Conversation W/George Selgin -- Lessons from The Great Depression | Yaron Brook Show

Deal contributed or held back that recovery. I wrote it for University Chicago Press, so even if I had tried to write a polemical book, I certainly wouldn't have gotten through the gamut that they made me and all their authors go through. They were very supportive of the effort, by the way, and there aren't many books about that. In fact, although there are many many shelves worth of books on the New Deal and also on the Great Depression, I was surprised to discovered that there was none that

specifically addressed the question of how the US recovered. And more than that, I was conscious of the fact from my learning on the subject, because I taught a course on the Great Depression for some years when I was a university professor. I was conscious of the fact that the at least the popular explanations for how the US got out of the depression were completely unsatisfactory, and some of the scholarly explanations were at best incomplete. What I

mean by the popular explanations are two extreme views. One is the view you alluded to that the New Deal got us out of the depression, and that is simply untenable, obviously untenable for those who know the chronology, because the New Deal effect as an effective ongoing legislative program, had ended by thirty eight. They had done all that they could think of doing to end the depression, and by then they weren't able to get any more radical legislation through.

Yet the depression was still raging. At the end of the nineteen thirties. We still had over seventeen percent of the labor force either unwork orly for unemployed in nineteen thirty nine. The other popular explanation is World War two got us out are There's some truth to that, as I argue in the book, but it's not as simple as, oh, the government spent a lot and enlisted a lot of people who were unemployed in the armed services, and so

the depression ended. It's not that simple for the simple reason that the war ended, and when the war ended, the government spending ended that we went back down to a percentage of government spending relative to GDP that was roughly what it was putting all levels of government together in nineteen And of course all the soldiers came back looking for jobs. So the question, or rather the answer to the question, how did the depression end, has to

refer to what happened after World War Two ended. It can't just be what happened during the war. So for these are some of the reasons why I felt a book on that issue was called for great.

answer as I apparently do. I would say that the biggest problem was the monetary disturbances and disarray that the First World War left the world in upon its termination. And to make a very long story short, many countries had inflated like mad during the war. The belligerents had almost all of them, the US less so than other countries because it entered late, and most of them got off the gold standard once again. The US was an exception in that we didn't go off gold entirely, but

we did suspend restrict gold exports. All of this left the world with a money supply in price level or money supplies and price levels that were really not consistent with the classical gold standard, and more particularly with the actual availability of gold. You couldn't have the thing. You couldn't restore the old gold parodies under those circumstances unless there was going to be a lot of deflation or

there were going to be some devaluations. Now all of these things, Both of those things happened, but they didn't

happen enough. There was resistance to both. England, for example, refused to devalue the pound, and clever people politicians came up with a third solution, a kind of gold standard on the cheap, where most countries would not hold their own gold reserves but would instead participate in a so called gold exchange standard, where the Bank of England and the Federal Reserve between them became sort of central banks

for all the other central banks. And what this did was to allow us limited amount of gold reserves to stretch further and sustain post war money supplies and price levels at higher levels and would otherwise have been the case. The problem with that arrangement is if the people who are participating in it changed their mind. For example, if the French decide they're going to cash in all their deposits at the Bank of England, they can send the

whole house of cards tumbling down. And that's what happened in the late nineteen twenties, and that precipitated a very severe worldwide deflationary depression that then most countries had to struggle to get out of. And we took longer than every one of them except France, of the major economies get out.

Also behind all of this is a lack of spending. That's kind of driving it all. The other thing that is important in the US case, specifically, because all the countries experienced severe macrick and other consequences, we had as well a severe banking crisis. Many many, many thousands of US banks failed. Now we had a lot to begin with.

We had over twenty thousand banks going into this event, but a high proportion of them failed, and we had banking crises, not just failures, but situations where panic spread, culminating in a major banking crisis in February March nineteen thirty three that only ended with the shutting down of all US banks by Roosevelt as soon as he took office in March.

As most historians agree, shutting down the banks was an essential step, or at least it was part of an overall plan for shutting them down and then gradually reopening them. That worked. It worked. When the banks were reopened, generally speaking, they were not faced with runs again. Various steps taken during the so called National Bank Holiday had quelled people speares or just as importantly, eliminated otherwise their incentive to run on banks. One of those steps, for example, was

denying making it impossible for people to hoard gold. One of the main causes of runs in February March was fear of devaluation, so people were running on the dollar to get gold, not necessarily running on banks because they

thought they were about to fail. And of course, by first prohibiting gold ownership and also demanding forcing people to bring the gold they'd taken out back, which they did in various ways that I talked about in my book, they eliminated this one incentive to run, but there were other steps. Of course, there was ensuring bank deposits. Eventually.

What's interesting about this successful addressing of the bank holiday from a historian's point of view, is that the whole thing was actually planned, or most of it was planned by the Hoover administration treasury team, many of from stayed on to help the Roosevelt knew. Roosevelt folks, oh frankly,

had no plan at all coming into office. So what Roosevelt did, wisely, he was to let the Hoover Treasury experts let them help, because he didn't have to do that, and then he helped execute the plan with his wonderful fireside chat. The first one soothing depositors and all that.

So these first steps mark the turnaround. It's very important to give the Roosevelt plus the Hoover administration credit for stopping the rot, for stopping the down turn of the economy, because of course, unless you did that, you couldn't even begin to talk about recovery. So that was the early days. Unfortunately, subsequent New de policies, which is the real New Deal, the part that was not, as it were, a reaction to events that couldn't be anticipated. Many of those proved counterproductive,

and that's where the New Deal really takes effect. And much of it is unhelpful, not all of it. I talked in my book about programs New Deal programs that also were very I think constructive. So it isn't all that.

of all three. I mentioned this because as a prelude to saying that of the New Deal's original reform plans, there were two major components. The first, and actually the earliest to be implemented, was the Agricultural Adjustment Act the AAA, and its complement, because these were meant to work together, was the NRA. That's the National Recovery Administration, which was passed as part of the NIRA, or National Industrial Recovery Act.

