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Keynesian Theory & the New Deal   Term Paper ID:27912 Click to get this paper

Essay Subject: Argues that goals of Roosevelt's New Deal & Keynesian economics were not the same. Presents positions of Keynes & the New Dealers, & outlines differences.... More...

8 Pages / 1800 Words 5 sources, 18 Citations, APA Format $32.00 Return to List of Papers

Paper Abstract: Argues that goals of Roosevelt's New Deal & Keynesian economics were not the same. Presents positions of Keynes & the New Dealers, & outlines differences. Paper Introduction: Keynesian Theory and the New Deal The New Deal, instituted by President Franklin D. Roosevelt in 1933, and conventionally dated as having continued until the outbreak of the European war in 1939, marked an epochal change in American domestic policy and in the role of the Federal government in American life. It also marked a major transition in Western economic thought. Until the New Deal era, the range of economic choices available was starkly simple: classical orthodoxy or Marxism. For policymakers in Western countries, that was effectively no choice at all, so for practical purposes classical laissez-faire economics reigned supreme. Government was admitted to no major role in economic life. In contrast, from the time Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. 113) ReferencesCollins, R. In D. It will be through raising high the prestige of your Administration by success in short-range recovery that you will have the driving force to accomplish long-range reform. M. The irony was not lost on Keynes, who hadindeed anticipated it in principle. In 1935-36, the economy appeared to have made asubstantial recovery, if not to its level in the 192 s, at least to a muchhigher and more tolerable condition than that of the 193 s. M. If he fails rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out. Only the threat of war wassufficient to break through the strong cultural and political inhibitionsagainst large-scale stimulus. However, eventhe alternative of monetarism admitted an active if less direct governmentrole in the economy. The view that become predominant among the New Dealers was that theeconomy had indeed entered a new phase. (Lekachman, 1966, p. After years of economic prosperity and growth, fears of a postwar depression receded. XXI, London: Macmillan.Lekachman, R. . In fact, however, the role of Keynes and his ideas as a driving forcebehind the New Deal is vastly less clearcut. One extensive account of the American effort todeal with the Great Depression, published in 1936, mentions Keynes onlytwice in nearly 55 pages of text, both times in footnotes (Moulton, et al,1972, pp. Awareness of Keynesian theory and its applicability to the problem ofU.S. "After finally meeting Keynes,the President reported to Frances Perkins that 'he left a whole rigamaroleof figures. The irony is of course that although the military buildupamounted to Keynesian stimulus on the grandest scale, it was not undertakenfor Keynesian or any other economic reason. At the same time, however, "pump-priming" was ascontroversial as any of the New Deal's measures. Fiscal policy has become closely associated with the thirties; John Maynard Keynes's General Theory of Employment, Interest and Money was published in 1936. Keynesian fiscal techniques, plus such built-in stabilizers or "cushions" as social security payments and unemployment compensation, it was increasingly held, had "solved" the problem of depression. (Rosenof, 1975, p. But in 1936-37, the economy slipped back into severe recession. Roosevelt in 1933,and conventionally dated as having continued until the outbreak of theEuropean war in 1939, marked an epochal change in American domestic policyand in the role of the Federal government in American life. 5-6). (1972). "'Too often in recenthistory,' he warned, 'liberal governments have been wrecked on rocks ofloose fiscal policy. Itdid not approach the depths of 1933, but the drop forced the New Deal toresume its stimulative efforts. (Keynes, 1982, p. 9-1 ). A demoralized country benefited immensely from the sense of astrong hand at the helm, as Britain would benefit from Churchill's stronghand under entirely different circumstances a decade later. (1975). Keynesian Theory and the New Deal The New Deal, instituted by President Franklin D. G., et al. 4). 297)He went on to criticize the New Dealers for failing to sufficiently addressthe immediate problem, or for addressing it with insufficient or evencounterproductive means. The New Dealers thus drifted toward stimulativemeasures, not on the basis of theory, but a set of desperate stopgapmeasures to prevent a further unwinding of the economy while they sought tocure what they viewed as its structural defects. 