Keynes and the New Deal

15 Nov, 2014 at 11:50 | Posted in Economics, Politics & Society | 1 Comment

 

1 Comment

  1. It would be far more accurate and informative a thesis, if the speaker had taken as his task a contrast of Keynes’ ideas with the New Deal. New Deal “pump-priming” and “emergency” public works employment fell far short of the scale that Keynes appeared to be advocating. Moreover, the New Deal concentrated most of its attention on institution-building structural reforms, about which the liberal Keynes was skeptical. In one of his letters to FDR, Keynes quite explicitly advocated postponing the institutional reform agenda in favor of more effort to boost aggregate demand in general.
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    The most salient New Deal program to address the rural economy and agriculture was the Agricultural Adjustment Act (AAA) and related legislation, which instituted an extensive industrial policy aimed at stabilizing markets with price supports, crop insurance, and schemes to reduce surplus planting and livestock. There was nothing* Keynesian about it, and though mainstream economics has made a ritual of condemning it, it was a highly successful program, which triggered a steady, secular increase in American agricultural productivity. Soil conservation, rural electrification the Tennessee Valley Authority were other prominent New Deal initiatives.
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    Scholarship has been quite clear that the New Deal, at least up until rearmament began in earnest in 1939, involved very modest fiscal stimulus in a Keynesian sense and a monetary policy, which was accommodative except for the unfortunate episode in 1937, but had little to accommodate beyond the increasing inflow of gold from European refugees.
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    The useful of the Keynesian framework to the technocrats, who planned the industrial mobilization, which began in earnest late in 1939, would add to Keynes’ credibility. Whether a more Keynesian focus on reflating the economy during the 1930s would have removed the political pressure for institutional and structural reform of the economy would be speculative, but it is factual enough to note that the institutional reform agenda, which restructured banking and finance as well as agriculture, and permitted industrial unionism to spread, driving up wage rates (something, which had never happened during a depression before), instituted social insurance, etc. were not part of Keynes’ vision. At best, we may say that Keynes had a vague sentiment in favor of socializing investment, which formed a warp against the weave of his basic liberalism.

    *technically, the Thomas Amendment to the AAA of 1933 did provide important statutory authority for developing a fiat money and monetary policy based on open market operations by the Federal Reserve.


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