The alphabet stuff, the alphabet soup gets very confusing, very quickly. The NRA was part of the Roosevelt team's efforts to get prices back up. Now this here we have to be very careful, because it is true that, like many economists, they felt the Roosevelt people felt that getting prices up was something they needed to do for recovery. The problem is that unlike most economists, unlike Kines. Yes, but also unlike the Chicago School economists and many others, and unlike me,

they weren't. They didn't want to do this by getting making it possible for people to spend more. They were particularly they were opposed the FDR, the New Dealers, especially in that those first years. They were opposed to both fiscal and monetary stimulus, which is the two main things that we think of today as you know, what you do for depression, and this is very important. Roosevelt was

a fiscal conservative. First of all. Yes, his deficits were bigger than Hoover's, but as was the case with Hoover, these deficits were inadvertent. He wasn't he wasn't willing to dispense with relief, and because the depression was so bad, the government ended spending a lot on relief, including public works. But Roosevelt never believed the deficits per se were helpful. He thought that they hurt, so he tried to avoid them except if it would make people destitute. And on

monetary policy, Roosevelt didn't believe in monetary expansion. That's what they called inflation in those days. Inflation was a word that meant monetary expansion, just as the roth Bardians used the term. Today most people don't use it that way. But Roosevelt was against inflation. So how do you get the price level up if you're not going to do fiscal spent timulus, which is government spending deficit spending, or you're not going to do monetary expansion, or you're trying

not to do it. Well, you come up with all these other things that can get prices to rise, but not necessarily with the same consequences. And the NRA was one of those. The AA was another. In both cases, the idea was to get prices up by restricting output.

In the case of the NRA, industries were commanded to come up with industry wide codes that the government would help enforce that would set prices higher, including the prices of labor, wage rates and uh, and and enforce those higher prices and wages, wage rates and the ideal And of course to do this, what you're what they're doing is forming legal cartels. Every industry is being cartilized. This

was understood, it is not and uh. There's a very good book on this, by the way, called The New Deal. In the Problem of Monopoly. It was a very famous book that the deals just with this odd, odd aspect of the new deal in the ni it anyway, they they mandated higher prices and wage rates. But the problem with doing that without monetary or fiscal stimulus is nobody's earning more money. Firms aren't earning any more revenues. So how are they going to and and how are they

going to pay workers higher wage rates? Well, they can only do it if they hire fewer labor hours, and that's exactly what happened. How are they going to sell their products for higher prices, Well, they can do it by restricting output, right, because you don't have demand pushing up prices, you must have a supply contract to push

them up. Yep. So the the NRA is trying to get the economy going again by restricting output and employment, though they didn't see it as doing that, and in fact, the only reason unemployment didn't go sharply up under the NRA was because of another government program called work sharing that required firms to divvy up existing jobs into larger numbers of jobs with smaller hours or lower hours per week. So that hid the actual unemployment from the standard statistics.

But in fact, if you look at total labor hours employed, they go down. And all this time, with all these people were looking for jobs, real wage rates had gone up. They were going up while people were lining lining up for jobs, and that can only happen with controls. So that's the NR. Most economists think it was a disaster, and even during the time many people concluded that it was a disaster. Ultimately, including some New Dealers themselves, they're not FDR. He tried to keep the thing alive.

the early New Deal. The people in charge or leading that phase of the New Deal are very much advocates of planning, and because they think it's going to happen one way or they are and if it's going to happen, the government is more reliable in the saddle than the businessman alone. And of course, in this particular case, the way they did it, the businessman, the big businesses were very happy to cooperate because they say, we can cartelize.

The smaller firms are going to just have to go along with it, because, as you would expect, the big firms were able to exercise more control of the process, but ultimately they all got sick of it. Because it is the classic case of Bastiat's famous dictum that you know that the stage is that fictitious entity by which everybody tries to get rich at the expense of everybody else,

through which everybody tries that, and that's what's happening. Everybody's trying to be a monopolist or a cartel but everybody has to face the fact that the costs that they

bear are rising with everything else anyway. So the other theory that's fueling the NRA, and particularly the wage components of the NRA, is something called the high wage doctrine that emerged in the nineteen thirties after the twenty twenty one crisis, where the idea developed that if we pay workers hire wages, I'm doing this on purpose, then they'll have more to spend and that will help out get achieve recovery. But wages is a terrible word because it

has two different meaning. One is the total wage bill, or the number of dollars that are being received by workers, the total mind, which is their incomes. The other is the wage rates, which is how much you're having to pay workers per hour. Now, if you increase wage rates, you don't necessarily increase the wage bill. In fact, unless somehow firms can be earning more revenue, the only way they can raise wage rates is by paying hiring fewer

labor hours. And so unless you have an independent policy that is providing more spending, that is achieving more spending and increasing total revenues in a depression, the firms are not going to have a lot of profits that they can dig into in order to pay higher wage rates, so you end up with more unemployment. It was a very stupid policy, quite frankly, because you can draw the supply and demand curves on the table nap and figure out that raising wage rates doesn't give you more employment

on the contrary. Nevertheless, it caught on, partly caught on because of Henry Ford paying workers hour than usual in it and the idea that the seed they can all now buy Fords. But it weren't able to buy Fords because Ford was paying them high salaries. They were able to buy Fords because other people were buying Fords and otherwise spending a lot more money, and the revenues were good, and Ford could afford to pay the higher wage rates. And so anyway, very bad theory. I have a paper about it.

do it because his plants where his plants were productive. Anyway, so you had all these theories that didn't form the NRA. And also the AAA, and the AAA tried to get agricultural prices up by telling farmers to quit farming so much, by paying them to reduce their farm their acreage, and by kill their piglets and et cetera. And of course that will raise prices, but it does so by reducing agricultural output. And when you reduce agricultural output, you hire

fewer workers. The people who really got screwed, if you pardon the expression, but it's quite appropriate here by the AAA the most where the poor sharehold and agricultural laborers, particularly in the Common South, you had many of these persons who didn't they legally some of them were entitled. The shareholders were entitled to part of the payments for reducing output. But guess what they farm owners took it all.

And so these people ended up with no jobs and no opportunities to find them anywhere down South where they're now farming less, and they ended up going to the urban cities and usually joining the roles of the unemployed unless they were lucky and got work relief. And the black African American families, many of them, were part of that exodus. It was a great tragic consequence of that component of the new deal that's often forgotten about.

The NRA was struck down unsimilar somewhat similar constitutional grounds, particularly concerning whether the whether the actions of the NRA of the National Recovery Administration were justified or warranted by the commerce clause. And they found that it was not. So that disappeared, and thank goodness, wasn't revived. Nothing quite like it has ever been tried again since. By the way, only one other country implemented reforms that resembled to address

the depression that resembled the NRA. And I think I mentioned that France was the only other country that recovered as slowly or perhaps a little more slowly than the USA. And guess what they were the ones. So there's a lot of evidence that that kind of planning solution to the New Deal didn't work. And there are some economists who contest this, but the vast majority then and now I think the NRA was a big mistake, and often the worst mistake of the New Deal. I think it

was probably the worst mistake. I hope we get a chance, by the way to talk about the positive things, because they wear some I don't want people to think that I'm only cataloging the New deals bad attempts. That it was certainly one of the worst things that was done.

