/* 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 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).
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. 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 condemned, Tugwell said it should have spent twelve billion a year.
By 1938 Roosevelt embarked on a massive defense appropriations buildup; the Administration would advance 30% to a defense contractor when placing an order. The National City Bank reported an increase of overall business profits in the year 1939 over 1938 of 63.6%, and in its December 1940 Bulletin showed for 284 companies "directly affected by war and defense program" a rise of 79.2%. The ''Wall Street Journal'' reported, "Betterment in profits was naturally more pronounced, as a rule, in those industries benefiting directly or indirectly from the European conflict." <ref>''Wall Street Journal'', May 3, 1940.</ref>