Changes

===The Second New Deal===

===The Second New Deal===

All during the winter and spring of 1938 a group of young instructors from Harvard and Tufts were busy on a book which they called ''An Economic Program for American Democracy.'' which  appeared in October, 1938. These instructors had been moving under the guidance of Dr. Alvin H.

All during the winter and spring of 1938 a group of young instructors from Harvard and Tufts were busy on a book which they called ''An Economic Program for American Democracy.'' which  appeared in October, 1938. These instructors had been moving under the guidance of Dr. Alvin H. Hansen,<ref>Alvin H. Hansen, ''Fiscal Policy and Business Cycles'', (Norton, 1941).</ref> The theory propounded may be briefly stated thus: The expansion of the American economy came to an end in 1929. Before that it had grown for several well-known reasons. (1) There was a rapid increase in population due to free immigration. (2) The frontier was open to entry and exploitation. (3) Technological expansion went forward upon an amazing scale. But all this came an end. Population is no longer increasing save at a small rate. The frontier is gone, having been exploited and settled. Technological advance at the old rate is no longer possible—the great era of revolutionary inventions is over. A basic change had come over the structure of the American economy.

Hansen,<ref>Alvin H. Hansen, ''Fiscal Policy and Business Cycles'', (Norton, 1941).</ref> The theory propounded may be briefly stated thus: The expansion of the American economy came to an end in 1929. Before that it had grown for several well-known reasons. (1)

There was a rapid increase in population due to free immigration. (2) The frontier was open to entry and exploitation. (3) Technological expansion went forward upon an amazing scale. But all

this came an end. Population is no longer increasing save at a small rate. The frontier is gone, having been exploited and settled. Technological advance at the old rate is no longer possible—the great era of revolutionary inventions is over. A basic change had come over the structure of the American economy.

The theory continued: Government spending on the First New Deal had been proved to be a powerful. Too many people made the mistake of supposing that this was a temporary expedient to bring back a self-sustaining economic recovery. Government spending must be not be used as merely a pump primer, but as a permanent additional or auxiliary pump. The

The theory continued: Government spending on the First New Deal had been proved to be a powerful. Too many people made the mistake of supposing that this was a temporary expedient to bring back a self-sustaining economic recovery. Government spending must be not be used as merely a pump primer, but as a permanent additional or auxiliary pump. The old pump—private industry and business—could no longer produce the national income required for a full life. The government had to set up built in stabilizers to maintain prosperity. "The government must assume full responsibility for maintaining national income at a sufficiently high level to assure full utilization of our human and material resource."

old pump—private industry and business—could no longer produce

the national income required for a full life. The government had to set up built in stabilizers to maintain prosperity. "The government must assume full responsibility for maintaining national income at a sufficiently high level to assure full utilization of our human and material resource."

This must be done, they insisted, by government spending. "The notion that public spending can he safely resorted to as a temporary emergency device must he abandoned."

This must be done, they insisted, by government spending. "The notion that public spending can he safely resorted to as a temporary emergency device must he abandoned."

Their thesis was as follows. The people do not spend all of the income they receive on consumable goods and services. Each year they save great sums. These savings are thus withdrawn from the function of spending. They must be brought back into the stream of spending some way or the system collapses. The orthodox method of accomplishing this in the past has been through private investment. People who save and who do not wish to spend their money for food or clothes or consumable goods are willing to invest it. If they invest it they put it into what are called capital goods—goods designed to produce other goods such as houses, buildings, machinery, etc. If they do this the money is used to create jobs, experts, technicians, etc., and this gets into the hands of people who will consume it. To keep the capitalist system going there must he a continuous flow of all savings into investment—into new industries and the expansion of old industries. That was considered a perfectly sound theory for many years. It was the basis of the opinion of those who appealed to President Roosevelt in 1933 to adopt a program that would encourage business expansion, instead of making war on business