But I would argue, and I think the evidence supports the argument that the recovery that took place overall beyond the initial phase where you have the advantage of getting the bank situation resolved, which is very positive. Then though, when the NRA first is announced and it's being expected, you have another little mini boom. You have a mini boom.

But most economists think that that's because there was a lot of anticipatory buying by producers stocking up on inventories and inputs and other things because they know that the prices are all going to be going up, and then it peters out already in the fall, you have the New dealers themselves noting that, Okay, now things are starting to look a little bit shaky, but what's the art's happening?

Then that is driving the recovery from that point on to the big Roosevelt downturn of thirty seven thirty eight. Is a factor for which the New Deal is only partially responsible. And that's gold. What we started talking about, how lack of gold was part of the problem that

caused the Great Depression, and that's absolutely true. What many people don't realize was that the United States was facing an inundation of gold after nineteen thirty three, or actually mostly after January nineteenth, after January nineteen thirty four, to be precise, that's when Roosevelt finally devalued the dollar, and that initially caused some increase in gold inflows into the United States, because devaluing the dollar means you're raising the

price of gold and making it worth more. But the main factor that has a temporary effect. For reasons I discussed in my book, devaluation won't keep gold in flowing forever, even if other countries don't devalue in turn. But there's something else going on, and this is the biggest driver of the recovery between nineteen thirty four and nineteen thirty seven.

It's Europe's war clouds. It's Hitler, mainly Hitler. Hitler becomes chancellor around this actually a little bit before this time, and increasingly there's fear of war, and these jitters are become the main reason why gold starts heading in large amounts, even larger than devaluation itself would have promoted to the United States. In all that gold that is monetary stimulus,

but it's not on purpose. The Federal Reserve, the Federal Reserve is passively having to accept not gold itself actually, because now that gold ownership is illegal, even the FED isn't allowed to have gold. Instead, the Treasury buys all the gold that comes into the country and gives the FED gold certificates, the piece of paper saying we have this gold, and that becomes the Fed's asset. Anyway, the FED is passively allowing this. It's not engaging in any

monetary stimulus on purpose. And here's the biggest irony. This is helping to restore spending. This is doing what the NRA isn't doing and the AAA isn't doing, and it's making It is limiting the damage done by those programs, which would otherwise be quite counterproductive. But then guess what

happens The government officials in the Treasury and elsewhere. Remember, they don't like inflation monetary expansion, so they don't like this, and they actually start are absolutely fearing that this is going to cause inflation. Not sorry, they don't mind prices rising, but they saying this is inflation. What they're really worried

about is monetary expansion. And particularly that the banking system is going to expand they're sitting on tons of reserves, and that that's going to cause another a stock market boom, and it's all going to lead to a crash. So you might say they're very Austrian about it, but the sad reality is that here you had the one thing that's really driving recovery. It's gold coming in doing what gold a gold standard is supposed to do. Right, you got low prices, you go comes in and it gots

things going again. They decided they needed to do something about it, and so they did two things. The Treasury and the Fed separately did these anti gold inflation things, kind of with the it's not exactly talking to the other. So you get a double dose of efforts to keep

the gold from resulting in more spending. The FED doubles reserve requirements, doubles them, and at the same time, the Treasury starts sterilizing for a period gold inflows, so they're not giving the Fed the gold certificates for that much for gold for an extensive Between these two things and also some government austerity, but mostly I think the sterilization first of all, and then the reserve requires the recovery stops because the thing driving it stops. There's no more

goods to me. And that precipitates the great so called Roosevelt procession of nineteen thirty seven nineteen thirty eight, which wipes out a huge part, not all, but a big chunk of the recovery, the progress toward recovery that had occurred in the preceding years. And it's all on New Dealers because they were the ones who put the brakes on that one important source of spending stimulus, golden flows. It's very tragic. By the way, Caneskines was very good

on the depression. I know people hated when I say that, but he was for the most part. If the New Dealers had listened to Knes, we would have a much more rapid recovery. Knes noted this golden flow. He noted the connection between it and Stalin, by the way, was another between Hitler and Stalin. They did more for recovery at this time than Roosevelt. I'm only being semi facetious when I say that Stalin was subsidizing gold mining, and

so he was their mind out. Their minds were putting out tons of gold, much more than they had in the twenties, and a lot of it was ending up as part of that flow to the US via Europe. And so anyway Keynes is noting, they say, what this is ironic, but this might be. This is the thing that's helping the recovery. And what he didn't anticipate when he wrote about that was that the US authorities would

respond to this with policies designed to stop it. We can't have all this gold, and I'm absolutely not exaggerating. So this was a tragic response to what would have been. And by the way, I'm not being radical here. Christina Roemer is a very good economic historian who's written all about how the gold then flows with a main thing driving recovery, and she's not crazy the libertarian or anything

like that. But this was very tragic. So after that, by thirty eight, as the economy is finally getting out of this secondary depression, but by then the new Deal kind of peters out. There's no more efforts in the parts of the old Deal are being dismantled and found unconstitutional, and so you end up that's why we end up with seventeen point something percent of the labor force either on work relief or unemployee. I want to add a

footnote here on if I may. There's some people say, oh, you shouldn't count the people on work relief as being, you know, among the unemployed, and I don't. They're not unemployed, they're working, but they should be counted if you're trying to assess how the recovery is going, because work relief is a substitute for recovery. And Roosevelt and Company were very clear on this. They said, look, you know, these jobs are temporary, emergency jobs. It's a way of keeping

putting money in people's pockets. But it's relief, it's not recovery. Recovery is getting them back to work in the factories that are shuttered and getting those factories working again. That's recovery. And that did not happen had not happened as of nineteen thirty nine.

the time being. The depression is over because millions of workers of unemployed, who would have been unemployed or who are on work relief, they are drafted into the armed services or they volunteer, and so that's the end of unemployment as far as the statistics are concerned. And likewise you have now a great increase in output of war material plants being reopened or established newly established for the purpose of building airplanes and such ships. And so the

depression is over except the war ends. The depression as long as the war continues. But as soon as the war ends, the government applied shock therapy, as it were, It completely cut back war time spending. Yes, there were things like the GI Bill and all, but the fact is that total spending on all levels declined to the share of GDP it had constituted before the war. That is before the European War, and of course all those

workers are coming back demanding jobs. So in order to explain the recovery, you have to explain why you didn't have another depression as soon as the war ended, or what you didn't see the economy lapse back into depression. And that's a serious question. One way to engauge how serious it a question it was, and why it's not obvious is by noting that the administration's economists first, especially this is the end towards the end of the war,

it's still the Roosevelt administration. Now most of those economists are Kansians. The Kynesians have slowly gained importance, but it should be noted that they were not important during most of the New Deal. Canes had hardly any influence directly

or indirectly on the New Deal. But now there are plenty of Kansians in the government, and they are for the most part, almost all them predicting a terrible calamity, a depression in many cases predicted to be worse than it had been in the thirties unless the government gets peace time spending up as high as wartime spending had been. Particularly deficit spending, we are going to see a depression that it is as bad or worse than in the thirties. Well,

of course, shock therapy was what they were arguing against. Right, we can't do we can't just stop spending and not do anything else. We can't just liberate prices. They were arguing that all of this would be a disaster, with some good reason because unless something changed, right, unless there was some big change that had taken place between nineteen thirty nine and the end of the war, some change, it would not cause conditions to revert to where they'd been.

