Analysis: John Maynard Keynes: An Open Letter to President Roosevelt
The analysis of John Maynard Keynes' open letter to President Franklin D. Roosevelt sheds light on the critical economic landscape of the United States during the Great Depression in 1933. In this historical context, Keynes, a prominent British economist, advocated for a shift from traditional economic policies emphasizing balanced budgets and stable currencies to a more interventionist approach. He argued that government spending, financed through debt rather than increased taxes, was essential for stimulating economic recovery and reducing mass unemployment. Roosevelt was navigating his first year in office amidst a crisis that called for bold reforms, such as the New Deal, which sought to reshape the relationship between government and the economy.
Keynes recognized the urgency of economic recovery, cautioning that long-term structural reforms should not hinder immediate efforts to revive the economy. He believed that lowering interest rates and increasing government spending were crucial strategies for recovery. His letter reflects a broader concern about the potential for political instability if economic conditions failed to improve, with many looking toward radical alternatives. Ultimately, Keynes maintained an optimistic view that effective economic reform in the U.S. could serve as a model for the world, promoting stability in the face of rising ideological extremism. This exchange highlights the interplay between economic thought and political action during a pivotal moment in history.
Analysis: John Maynard Keynes: An Open Letter to President Roosevelt
Date: December 16, 1933
Author: John Maynard Keynes
Genre: letter
Summary Overview
In 1933, the New York Times invited British economist John Maynard Keynes to give economic advice to President Franklin D. Roosevelt, then nearing the end of his dramatic first year in office. Keynes considered the president to be the greatest champion of the new type of thinking needed to bring the United States—and the world—out of the Great Depression. He suggested that conventional economic thinking that emphasized the importance of balanced budgets and a stable currency needed to be abandoned in favor of a program of debt-financed government spending to revive the US economy. Keynes also favored giving the economy more liquidity by holding down interest rates. Keynes's opinions were considered of such importance that the president's emissary Felix Frankfurter sent a copy to the president directly, so that he could see it before it appeared in the newspaper.
Defining Moment
President Roosevelt took power at the height of the Great Depression, a crisis of economic contraction and mass unemployment affecting much of the world and particularly the United States. In the 1932 election, Roosevelt defeated incumbent president Herbert Hoover, who had been discredited by his failure to solve the problems of mass unemployment. In order for Roosevelt's presidency to be considered a success, he had to get people back to work, and with the desperation of the times, he had considerable leeway to do so. The package of reforms his administration instituted was known collectively as the New Deal, representing a seismic shock in American political life. Among the many dramatic and controversial reforms of the early New Deal was Roosevelt's decision to take the United States off the gold standard. The National Industrial Recovery Act (NIRA) guaranteed the rights of organized labor, allowed for government regulation of prices, and set up codes regulating business competition, bringing the government into the day-to-day life of business like never before. Generally, the New Deal was associated with government action to rescue the economy, as opposed to the laissez-faire approach of minimal government interference with business that had dominated Republican administrations in the 1920s and was backed by much of the economic establishment.
Many, including Keynes, believed that the masses of unemployed could pose a radical threat to the American political system if the New Deal failed to put them back to work. The serious difficulties of capitalism were causing many to turn to the Soviet Union and Communism as a model, although this was less true in the United States than in many European countries. Another possible danger presented itself on the extreme right. Around the time of Roosevelt's inauguration, Germany had turned to Nazi leader Adolf Hitler, whose appeal was largely based on taking vigorous action to end mass unemployment. The recovery of the American economy, the largest in the world, was central to the recovery of the world economy and to avoiding the toppling of the liberal democratic order to the benefit of fascism or Communism.
Author Biography
Born June 5, 1883, in Cambridge, England, John Maynard Keynes is considered by many to be the greatest economist of the twentieth century, although many of his ideas also remain controversial. He is generally associated with the notion that governments should counteract the business cycle by cutting spending when times are good and increasing spending, financed by debt, when times are bad, in order to promote economic recovery. Keynes was a believer in a liberal capitalist approach to economics, but he was dubious about the conventional wisdom of the dominant school of “classical” economists that supported balanced budgets and the gold standard. He was an activist who engaged with the political elite of the day on a range of issues, not an isolated academic writing principally for other scholars. The classic statement of his ideas is his book The General Theory of Employment, Interest and Money (1936). He died April 21, 1946, in Firle, England.
Document Analysis
Keynes views economic recovery as the central priority of political leadership during the Depression. Although he agrees with many New Deal reforms, he cautions that long-term structural reforms, however praiseworthy in themselves, should not be allowed to interfere with the immediate goal of economic recovery. (Keynes is frequently associated with the quotation “In the long run we are all dead,” which endorses putting priority on short-term crises.) He uses the NIRA, which allowed the government to set prices, as an example of a reform that interfered with recovery, although he did not oppose the act itself.
The short-run solution to the challenge of the Depression was an increase in government spending, which Keynes and his followers viewed as the most efficient way to get a stalled economy back into recovery. Keynes cautions that new government spending will not significantly help the economy if it is financed primarily by taxes, which would take more money out of the economy and diminish purchasing power. Instead, spending should be financed principally by government borrowing, he believes. Keynes views himself as a revolutionary in the field of economic thought, and his line of reasoning goes against the orthodoxy of classical economists, who valued balanced budgets and laissez-faire policies. The power of “orthodox” economics was not restricted to academia; conservative beliefs were also held by financiers and bankers—the “City men” (with “City” referring to London, the financial center of Britain and the British Empire), whom Keynes describes as skeptical of Roosevelt's policies. Even government officials and leaders of Britain's nominally socialist Labour Party were believers in economic orthodoxy; therefore, Keynes—and, he believes, Roosevelt—face formidable foes. Keynes also recommends lowering interest rates, a policy he believes has already been successful in Great Britain.
Keynes points out that a program of economic reform that lifts economies out of the Depression is one way to stave off political revolution. The Soviet Union seemingly avoided the worst of the Great Depression, and many Western intellectuals unaware or unconcerned with the massive scale of Stalinist repression became Communists or Communist sympathizers. However, Keynes was not one of them. He accepted liberal democracy and free-market capitalism, and, like Roosevelt and his advisers, he hoped that economic experimentation would take place within “the framework of the existing social system.” Keynes believes that, by providing an example of how an economy can recover without Communist revolution or fascist dictatorship, American recovery could also inspire the world in a positive direction. Keynes's letter ends on a note of optimism for both the United States and the world.
Bibliography and Further Reading
Backhouse, Roger, and Bradley W. Bateman. Capitalist Revolutionary: John Maynard Keynes. Cambridge: Harvard UP, 2011. Print.
Clark, P. F. Keynes: The Rise, Fall and Return of the Twentieth Century's Most Influential Economist. New York: Bloomsbury, 2009. Print.
Hiltzik, Michael. The New Deal: A Modern History. New York: Free, 2011. Print.