Roosevelt (59 page)

For, out of all the complexities and involutions of Keynes’s writings, there emerged a central idea that was dazzling in its stark simplicity. Classical economics dictated that in bad times governments must permit if not encourage lower wages, lower prices, and rigorously balanced budgets. Purged and cleansed by this stringent process, the economy could then right itself and once again march up the long foothills to the mountain peaks of the business cycle. Keynes boldly assaulted this notion. The nub of his advice to government in time of depression was to unbalance the budget deliberately by heavy spending and low taxes. Only through heavy spending by consumers and investing by government or private capitalists could the economy right itself.

To call any single doctrine a “solution” is, of course, dangerous business. Keynesianism, moreover, is still a highly controversial topic among economists and policy makers; its usefulness is sharply limited depending on the nature of an economy, the people, the condition, and the time. Yet it seems clear that if ever the idea of deficit financing had urgent applicability, it was to the America of the 1930’s, with its huge army of unemployed, its vast raw materials, and the state of its industrial arts.

In the first place, deficit spending was constitutional. When at a social gathering Justice Stone whispered to Miss Perkins, “My dear, the taxing power is sufficient for everything you want and need,” he was in effect reminding the administration of its plenitude of power in the whole fiscal realm as compared with other avenues that could be blocked off by judicial action. Indeed, a great authority
on the Constitution, Professor Edward S. Corwin of Princeton, had predicted the “twilight of the Supreme Court” because the Court, by making difficult a legal challenge to federal appropriations, had left to Congress power over spending and taxing.

Massive deficit spending was politically feasible too. Despite the ceaseless talk of economy on the Hill, Congress, at least during Roosevelt’s first five years, was eager to spend. It is an old political bromide that congressmen want to vote for all spending bills and against all taxing bills—which happens to be just the right combination for deficit spending. The President often had to throw his weight
against
the congressional spenders, as in the case of the veterans’ bonus. If Roosevelt had urged spending programs on Congress rather than the court plan and certain reform measures in 1937, he probably could have both met his commitments to the one-third ill-housed, ill-fed, and ill-clothed and achieved substantial re-employment.

Deficit spending was ideally suited to Roosevelt’s ideology and program. He was no doctrinaire capitalist; twenty years before his presidency he was a New Deal state senator favoring a host of governmental controls and reforms, and he had stood for progressivism as a Wilson lieutenant and as governor. He was no doctrinaire socialist; he had never embraced the idea of central state ownership of the means of production. Rejecting both doctrinaire solutions, Keynesian economics was a true middle way—at a time when New Dealers were groping for a middle way that worked.

As a practical man, Roosevelt liked to apply the test, “Will it work?” Deficit spending
had
worked in 1935 and 1936 with the huge relief programs, veterans’ bonus payments, and monetary expansion. Then had come a shift to the opposite policy: relief spending had been cut, reserve requirements for commercial banks raised, holdings of securities by banks reduced, and the growth of loans slowed. This shift from deficit spending had
not
worked. Both experiments had been fairly conclusive, each in its way; Roosevelt might have wanted the chance to experiment further, but a nation can hardly be expected to serve indefinitely as a laboratory.

Why did this most practical of men miss out on what probably would have been the ideal solution for his economic, political, and judicial problems?

Not because Keynes had failed to reach him. The Englishman had corresponded with the President, and he had talked with him in 1934. The two men liked each other, but the intellectual and the politician were cut from different cloth: Roosevelt was dubious about Keynes’s “rigmarole of figures” and seemed surprised to find him a mathematician rather than a political economist; for his part
Keynes was disappointed that the President was not more literate in economics.

From England, Keynes had watched the sharp decline of late 1937 with mounting anxiety. On February 1, 1938, he had written the President a long and eloquent letter. “You received me so kindly when I visited you some three years ago that I make bold to send you some birds eye impressions.…” After a disclaimer of omniscience, Keynes delivered a polite but candid attack on the administration’s recent economic policies. There had been an “error of optimism,” he said, in 1936. Recovery was possible only through a large-scale recourse to public works and other investments. The administration had had an unexampled opportunity to organize increased investment in durable goods such as housing, public utilities, and transport.

Could the administration, asked Keynes, escape criticism for the failure of increased investment? “The handling of the housing problem has been really wicked,” and housing could be the best aid to recovery. As for utilities, their litigation against the government was senseless. But as for the allegedly wicked holding companies, no one had suggested a way to unscramble the eggs. The President should either make peace with the utilities or be more drastic. Keynes leaned toward nationalizing them, but if public opinion was not yet ripe for that, what was the point of “chasing the utilities around the lot every other week”? As for railroads, either take them over or have pity on the overwhelming problems of the managers.

Keynes even tried to educate the President on the nature of businessmen. They had a different set of delusions from politicians, he warned, and thus required different handling. “They are, however, much milder than politicians, at the same time allured and terrified by the glare of publicity, easily persuaded to be ‘patriots,’ perplexed, bemused, indeed terrified, yet only too anxious to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. You could do anything you liked with them, if you would treat them (even the big ones), not as wolves and tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish.”

It was a mistake, Keynes went on, to think that businessmen were more immoral than politicians. “If you work them into the surly, obstinate, terrified mood of which domestic animals, wrongly handled, are so capable, the nation’s burden will not get carried to market; and in the end, public opinion will veer their way.…”

“Forgive the candour of these remarks,” Keynes had concluded. He listed half a dozen administration policies he supported with
enthusiasm. “But I am terrified lest progressive causes in all the democratic countries should suffer injury, because you have taken too lightly the risk to their prestige which would result from a failure measured in terms of immediate prosperity. There
need
be no failure. But the maintenance of prosperity in the modern world is extremely
difficult;
and it is so easy to lose precious time.”