It was sensible enough to fear that it would be you'd go right back to where you started. And yet they were all horribly well, they were all fortunately wrong, because there was nothing. The unemployment rate never went much above four percent, which by their own by the keynesing z Own estimates, it never never was far above after the war, immediately after war, never rose far above what they would consider full employed employment. Yeah, it was remarkable

that we avoided that. Something had to change. And one of the things I try to explain in my book is what else happened during the war that made it may allowed the economy instead of having a renewed depression to actually take off right after the war when the government stops all this spending. So what was it. I'm glad you asked what it was. I believe and I think there's a lot of evidence for it. What it was was a change in the government's attitude toward business,

major change. And there are books about this and brooks end articles that are very good that I cite. Because one of the problems one of the things that interfered with recovery in the thirties. We've mentioned some others, but one of the others, especially toward the last phase of the New Deal, was what Bob Higgs calls regime uncertainty, which is all the experimentation and the unpredictability of government

policy combined these days. Yes, indeed, very much combined with outright fear of the hostility demonstrated by the Roosevelt administration and Roosevelt personally towards businessman and his rhetoric and other things that got very, very nasty. And there were some policies that went along with a nasty rhetoric that, as it were, implemented in a nasty rhetoric. The rhetoric was mostly aimed at big businessmen, but the policies tended to

affect businessmen more generally. So there was a lot of reason for businessmen to not be confident in the future, to not be confident enough to invest and with the hope of recouping of profiting from the investment. And so what happens in the thirties is investment absolutely collapsed for the whole decade. There was especially if you are looking at net investment, right, not just replacement of depreciating capital, but growth. There was none. It was essentially zero. Sometimes

it was negative. And that remained true during the war because there's no private investment during the war. So something has to happen to make businessmen confident again, and the war did that. Now, by the way, Caines was very good on this. You Canes was scolding Roosevelt for scaring businessmen, and he was saying to them, look, everybody, all economists agreed, you got to get investment going if you're going to have her recovered. You know, you can't just have consumer

goods being consumed because you've got to make stuff. You got to get the factories working again. So they all agreed on that, but Kines was particularly It was particularly scornful of new deal policies that intimidated businessmen or otherwise made it difficult for them to be optimistic about the future. He couched it in the general theory, especially in terms of what he called animal spirits. He said, Look, the way you have businessmen do their thing investing is you

can't have them thinking about what can go wrong. They have to have this optimism. It's like, you know, you can't go out and you can't live well if you're constantly thinking you're going to die any minute. Right, But he said, businessmen have to not fear the future. And he said to Roosevelt, basically, quit picking on him. Coddle them, make them feel happy, make them feel proud. He said, all of these things. It's very very good because it

helps us understand how the recovery happened. Because World War Two comes along American entry in particular, and all of a US. So the administration is, oh, we need them, we need them, and we need to then we need to have them cooperate in the war effort. And the next thing you know is all the businessmen are piling into Washington taking power, and they produce the planes. They you know the record of the production under the cordial

let's say, detante between the government and business. The result of this is an incredible production of wartime materials, all the planes Roosevelt promised and more. But there's more to it than that. The new dealers themselves, working with these businessmen, start saying, you know, maybe they're not so bad, and other people are looking at all this saying maybe capitalism isn't dead after all, and so everything changes. This is

not a small chain. It goes from one extreme of hostility to business and believing that capitalism is doomed and all that to the beginning of what becomes the military industrial complex, which is where, if anything, the government and business are much too cozy. But as far as recovery

is concerned, this is a very good development. The long run implications may not have been so great, but for the recovery it means a businessman and the war on an upbeat view of the future, and investment takes off like our rocket. And so basically it's like scissors. The government spending is going I got to do it backwards. Government spending is going and private investment is going shit.

And that's why you didn't need the government peace time spending that the Keynesians thought would be necessary, because private investment has taken off. This I think this aspect of the war. So you can still tell a story where World War II helps end the depression, but it is not a simple story of government spending. It's a story of more importantly, for the longer haul, for post war,

the post war revival. The big change isn't the spending, it's not the lasting it's the change in attitudes that gives businessmen the you know, warm fuzzy feeling that Caines thought they needed if they were going to start doing their investment thing again. So I think that's the part of part of the recovery story that both critics of the New Deal, both the conventional criticisms of the New Deal UH and the champions of the New Deal argument

arguments in favor of the New New Deal omit. And by the way, it has to be said that this change and attitude is part of the abandonment of the New Deal, it's not a new new deal. And Kansianism helps here too, yarn, because remember Kaanesianism is saying just have the government stimulate. Nowadays, it put the Knesian emphasis on physical stimulus, but Kanes himself thought monetary stimulus was,

you know, another possibility. But for businessmen, this kind of thing changing interest rates, having the government spend more, it's not as oppressive as all that New Deal stuff. It's not interfered with their decision making, it's not as scary. So for businessmen, they may not like deficit spending, you know, they don't like inflation, but they would rather have the government pushing and pulling that one big lever than micromanaging

them or scaring them to death. So for business investment, the Kanes revolution which is taking hold, that is the idea that the main way you should combat recessions is by government spending or monetary stimilus. For them, it's a big relief that change, and we need to remember that when we're being critical of gains.

