Discussion [excerpt from the American Economic Review, vol ... · run a deficit, came well before Keynes was in vogue, and cannot be attributed to any ... bill which relied solely

DISCUSSION

LEON H. KEYSERLING: I shall draw mainlyupon personal experience, which puts me ina position to evaluate the work of others thanthose discussed here today. This is done, notto redistribute credit, a worthless enterpriseper se, but rather to show how the inbredinsularity of the academicians first divorcedthem from much influence upon what wasdone or even knowledge of who was doingit—and later led them to do the wrongthings when their influence increased. Refer-ence is especially to the designated followersof Keynes, who in later years I hold to beperverters of his teachings.

I shall list nine outstanding New Dealprograms not closely related to those men-tioned here today—six of which I waspeculiarly able to observe because of myproximity as a major or the principal drafts-man, and, in some instances, the originatorof the proposal that they enacted.

First, there was the National IndustrialRecovery Act. Its provisions for trade associ-ation action under government aegis origi-nated primarily with Gerard Swope, tradeassociation lawyers, and the planning ideasof Rexford G. Tugwell. Its wage and hourprovisions and Section 7(a) for collectivebargaining were first recommended to Sena-tor Wagner by me.

Second, there was the National LaborRelations Act, which history may record asthe most influential vehicle of economic,social and political change of any New Dealprogram. During the long and bitter battlefor its enactment, under Senator Wagner'sleadership with my help, it was opposed bytop officials of Cabinet rank, never reallyhelped by the President, and accorded nointerest by top executive branch economists.

Third in my enumeration, the originalmassive public spending, from which mostpublic spending under the New Deal ema-nated, was the S3.3 billion public works titleof the NIRA. This did not come from theexecutive branch at all. It summed up re-peated public works bills introduced bySenators Wagner, Costigan, and LaFollettefrom 1929 forward, stemming in turn fromSenator Wagner's Economic Stabilization

Act of 1929, which proposed increased publicworks spending as private indexes of eco-nomic activity fell. The proposal that thegovernment spend more to employ peoplewhen unemployment is very high, and thusrun a deficit, came well before Keynes wasin vogue, and cannot be attributed to anyone man or school. Nor were the main "ideamen" behind these measures among thosestressed here today.

A fourth aspect of enduring New Dealprograms was housing legislation, rangingover FHA mortgage insurance, home loanbank operations, and public housing. Thisemerged from the work of the housing re-formers of the 1920's and some practicalexperts in the home financing field. I wascrucially involved in almost all of thishousing work, and vital parts of it wereviewed very unsympathetically by the execu-tive branch.

A fifth example was the AgriculturalAdjustment Act. Despite some mistakes, theprice support program served a great anduseful purpose. The main role of mostacademic economists in later years has beento undermine the price support legislationby largely unanalytical and unfair attacks.

A sixth aspect covered the whole field ofsocial security. This ran way back to Euro-pean examples, and many years of work bywelfare specialists here. The main influenceof the academic economists who helped drawup the original social security legislation wasunfortunate. Over my unavailing protests,they started a system of old-age insurancefinanced by regressive taxation, and a systemof unemployment insurance conducted sepa-rately in forty-eight states, when we neededa national system supported by progressivetaxation.

Seventh, the liberal and so-called "cheap"money policies of the New Deal were de-manded by the times, were a trademark ofthe Democratic Party, and went back atleast to the Populist movement of the 1890's.

Eighth, there was the TVA, which wentback to George Norris and Muscle Shoals.

Ninth, there was the Employment Act of1946, to which I shall return.

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KEYNESIAN REVOLUTION—DISCUSSION 135

Thus, major elements in the enduringachievements of the New Deal originated inthe Congress, and much of these were op-posed or damned with faint praise by thePresident and his administration. Nor, insheer reality, can the academic economists,inside or outside of government, claim muchcreative influence in these connections. Evenif one looks for comprehensive analysis ofthe economic circumstances then pertaining,and what needed to be done about them,there was more of this in the CongressionalRecord, committee reports, and the inde-pendent writings of economists working withlegislators than elsewhere.

