tesky regulations out there

1550
01:47:34.439 --> 01:47:38.159
<v Speaker 2>still that might be easier to get rid of. DoD

1551
01:47:38.199 --> 01:47:43.159
<v Speaker 2>Frank is bad read bad legislation. My colleague Mark Collaborate

1552
01:47:43.279 --> 01:47:47.439
<v Speaker 2>is very good about why the myths behind its passage.

1553
01:47:47.920 --> 01:47:51.319
<v Speaker 2>But well, I'm going to cop out and say what

1554
01:47:51.359 --> 01:47:54.319
<v Speaker 2>I think we badly need to do without pretending I've

1555
01:47:54.359 --> 01:47:57.079
<v Speaker 2>answered the question about what's easy to do. I don't

1556
01:47:57.079 --> 01:47:58.079
<v Speaker 2>think anything's easy.

1557
01:47:59.239 --> 01:48:01.640
<v Speaker 1>So JOJ have a lot of your time. Really really

1558
01:48:01.720 --> 01:48:02.880
<v Speaker 1>appreciate it. Thank you.

1559
01:48:04.000 --> 01:48:07.680
<v Speaker 2>That's it all. I love the opportunity Yard. That's all.

1560
01:48:08.159 --> 01:48:08.960
<v Speaker 2>It's my pleasure.

1561
01:48:09.279 --> 01:48:12.079
<v Speaker 1>We should we should do this again, and and and uh,

1562
01:48:12.159 --> 01:48:14.079
<v Speaker 1>because because there's a lot to talk about. I mean,

1563
01:48:14.079 --> 01:48:15.920
<v Speaker 1>there's a there's a ton going on in the world

1564
01:48:16.000 --> 01:48:20.319
<v Speaker 1>of finance fun to talk about. So remind everybody the

1565
01:48:20.319 --> 01:48:23.079
<v Speaker 1>book is forced on the new deal and the promise

1566
01:48:23.119 --> 01:48:26.159
<v Speaker 1>of recovery nineteen thirty three to nineteen forty seven. You

1567
01:48:26.199 --> 01:48:28.520
<v Speaker 1>can find it pretty much every week. Can find books,

1568
01:48:29.199 --> 01:48:31.600
<v Speaker 1>and you can find Jodge's work.

1569
01:48:32.199 --> 01:48:32.720
<v Speaker 2>Where would they?

1570
01:48:32.800 --> 01:48:34.399
<v Speaker 1>Where would where's the best place for them to go?

1571
01:48:35.920 --> 01:48:40.199
<v Speaker 2>Well? Nowadays, of course, it's the Internet basically, and a

1572
01:48:40.199 --> 01:48:43.039
<v Speaker 2>lot of my stuff is out there. A lot of

1573
01:48:43.079 --> 01:48:48.119
<v Speaker 2>my essays for the Cato Institute are online. They've been

1574
01:48:48.159 --> 01:48:51.279
<v Speaker 2>transferred to CATO at Liberty from the old all Them

1575
01:48:51.399 --> 01:48:54.960
<v Speaker 2>site that I used to run. And a lot of

1576
01:48:55.000 --> 01:48:58.880
<v Speaker 2>my papers are out there. My academic papers they can

1577
01:48:58.920 --> 01:49:06.720
<v Speaker 2>find listed on Google and elsewhere Jay Store. They may

1578
01:49:06.760 --> 01:49:10.159
<v Speaker 2>need a university library access to get to some of them,

1579
01:49:10.600 --> 01:49:14.760
<v Speaker 2>but there's plenty of stuff out there easy to look up.

1580
01:49:16.640 --> 01:49:17.000
<v Speaker 2>All right.

1581
01:49:17.079 --> 01:49:18.720
<v Speaker 1>Well, I know it's a nighttime where you are, so

1582
01:49:18.880 --> 01:49:22.359
<v Speaker 1>I have a great night and you seeing you sometimes.

1583
01:49:23.119 --> 01:49:25.840
<v Speaker 2>I hope if we will get together yar, And thank

1584
01:49:25.880 --> 01:49:30.000
<v Speaker 2>you very much for having me on this show. Bye

1585
01:49:30.000 --> 01:49:30.800
<v Speaker 2>bye by