Power of Story: So Long, FDR and Keynes

There is a lot more to share about the intriguing saga of Franklin Delano Roosevelt and John Maynard Keynes. I think for now, however, when we consider these brief comments, we will have spent enough words out of the bag of history to shed some light on one of the most defining periods of the American story. Every story has a spine. The spine of the American story certainly took a bend during the decades of the late1920s through the end of the 1940s.

Europe and parts of Asia had become mesmerized by the economic and cultural models that included the breaking up of the dynasties, the overpowering of the royalties, and the reshuffling of the world properties. The political models of Communism, Nazism, and Fiat regimes became the vehicles that carried the economic and cultural models down the road of reality.

The ideologies of the rest of the world could not help but influence the American story forever. Progressive socialist thinkers like Keynes really believed that they had the answers for America. The experiment with free market enterprise and capitalism was viewed with disdain. The new game in town was government controlled production and distribution of goods, and also ownership of public resources and services.

The strange story of Roosevelt and Keynes becomes a classic tragedy of success as we continue to discover more information from the 1930s. Each character was becoming more and more co-dependent on the other to find fulfillment of his personal dreams. Roosevelt was willing and eager to keep Keynes’ bathtub of deficit spending full in order to assure his position in history as the world’s preeminent political leader and supplier of great free gifts and, eventually, military supplies and soldiers. Keynes saw his opportunity to use Roosevelt’s unusual political position and the economic aspects of the Great Depression to thrust himself into the position of perhaps history’s most influential evangelist of the economic philosophies of Marx, Engles, and Lenin.

Before we wrap up Keynes and Roosevelt and tuck them away in their crypt of history, there is just one more insightful episode I want to share with you.

Roosevelt, who had run his presidential campaign on balanced budgets, frugality, and the elimination of bureaucratic largess, had been inaugurated March 4, 1933. Somewhere, his economic thinking processes had been restructured, and he had fully bought into the Keynesian economic bathtub thinking. But by late December, 1933, Keynes hit the panic button. Roosevelt was not complying with the implementation of the program quickly enough. He decided that subtle and quiet tutoring of Roosevelt was not going to be enough.

Keynes decided to take his bully pulpit to the whole bully American nation. He would use an open letter to the president to explain what he knew was needed to cure America. He would utilize the invitation of the New York Times to publish his message. The New York Times would publish the article in the December 31 Sunday Edition in a syndicated article that also would be simultaneously printed in newspapers around the country. Keynes could articulate how brilliant he was with his views of curing America, and at the same time force Roosevelt into an open position of accountability to the American people for implementing the programs that would give them more of what they wanted.

That weekend, Roosevelt was on the ship Bremen headed across the Atlantic Ocean. Here are some of the direct quotes from Keynes’ open letter to President Roosevelt:

  • You have made yourself the Trustee for those in every country who seek to mend the evils of our condition . . . If you fail, rational change will be gravely prejudiced . . . But if you succeed, new and bolder methods will be tried everywhere, and we may date the first chapter of a new economic era from your accession to office . . .
  • At the moment your sympathizers in England are nervous and sometimes despondent. We wonder whether the order of different urgencies is rightly understood, whether there is confusion of aim, and whether some of the advice you get is not crack-brained and queer . . . The average City man believes that you are engaged on a hare-brained expedition in face of competent advice, that the best hope lies in your ridding yourself of your present advisers
  • It will be through raising high the prestige of your administration by success in short-range Recovery, that you will have the driving force to accomplish long-range Reform.
  •  . . . public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.
  • I lay overwhelming emphasis on the increase of national purchasing power resulting from government expenditure . . .
  • That is why a war has always caused intense industrial activity. In the past, orthodox finance has regarded a war as the only legitimate excuse for creating employment by government expenditure.
  • The set-back which American recovery experienced this autumn was the predictable consequence of the failure of your administration to organize any material increase in new Loan expenditure during the first six months of office. The position six months hence will entirely depend on whether you have been laying the foundations for larger expenditures in the future.
  • With these adaptations or enlargements of your existing policies, I should expect a successful outcome with great confidence. How much that would mean, not only to the material prosperity of the United States and the whole world, but in comfort to men’s minds through a restoration of their faith in the wisdom and the power of Government!

As oddly as it may sound, that article by Keynes was exactly what Roosevelt needed and what he keyed on for the rest of his life. Now, the smartest economist in the whole world, Dr. John Maynard Keynes of King’s College in Cambridge, England, had just told the people of America that they would be better off if their president would keep the bathtub full to the brim with deficit expenditures and debt. If he didn’t perform, they, along with the rest of the world, could blame Roosevelt for not taking care of them.

As we can now observe, there could not have been a better set up of circumstances imaginable. The circumstances fatefully allowed each man to find fulfillment of his dream in the actions of the other man. Roosevelt could go on to become the war-time hero and most powerful leader in the world. He had to keep the spending programs going, which would ensure his continued re-elections, because John Maynard Keynes had not only told him, but the entire nation, what he had to do.

Keynes could become the smartest and most respected economist for years to come. He had even predicted that it would take World War II to pay for the extravagant cost of keeping the bathtub full of debt. Roosevelt could continue on with his image of the reluctant president extolling neutrality and isolationism, and still ramp up for war and continue to give away our naval ships to Great Britain at the same time. As Keynes had said, “. . . orthodox finance has regarded a war as the only legitimate excuse for creating employment by government expenditure.”

America would never be quite the same again following the market crash of 1929, the Great Depression, The Roosevelt/Keynes socialist saga, and World War II. That really shouldn’t be all that surprising, since all global transformation takes place at the intersection of culture and economics.

Next Week: What in the world is Cultural Economics

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

© Dr. James W. Jackson  

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