John Maynard Keynes was not happy with US President Franklin Delano Roosevelt. In 1934, the famed economist criticized FDR for being “engaged on a double task, Recovery and Reform” when Keynes believed reform should wait until recovery was achieved. In fact, Keynes argued that Roosevelt needed to embark on much more deficit spending, and he lamented that the president was too wedded to his belief in balanced budgets. In contrast to many libertarian accounts of Roosevelt, he was not a Keynesian, and the New Deal did not come remotely close to fulfilling Keynes’s vision for the government’s role in combating an economic downturn. 

Overturning the FDR as Keynesian narrative is just one of George Selgin’s contributions in False Dawn: The New Deal and the Promise of Recovery, 1933-1947. Selgin’s main argument is that Roosevelt’s New Deal did not result in economic recovery. He is critical of the New Deal as a recovery program, but is careful to note that he is not evaluating its effectiveness when it came to relief and reform, which along with recovery were the stated goals of the Roosevelt administration. Throughout, Selgin analyzes “particular New Deal policies to see how each influenced the course of production and employment,” and he concludes that most of them were not successful. 

The Agricultural Adjustment Administration (AAA) and the National Recovery Administration (NRA) were “the twin pillars of Roosevelt’s recovery program” and Selgin finds both wanting. The AAA set out to raise farm commodity prices by incentivizing farmers to restrict supply. The goal was to increase farmers’ purchasing power. Unfortunately, the program had unintended consequences and was especially bad for sharecroppers (who were disproportionately black). The increased spending by farmers “tended to be more than offset by reduced spending by displaced former farm laborers, sharecroppers, and tenants.” One post-New Deal assessment concluded it was “extremely doubtful whether the AAA restriction policy did anything to increase total purchasing power” and another found no evidence that the program was “a stimulus to recovery in the economy as a whole.” After evaluating the latest empirical evidence, Selgin concludes that “it’s hard to imagine a plausible social welfare function that would yield a positive balance, let alone a substantial one” toward encouraging economic recovery. 

In Selgin’s account, the NRA performed even worse than the AAA as a vehicle for economic recovery. The goal of the NRA was to lift wages to increase purchasing power across the economy to address underconsumption, which many New Dealers blamed for the Great Depression. To this end, the NRA established “codes of fair competition” that established working conditions, set maximum working hours, and uniform wage rates. The point was to replace competition with cooperation. The result was the cartelization of the American economy. 

Selgin gives voice to the NRA’s many critics, among them Keynes, who “was especially critical of the National Recovery Administration…describing it, accurately, as pretending to promote recovery while actually impeding it.” In 1935, the Brookings Institution released a report on the NRA, which condemned the program keeping “business in a churn, preventing re-employment, and consequently retard[ing] American development.” In short, the twin pillars of the First New Deal did not promote economic recovery and likely impeded it. 

The economy did improve from 1933 to 1937, but the reason for that recovery had little to do with Roosevelt’s policies. Unemployment fell from 25 percent to 11 percent, and industrial capacity more than doubled. Selgin explains that during this time “the money stock (M2) rose by more than 50 percent, boosting the overall demand for goods and services and, with it, both equilibrium prices and real output.” Sometimes the Roosevelt administration is given credit for the improvement, but Selgin demonstrates that their policy efforts did little to contribute to the increase in the money supply. Most of the monetary expansion resulted from European gold flows due to the uncertainty created by Adolf Hitler’s aggression and by Joseph Stalin’s efforts to increase Russian gold output. 

Shockingly, officials in the Roosevelt administration viewed the inflow of gold as a threat to the economy. Fearing inflation, the Treasury and the Federal Reserve embraced policies to decrease monetary expansion. Keynes quipped that they “professed to fear that for which they dared not hope.” The Federal Reserve voted to raise member bank reserve requirements. Furthermore, the Treasury sterilized the gold flows by not depositing those certificates. Combined, Selgin argues, these policies changed inflation expectations and led to the downturn. Their actions led to the Roosevelt Recession during 1937 and 1938, in which GNP decreased by over 18 percent, industrial production declined by one-third, and unemployment increased to around 20 percent.

Selgin is also emphatic that the decline in spending during 1937 did not trigger the downturn. He concludes that the “expansionary fiscal policy wasn’t an important driver of the pre-1937 recovery” and as such the reduction of spending in 1937 “couldn’t have caused or even contributed [to the Roosevelt Recession].” 

The traditional historical narrative asserts that World War II got the United States out of the Great Depression due to the massive amount of government spending. Selgin evaluates the various explanations for economic recovery and concludes that Roosevelt’s decision to end his hostility toward businesspeople and bring them into the administration, while most of the New Dealers left government, resulted in regime change in the early 1940s. 

Following World War II, the United States embarked on a period of significant economic growth. Selgin explains that this resulted from the “revival of private spending” that “far exceeded what many economists, especially Keynesians, predicted.” Pent-up demand from wartime austerity, combined with forced savings and a restoration of private investment, led to economic revival. The Great Depression was over in spite of the efforts of the New Dealers.

In what is the most comprehensive, thorough, and balanced book on the subject, Selgin does more than just overturn the narrative that FDR was a Keynesian. He delves into each of the historiographical debates from 1933 to 1947 in a level of detail that intimidated my undergraduate students when I assigned this book to my American Economic History class last semester. But as my students worked through the book, at a pace much slower than they wanted, they learned to appreciate Selgin’s fair description of scholars who disagreed with him. 

The result is the closest authoritative single volume on the New Deal and recovery. I plan to continue using it in class, and I recommend that anyone interested in a detailed account of the New Deal and recovery purchase a copy of False Dawn. You will not be disappointed.