John Maynard Keynes: An Open Letter to President Roosevelt Summary

  • Last updated on November 10, 2022

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.

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.

Essential Themes

President Roosevelt's New Deal, as Keynes advised, incorporated deficit-financed spending, although the degree to which this was a result of Keynes's advice is debated among historians. This deficit financing went against Roosevelt's own predilection for working with a balanced budget. Historians generally believe the New Deal successfully promoted economic recovery, although some economists and political conservatives argue that it did not. Nonetheless, the New Deal brought political stability, as the US political system was not seriously challenged by either the extreme right (fascism) or the extreme left (Communism). However, the United States fully emerged from the Depression only with the tremendous stimulus applied to the economy by World War II. Although the New Deal did have some international influence, the American example of stimulating the economy through democratic government action did not spread as widely as Keynes had hoped. In 1933, Hitler came to power in Germany, another depression-racked country, and revived the economy in a militarized fashion, providing an alternative authoritarian model of recovery to the democratic one favored by Roosevelt and Keynes.

Keynes's advocacy of deficit spending during recessions and depressions as a way of stimulating the economy remains controversial. Conservative economists remain suspicious of any form of government interference in the business cycle, and to many people, the idea that government should cut spending or “tighten its belt” during an economic downturn seems intuitively obvious. (The other half of the Keynesian idea, that the government should cut spending during good times, also seems counterintuitive.) The debate over Keynesian economic policy remains controversial, as seen in the disagreement among American policy makers during and after the economic downturn that began in 2008.

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.
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