Keynesian Theory and the New Deal


     The crash of the stock market brought many hard times.                      
Franklin D. Roosevelt's New Deal was a way to fix these times. John          
Stuart Mill and John Maynard Keynes were two economists whose economic       
theories greatly influenced and helped Franklin D. Roosevelt devise a        
plan to rescue the United States from the Great Depression it had            
fallen into. John Stuart Mill was a strong believer of expanded              
government, which the New Deal provided. John Maynard Keynes believed        
in supply and demand, which the New Deal used to stabilize the               
economy. Franklin D. Roosevelt's New Deal is the plan that brought the       
U.S. out of the Great Depression. It was sometimes thought to be an          
improvised plan, but was actually very thought out. Roosevelt was not        
afraid to involve the central government in addressing the economic          
problem. The basic plan was to stimulate the economy by creating jobs.       
First Roosevelt tried to help the economy with the National Recovery         
Administration. The NRA spread work and reduced unfair competitive           
practices by cooperation in industry. Eventually the NRA was declared        
unconstitutional. Franklin D. Roosevelt then needed a new plan.              
Keeping the same idea of creating jobs he made many other                    
organizations devoted to forming jobs and in turn helping the economy.       
One of those organizations was the Civilian Conservation Corps. This         
corps took men off the streets and paid them to plant forests and            
drain swamps. Another of these organizations was the Public Works            
Administration. This organization employed men to build highways and         
public buildings. These were only some of the organizations dedicated        
to creating jobs. Creating jobs was important because it put money in        
the hands of the consumer. This directly affected the supply and             
demand. The more money they had the more they could spend. This would        
slowly start a chain reaction and bring the economy back to the way it       
was before the depression. By the end of the 1930's this plan had            
lowered unemployment to 17.2%. To make these organizations it was            
going to take money. Roosevelt had to deficit spend, which is when the       
government spends more than their budget in one year, in order to            
obtain this money. Of course these ideas of supply and demand and            
active government didn't just come to him. He was influenced by John         
Maynard Keynes and John Stuart Mill. There philosophies were the basis       
of the New Deal. John Stuart Mill, who began studying economics at age       
13, was one of the most influential political thinkers of the                
mid-Victorian period. He believed in empiricism and utilitarianism.          
Empiricism is the belief that legitimate knowledge comes only from           
experience. Utilitarianism is the belief by which things are judged          
right or wrong. It is judged according to their consequences. In a way       
he was a hypocrite. When the economy was good he believed in                 
Laisezz-Faire, which means "hands off." If the economy was bad,              
though, he believed in an extended role of government. This simply           
meant that the government should take part in the economy and try to         
make it better. The New Deal was a very active government plan because       
it had the government working directly to make jobs and fix the              
economy. Mill died in 1873 and would never had a chance to talk to           
Franklin D. Roosevelt. In a press conference Franklin D. Roosevelt           
once said, "I brought down several books by English economists and           
leading American economists, I suppose I must have read different            
articles by fifteen different experts."(Schlesinger, Pg.650) This            
writing indirectly steered Roosevelt towards a plan which expanded the       
role of government. Mill gave Franklin D. Roosevelt the basis of the         
plan, but it needed to be elaborated on. John Maynard Keynes was the         
man to do this. John Maynard Keynes, one of the most influential             
economists of the 20th century. For many years he was an active voice        
in economics. In 1929 he wrote We Can Conquer Unemployment and in 1930       
he wrote his Treatise on Money. Ten years before he died he wrote his        
General Theory of Employment, Interest and Money. Above all he               
believed in supply and demand. This was an indirect way to let the           
economy balance itself. In order for this system to work people needed       
money. This could only be done by creating jobs. Keynes also believed        
that to reduce unemployment the government needed to increase the            
aggregate demand. The aggregate demand is the total amount of goods          
being demanded. The government could do this by creating jobs. These         
jobs would provide people with money to spend on products. The ability       
to pay and the increase desire to spend would increase the demand for        
goods. The demand for goods would rise and the demand for workers            
would rise. This would slowly reduce the unemployment rate and put the       
economy back where it was before the crash of the stock market. In           
Arthur M. Schlesinger Jr.'s book The Politics of Upheaval it's stated        
that Franklin D. Roosevelt and Keynes communicated on several                
occasions such as, letters, English tea meetings, and messages               
delivered via mutual friends. Although Franklin D. Roosevelt never           
publicly embraced Keynes' theories, and at times voiced disagreement         
with parts of his theories, there were many similarities between the         
works of the two men. Franklin D. Roosevelt took these philosophies          
and created the New Deal, which eventually brought the United States         
out of the Great Depression. John Stuart Mill gave Franklin D.               
Roosevelt the idea of an active government and John Maynard Keynes           
showed him how to do it. Although Franklin D. Roosevelt never really         
liked economists it appears that the work of many economists showed up       
in his New Deal. Although Mill did not directly influence FDR his            
philosophies were present in Franklin D. Roosevelt's plan. Also,             
Keynes theories were disagreed on time and time again by FDR, but in         
the end the New Deal was almost a perfect example of Keynes' theories.       