In essence, the New Deal was made feasi-ble by the political and social conditions ofthe times and the advent of great leadership.But its specific content was in the main-stream of the American experience: thefarmer-labor movement and the labor move-ment, the Populist movement, some aspectsof William Jennings Bryan, the reformperiod of Woodrow Wilson, the distributiveteachings of Henry George, the preachmentsof the Socialist parties for many years, thelarge numbers of voluntary associationsdevoted to a variety of social reforms, con-temporary Congressional leadership, andeconomists who divorced themselves fromthe preoccupations of the academicians andwere all too frequently scorned and ignoredby them. With all due respect to Keynes, Ihave been unable to discover much reason-able evidence that the New Deal would havebeen greatly different if he had never lived,and if a so-called school of economics hadnot taken on his name.

Coming now to World War II, this crisiscaused us to rise above the traditional dis-putes among academic economists, and toembark upon planning on a grand scale.The task at hand was to establish long-rangequantitative goals for the whole economy;determine allocations of resources and in-comes toward economic equilibrium andfull employment; fuse all policies towardthese ends; and pay due regard to the priori-ties and social justice, called "equality ofsacrifice." The big issues were how extensivethe planning should be, how large and imagi-

native the goals should be, etc. And one'sviews on these subjects depended uponexperience and biases, drive and imagination,having relatively little to do with the quar-rels among economists qua economists.

This brings me to the Employment Act of1946, a greatly misunderstood and mis-applied statute, which sought, with propermodification, to benefit by the World WarII experience. My Pabst prizewinning essayof 1944 did advocate compensatory spend-ing, but that was not its dominant note. Itadvocated, at the highest levels of the federalgovernment, a long-range performance bud-get for the American economy in action,setting quantitative goals for resource useand income allocation, toward maintainingequilibrium at full resource use; that all ofthe basically important national economicand related social policies be blended into asingle policy; that equal emphasis be placedupon distributive justice; and that the effortbe undertaken jointly by the President andthe Congress, thus seeking to provide someof the bridge for common action which theparliamentary system offers. The actual Em-ployment Act of 1946 was almost an exactfulfillment of my 1944 essay, except that itprovided for a Council of Economic Ad-visers, and separate rather than mergedaction by representatives of the Presidentand the Congress. The Act opened the wayto a far more comprehensive and unified ap-proach than any one school of economics,Keynesian or otherwise.

In late 1944 I persuaded Senator JamesE. Murray to undertake translation of myPabst plan into basic legislation, and to em-ploy Bertram Gross, who had worked for mepreviously, to devote his full time to organ-izing the details of a campaign to which Icould not devote full time as Deputy Ad-ministrator and General Counsel of the war-time National Housing Agency. However, Iparticipated in the drafting of the legisla-tion. I was in the best position to obtain thesponsorship and interest not only of SenatorMurray but also of the other three Senatorialsponsors, Senators Wagner, O'Mahoney, andThomas, and also the House sponsor, Con-gressman Wright Patman. And because of


136 AMERICAN ECONOMIC ASSOCIATION

my very close association with SenatorRobert A. Taft in housing endeavors, I wasable to help much in winning his support,and that of some other Republican Senators,for the kind of Employment Act whichseemed to me best. Also, I was selected tomake the case for the bill before PresidentTruman's Mobilization and ReconversionCommittee headed by Fred Vinson, andthis changed a lukewarm attitude toward thebill by the Truman administration to veryvigorous support. I resisted that draft of thebill which relied solely on compensatoryspending, viewing the equal importance ofso many other aspects of economic and socialpolicy. I never believed that the bill was"watered down," and I helped with someof what was mistakenly called "wateringdown"; and I saw no meaningful differencebetween "full" and "maximum" employ-ment, as either needs to be defined as theoperators see fit. The final legislation met theneed for a plenary planning statute.

