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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.