the reduction and government spending. By the way, the government went into surplus very quickly after the war, and fiscal surpluses, which was the Keynesians thought, you know, this is the last thing you're going to be able to get away with without trouble. So the fact is that you had renewed fiscal and monetary austerity, as it were relatively tight

regimes after World War Two. So neither neither of those stimulus sources was contributing to the recovery, and that made the recovery of private investment spending all the more important. That should be said that many people think that what was driving all this was consumer demand, because consumers were forced to save a lot during the war. I mean, the government is spending a lot and it's ending up in consumers' pockets, but they and they saved a lot

because they couldn't. There weren't as many household goods to produce with all the productive machinery of the economy oriented towards wartime output. And so one theory says, Okay, after the war, they dissaved, they took all these savings and they went on shopping spree. But that actually didn't happen. They they their savings rate fell after the war. They weren't saving as much as a percentage of consumption, but

they didn't dissave after the war. And that's all the more evidence that it's really the investment side of things that sustaining the recovery, and it's it's what's allowing these people to buy more without dissaving.

lousy one has just caused a massive collapse. That's not the time to do nothing, because like it or not, the same government that, as we're assuming for the sake of argument, created the circumstances that allowed the economy to collapse, is also the only agency in a position to try to fix things, that is, to correct its own mistakes. The banking system isn't one that's going to automatically recover the debts that have suffered from deflation. Aren't automatically going

to just go away. The unemployment is not going to quickly resolve itself through deflation because of rigid contracts, especially debt contracts, but also because of other kinds of price and flexibilities. Some of them are not part of the market system, but are not going to go away. There's all. The government had an absolute responsibility to take steps to help end the recession, and those steps, many of them

that were necessary, were not going to happen otherwise. One of the programs that was a good new deal program, in my opinion, perhaps the best setting aside dealing with the banking crisis, but this is the new deal proper we're talking about, was the creation of the Home Loan h Home Loan Mortgage Corporation h I always botched this

up and homeowners some homeowners Loan corporation. See now, what this thing does is you have all these debtors with mortgages and the I won't go into the structure of the mortgages, but suffice to say these weren't going to be easy to refinance, and they're all underwater, and the lenders are in trouble because all they can get by for closing is properties that's the price of which is down and impossible to sell, and that's not going to

help them. What you ideally needed was refinancing, restructure all these mortgages, pretend they'd write them the way they might have been written if the depression had been anticipated. Well, that's what the HLC did, very cleverly. They swapped. They swapped their own the new agency swapped its own agency bonds for the mortgages in terms that the mortgage lenders were bound to consider better than sitting, than foreclosing or

holding these non performing loans. And then they refinanced the mortgages on better terms, including introducing thirty year new loans with its long loan terms mortisized terms, and they managed to do it. They are relying on taxpayers because the key to this, they're relying on implicit guarantees on loans and the interests. So there's risk and taxpayers are bearing it.

But guess what, it's a macroeconomic crisis. It's a perfect example of a public good because if this works, if this works, taxpayers are going to be among the beneficiaries getting out of it, helping get out of a depression. And it works very well. In fact, the government didn't lose any money at all it might have, but World War Two raised the prices of mortgage of property, and eventually the thing came out with very low cost. It

didn't actually profit. Some people claim it profited, but if you get the accounting right, it lost a little bit of money, but did a heck of a lot of good. It kept a lot of people in their homes, It saved a lot of the mortgage lenders, and by doing these things it did help the recovery. It was one of the best new deal programs in my opinion, because it's essentially dealing with price rigidities that the marketplace wasn't

able to easily overcome. And they had a similar program for farm mortgages, but the statistics don't allow us to conclude that it was as successful. Moreover, it was kept in place long after, in one form or another. It became almost a permanent program, and then it ended up wreaking havoc with aquaculture, and the whole thing went blotto in the nineteen eighties, as people predicted it would. If it wasn't eliminated after having done it should have done

in the thirties. So you don't want these things to be perpetual.

farm subsidies that were still not completely passed. Anyway, the banking legislation was permanent, and it was sad because the more astute observers of the situation understood that the reason the US banking system was so we and so many banks failed was the same reason why we had so many in the first place, which was the lack of branch banking, which the countries with strong banking systems allowed their banks to branch are usually nationwide, and most countries

that suffered from the depression didn't have banking crises because they had better banking systems. Canada, by the way, was a very good example. So this was not simply a matter of having a central bank that did the right thing.

Canada had none until thirty five. Anyway, what the banking law did was to treat deposit solution as this way of propping up these weak banks, because of course, if you have if you were fully ensured, you don't worry about your bank being weak, even if you know it is right, you know these are this is the same goddamn bank, that same sort of bank that collapsed a few years ago. Nothing's basically changed. It's underdiversified. It can't stand a shock to the farm sector in which it deals.

That's great, It's okay because we have insurance. The alternative, of course, was still out branching, but there was a glass Carter Glass wanted branching. Henry Stiegel was totally opposed to it, so we ended up with this. Roosevelt didn't like deposit insurance, and he fought the legislation that deposit insurance component of the nineteen thirty three Act Banking Act.

He fought it till the eleventh hour when he finally realized that the deck was stacked against him, that he didn't want to veto the whole bill, and he probably would have faced his veto being overturned, so he relented, and of course, being a wise politician, he then took credit for deposit insurance as if he'd wanted it all along,

But he didn't really, he never liked the idea. Truman, interestingly, also hated depause insurance originally, but by the end, during the banking crisis, he was saying, well, you know, maybe this will be a lesser of two evils. So between the two of them, it was Hoover who showed some inclination to support deposit insurance. And by the way, when I say this about FDR, that's not one of my

criticisms of him. I think that I think that his criticisms of deposit insurance, which we should really call deposit guarantees because it's not run like insurance, I think they were perfectly sound, and they would many economists would say that they were perfectly sound well.

you know, he was where he understood banking. He was no economist, but banking he was familiar with, and so I think his views on banking were quite sound, but he accepted this as the best that could be had in order to get the whole banking bill through. I write about the other components of the Banking Act, including this famous Glass Stiegal components writing, investment, and commercial banking, but only to point out that those things did nothing

to help end the depression either. The pause insurance may have contributed to stabilizing the banking system, it's controversial whether it was really that important for that, But the other components of the thirty three Banking Act did nothing, nothing to help the recovery because the things they dealt with weren't part of the problem at the time.

