As monetary controls failed to prove an open sesame to prosperity, the Roosevelt administration, gradually and apparently after much soul searching, shifted more and more to the use of fiscal policy, particularly to spending policy.
The New Deal's spending, taxing, and borrowing policies, like its monetary and banking policies, were characterized by a spirit of experimentation. But whereas the monetary and banking programs were heavily weighted from the outset with the objective of business recovery, fiscal policy was at first designed merely to relieve distress and achieve social reform, and only later was invested with the purpose of achieving recovery. The New Deal's spending program benefited the low-income groups primarily, the tax program became increasingly progressive, and the borrowing program, which initially relied on bank loans, increasingly emphasized the absorption of idle savings in the hands of individuals.1 Thus debt management provided the banks with income which they otherwise would not have been able to earn, and Federal credit, which was strong, was substituted for state, municipal, and private credit, which was weak.
The New Deal's Early "Economy" Approach . In the beginning the Roosevelt administration was pledged to economy and fiscal orthodoxy. Indeed, during the campaign Roosevelt was more outspoken than Hoover in his promises to cut expenditures. Like Hoover, he thought that a balanced budget was indispensable to the preservation of public credit and the achievement of recovery.
Less than a week after his inauguration, on March 10, Roosevelt asked Congress for "authority to effect drastic economies in government." "For three long years," he said, "the Federal Government has been on the road toward bankruptcy." In language reminiscent of some of Gladstone's speeches of the mid-nineteenth century he asserted, "Too often in recent history liberal governments have been wrecked on rocks of loose fiscal policy." He promised that, if the necessary authority were given to him, "there is reasonable prospect that within a year the in____________________
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Publication information: Book title: Financial History of the United States:Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance. Contributors: Paul Studenski - Author, Herman E. Krooss - Author. Publisher: McGraw-Hill. Place of publication: New York. Publication year: 1952. Page number: 403.
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