Then came, at least after the Korean war,the evolving debacle of the Act's administra-tion, with a real planning process not set inmotion; with long-range and unified goalsnot set; and with no one unified program andpolicy substituted for a congeries of scatteredand ad hoc short-range efforts. And above all,the distributional aspects of Keynes' teach-ings were neglected. Fundamentally, hefound that the need for increased publicinvestment to compensate for inadequateprivate investment resulted from the mal-distribution of income and saving. Indeed, inhis summary chapter in the General Theory,he pointed out that compensatory spendingcould not possibly work without vast con-centration upon improved income distribu-tion through taxation and other measures.

Unfortunately, the official proponents of"The New Economics," while purporting tobe Keynesian, neither planned nor focusedupon distribution. In their analysis, con-clusions, and programs, they held that itmattered not much who got the tax reduc-tions or where the increased spending went,and even not much whether tax reductionsor increased spending was resorted to, solong as on paper the quantitative addition

to the total potential spending stream wasadequate to restore full employment.

All of this reminded me of the man whodrove his car up to a filling station and said,"fill her up." When the attendant asked,"Shall I pour oil into the tires, or water intothe gas tank, or gas into the radiator?" theanswer was, "What difference does it make,just fill her up. Haven't you heard of LordKeynes?"

In sheer fact, the highly unsatisfactoryupward movement from 1961 to 1964 waslargely "autonomous" and hardly betterthan the two upward movements after thefirst two Eisenhower recessions. The $20billion annual rate of misdirected tax reduc-tions gave the economy a big boost from1964 to 1966. But due to aggravation ofdistortions in resource use and income allo-cation, a serious shrinkage in the real eco-nomic growth rate commenced from 1966forward, although not noticed by many untilthe advent of an absolute recession in 1969-1970, which is a commentary in itself.Further, we would have had an absoluterecession by 1966 but for vast and unantici-pated increased spending for Vietnam. Allthis set the stage for the evolving combina-tion of inflation and stagnation during1969-1971, even though the Nixon adminis-tration has learned how to double theseerrors in spades.

The second great error of the "NewEconomics" was that its policies workeddirectly counter to the needed shifts fromthe private to the public sector. Even apartfrom social values, for technological andother reasons, the three great goals of growth,priorities, and justice interpenetrate, andadequate programs for any one of the threewould be about the same as for the other two.Further, the main function of the federalbudget is not to help stabilize the economy,although that should be important, butrather to achieve, by allocation to the publicsector, that adequate public supply of thosegoods and services which the nation needsbut cannot otherwise obtain. If this hadbeen recognized, we would never have under-taken an orgy of misdirected, regressive, andlargely wasteful tax reduction, 1962-1971.



The noisy quarrel between the fiscal andmonetary enthusiasts seems to me largely amisplacement of emphasis. The real travestyis that the prevalent monetary policy hasfed the fat and starved the lean, restrainedthe essential and had little effect upon theoverexuberant, and since 1952 transferredmore than $400 billion in the wrong directionby all economic and social criteria. Even partof these transfers, more sanely allocated,could have completely wiped out povertyand serviced adequately all of the greatpriorities of our domestic needs, contributedmuch more to economic growth, and beenanti-inflationary rather than highly in-flationary, which the excessive cost of moneyactually is. Yet, almost none of the leadingeconomists has stressed these distributionalaspects.

The amount of inflation we have sufferedeven during the most recent years has notbeen unbearable by historic or other perti-nent tests; what has really been unbearablehas been the obsessionary preoccupationwith inflation. This has led to policies whichhave redistributed resources and income inthe wrong directions, stifled economicgrowth, spawned idleness of plant and man-power, and neglected the great priorities.The same amount of inflation, generated bypolicies serving these three great purposes,would have been a wonderful "tradeoff."Thus, the proper treatment of inflation isreally a distributional task, and very feware saying so. Moreover, the empirical evi-dence since 1952 demonstrates quite clearlythat there is an inverse rather than a positivecorrelation between the performance of theeconomy and the amount of price inflation.We should at once embark upon vigorouslystimulative fiscal and monetary policies,targeted toward full resource use by late1973. On the record, this would be the surestway to curb inflation, aside from its over-whelming importance on other grounds.