be not my number one. It's a belief that is, if not completely uninformed by history, is informed by a very limited knowledge of history, including people looking back at the US history and concluding that all our troubles before the FED were things that could not have been solved

without creating the FED. Now, apart from the fact that the FED did not perform very well at all, especially in its first few decades, and didn't perform any better than the preceding systems really in almost any criterion you could pick, the fact is that the pre FED problems of the United States banking and currency system can all be traced easily without a shoehorn or anything to misguided legislation. Has to be remembered that we did not have a

free market banking system at any time in the US history. Instead, we had various experiments with regulation, first at the state level mainly, and then mainly or at least as much on the federal level. And if you examine these regulations both before the Civil War and since, you find a lot of stuff that was god awful and that played very important parts in all of the financial banking problems

currency problems. We mentioned the lack of branch banking. That was the main reason why we didn't have a uniformed currency before the Civil War. It wasn't because we had a lot of separate, independent banks that issued banknote currency. We know from other countries experience that you could have that you wouldn't have thirty thousand of them, but you might have dozens, and their notes would circulate at par where in the nation because they had branches where they

could be redeemed everywhere in the nation. The US didn't allow that, so we had this ridiculous system with thousands of banks and notes that were worth different amounts depending on where they were and all that. But I could say the same you name me. I used to say this to my money in banking students. That's another course I talked for a long time. If you can name a US banking or currency crisis and explain how it happened without attaching an important role to some stupid regulation,

I will give you an A in this class. You won't have to do any more work. No, you can't do it. No competent economic historian can do it none. So what bugs me is the inattention both to the details of US history and to experience elsewhere, which many US economists are very parochial, and that includes foreigners trained in the US and economics. They know a little tiny bit enough to be dangerous about US monetary history and

nothing at all about other countries. Can't. You can't be a good monetary banking economist or historian if you don't know about the wide range of different experiences to be encountered beyond the US board. You just can't. So that drives me nuts. That's number one in my list. Do I need to come up with more?

I highly recommend the book, except for that chapter which GE's what free banking is all wrong? And it's called the Experience of free banking, so that's a very good place to start. It goes through a lot of episodes of relatively free. Of course, none of these systems are perfectly free of regulation, but relatively free banking systems and how they performed, and I think it includes a chapter

did originally include a chapter in the United States. It talks about all the ways in which we did not have free banking, even though we had laws that were called free banking lists that would be probably the most important. On the Scottish system, of course, I'm bound to recommend that's the most one of the most well studied, Lawrence White's class now classic study of free banking in Britain.

That's all on the Scottish system. Otherwise, on the United States, I would recommend the book of essays I put together called Money Free and Unfree, published with the Cato Institute, and that has a lot of chapters on various aspects

of US banking and currency history. So those three I think would cover things very well.

which included typically state government bonds. Naturally, because the states wanted to sell their securities, but sometimes included other sorts of bonds, and those caused trouble in those free banking so called free banking systems, but let's not go into that. During the Civil War, the Union government did two things. They created a new system of national banks, and they

eventually taxed state banks out of the currency business. So the only banknote currency from then on until the FED was notes of national banks, and they all had to be secured by United States government bonds. Once again, by the way, that that big part of the motivation is not making the bank safe, it's financing the government the

Union war effort. So keep that in mind. Now, what happened in that system was kind of very different from what happened in the state systems because in the state systems a lot of the securities that banks were required to hold turned into junk, and it was the main cause of free pre bank set failures. In the case of the national bank currency, something opposite. But just as that happened, which is this, so the currency supply is tied to the availability of certain US government securities that

have to back the notes. The banks have to buy these securities. In fact, they have to have more than one hundred percent face value of securities to cover their note issues. What happens is, after the war ends for decades, government's running surpluses, so the availability of these securities is shrinking. On the other hand, the economy is growing and it needs more currency, not less.

and so there was some long run secular adaptation. What there wasn't was a capacity of the system to deal with short run spikes in demand, particularly those that happened in the harvest season when there'd be a big peak demand for currency to pay migrant workers and of course

don't have bank accounts. And since it was given the high price of the rare securities, increasingly rare securities banks had to have to secure notes, and the fact that that made it absolutely prohibitively costly for banks to acquire the necessarity necessary collateral to meet temporary peaks in demand for currency, like the harvest time peak. So every time the harvest would occur, and with increasing severity over time,

you tended to have spikes and interest rates. Why because when the farmer comes to his bank and says, I need currency to pay my workers, and the bank says we can't issue any more of our own IOUs, he says, okay, I'll have some legal fender. I'll take some of your reserves up, which he's entitled to do, and that leads to a contraction of credit. So credit titans, interest rates go up. Now, in the good years, that's all that happens.

Interest rates seasonally spike, But in some occasions you had severe currency panics and shortages eighteen eighty four, eighteen ninety three, the worst of all in nineteen oh seven. In each case there were other aggrevating factors. But behind resting behind it all is this inelastic supply of currency that is a consequence of the bond deposit requirement combined with the

increasing scaragecity of eligible securities. So now that explains crises leading up to the FED which was established for the purpose of supplying an elastic currency. There's no magic behind

this reform. Basically, the newly established twelve Federal Reserve banks were exempt from the bond collateral requirement, and so the other banks could come up to the FED with their other assets commercial paper mainly which were not eligible backing for notes, and they could say, please, sir, here are my here's my commercial paper which you discounted for me, and give me some Federal Reserve notes so I don't have to dip into my recitt That's how the FED worked.

It's rather like the scene people are now too young to remember the movie Misery with Kathy Bates and James kan He's a writer, famous writer gets in a car crash and she happens to rescue him, and she's a big fan. She's obsessed with him. Well, he starts and she loves taking care of him as he's recuperating. But at one point he looks like he's ready to get out, so she smashes his legs with a sledgehammer to keep him around a little more so she can cure him longer.

And that's sort of what the federal government did with banking. They smashed the legs and the national banks, and then Kathy Bates and the form of the Fed comes along, and you know it saves saved. Yeah. Anyway, but you asked about the Great Depression, and at that point the

Federal Reserve is starting to take over currency supply. So although it's technically true that the national banks might have done more to avert the depression had they been able to issue more of their notes, the fact is that by the time of the Great Depression, their note issuing ability is very, very limited, and the government has come to rely almost exclusively, not quite on the Federal Reserve to supply all currency, not just emergency correct. It's taking

over as the sole supply. By nineteen thirty five, the last national banknotes are issued. But here's an interesting footnote. At some point during the depression, before thirty five, a law was passed that relaxed the bound requirement. So they really did relax and guess what it helped. There was a substantial increase in the supply of national bank notes on collateral that wasn't the usual bonds, but unfortunately it

was too little to make any big difference. I've always wanted to write a paper about this episode, because in my opinion, if it's said, if they had said to the national banks or to the state banks, it still existed for that matter, because said you can issue all your banknotes that you want. It would have alleviated the crisis of the early nineteen thirties. It would have helped.

But that the Fed said, no, you leave it to us, We'll supply all the good bet are reserved notes that are needed, which, of course, as Milton, Friedman and Schwartz have demonstrated at great length, it did not do. It did not do its job as meeting the needs of the early nineteen thirties avoiding a monetary collapse.

