Guns, Butter, Leon Keyserling, the AFL-CIO, and the Fate of Full-Employment Economics
Wehrle, Edmund F., The Historian
ON 15 JANUARY 1954, an intriguing proposal landed on the desks of both CIO President Walter Reuther and AFL President George Meany. Its author was Leon Keyserling, a former chairman of the Council of Economic Advisors and a longtime friend of organized labor. The ebullient, outspoken economist called upon the two union leaders to rededicate themselves to a bold and far-reaching vision of full-employment economics. Massive government investment, he assured the labor barons, could generate new levels of growth--producing a $500 billion-a-year economy and eliminating poverty. Roused by Keyserling, the CIO and the AFL jointly sponsored a private think-tank, the Conference on Economic Progress, headed by Keyserling. Over the next two and a half decades, the economist profoundly shaped organized labor's approach to economic policy, and through the AFL-CIO, Keyserling continued to influence the national debate. Boldly pursuing his agenda, he increasingly turned to defense spending for the fiscal fuel to fire economic growth. By the early 1970s, however, divisions over the Vietnam War deeply divided liberals--leaving Keyserling and labor discredited and alienated from mainstream economic thought.
Largely overlooked since his death in 1987, Leon Keyserling's legacy and ideas recently have experienced something of a revival among scholars, drawing the attention of historians such as Robert Brazelton and Robert Collins. Collins insightfully describes Keyserling's contributions in his recent work More: The Politics of Economic Growth in Postwar America. (1) Neither Collins nor Brazelton, however, fully recognize Keyserling's later influence on policy through his work with organized labor, nor the growing role played by defense spending in Keyserling's formulations.
Leaving government service in 1953, Keyserling continued to advocate an extreme brand of full-employment economics. Particularly through his allies in the AFL-CIO, he tirelessly lobbied for increased federal spending to push growth and employment. The vicissitudes visited on Keyserling-style full-employment economics between the 1950s and 1970s reveal much about the changing economic temper of the times. Perhaps his most profound impact--which would eventually serve as the undoing of full-employment economics--was the promotion of defense spending as an essential component of his program. Never fully able to convince even liberals to adopt his uncompromising faith in growth through federal spending, both Keyserling and the AFL-CIO turned increasingly to the military-industrial-complex to meet the spending levels they prescribed--and turned increasingly to Cold War rhetoric to make the case for such spending. Yet by the 1970s, the unpopularity of the Vietnam War and growing distrust of government in general doomed full-employment economics, paving the way for a new conservative approach rejecting fiscal spending as a drag on the economy. While the antithesis of Keyserling's ideals, this new line of attack shared his self-assurance and faith in growth as the panacea for all economic and societal ills.
From the onset of his career, Keyserling established himself as something of an outsider from the academically-orientated world of most economists. A native of South Carolina, he studied briefly under Rexford Tugwell and Richard T. Ely at Columbia University in the 1920s. But Keyserling was clearly more interested in shaping policy than studying theory. He left New York City for Harvard University Law School and then was drawn to Washington, D.C. in 1933 by Tugwell to join the legions of young men likewise attracted to Roosevelt's New Deal. (2) Eventually Keyserling found his way into the employ of Senator Robert Wagner of New York. From the Senate, Keyserling helped prepare some of the most important legislation of the New Deal, including the National Labor Relations Act (Wagner Act) and the Social Security Act. (3)
In Washington, Keyserling became deeply impressed by proto-Keynesian theories increasingly popular with trade unionists and some progressive businessmen. …