An Open Letter to President Roosevelt

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An Open Letter to President Roosevelt is a letter written by John Maynard Keynes on December 16 1933, to Franklin D. Roosevelt and published in American newspapers on December 31 1933 in which Keynes sought to advise Roosevelt on economic policy regarding recovery from the Great Depression and public social policy.[1]

Keynes believed that Roosevelt had made himself the “Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment” Keynes assumed that if the President failed, “rational change” would be “gravely prejudiced”, leaving orthodoxy and revolution to “fight it out”.

In the second paragraph Keynes described what he perceived as the attitudes in London toward Roosevelt at the time, writing that Roosevelt’s sympathizers were “nervous and sometimes despondent” and “disconcerted” when they defended him, because almost everyone else in London had a “wildly distorted view” of what was happening in America. He complained that the average city man believed that the President was “engaged on a hair brained expedition in the face of competent advice,” and that he should have ridded himself of his contemporary advisors and returned to the old ways.

Advice on Reform

While supportive of Roosevelt’s business and social reform initiatives, Keynes gave a higher priority to recovery than to reform. He wrote that speed and quick results were essential to recovery, and that while reform was also urgent, hasty reform may impede and complicate recovery and overwhelm the administration, and he believed that the urgency placed on reform by the administration probably had impeded recovery. He believed that success in short term recovery would raise the prestige of the Roosevelt administration and give it the “driving force to accomplish long-range Reform”. He believed that while the social gains provided for by the National Industrial Recovery Act, NIRA, had been large, it did not provide any material aid for recovery, and that NIRA had been “put across too hastily, in the false guise of being part of the technique of Recovery”. Keynes wrote that he did not wish to “impugn the social justice and social expediency of the redistribution of incomes aimed at by N.I.R.A. and by the various schemes for agricultural restriction. The latter, in particular, I should strongly support in principle.”

Advice on Recovery

Keynes’ argument for his proposed technique of recovery ran as follows:

1. “The object of recovery is to increase the national output and put more men to Work.”

2. “In the economic system of the modern world, output is primarily produced for sale; and the volume of output depends on the amount of purchasing power, compared with the prime cost of production, which is expected to come on the market.”

3. “Broadly speaking, therefore, an increase of output cannot occur unless by the operation of one or other of three factors. Individuals must be induced to spend more out of their existing incomes; or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes in the hands of their employees, which is what happens when either the working or the fixed capital of the country is being increased; or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.”

Keynes’ prescribed course of action was a surge of government spending of borrowed or printed money. He wrote: “In bad times the first factor cannot be expected to work on a sufficient scale. The second factor will come in as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority. It is, therefore, only from the third factor that we can expect the initial major impulse.”

He criticized the President’s policy of increasing output by restricting supply because of the negative impact it would have on recovery. He also asserted that “Since there cannot be rising output without rising prices, it is essential to ensure that the recovery shall not be held back by the insufficiency of the supply of money to support the increased monetary turn-over.”

Advising against raising taxes to fund the recommended spending hikes, he wrote: “I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by Loans and not by taxing present incomes.”

Keynes also recommended devaluation of the Dollar, the forcing down of interest rates, fixing exchange rates of precious metals with foreign nations, and he repeated, seven times, the emphatic urge to spend borrowed money on large scale projects which could be made to mature quickly.

The letter was concluded with this: “With these adaptations or enlargements of your existing policies, I should expect a successful outcome with great confidence. How much that would mean, not only to the material prosperity of the United States and the whole World, but in comfort to men's minds through a restoration of their faith in the wisdom and the power of Government!”

Keynes signed his letter:

With great respect, Your obedient servant J M Keynes