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Keynesian theory and the new deal

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.

Source: Essay UK -

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