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. 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.

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 primarily because technological expansion went forward on an amazing scale. But all this came an end. Population now increased at a slower rate.  

The theory continued: Government spending on the First [[New Deal]] had been proved to be a powerful. People realized that government pump priming  could lead to a self-sustaining economic recovery. The government set up built in stabilizers to maintain prosperity, such as the Federal Deposit Insurance Corporation (FDIC).  

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."

 

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 the president promoted anti-business rhetoric and class warfare causing uncertainty, and job creation suffered.

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 the president promoted anti-business rhetoric and class warfare causing uncertainty, and job creation suffered.