What should FDR have done during the interregnum?

Paul Krugman made the following comment about a recent statement by Obama:

And here’s this, from Thomas Ferguson: Obama saying

“We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly.”

As Ferguson explains, this is a right-wing smear. What actually happened was that during the interregnum between the 1932 election and the1933 inauguration “” which was much longer then, because the inauguration didn’t take place until March “” Herbert Hoover tried to rope FDR into maintaining his policies, including rigid adherence to the gold standard and fiscal austerity. FDR declined to be part of this.

But Obama buys the right-wing smear.

I’m not a FDR hater; I think he was “magnificently right” to devalue the dollar (to quote Keynes.)  But FDR probably should have cooperated with Hoover–even if it meant (falsely) promising not to devalue the dollar.

And please don’t say “but that would have been lying.”   Here’s the Democratic Party platform that FDR campaigned on:

The Democratic Party solemnly promises by appropriate action to put into effect the principles, policies, and reforms herein advocated, and to eradicate the policies, methods, and practices herein condemned. We advocate an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government. And we call upon the Democratic Party in the states to make a zealous effort to achieve a proportionate result.

We favor maintenance of the national credit by a federal budget annually balanced on the basis of accurate executive estimates within revenues, raised by a system of taxation levied on the principle of ability to pay.

We advocate a sound currency to be preserved at all hazards and an international monetary conference called on the invitation of our government to consider the rehabilitation of silver and related questions.

Politicians lie all the time.  They are expected to lie.  The British government lied in 1931, 1967, and 1992, when it said it wasn’t going to devalue, before it did devalue.  That’s expected.  Everyone knows that if you say you will devalue in the future, it forces an immediate devaluation.  And under a gold standard if there is uncertainty about whether a devaluation will occur then gold hoarding increases, which is deflationary.  This happened on four occasions during the Great Depression, and on each occasion asset prices and industrial production declined sharply.

FDR basically had three choices.  The traditional route would have been to lie and say that he would adhere to the platform, maintaining the gold standard while working toward an international agreement to give silver a monetary role.  The markets knew that other countries weren’t going to adopt silver.   Then when he took office he could have said; “Because I wasn’t able to get agreement, we have to go it alone with a currency devaluation.”

Or he could have told the truth and said he was going to devalue the dollar.  That would have forced Hoover’s hand, and a devaluation would have occurred almost immediately.  The promising upswing of July to October 1932 would have turned into an explosive boom.  The 57% increase in industrial production that occurred during the first four months of FDR’s term would have instead occurred in the last 4 months of the Hoover administration.  If FDR had gone ahead with the NIRA’s high wage policy then he would have been blamed for aborting the Hoover recovery.

Instead he was continually evasive.  Even in Hoover’s last days in office he refused to support any of Hoover’s actions to address the banking crisis.

The interregnum was a horrible period, with an enormous amount of suffering during the winter of 1932-33.  It was the low point of the Great Depression.   And although the Depression itself was Hoover’s fault, this especially bleak period was partly FDR’s fault.  I’m not one of those conspiracy buffs who thinks FDR intentionally allowed Pearl Harbor to happen.  And I doubt he fully understood the effect of his evasive answers.  But most educated observers back then knew what was going on.  They knew that uncertainty about the dollar was depressing the economy.  The press pointed to similar events during the late 1800s, when fears about the soundness of the dollar had also had a deflationary impact.  FDR had three options, and he picked the one that imposed maximum harm on the economy.  That’s no right wing smear, it’s the truth.

Update:  Commenter Russ Anderson pointed out that this post was confusing.  I should have been clearer that while the best option for the country was for FDR to state he would devalue, and force Hoover’s hand, that option was a complete non-starter, politically unacceptable.  Those things just are done.  Given that the best option wasn’t really on the table, he should have said he’d maintain the gold standard.  Nothing I said should be seen as implying that the Great Contraction was caused by anyone other than Hoover.