The narrowness of recent and currentKeynesians has led operations under theEmployment Act to concentrate mainlyupon fiscal policy. But what about theequivalent importance of social security,housing, urban renewal, resource develop-

ment, agriculture, and the war againstpoverty, treated only in perfunctory fashion?To illustrate: We have witnessed the forcedtransfer of scores of millions of people fromfarm to urban areas, accompanied by thegeneral degradation of the farm populationand the virtual ruination of the cities. Wehave permitted the war against poverty todegenerate into a Babel of countless "com-munity action" programs, substituting chaosfor genuine participatory democracy, andbeing responsible for much of the civil andsocial unrest resulting from promises with-out performance. An effective war againstpoverty, distributional in nature, shouldand could have been limited to a full em-ployment program, universal income sup-ports, adequate minimum wage and socialsecurity legislation, and adequate federal aidto housing and education.

As another example of the dearth ofplanning, most of the Keynesians now sup-port limiting average annual increase in realwages to only 3 percent under the Phase IIGuidelines. But even allowing for the addi-tions to wages through reemployment, howin the world can the economy regain reason-ably full resource use, which calls for anannual real economic growth rate of about7.5 percent for two years, if real wage ratesgrow only 3 percent a year?

Still another indication of these defaults isthe prevalent substitution of antirecession-ary or counter-cyclical efforts for a long-range, positive, pro-prosperity program un-der national economic budgeting. "Finetuning," in its practical application, hasusually turned out to be the frequent sub-stitution of one error for another, and usuallystarting too late. And conditioning all ofthese derelictions is the failure to distinguishsufficiently between goals and forecasts atthe official action level, and to overstressthe latter at the expense of the former.Policies in response to morbid forecastsoften tend more toward accepting thantoward overcoming them.

The time is long overdue for the AmericanEconomic Association to start to help over-come the dismal poverty of Americaneconomics, for which it and its cherished



literature are so largely responsible, and tocommence promoting the real purposes ofthe Employment Act of 1946. Let's get onthe track.

I am aware that I may have offendedsome of your sensibilities, but I hope that Imay have also appealed to your savingcommon sense.

ROBERT R. NATHAN: I agree with theexcellent paper by Alan Sweezy, especiallywith respect to the inhibitions that made itexceedingly difficult to apply Keynesianpolicies in full measure in the 1930's. Therewas deep concern about being tagged withthe title of "spender." Harry Hopkins wrotea book entitled Spending to Save but he wasattacked over and over as one who wasinterested only in spending. Then, of course,there was the concern about deficit financingand the rising national debt. It was almostimpossible to soothe the nerves and thefrantic objections of those who were dis-tressed by the horrible image of a rapidlyrising debt.

Even though there appeared to be nodanger of inflation whatsoever, the specterof inflation was brought up from time totime by the non-Keynesians and those whofelt that traditional contractionist policieswere the only true ways to overcome theravages of the depression and to restoreprosperity. It was a time when nationaleconomic policies found few supporters inthe business community or even in thepress.

I find Dr. Jones' paper to be excellent. Itis a remarkable digest of a huge number ofevents and forces at work. It has not beenpossible for him to do justice to all of theissues and all of the applications of Keynes-ian policies which took place during thatperiod, but within the time limit availablehe has carried out his task most competently.

I would suggest that there are three gapsin Dr. Jones' paper. One concerns the ex-pansion in basic capacity in 1940; the secondinvolves the preparation of the "VictoryProgram" in 1941; and the third concernsfiscal policy once full employment was ap-proached and reached.

