George Selgin: evaluation

Transcript context

…How did the early Chicago School do? Henry Simons, Jacob Viner? The Chicago School as a whole — first of all, they were not the fiscal conservatives that they’re now made out to be. They took the lead well ahead of Keynes in pushing for big public works to counter the Great Depression. Many of them signed the petition to that effect, and they had been arguing for it for some time. So, they certainly were not laggards in the sense of recognizing that the government could help stimulate demand through public works. Fisher, of course, wasn’t really Chicago. He was Yale. He is an honorary Chicago economist, but he was a highly influential economist at the time. Fisher was for a managed fiat dollar — what we have today, in effect. In that sense, you could say it was very forward-looking, but he wanted to get rid of the gold standard. There were a lot of Chicago economists, I think, who were sympathetic with that goal. Simons wanted to do away with fractional reserve banking. I think that was a very bad way to respond to the banking crisis, which, if you looked at what was really behind it, you find that bad regulations, rather than fractional reserve banking, per se, were the problems. Simons only had to look north to Canada to see that you didn’t have to have a banking collapse just because you had fractional reserve banks. I give the Chicago people different grades according to the different persons, because they all had different views about these things. What I would say is true of all of them is that they were not the simple-minded classical economists that Keynes caricatures in The General Theory. You mentioned the banking issue. I remember well the 1980s, when many people insisted to me that Japan, Germany — they had these systems of universal banking: quite well capitalized, pretty highly concentrated. It was supposed to be better than the decentralized American system, which, every now and then, would go insolvent. There’d be problems with the deposit insurance funds. One hears frequently claims about Canadian banking to the north, “Well, they allow all this branch banking. You only have a few large banks. They never go under.” But from the vantage point of 2025, when America clearly has by far the best capital markets in the world — they’re very decentralized. Banks are just becoming smaller and smaller, 15 percent to 20 percent of the whole. Did we really do so bad not to move to that highly centralized model, even though it would’ve been stabilizing at the time?…

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