I wrote a paper a few years ago while at CATO called what's it called anyway, a narrow Path to Efficient stable Coins or something like that, where I argued that rather than suppress stable coins altogether, the government should embrace them, specifically by allowing stable coin issuers to take part in the Federal Reserves clearing and settlement system, to have master accounts and treat stable coins like so many banknotes of your But since I knew they were never

going to just allow them to do that without regulating them otherwise, they said, well, let's say, least, you know, allow them to do it as long as they hold one hundred percent reserves at the FED one hundred percent. So I said, let's have narrow banking for stable coins. Yep, a compromise. Now this isn't bound deposit, right, this is one hundred percent reserves. It's not the same thing. But it does of course mean that you can't issue stable

coins for which you don't have full reserves. The because one of the big problems with stable coins as they've existed is that, in fact, many of them claim to have one hundred percent reserves, but they don't. They don't they have other stuff, They have cash equivalents, And it turns out the closer you look at these things, the

less they look equivalent to cash. And so and you've had, of course, a few disasters where people had reason to suspect that their banks were fully liquid and found out the hard way their stable coins were fully liquid, found

out the hard way that they went. So in my opinion, it was a reasonable compromise to preclude any more drastic opposition to stable coins at least give them at least give them the opportunity to exist and take part in the Federal Reserve system if they have one reserves, which and the other thing about that arrangement is unlike the

case with actual stable coins, monitoring is a cinch. The Federal Reserve always knows if you're holding what your reserves its participants have because it's the reserves are in an account at the Fed. So they don't know. Nobody knows. So that was my suggestion. So it's not I'm not advocating bond deposit requirements, which are a different kettle of fish. And by the way, bond values suctuate, so they're not

the same. If you're holding a long maturity bond with a coupon of x percent in rates go up, that bond is going to depreciate. The bank discovered that, right, yes, and the Federal Reserve has discovered it. It's taken the men's losses, but of course, not being your average bank, it doesn't have to worry about it. But bonds are not the same as reserves as actual cash reserves. Anyway, what I think about the legislation is that I think of it in the same spirit. Is my suggestion. If

it's either that or have stable coins suppressed entirely or regulated out of existence, I would prefer this legislation. And the reason is because the reason is that I think stable coins have the potential to be beneficial, and we should give them a chance. Rule out the worst possible disasters and fraud and all that, but don't rule them out altogether, because we really haven't seen them achieve what they might achieve. Let's give them a chance.

solutions to recovery. That should be said that in the United States case, we also had a deeper depression because of our banking crisis. That might have made our recovery take longer anyway, but it didn't have to take as long as it actually did. And now, ending a depression takes time. If it's deep, it's going to take longer. There's no way around that. But as far as what I consider the best remedies, I've already said that I don't think doing nothing is acceptable or workable. I think

you have to get spending up. You have to get depressions involved, at least approximately a collapse in spending. People spend less, firms, earn less, firms, higher less, and so on. You've got to get spending back up because getting prices to all adjust down without being able somehow to magically rewrite long term contracts painlessly is not practical. And to get spending up there are various possibilities. The most desirable is monetary expansion because it involves less interference with the

forms that spending takes. What gets what money gets spent on, There's less opportunity for waste. That's not to say that there should be no role for fiscal policy, which is government increasing its spending on fiscal policy. I see a lot of merit in what was a very old fashioned approach to countercyclical fiscal policy was the one Hoover favored in many econdoms favors. It's you save up for a rainy day. You don't save up. You may run surpluses.

But saving up here means keep some government public works and other projects that it has to undertake anyway, keep them aside, and then really do them all when you get a downturn in the economy. And I think that's a perfectly reasonable thing for governments to do. Is a fiscal answer. I'm also a believer in relief spending. If people can't get jobs any other way, give them other jobs, certainly, give them a check, don't let them starve, And that

itself is a source of demand. But most of all, I think the most effective, potentially and most desirable solution is monetary stimulus. It's not always easy. If interest rates hit zero, it can be very hard to use monetary stimulus. But there are also ways to try to avoid having an economy reach the zero lower round so that you don't have to deal with that contingency. Anything that gets real interest rates up high and makes the economy more

productive reduces the odds of that happening for starters. So obviously, from my talk with Yarn, there are many things I think you have to avoid to not make a depression worse, and that includes interfering with price adjustment to the extent that prices are trying to struggle their way to a new equilibrium levels that don't interfere with that. Certainly, don't try to force firms to pay higher wage rates or

raise their product prices. Let them be induced to do those things by the fact that their revenues are being increased through other kinds of policies. So these are some of the steps. In the nineteen thirties, of course, it was very important to let that goal come into the country and make sure it does as much to stimulate bank credit, lending and spending as possible. Instead of worrying

that it's going to cause an artificial boom. Kanes Knes is said to have equipped I can never find I can't find a primary source for this that when the authorities put the brakes on gold stimulus, he said, they profess to fear that for which they dare not hope, meaning rising price it and and the boom boom.

good at it, but know about fiscal stimulus. They didn't know about monetary stimulus. They knew all kinds of things that were wrong. And so that is generally speaking, with some few exceptions, there is very little that the New Dealers have to teach us about fighting depressions. So if we need innovative steps, let's not look there. That's not Maybe we do need new innovative ideas for fighting depressions. I'm sure we could use some, but that is not

where you're going to get them. That's the place to look for innovative ideas that didn't work, and for the

failure to use things that arguably do help.

do I know it couldn't be the gold tender. Well, Canada was on the very same gold dollar. Yep, Canada was bound to be buffeted by the way by anything bad that happened to the US economy. Yet for the most part, they evaded all of those crises. They simply didn't have. We have the record of banking crises that we had. Now, how could they escape with the same called dollar. Well, the answer is there were other differences between the Canadian banking and currency system and the US system.

