BACK TO THE DEPRESSION

History Note

In 1929 federal spending totaled $3.1 billion, revenues were $3.9 billion. In 1933, spending was 4.6 billion, revenues $2.0 billion.

The hidden truth of these numbers is that they do not reflect a push by the new Roosevelt administration to deficit spending, but the minimal deficit of a conservative government mitigated by compassion.

The budget constraint was felt sharply by everyone, economists and politicians alike, universally. Programs were made necessary by need, not any sort of economic strategy. Direct relief of the impoverished. Farmers in crashing commodities markets. Jobs for the jobless.

Galbraith the Elder, a neophyte in the Department of Agriculture at the time, says, quote, "That recovery might come from increased public spending, an increased public deficit, was well beyond the range of responsible thought. A deficit reflected, at best, harsh necessity. Certainly it had no positive value. Or so it was until what came to be called the Age of Keynes." unquote.

The shock of Keynes' prescription of deficit spending can hardly be exaggerated. Had he not written presciently on the disastrous treaty of Versailles and had his criticisms of Churchill's return to the gold standard not proven prophetic, it is likely he would have been ignored. As it was, even in the circumstances of the Depression, though among the most preeminent economists, there was more than a little doubt about his advice.

We have read here from Keynes open letter to President Roosevelt, published in the New York Times on the last day of 1933, which advocated

"... overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure financed by loans."

This and subsequent visits to Roosevelt, plus the publication of Keynes' General Theory in 1936 made far less impact that is imagined today. But it did give room in policy for the programs of help that took the edge off the collapse of the cowboy capitalism of the 1920s.