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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.



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