Their thesis was as follows. The people do not spend all of the income they receive on consumable goods and services. Each year they save great sums. These savings are thus withdrawn from the function of spending. They must be brought back into the stream of spending some way or the system collapses. The orthodox method of accomplishing this in the past has been through private investment. People who save and who do not wish to spend their money for food or clothes or consumable goods are willing to invest it. If they invest it they put it into what are called capital goods—goods designed to produce other goods such as houses, buildings, machinery, etc. If they do this the money is used to create jobs, experts, technicians, etc., and this gets into the hands of people who will consume it. To keep the capitalist system going there must he a continuous flow of all savings into investment—into new industries and the expansion of old industries. That was considered a perfectly sound theory for many years. It was the basis of the opinion of those who appealed to President Roosevelt in 1933 to adopt a program that would encourage business expansion, instead of making war on business and killing investment.  

and killing investment.  

The New Deal economists, however, as John Flynn cited, were just learning this important principle. But the Brain Trustersd concluded that a continuous flow of savings into private investment was no longer possible. This is possible only when business men wish to borrow

The New Deal economists, however, as John Flynn cited, were just learning this important principle. But the Brain Trustersd concluded that a continuous flow of savings into private investment was no longer possible. This is possible only when business men wish to borrow funds for new enterprises and expansion of old ones. But this would happen again, they said. Expansion on a sufficient scale in new enterprises and expanding old ones is hopeless because the economy has reached the end of its expansion era, as described above. The only way to avoid the inevitable collapse of the system, they proposed, wass for the government to step in and borrow those sums which business refused to borrow and to spend the money on all sorts of welfare, educational, social and other public enterprises.

funds for new enterprises and expansion of old ones. But this would happen again, they said. Expansion on a sufficient scale in new enterprises and expanding old ones is hopeless because

the economy has reached the end of its expansion era, as described above. The only way to avoid the inevitable collapse of the system, they proposed, wass for the government to step in and borrow those sums which business refused to borrow and to spend the money on all sorts of

welfare, educational, social and other public enterprises.

Government spending had already plunged the nation into debt to the tune of nearly $40 billion. Continuous spending of funds borrowed by the government would mean a continuous expansion of the government debt. Government debt, they argued, is not like private debt. It does not have to be paid. The government can keep it afloat indefinitely by redeeming old bonds with new bonds. Moreover the interest on the government debt will not be a burden. "The debt is due by the people to themselves," they said. The people owe the debt. The people own the bonds which represent the debt. The government taxes the people to pay the interest on the bonds. It takes the taxes out of the pockets of the people and then pays it back to them in the form of

Government spending had already plunged the nation into debt to the tune of nearly $40 billion. Continuous spending of funds borrowed by the government would mean a continuous expansion of the government debt. Government debt, they argued, is not like private debt. It does not have to be paid. The government can keep it afloat indefinitely by redeeming old bonds with new bonds. Moreover the interest on the government debt will not be a burden. "The debt is due by the people to themselves," they said. The people owe the debt. The people own the bonds which represent the debt. The government taxes the people to pay the interest on the bonds. It takes the taxes out of the pockets of the people and then pays it back to them in the form of interest. It is just taking it out of one pocket and putting it in the other.

interest. It is just taking it out of one pocket and putting it in the other.

The government therefore need not bother about the size of the debt. It can go on borrowing indefinitely.  

The government therefore need not bother about the size of the debt. It can go on borrowing indefinitely.  

At this same time [[Rex Tugwell]] and [[Leon Henderson]] both admitted that the New Deal spending programs failed. But they insisted it had failed because it had been on a far too modest scale. Instead of spending three billion a year, for which Roosevelt was being

At this same time [[Rex Tugwell]] and [[Leon Henderson]] both admitted that the New Deal spending programs failed. But they insisted it had failed because it had been on a far too modest scale. Instead of spending three billion a year, for which Roosevelt was being condemned, Tugwell said it should have spent twelve billion a year.

condemned, Tugwell said it should have spent twelve billion a year.

==Theory of the Permanent Crisis==

==Theory of the Permanent Crisis==