6 billion by194 , a nearly threefold increase (Collins, 1981, p. Government was admitted to no major rolein economic life. But it is now generally accepted that the New Deal measures had nomore than a marginal economic impact. New York: Random House.Moulton, H. Thenext year, war came to Europe, and rearmament began to come to the UnitedStates. Activities 1931-1939: World Crises and Policies in Britain and America. Closely allied to this view was a perception that the underlyingcrisis was one of income distribution. 54) When Franklin D. But once these needs had beenlargely met, as the New Dealers believed they had been, accumulations ofwealth became unproductive. Dogma, depression, and the New Deal. Moreover, at least in the United States, the recoveryof the 198 s may be credited largely to Keynesian policy in a militaryguise. The 192 s had seen broad-basedprosperity in the United States, but against this backdrop the distributionof income had become increasingly unequal, with wealth accumulating in thehands of the rich. Vol. By this time, however, the New Deal had nearly run its course. 2,892, Americans worked at one time or another in the various recovery projects.The Federal budget grew from $3.44 billion in 193 to $9. One did not need to be a Keynesian theorist, or even to have heard ofKeynes, to realize that spending cuts could only lead in the short term tofurther unemployment, unacceptable when a quarter of the labor force wasalready out of work. These two episodes finally proved that a government which spends enough and borrows enough can eliminate unemployment. So long as vast unmet investment needs had existed--railroads and factories waiting to be built--the wealth of the investorclass found a productive outlet. In the former case, themeasures required for recovery were those that would restore confidence; inthe later case, the need was for some means to infuse new purchasing powerinto the economy (Rosenof, 1975, pp. In the remainder of this essay, we will enquire intothe nature of the relationship between Keynesian theory and New Dealpolicies. Until the New Deal era,the range of economic choices available was starkly simple: classicalorthodoxy or Marxism. Because the New Deal was followed by a generation of Keynesiandominance, the New Deal itself has often been read retrospectively as aKeynesian experiment, and the door through which Keynesian theory enteredthe halls of government. London: Kennikat Press. In contrast, from the time of the New Deal on, the role of governmentin Western economies was a given. 113) It is generally acknowledged that it was the war, and not the NewDeal itself, that really brought an end to the Great Depression in theUnited States. 8). In1933, stimulus had been proposed simply as a stop-gap, as a means of doingsomething to provide jobs at a time when unemployment was desperately high. If the New Deal wasfundamentally a success, its achievement was essentially psychological, noteconomic. The business response to keynes, 1929-1964. The frontier was gone. In an open letter in late 1933,Keynes wrote to Roosevelt that You are engaged on a double task, recovery and reform--recovery from the slump, and the passage of those business and social reforms which are long overdue. New York: Columbia University.Keynes, J. Indeed, most spenders simultaneously espoused other programs which they regarded as more "fundamental" than mere "pump priming." (Rosonof, 1975, p. Certainly the New Deal era brought a vastexpansion of the direct governmental role in American economic life.Government employment, not counting those employed in works-reliefprojects, increased by seventy-three percent from 193 to 194 . In 1938, for the first time in the history of the New Deal, advocates ofstimulus viewed their efforts in a specifically Keynesian light (Collins,1981, pp. For policymakers in Western countries, that waseffectively no choice at all, so for practical purposes classical laissez-faire economics reigned supreme. 2 ff). It also markeda major transition in Western economic thought. The idea of spending to spur recovery was a common one, yet few held it to be the answer to depression. It might be more accurate tosay that the influence went the other way; that both the successes and theshortcomings of the New Deal were instrumental in paving the way for publicacceptance of Keynes. But Keynesian ideas were at most on the very fringes of the political debate. 3).Once in office, however, he quickly abandoned this orthodoxy in favor of anad-hoc approach to the recovery problem. "The New Dealers as a group--or at least the New Deal political leaders--agreed as to their fundamentaldepression analysis: the key problem, they argued, lay in themaldistribution of income" (Rosenof, 1975, p. The productive capacity to provide the necessities of life, andeven such conveniences as mass ownership of automobiles, already existed.The economy was mature, and had reached its limit of natural growth(Rosenof, 1975, pp. Moggridge (ed.). As a Keynesian economic experience,the New Deal has aptly been summed up as follows: From a Keynesian standpoint, the 193 s simply proved that fiscal policies that are too timid, too wavering, and too often contradicted by other