FDR for beginners

The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism and Secured a Prosperous Peace. By Eric Rauchway. Basic Books; 305 pages; $28.99.

OLD-FASHIONED historians recoil at the idea of learning from the past to inform the present. But in “The Money Makers”, Eric Rauchway, a historian at the University of California, Davis, tries to do just that. His book looks at the economic policy of Franklin Delano Roosevelt, a four-time American president from 1933 to 1945, and how he was influenced by John Maynard Keynes, a British economist. Mr Rauchway argues that policymakers today could learn “valuable lessons” from Roosevelt, who shook up the economic orthodoxy to rescue America from the Great Depression of the 1930s and to keep the Allies going during the second world war.

In what ways was Roosevelt so radical? For one, in the depths of the Depression he launched a series of public works—building bridges, dams, highways and schools—to put people in jobs. (Studies show, however, that the macroeconomic effect of these efforts was slight.) More important, says Mr Rauchway, in 1933 he took America off the gold standard, a system whereby the amount of dollars in circulation was determined by the country’s gold reserves. Despite vocal opposition by bankers, whose interest lay in preserving the gold standard, Roosevelt ensured that the money supply rose, thereby warding off deflation and encouraging Americans to spend.

Neither was Roosevelt afraid to ruffle feathers during the second world war. In 1941 he pushed the “lend-lease” programme through Congress, whereby America would supply its allies with oil, food and weaponry without demanding gold in return. Since Britain was fast running out of bullion, Roosevelt promised only to ask for compensation, in some form, once the war had ended. The plan infuriated some—Charles Lindbergh, the aviation entrepreneur and activist, thought America should keep out of world affairs—but this financial help was crucial to Britain’s sustaining the war effort.

Mr Rauchway argues that policymakers have a lot to learn from FDR. Since the financial crisis a “terror of inflation” has gripped the world, he says; unlike Roosevelt, those in power today have refused to use radical policies to rescue the economy. But this comparison is questionable. Central banks in America, Britain, Europe and Japan have all deployed quantitative easing (printing money to buy government bonds). Like Roosevelt, they have rightly ignored those economists who warned their actions would lead to runaway inflation. And in any case, copying all of Roosevelt’s policies is neither realistic nor desirable; after all, he implemented them as the world was descending into war.

This flaw aside, this work is impressive. Mr Rauchway combines three things that you seldom see in economic-history books: sufficient attention to complexity; a solid grasp of the economics; and writing that is enjoyable to read. Barely a page goes by without some lovely detail: for instance, a formal dinner with seven wine courses that Felix Frankfurter, a professor at Harvard, shared with Keynes at King’s College, Cambridge in 1933, the conversation at which ultimately led to the first meeting between the economist and Roosevelt.

The title of the book oversells it slightly. The British economist and the president were not equal in the task, nor was Keynes really Roosevelt’s adviser, as is implied; indeed Mr Rauchway himself shows that they met only occasionally. Nonetheless, as an introduction to the economic debates taking place in London and Washington in the 1930s and 1940s, Mr Rauchway’s work could not be bettered.