And so if you want to know why we had crisis in the US, you better look at those other things. And there were plenty of them, and they were bad. We had stupid banking laws, we had really bad banking life. That I think is the most important thing to learn about US history, at least to judge by the wrong things people often say. And this goes back to that

insolarity I was complaining about before. These people who say, oh, the gold standard was the problem before the creation of the FED, or only the creation of the FED could have addressed the banking crisis, they don't know the reality of what was causing US crises, and they know nothing about even the country just to the north of US and what happened there. If they did, they would be aware. Their arguments are really not very satisfactory explanations for what happened.

their banking.

complete botch job of the banking law. They just don't understand how fractioners are banking works, what its legal foundation is. They're very con fused about what it is that a bank deposit in titles. It's older too. It's not a property right to the money you brought to the bank. It is a deposit credit that entitles you to a certain sum on demand the money you bring to your bank that goes that that you the banker takes possession

of that. And this has been true since this has been legally the case since ancient dis goes all the way back to ancient law. Basically, h if you went to a money change or a bank or anyone else, there were two things you could do with a bag. You have a you have a bunch of coins. All right, let's see, you have a bunch of money. I write about this in an article that the title of which

it's called the bagging the bagging rule, bagging law. If you went to a bank with a bunch of loose coins and put them over the counter and said here, those coins became the property of the bank. Now he might give you. Presumably he would give you a little something, a banknote or a little contract that says you can have an equivalent amount of coins anytime you want it.

That would be a demand deposit. Or if you had the banknote, then you have you know that the right to redeem that note, or someone else who gets it can do so. And that's all. But those coins aren't yours anymore. And there was a very practical reason for this, because the only way the bank could honor the commitment to give you back your property would be by giving you back exactly the same coins. So what if you don't want the banker to own your money. Well, the

law was very simple on that and very specific. You bring them in a sealed container, could be a bag, could be a box, and you say here, I want you to store these coins for me, and then they're not going to touch them. Then there's still your property. And you get a bailment contract, which is a storage contract. And I've had articles on this too. The two types of contracts very easy to see the difference. A banknote

doesn't say the same thing as a bailment contract. It says we promise to pay the bearer on demand X amount. A bailment contract says we have this stuff for you in our warehouse and we're storing very different. A Rothbard and company have totally twisted all this history, and it's tempting to say, I will say it they lie. And so you have people like Hans Herman Hoppy running around saying, oh,

the banks are replicating titles to the same property. No, when I bring money to a bank, when you bring money to your bank, you are parting with that property and you're getting something else, a financial instrument in exchange that doesn't title you to money, but doesn't entitle you to that same money because you don't have property rights to that anymore. So there's no duplication of titles. By the way, most not all, but most banking contracts, you

look at your depositor agreement with your bank. Many of them, I don't say all, because I've seen some exception. Many of them very clearly state hey, this is not a bailment contract. We are your debtor and you are our creditor. That very clearly means that you've made a loan to them of money and you're entitled to get the same value of money back with interest or whatever. It does not have anything to do with storage anyway. They're all

wrong about that. Now they're also wrong about the economic consequences of fractional vers are banking. I don't mind the mistakes they make there because they're less part they're more pardonable. But when it comes to claiming that there's a fraudulent basis to all banking, it's just false and there's no two ways around it. It's bad banking history, bad banking law. And this again I go back, goes back to ancient times. So this is not some innovation that some crooked judge

came up with in the Victorian era. This another story Rothbard tells about a case where the judges perverted the law. No, you look at that case. He is simply abiding by

legal doctrines that already were many centuries old by the time.

as bad as trumps. And they started with Hoover trying to get some protection for farmers who are struggling, had been struggling ever since the end of World War One, and it ballooned into a much more widespread set of tariffs thanks to log rolling, and then of course that invited retaliation by the countries that the teriffs were imposed upon, So he really ended up with a big tariff mess, and many people think that it did a lot of harm.

I would be inclined to think so, except that person whose work on this subject I trust mote most, which is Doug Irwin's, and he's no friend of Tariff's. He says he doesn't think the effect of the contribution to the depression was very great, and if Doug says it, I hesitate to say otherwise. I'm not sure, but I'm I'm just not sure. But I do think that Doug's opinion should be taken seriously. They didn't have a positive effect. We know that, and then it's numble no, we can

rule that out. The question is how big the negative? Yeah, yeah, yeah, This.

standard's gone. Our basic basic money is the fiat money issued by the Federal Reserve system. There isn't anything else, and so our dollar rests on this foundation of as it were, Federal reserve paper and digital book entries and nothing more. So now you can have free banking on a federal reserve fiat dollar where you let the banks issue IOUs that are claims to dollars. It could be banknotes, but it more likely would be stable coins, right, And

that's what we're talking about with the legislation. Of course, to have true free banking you have to get rid of other obnoxious regulations. We have gotten rid of some. We got rid of barriers to branch banking, which used to be extremely obnoxious. On the other hand, we've introduced

and ratcheted up deposit guarantees in a big way. The biggest departure today of our modern system from free banking, apart from the fact that we have a fiat standard, it's just huge, is that we have both deposit insurance and tremendous implicit guarantees to banks that are too big to fail. You can't have free banking unless you roll

those things back. So now I'm in a bit of a I'm in a quandary because the question was what can we most easily accomplished, and now I'm talking about what most badly needs to be accomplished, which is to get rid of these guarantees implicit and explicit, or you're not the main problems in the US banking system today, Instead of being lack of branch banking and other pesky regulations that interfere with what banks can do today, the

main problem is government guarantees that let that encourage them to take excessive risk. That is number one. Now it's really changed since before the thirties. The government's screwing things up one way or the other, but it's changed the way it doesn't now. I don't know any easy way to get rid of these guarantees. I really don't. I have argued, and most recently my colleagues at CATO have argued again that the FED really doesn't need to be in the last resort lending business, in the sense of

providing loans to any specific institutions. It should stick to providing liquidity in the marketplace through its open market operations when necessary, quantitative easing, whatever you want to call it, and of course regulating interest rates, but through nowadays through setting interest rate unreserved. It should be taken out of the business of direct blending. That can be done, and it shouldn't prevent It shouldn't prevent banks. It shouldn't make

it easy for solvent banks to fail solvent. If there's enough liquidity in the marketplace, solvent banks can borrow from other solvent banks, and that's been demonstrated many, many times in the past. It's also been demonstrated historically that there are very few banks that suffer and fail simply because people run on them out of sheer panic. Bank bank runs are almost always runs on banks that are already in trouble, and they usually start by the way they

start with the smart money. The people you see lined up at the bank, they're the last ones. It's the smart art money has already wired its money away by the time they show up at the front door. And that's that smart money knows, knows, usually knows when banks are sounded when they aren't, and stages runs on the unsound ones. So we need more bank runs actually and less last resort lending by the FED. And those are some of the central steps and very hard to take

steps to get toward free banking. I wish I could say, you know, the things that are easy are far less important. You know a lot of dumb tesky regulations out there still that might be easier to get rid of. DoD Frank is bad read bad legislation. My colleague Mark Collaborate is very good about why the myths behind its passage. But well, I'm going to cop out and say what I think we badly need to do without pretending I've

answered the question about what's easy to do. I don't think anything's easy.