measures with quite different tendencies will not expand employment and income by the amounts needed to restory prosperity. In the face ofthis improvement, Roosevelt gave way to his orthodox instincts and proposedto cut back stimulus programs and move toward a balanced budget. New York: Da Capo Press.Rosenof, T. "At the moment even his sympathisers in Englandare somewhat disconcerted," he wrote. Was it simply another cyclical downturn,albeit exceptionally severe and long-lived, or did it embody a fundamentalnew stage in the evolution of the economy. He must be a mathematician rather than a political economist"(Collins, 1981, p. (1981). Roosevelt came into office in 1933, his originaleconomic program was thoroughly orthodox. (Keynes, 1982, p. economic recovery and the direction of the New Deal gradually spreadamong the younger, mid-level New Dealers, but through the middle 193 s,even after the publication of the General Theory in 1936, this awarenessdid not reach to the top. (Lekachman, 1966, p. The laboratory demonstration of the efficacy of Keynesian remedies occurred not in the 193 s but during the enormous wartime surge in national output and the postwar boom in consumer goods which ensued. 55-56). For a generation after the New Deal, thefiscalist economic theory of John Maynard Keynes was dominant enough toamount to a new orthodoxy. The large goal of the New Deal was therefore income redistribution."Pump-priming" to restart economic activity was only a secondary if moreimmediate goal. 36 ; 45 ). . 5). We must avoid this danger'" (Collins, 1981, p. . The recovery problem in the United States. 298). The problem of how to encourage recovery was a practical one, but itwas inseperable from the more philosophical question of why the depressionhad happened in the first place. Neither these long-range missives nor an eventual face-to-facemeeting with Roosevelt, however, gained Keynes a serious hearing by thepresident or his senior advisors. "As Keynes himself had noted in TheGeneral Theory, military expenditure was one of the few respectable ways ofincreasing aggregate demand by government action" (Lekachman, 1966, p.113). In his view, nothing less was at stake than the possibilityof reform within a broadly free-market and democratic social and politicalframework: Mr. Roosevelt has made himself the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. By now, in the wake of the publication ofthe General Theory, Keynes and Keynesian theory were much better-known. In the absence of an economic theoryto justify stimulus, the New Dealers could not easily answer thesecriticisms, and were the more discouraged from viewing stimulus as morethen tempory "pump-priming." Keynes himself pointed out, however, as early as 1933, that theability of the New Deal to carry out its proposed long-term reforms wasfundamentally contingent upon its success in meeting the short-termchallenge of restarting the economy. Americans at the time did not regard the New Deal asa Keynesian experiment. 29 ) In another essay, Keynes expressed himself regarding the stakes ofthe New Deal. The age of keynes. "They wonder whether the order ofdifferent urgencies is rightly understood" (Keynes, 1982, p. For the first, speed and quick results are essential . If Roosevelt's remarks after theirmeeting are any indication, Keynes adopted an unfortunate strategy.Instead of laying out his fundamental case in the clear and trenchantlanguage of which he was fully capable, he evidently allowed himself tobecome bogged down in numerical minutiae. Onlyfrom the perspective of the 195 s and 196 s was a Keynesian interpretationplaced retrospectively upon the New Deal. (1966). 1). 4)Only in the 197 s, with the onset of prolonged stagflation, did confidencein partially evaporate Keynesianism (Rosenof, 1975, p. The great task of building theindustrial economy of the United States had, in their perception, beenlargely completed. The effect was of course further economic stimulus, a stimuluswhich with the entry of the United States into the war would reach a scaleat least an order of magnitude greater than anything ever contemplatedduring the New Deal itself. He had campaigned on a platformof government spending cuts and a balanced budget. (1982). The need was to transfer spending power intothe hands of the mass of the people, who were now unable to purchase thegoods the economy made potentially available. The railroad system had beenbuilt. Conservatives criticizedstimulative measures as producing only unsustainable "false prosperity,"and as interfering with the processes that would bring about genuinerecovery (Rosonof, 1975, pp. At the end of the war, a return to Depression conditions was widelyanticipated; instead, the enormous pent-up demand and buying power producedby the war years resulted in an economic boom, yet further stimulated byadditional "military Keynesianism" in the form of Cold War spending. The collected writings of John Maynard Keynes. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.