The eloquent appeal had not moved the President. He asked Morgenthau to write a reply to Keynes for him, and the President signed as written the banal little letter that Morgenthau produced. Two months later Roosevelt did resume spending, of course, but it was not the kind of massive spending that Keynes was calling for.

Part of the reason for Roosevelt’s failure to exploit Keynes and his ideas lay in the web of political circumstances. Lacking a coherent economic philosophy in 1932, Roosevelt had opportunistically pummeled Hoover from both right and left, attacking him both for do-nothing government
and
for unbalancing the budget. Roosevelt had thus committed himself to a balanced budget, at least in the long run, and during his presidential years he mired himself further in this swamp. The more he unbalanced the budget, the more—literally scores of times—he insisted that eventually he would balance it. The more he promised, the more he gave hostages to the conservatives on the Hill and in his party. His personal stand became party policy in both the 1932 and 1936 platforms.

Another reason for the failure lay with Roosevelt’s advisers. Some of them, of course, opposed any type of heavy spending; but even those who leaned toward a new economic program were committed to particular doctrines or policies and hence were unable to exploit the full potential of Keynes’s idea. Some of them were mainly concerned about price rigidity—so concerned, indeed, that they wished to make this the main basis of a campaign against big business. Some were more worried about inflation than continuing unemployment. Some wanted to penalize business by raising taxes —good politics, perhaps, but a contradiction of the Keynesian idea of lowering taxes while increasing spending. Some, lacking faith in the long-term prospects of capitalism in America, believed in a theory of secular stagnation that did not admit that Keynesian economics was a basic solution. Some were believers only in pump priming; the government could pour heavy doses of purchasing power into the economy, as it had in 1935 and 1936, but after that business was supposed to man the pumps.

These splits even among his liberal advisers reflected to some extent the haphazard fashion in which Roosevelt had assembled his brain trust. Even so, there were few out-and-out Keynesians in the government, and most of these were in the lower echelons and
lacked access to the President. And Keynesian theory was so new that certain statistical and analytical tools were lacking.

The main reason for Roosevelt’s failure in the economic sphere, however, lay neither in the political situation nor in his divided advisers. With his immense political resourcefulness and volatility Roosevelt could always have broken out of the party and congressional web, at least in 1936 and early 1937. He could always have changed his advisers. His main trouble was intellectual. Roosevelt was simply unable as a thinker to seize the opportunity that Keynesian economics gave him. His failure as an economist was part of a broader intellectual failure.

What was the nature of this failure? Roosevelt’s mind was an eminently operative one, quick, keen, fast, flexible. It showed in his intellectual habits. He disdained elaborate, fine-spun theories; he paid little attention to the long and abstract briefs that academic people were always sending him on ways of improving administration, on strengthening the cabinet as an institution, on dealing with Congress. He hated abstractions. His mind yearned for the detail, the particular, the specific. Invariably he answered general questions in terms of examples—in terms of an individual business, of a farmer in Kansas, of a problem in Hyde Park, of a situation during the Wilson administration. He had a passion for the concrete.

His working habits bespoke his mind. From the start of his day to the end, from his skimming through a half-dozen newspapers at breakfast through a schedule of quick conferences on a score of different subjects to his playing with his stamps before bedtime, his mind sped from topic to topic, picking them up, toying with them, and dropping them. His intellectual habits were not disorderly; they were staccato.

Roosevelt’s mental way of life was nourished by its own successes. He liked to outwit the reporters in fast repartee. He liked to show off the incredible knowledge of a wide variety of specific matters that he carried in his head. Sometimes there was a touch of fakery in this, for the President could steer a conversation toward a subject on which he was newly briefed. But to an extraordinary extent he grasped an immediate, specific situation in all its particulars and complexity. He knew, for example, the tangled political situations and multitude of personalities in each of the states; he could talk for hours about the housing, roads, people, and history of Hyde Park; he could describe knowledgeably the activities and problems of a host of businesses and industries; he could pull out of his head hundreds of specific prices, rents, wages; he could
identify countless varieties of fish, birds, trees; he could not be stumped on geography.

His self-esteem as a practical man must have been fed, too, by the ignorance of so many of his critics. Many men of affairs were slaves to the theories of defunct economists, and Roosevelt could puncture their pretensions with his knowledge of their own business and its relation to the rest of the world. His indignant complaints to his friends about the businessmen’s failure to advance specific constructive suggestions was the lament of the practitioner against the theorist. Undoubtedly Roosevelt’s emphasis on his own practicality had an element of overcompensation too. Cartoonists in 1938 were still picturing him as a fuzzy theorist surrounded by bemused brain trusters; and a friend who had romped with him as a child in the Hyde Park nursery, and who had evidently learned little since those days, rebuked him with the words: “You are not an essentially practical person.”

And now, by a supreme irony, fate placed before this man of practicality an economic theory that seemed to embody only uncommon sense. The idea of boosting spending and holding down taxes and of doing this year after year as a deliberate policy, the idea of gaining prosperity by the deliberate creation of huge debts—this idea in its full dimensions seemed but another fanciful academic theory, and Roosevelt by 1938 had had a bellyful of such theories. Pump priming as a temporary emergency measure he could understand—but not deficit spending as the central, long-term approach to full-scale economic recovery.

Deficit spending posed a special intellectual problem for the President. If there had been consistency in his handling of economic affairs, it was his habit of trying to make economic decisions by combining opposites. “Lock yourselves in a room and don’t come out until you agree,” he would say blithely to people who differed hopelessly in their economic premises—to free traders and nationalists, to deflationists and inflationists, to trust busters and collectivists, to spenders and economizers. The trouble with deficit spending was that halfway application did not work. It had utility only through full and determined use; otherwise it served only to antagonize and worry business by increasing the public debt without sufficiently raising spending and investment.