Keynesian Theory and the New Deal |
The crash of the stock market brought many hard times. Franklin D. Roosevelt's New Deal was a way to fix these times. John Stuart Mill and John Maynard Keynes were two economists whose economic theories greatly influenced and helped Franklin D. Roosevelt devise a plan to rescue the United States from the Great Depression it had fallen into. John Stuart Mill was a strong believer of expanded government, which the New Deal provided. John Maynard Keynes believed in supply and demand, which the New Deal used to stabilize the economy. Franklin D. Roosevelt's New Deal is the plan that brought the U.S. out of the Great Depression. It was sometimes thought to be an improvised plan, but was actually very thought out. Roosevelt was not afraid to involve the central government in addressing the economic problem. The basic plan was to stimulate the economy by creating jobs. First Roosevelt tried to help the economy with the National Recovery Administration. The NRA spread work and reduced unfair competitive practices by cooperation in industry. Eventually the NRA was declared unconstitutional. Franklin D. Roosevelt then needed a new plan. Keeping the same idea of creating jobs he made many other organizations devoted to forming jobs and in turn helping the economy. One of those organizations was the Civilian Conservation Corps. This corps took men off the streets and paid them to plant forests and drain swamps. Another of these organizations was the Public Works Administration. This organization employed men to build highways and public buildings. These were only some of the organizations dedicated to creating jobs. Creating jobs was important because it put money in the hands of the consumer. This directly affected the supply and demand. The more money they had the more they could spend. This would slowly start a chain reaction and bring the economy back to the way it was before the depression. By the end of the 1930's this plan had lowered unemployment to 17.2%. To make these organizations it was going to take money. Roosevelt had to deficit spend, which is when the government spends more than their budget in one year, in order to obtain this money. Of course these ideas of supply and demand and active government didn't just come to him. He was influenced by John Maynard Keynes and John Stuart Mill. There philosophies were the basis of the New Deal. John Stuart Mill, who began studying economics at age 13, was one of the most influential political thinkers of the mid-Victorian period. He believed in empiricism and utilitarianism. Empiricism is the belief that legitimate knowledge comes only from experience. Utilitarianism is the belief by which things are judged right or wrong. It is judged according to their consequences. In a way he was a hypocrite. When the economy was good he believed in Laisezz-Faire, which means "hands off." If the economy was bad, though, he believed in an extended role of government. This simply meant that the government should take part in the economy and try to make it better. The New Deal was a very active government plan because it had the government working directly to make jobs and fix the economy. Mill died in 1873 and would never had a chance to talk to Franklin D. Roosevelt. In a press conference Franklin D. Roosevelt once said, "I brought down several books by English economists and leading American economists, I suppose I must have read different articles by fifteen different experts."(Schlesinger, Pg.650) This writing indirectly steered Roosevelt towards a plan which expanded the role of government. Mill gave Franklin D. Roosevelt the basis of the plan, but it needed to be elaborated on. John Maynard Keynes was the man to do this. John Maynard Keynes, one of the most influential economists of the 20th century. For many years he was an active voice in economics. In 1929 he wrote We Can Conquer Unemployment and in 1930 he wrote his Treatise on Money. Ten years before he died he wrote his General Theory of Employment, Interest and Money. Above all he believed in supply and demand. This was an indirect way to let the economy balance itself. In order for this system to work people needed money. This could only be done by creating jobs. Keynes also believed that to reduce unemployment the government needed to increase the aggregate demand. The aggregate demand is the total amount of goods being demanded. The government could do this by creating jobs. These jobs would provide people with money to spend on products. The ability to pay and the increase desire to spend would increase the demand for goods. The demand for goods would rise and the demand for workers would rise. This would slowly reduce the unemployment rate and put the economy back where it was before the crash of the stock market. In Arthur M. Schlesinger Jr.'s book The Politics of Upheaval it's stated that Franklin D. Roosevelt and Keynes communicated on several occasions such as, letters, English tea meetings, and messages delivered via mutual friends. Although Franklin D. Roosevelt never publicly embraced Keynes' theories, and at times voiced disagreement with parts of his theories, there were many similarities between the works of the two men. Franklin D. Roosevelt took these philosophies and created the New Deal, which eventually brought the United States out of the Great Depression. John Stuart Mill gave Franklin D. Roosevelt the idea of an active government and John Maynard Keynes showed him how to do it. Although Franklin D. Roosevelt never really liked economists it appears that the work of many economists showed up in his New Deal. Although Mill did not directly influence FDR his philosophies were present in Franklin D. Roosevelt's plan. Also, Keynes theories were disagreed on time and time again by FDR, but in the end the New Deal was almost a perfect example of Keynes' theories. |