Q&A with Eric Rauchway

Eric Rauchway is the author of the new book The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace. His other books include The Great Depression and the New Deal and Murdering McKinley. His work has appeared in a variety of publications, including The American Prospect and the Financial Times. A historian at the University of California, Davis, he lives in Davis, California.

Q: What are some of the most common perceptions and misperceptions about FDR's monetary policies?

A: There's a lot of confusion about Roosevelt himself owing to the way his mind worked. As I explain in the book, Roosevelt came into office in March 1933 determined to end the gold standard, already persuaded that the gold standard had, through deflation, helped cause the Depression.

The first substantial act he took as president was to end the gold standard. Over the next 10 months or so of his presidency he took a series of further steps to replace the gold standard with provisions for managing the value of the dollar domestically and coordinating currency management internationally, so nothing like the Depression would happen again; by the end of his presidency he had realized this vision for both the U.S. and the world.

He was consistent in this purpose. But he did not lay out a detailed plan for it nor, I think, did he have one. Which is what seems to bother a lot of people.

Roosevelt had a particular kind of mind; as he said himself, early in his presidency, he was like a football quarterback: he knew he wanted to get his team to the end zone, and he knew what play he was going to run next.

But as for what he was going to do after that—well, he didn't see any point in thinking about that, because it all depended on how this next move worked out.

So he knew where he was going, but he didn't know, step-by-step, how he was going to get there—because Roosevelt knew he had to work through a political process, where there was opposition, and advances came piecemeal.

That way of thinking seems to me typical of one kind of goal-driven, competent mind, but it's also infuriating to another, more methodical kind of mind, which wants to know exactly how things are going to play out.

Many historians seem to belong to that latter sort, and therefore have been eager to say that Roosevelt didn't know what he was doing and that the U.S. lucked into a good monetary policy.

But I think if you note what Roosevelt said and pay careful attention to what he did, you can see how it is he operated, and how he achieved both short-term and long-term successes.

Q: How directly did Keynes's ideas influence Roosevelt, and how much did the two interact?

A: Keynes came to the U.S. and met Roosevelt in 1934, and again in 1941 (twice) and 1944. More importantly, though, Keynes's ideas were circulating among Roosevelt's closest advisors from before the time he took office, and were widely discussed.

Keynes worked directly with Roosevelt's advisors to articulate the president's proposed international monetary plan in 1933; he wrote to Roosevelt (both publicly and privately) about recovery policy in the 1930s; and worked with officials in the administration and the president directly to plan both Lend Lease and the peace policies in the 1940s.

The ideas seem to have had considerable impact on Roosevelt, but it's also true that Roosevelt's actions had considerable impact on Keynes's ideas—so it's not entirely clear which way the causality runs.

Q: What were some of the most important impacts of FDR's monetary policies outside the U.S.?

A: Roosevelt used monetary policy to support international resistance to fascism during the 1930s, when by law he could not use the budget of the United States to do so; he worked with the British (in the person of Keynes) to intertwine monetary policies and aid to Britain in the fight against Nazism in 1940 and 1941; later in 1941 he did likewise for the Soviet Union; and of course at the end of the war, the idea of using monetary policy as a way to ensure peace, prosperity, and economic development became a cornerstone of the United Nations' plan for peace.

Q: Looking at FDR's monetary decisions during his presidency, what are some of the lessons for today's financial and government leaders?

A: Roosevelt knew that bankers were first and loudest in their call to avoid inflation, even amidst severe deflation, and he discounted their views accordingly. He knew that managing a nation's currency to ensure prosperity was vital not only for economic purposes, but for political purposes—to avoid a turn to fascism.

Q: What are you working on now?

A: I'm writing a book about the period between the presidential election of 1932 and Roosevelt's inauguration, the last time a president waited until March 4 to take office (it's been January 20 ever since). I'm taking the view that the hundred days before the New Deal began are as important, or more so, in understanding Roosevelt's presidency than the hundred days after.

--Interview with Deborah Kalb