Insofar as the 1940 expansion was con-

cerned, it was the Keynesians who reallytook the lead in trying to get increasedcapacity in the steel, aluminum, machinetool, copper, and some other bottleneck in-dustries. By and large, the industrialistswere against expansion, fearful that after amobilization effort we would return to thedepressed conditions of the 1930's. Seeingidle capacity and fearing excess capacityafter the war, they felt that increases of warproduction should come out of existing idlecapacity, and if defense or war did requiremore production than could be supplied bythe capacity then unused—which theythought unlikely—they wanted additionalrequirements to be met by diverting capacityfrom civilian production rather than byexpansion. In any case, a major battle wasmounted by the Keynesians to obtain ex-pansion of capacity, with the result thatPresident Roosevelt adopted the policiesthey advocated and threatened the steelindustry with Government's undertaking toexpand capacity if the industry did not doso. As a result of these pressures and policiesa sizable expansion did occur in the steelindustry and much larger capacity expan-sion was undertaken in the aluminum, ma-chine tool, and copper industries as well.This was a major effort well worth carefulanalysis.

In the middle of 1941, when France fell,one of the truly great strategists and opera-tors of this century came to the UnitedStates. He was Jean Monnet, who came asDeputy Director of the British Ministry ofSupply, even though he was a Frenchnational. He had already established anexcellent reputation in Europe.

Never have I worked with anyone whohad a greater sense of management andmaneuver than Monnet. He used to sellideas to President Roosevelt through hisclose advisers and draft the President'smessages to Winston Churchill; and then hewould sell the ideas to Churchill throughhis close associates and would draft theanswers to Roosevelt. It was strange buteveryone knew what he was doing and theywere all thrilled with his effort and hisresults.

In the middle of 1940, Jean Monnet knew



that the key to winning the war was Ameri-can production and he tried to figure outhow to get American production increased.It was very hard to find out what militaryrequirements were so he finally sold Roose-velt and Churchill on the idea of getting themilitary committed to what they would needto win the war if there were an all-out war.The military did not take the exercise tooseriously, but they did put forward manyfigures on critical items.

A few of us worked on this project veryclosely with Monnet and we translated re-quirements into steel, which was a key ma-terial in the total effort, because it includedmerchant shipping and tanks and heavy ar-tillery. We also translated the requirementsinto aluminum because this reflected the air-plane program. Then the requirements weretranslated into copper because this was thebottleneck for ammunition. Then, finally,the needs were translated into dollars andwe came up with what we thought the ulti-mate gross national product potential wouldbe and the proportion that might be devotedto the war.

Out of all these efforts, which extendedover some months in the early fall of 1941,we finally submitted to Roosevelt a set ofgoals for 1942 and 1943. Lord Beaverbrookwas visiting at the White House when thismemorandum went to Roosevelt and heurged Roosevelt to push the figures up alittle more. Then came Pearl Harbor andsoon thereafter the President announced thehuge targets for 1942 and 1943, which manycriticized as unattainable. This was theVictory Program and it was fortunate thatthe job had been done and finished not longbefore Pearl Harbor.

It was really the Victory Program whichled to the excessive expansion in budgetsand orders and goals by the Army thatbrought on the feasibility dispute which isdiscussed in Dr. Jones' paper.

The third gap in Dr. Jones' paper concernsfiscal policies after it was clear that the idleresources would be and were fully utilized.Dr. Jones spends quite a bit of time tellingabout the views of the Keynesians in tryingto resist higher taxes as long as there wassubstantial unused capacity. That was a

good policy and appropriate for the time.But once the capacity utilization was nearlyfull then efforts were made to increase taxa-tion. But they did not fully succeed. Theconflicts and the problems on this aspect ofpolicy should be developed.

There are many other phases of the warprogram, especially relating to conversionand to other matters, but I do think thatthe highlights have been dealt with. If thegaps I have mentioned can be filled, then wedo have an interesting and significant his-tory of wartime economic developmentwhich reveals the importance of the Keynes-ian contribution.

LAUCHLIN B. CURRIE: I am, of course,most appreciative of the kind things saidabout my work of thirty-five and forty yearsago. Alan Sweezy's paper evoked memoriesof a very exciting period of my life, when Iwas a member of a dedicated group workingfor ends that we thought tremendouslyimportant. The New Dealers numberedprobably no more than 200 or 300 people,mostly young and mostly lawyers and econo-mists, with a scattering from other fields,and mostly in the second and third ranks ofthe governmental hierarchy. That we wereable to make such an impact was not only,as the old saying has it, because our causewas just, but also because we workedprodigiously at it.

