The New Deal & John Maynard Keynes

The Depression is particularly difficult on rural America. And maybe nowhere is it worse than in the rural South. In fact, Franklin Roosevelt, early in his first administration, calls the South the nation's number one economic problem. So it's not surprising that the New Deal administration, all the different agencies that he creates, and so on and so forth, are, in no small part, directed at solving the problems of rural America and the rural South. In their efforts to do so, they also start to implement a new kind of government policy, a policy that we often associate with the ideas of the British economist John Maynard Keynes. Now, it's not clear that New Deal policymakers, and it's certainly not clear that President Roosevelt had Keynes in mind. In fact, some of his most important publications don't even come out until well into Roosevelt's second administration. But those thoughts, those ideas, are in the air. And what we see is a new approach to the relationship between the government, on the one hand, and industrial capitalism, on the other, that is going to affect some tremendous changes in the American economy. So of course, in the first 100 days after Roosevelt's inauguration, his administration pushes a whole array of laws through Congress. This period is called the 100 days of Roosevelt, because they concentrate very intensely on creating a new wave of approaches to the economy. And part of this, all the agencies, the alphabet soup, as it's called, with all the agencies with their different acronyms, part of the purpose of this is to instill confidence. There is a crisis of confidence in the very idea of liberal democracy. As people in the United States and Britain and places like that look at countries with less free governments, let's put it that way, with governments that we would see as more oppressive, less democratic, governments like the Soviet Union or fascist Italy, what they also see is that these governments are taking decisive action. Decisive action that in some cases is actually putting people back to work or keeping them in work, despite the general economic slowdown that is starving businesses all around the globe. So Roosevelt and other policymakers feel that it is necessary to do something to change the impression that liberal democracy simply cannot handle this crisis. And the traditional recipe, the traditional playbook, has called for the government to essentially do nothing, to allow the economy to hit rock bottom, as Treasury Secretary Andrew Mellon had advised under Hoover. As wages drop, as people are put out of work, the price of labor is going to get low enough that businesses will once again eventually start to invest. But that is what they've been trying. That is what the government have been trying ever since 1929. And the unemployment rate only was getting higher. The economy was only getting worse. And social unrest and real misery was gripping the American people. So in addition to trying to instill confidence, what is also on the books now, what is also proposed by the new set of laws and agencies is actually a new way for liberal democracy to deal with the economy, for the government, in fact, to become more of an active presence to intervene more directly in the economy. And in doing so, what you see is that the Roosevelt administration, the New Deal, creates a set of agencies that are going to actively implement policies that are very much like the policies that the British economist John Keynes will suggest. He's already suggesting it in some papers. And he will suggest it in a book in just a few years. It's an interesting convergence of ideas. And the general thought behind the acts that are taken by the New Deal and the general thought behind the theories of Keynes is this. When the economy slows down, when demand drops, the government should do something to increase consumption and increase investment, to prevent a spiral of further unemployment. Because of course, as people were thrown out of work, at a certain point, so many people had become unemployed that the level of consumption, the level of purchases in the economy was going to drop even further. Perhaps the economy would ultimately enter a kind of death spiral. So something had to be done to raise the level of consumption and raise the level of investment in the economy. And Roosevelt and the New Deal looked specifically at the rural economy, where times were particularly bad, and particularly in the rural South, to try to change some of the dynamics that were making the bad effects, the worst effects of the Depression, most deeply felt there.