How Keynes Influenced FDR’s New Deal

John Maynard Keynes lived a remarkable life as an intellectual titan of a bygone era. He married Europe’s most famous dancer, held lifelong friendships with English writers and thinkers like T.S. Elliot, Virginia Wolfe, and George Bernard Shaw. His bold ideas pulled England out of a debilitating financial crisis in the aftermath of the First World War. His understanding of Britain’s financial system afforded him wealth and plaudits. 

On this side of the Atlantic, his legacy is just as important. Without John Maynard Keynes, FDR’s New Deal may never have happened. 

“Keynes and FDR themselves did not get along particularly well,” Zach Carter, author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes, told Mila in our recent interview. 

“But Keynes’s ideas as he writes both for the public as a journalist, and also for economists — particularly in The General Theory of Employment, Interest, and Money, his big magnum opus that comes out in 1936 — those ideas start moving through other channels and getting to FDR. There are people in his administration who are essentially Keynesian economists who are pumping these ideas into FDR’s mind really from a very early standpoint.”

In the interwar years between WWI and WWII, right-wing strongmen rose across Europe as a response to faltering economies and the Bolshevik revolution in Russia. Keynes understood that factors like economic deprivation, deflation, and inequality lead to dictators—the evidence played out in Germany and Italy. Fearing England could fall prey to fascism or revolution because of these factors, Keynes set out to create a theory that allowed people to live well and without fear of impending economic doom. 

He argued for governments to stimulate faltering economies with public investiture. Even a small increase in government spending could net sizeable results, creating economic and social stability. 

Government-led investment infused the economy with cash and provided work for those previously unable to participate in the economy because of joblessness. For instance, if a government hires a construction firm to build a bridge, the firm needs to hire workers and pay them. Those newly employed workers use their salaries to purchase food from a farmer. That farmer now sees increased demand and needs to hire more laborers, and so on. More workers meant more happy citizens, more money in the economy, and more equality among members of society. 

When FDR assumed power in the midst of the Great Depression, Keynesian economic philosophy figured heavily into the new administration’s financial relief plan: The New Deal. 

Within one hundred days, FDR had created three crucial agencies designed to stimulate job growth. The Work Progress Administration (WPA) provided jobs to unemployed Americans, eventually employing more than 8.5 million Americans. The Civilian Conservation Corps (CCC) employed more than 3 million workers who helped create National Parks, worked in flood management, protected historic sites, and more. Finally, the National Recovery Administration rewrote codes and mandates, resulting in higher wages, promoted collective bargaining, and fought back against monopolies and price-cutting. 

The results were stark. When FDR assumed office in early 1933, the U.S. had a staggering 24.75% unemployment rate. In 1941, before the U.S. war effort began in earnest, unemployment sat at 9.9%. At the time of FDR’s death in 1945, the rate had fallen to 1.9%.  

The Roosevelt administration’s New Deal was a triumph for many reasons, from increased unionization to Social Security. Although Keynes doesn’t deserve all the credit for America’s inspiring about-face, his ideas about government spending were a crucial influence on economic policy under FDR. 

WORKS CITED

Amadeo, Kimberly. “Compare Today’s Unemployment with the Past.” The Balance, 3 Apr. 2020, www.thebalance.com/unemployment-rate-by-year-3305506. 

Carter, Zachary D. The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Random House, 2020. 

“Civilian Conservation Corps.” National Parks Service, U.S. Department of the Interior, www.nps.gov/thro/learn/historyculture/civilian-conservation-corps.htm. 

Davenport-Hines, Richard. “Seven Things You May Not Know about John Maynard Keynes.” The Guardian, Guardian News and Media, 5 Mar. 2015, www.theguardian.com/books/2015/mar/05/seven-things-john-maynard-keynes. 

Keynes, John Maynard. The General Theory of Employment, Interest, and Money. Springer International Publishing, 2018. 

says:, Beau Johnson, et al. “National Recovery Administration.” Social Welfare History Project, 27 Feb. 2018, socialwelfare.library.vcu.edu/eras/great-depression/u-s-national-recovery-administration/. 

“Works Progress Administration (WPA) (1935).” Living New Deal, 20 Oct. 2020, livingnewdeal.org/glossary/works-progress-administration-wpa-1935/. 

Join Our Community

Discover Inspiring Citizen Changemakers
It's free, simple and secure