What must be kept in mind in assessingour work in retrospect is that we werepragmatists, and extremely policy conscious.In my own case, my theoretical approachhad been influenced by Keynes since myLondon School of Economics days in 1922-25, and at Harvard throughout the Depres-sion I had bootlegged his heretical views onfiscal policy, so that in Washington a largepart of my time was spent in learning andpracticing the arts of persuasion and of get-ting views, already mostly formed, acceptedand implemented. My formal output intheory was small and was mostly buried inmemoranda and occasional speeches. Wehad, I am afraid, not too much respect forour academic colleagues, who were stillmostly budget balancers, and the peoplewe were trying to influence were nonaca-



demics, which explains our preoccupationwith matters of semantics and presentation.

I am a little concerned that a listener orreader of Alan Sweezy's excellent paper mayfail to keep in mind our concern with per-suasion and reassurance of the layman, andmay impute to us the rather naive ideas thatthe analogy of "pump priming" suggests. Anearly draft of his paper sent me back toyellowed files I had not looked at for manyyears and I was delighted to come acrossa memorandum of early 1935 explicitlyentitled "Pump Priming"—delighted be-cause the theory therein appears, even afterthirty-five years, fairly sophisticated. Forexample, it contained an attempt to setguidelines for spending by using Kuznets'recent investment figures for 1928 as abenchmark for full employment investmentor savings, with modification for changes inprices and in productive capacity sincethen; it distinguished between the incomeimpact of different types of governmentspending; it recognized the multiplier (orsecondary spending) but was cautious in itsuse; it analyzed investment spending interms of durable goods, inventories andconstruction, with causal interrelationships,and the current impasse in housing; it listednine factors militating against a "naturalrecovery"; and it advocated a relatively highmonthly deficit of $400-$500 million, not tofall below $300 million "as long as it doesnot appear that recovery has gatheredmomentum on its own account." These highfigures were doubtless the reason its circula-tion was restricted, as one could not at thattime advocate publicly such magnitudes as$5 or $6 billion a year and remain respect-able. I would add to the obstacles Sweezymentioned the sheer difficulty of findingacceptable ways to spend. One must remem-ber that total federal expenditure had fallento little more than $2 billion by 1932, andto spend even $1 billion was extraordinarilydifficult.

Something which unmistakably dates thememo and, I trust, attests to its authenticity,and brings back a flavor of the times, is thatit devoted two pages to demonstrating thatthe national debt of the United States waslow in relation to that of the United King-

dom and Australia and in relation to thenational income, so that there was no dangerin its increase. The necessity of doing thiswould never have occurred to one after thewar.

As Alan Sweezy remarked, adherence to astrict pump-pumping analogy might leadto a belief that an initial burst of spendingwas all that was required to set in motionforces leading to full recovery, which wouldthen continue. My 1935 memorandum,however, postulated that spending shouldcontinue as long as necessary, which Ithought would be when there was "a realspurt in privately financed construction."The line between permanently larger spend-ing and spending for as long as necessaryis rather a fine one. The memo was silent onthe question of balancing the budget overthe cycle. On the permanence of the recoveryit merely said that "there is more assuranceof income-producing expenditure continuingfor a considerable period in the future . . . ifthe recovery is based on construction," whichhas a fairly modern ring.

In retrospect, I was not as alarmed at thetime over the decline in the net contributionin late 1936- early '37 as I should have been,but I can only plead that it is always danger-ous to give great importance to one serieswhen one does not know what is happeningto other series, and we had little currentdata at that time.

My unpublished memorandum on TheCauses of the Recession of 1937 had widecirculation and, I think, considerable in-fluence. It stressed the abrupt decline inthe net contribution in conjunction withbottlenecks, sharp wage rises, and an in-ventory boom as leading factors in the sub-sequent recession. Eighteen years later ourchairman, Walter Salant, made an excellentanalysis of this episode, in the AmericanEconomic Review, March 1955, which, I amhappy to say, tended to confirm my earlieranalysis.

