Keynesian Theory and the New Deal

In contrast, from the time of the New Deal on, the role of government in Western economies was a given. For a generation after the New Deal, the fiscalist economic theory of John Maynard Keynes was dominant enough to amount to a new orthodoxy.

After years of economic prosperity and growth, fears of a postwar depression receded. Keynesian fiscal techniques, plus such built-in stabilizers or "cushions" as social security payments and unemployment compensation, it was increasingly held, had "solved" the problem of depression. (Rosenof, 1975, p. 4)

Only in the 1970s, with the onset of prolonged stagflation, did confidence in partially evaporate Keynesianism (Rosenof, 1975, p. 4). However, even the alternative of monetarism admitted an active if less direct government ro

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its limit of natural growth (Rosenof, 1975, pp. 20ff). Closely allied to this view was a perception that the underlying crisis was one of income distribution. The 1920s had seen broad-based prosperity in the United States, but against this backdrop the distribution of income had become increasingly unequal, with wealth accumulating in the hands of the rich. So long as vast unmet investment needs had existed--railroads and factories waiting to be built--the wealth of the investor class found a productive outlet. But once these needs had been largely met, as the New Dealers believed they had been, accumulations of wealth became unproductive. The need was to transfer spending power into the hands of the mass of the people, who were now unable to purchase the goods the economy made potentially available. "The New Dealers as a group--or at least the New Deal political leaders--agreed as to their fundamental depression analysis: the key problem, they argued, lay in the maldistribution of income" (Rosenof, 1975, p. 8). The large goal of the New Deal was therefore income redistribution. "Pump-priming" to restart economic activity was only a secondary if more immediate goal. At the same time, however, "pump-priming" was as c
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Approximate Pages = 9 (250 words per page)

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