Academic journal article History of Economics Review

Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933

Academic journal article History of Economics Review

Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933

Article excerpt

1. Introduction

On 24 September 1933, Felix Frankfurter, the prominent Harvard law professor, sailed in the steamer Britannic to London. According to The New York Times, the trip had a double purpose: on the one hand Frankfurter was to be the Eastman Professor at Oxford, and on the other, he was 'on an unofficial presidential mission, assisting the Chief Executive [President Franklin Delano Roosevelt, FDR] in keeping abreast of affairs, particularly financial matters all over the world'. (1) During his year-long stay in the United Kingdom, Frankfurter met all sorts of people, gave a number of lectures, and cemented friendships with some of the most influential intellectuals of the time, including Isaiah Berlin and John Maynard Keynes.

On 6 December 1933, Frankfurter went to Cambridge, where he was a guest of Keynes for King's Founder's Feast. During the visit, the conversation touched on many topics, including the economic experiments undertaken by the new U.S. administration under Roosevelt who had been inaugurated on 4 March 1933. A few days later, the Harvard professor wrote to Keynes and suggested that he penned an article for a U.S. newspaper giving his opinion about President Roosevelt's economic policies. In particular, he wanted Keynes to support an expansion of public works. Frankfurter wrote in a letter to Keynes dated 8 December 1933:

I do hope you'll find it convenient to write the kind of letter that we
sketched in our talk for transmission to the president. For he is 'the
trustee of experimentation' and I know that formulated directions from
you may greatly help matters (quoted in Moggridge, 1992, 580).

On December 12, Frankfurter wrote to President Roosevelt and informed him about his visit to Cambridge. Four days later, on December 16, he told the president that Keynes had written an open letter, which would be published by The New York Times on 31 December 1933. Frankfurter wrote: 'So that you may see what he has to say before it is published, Keynes this morning sent me the enclosed, which I hasten to get off directly to you through Miss LeHand (without forwarding it through the pouch) in the hope that it may catch the Bremen which leaves tonight (2) (quoted in Roosevelt, 1967, 177).

The open letter was published on Sunday, December 31, with the title 'From Keynes to Roosevelt: Our recovery plan assayed'. The only difference between the published version and the one sent by Frankfurter to the president was that the NYT included nine headings. The letter took almost a full page of the paper. There were two photographs, one of Keynes, and one of a 'slum clearance' with the caption, 'Public works: the way out?' A somewhat shorter version was published in The Times of London (2 January 1934, 11) under the title, 'Mr. Roosevelt's experiments: the dual policies, reconstruction and recovery'. This version also included headings, although they were different from those in The New York Times. (3) In the letter, Keynes provided an assessment of the administration's policies, and stated that there was an important difference between 'recovery' and 'reform.' He pointed out that the former was more urgent than the latter, and he was critical of the Roosevelt administration for not defining priorities, and for pushing 'reform' policies too fast. He asserted that an increase in government loan-expenditures was key to get the recovery going, and to move the nation out of the Great Depression. He commented on FDR's gold policy--including on the U.S. abandonment of the gold standard in April 1933--and he was critical of the way in which monetary policy had been conducted. (4)

Throughout the years, a number of authors have referred to the open letter, but there have been no attempts to analyze it in detail, or to use data to discuss Keynes's main assertions (5)--see Section 3 for a review of the literature. The purpose of this paper is to deal with this omission, and to analyze in some detail Keynes's advice to the President in the open letter. …

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