The investment analysis became morefirmly based after 1937 when I could makeuse of George Terborgh's data on capitalgoods expenditures, and V. L. Bassie's onconsumption and inventories, both of whichI had initiated at the Federal Reserve, but



the analysis prior to 1937 was hardly assimple as the pump-priming analogy sug-gests.

Perhaps I may be permitted a few wordson my activity after 1937 and up to the war.Through 1938 and 1939 I was very active inpromoting public spending in various wayson a continuing basis outside the budget, andin agitating to convert the social securitysystem to a greatly enlarged pay-as-you-gobasis, which represented longer term inter-ests of both Marriner Eccles and myself. Itried out the predictive value of Keynes'smultiplier with disappointing results, andplaced more faith in the analysis of "leading"and "following" sectors of investment whichI presented in the TNEC hearings in 1939,particularly emphasizing the exogenous roleof housing, and the unresponsiveness ofbusiness capital expenditures to changes inthe rate of interest.

My first coup at the White House in 1939consisted in having a substantial volume ofexcess capital funds of government corpora-tions recalled, which reduced the legal oraccounting deficit, while leaving the netcontribution unaffected, which pleasedRoosevelt.

Although I considered myself a Keynesianfrom way back, I felt (and still feel) that wehad little to learn for policy purposes from theGeneral Theory. We did not, I fear, appreci-ate fully its novelty or importance fortheory. In any case, sometime in 1938 Ibelieve it was, we welcomed Alvin Hansenwith open arms as our most importantrecruit. I recall very well arranging for himto be our star witness in the TNEC hearings,rehearsing together our testimony and goingover a long list of "good" and "bad" wordsprepared for the use of the governmentwitnesses by Stuart Chase. Unfortunately,somebody slipped the list to the press,which had great fun with it. It was ironicthat despite our efforts, a semantic taginvented by the opposition, "The Lend-Spend Bill," helped defeat our bill with itsaccurate but uninspired title, "The WorksFinancing Act of 1939," which was to havebeen our main reorientation in fiscal policy.The fact that this occurred as late as 1939

may indicate to you the strength of the op-position to spending in the early years ofthe New Deal.

Sweezy raised an interesting question.What would have happened if the war hadnot intervened and changed the problem?It might have taken longer, but I think wewere winning the fiscal policy-employmentbattle.

By 1939 I had become the first economistin the White House and we were becominga formidable group. I had recruited DickGilbert and his group—V. L. Bassie, RodRiley, and the rest—for Harry Hopkins atCommerce, which gave support to BobNathan, long a lone outpost in hostileterritory. I had turned my post at the Feder-al Reserve over to Emile Despres. I was, I amhappy to say, responsible for bringing KenGalbraith to Washington and for gettingGerhard Colm placed in the Bureau of theBudget, now moved to the Executive Officeof the President. Walter and Bill Salant,Griff Johnson, Alan Sweezy, Arthur Gayer,Malcolm Bryan, George Eddy, Albert Hartand Martin Krost were my former studentsor associates and were occupying key posts.Our position in the Treasury was gettingstronger as Harry White gained influence,and we had close working relationships withGardner Means and Tom Blaisdell in theNRPB and the members of the Board,and with Ezekiel and Louis Bean in Agri-culture, with Isador Lubin in Labor and, ofcourse, with Leon Henderson and JeromeFrank in the SEC. Hansen was winningconverts outside. We didn't sleep much, butwhen we did, the General Theory kept work-ing. With the Works Financing Act of1939 and our long discussions on a major re-vision of the Social Security System, Roose-velt finally acquired a firm grasp of thetheory.

I think, therefore, that even if the warhad not intervened, victory was assured.The 1936-37 experience suggests, however,the difficulty of securing full employmentwith stability when there were so manyemerging bottlenecks to break. So today'sproblems would have become acute muchearlier.


Documents

Discussion [excerpt from the American Economic Review, vol ... · run a deficit, came well before Keynes was in vogue, and cannot be attributed to any ... bill which relied solely