The Great Depression is far from my area of expertise, though I know enough about the questionable aspects of Burton Folsom’s history (particularly the skewed employment numbers and the light treatment of political volatility).  What I find interesting is that this debate about the effectiveness of New Deal policies seems to have found distant shores. Australia’s PM, Kevin Rudd, not only referenced the New Deal in justifying state intervention in financial markets and aggressive economic stimulus, but Australian columnists have taken up the arguments of American conservatives in opposing Rudd’s proposals.  Referencing Fulsom, Michael Costa wrote:

What is not in dispute is that the US Federal Reserve made the Depression worse by mismanaging monetary policy. At the onset of the Depression, the Federal Reserve adopted a deflationary monetary policy that added to its severity. The money supply contracted by nearly one third in the Depression’s first four years. That’s why present Fed chairman Ben Bernanke moved quickly to increase liquidity.

Without discussing the merits of Folsom’s arguments, I wonder how Costa came to the conclusion that this is “not in dispute”, considering Fulsom’s arguments fly in the face of many American histories of the Depression, and that Fulsom has gained currency mostly among politicians, almost all conservative.  (Perhaps a better critique would come from Alan Brinkley’s The End of Reform: Roosevelt and Morgenthau found that  state intervention brought stability, but limited potential growth.  Consequently, Rudd’s plan to reinvent capitalism under state guidance might not provide as much bang in the long term.)

On a similar note, German Social Democrat Erhard Eppler has been arguing hard for not just state intervention, but reinvestment in the state itself (see “The State is an Achievement Itself” and “Nicht-Staaten sind gefaerlich“).

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