POWER OF STORY: LETTERS BETWEEN KEYNES AND FDR

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

It is difficult to grasp the rapid expansion of government programs in the early months of the Roosevelt administration. His advocacy and implementation of government social entities redefined the role of government in the U.S. for coming generations. He saw his New Deal policies not only central to his legacy but to his re-elections.

Franklin D. Roosevelt’s governmental activities, however, cannot be fully understood or appreciated without an understanding of his relationship with John Maynard Keynes. The rest of the world was intrigued and abuzz about the economic and political philosophies of Karl Marx and Vladimir Lenin. Hot new ideas of centralized governments and controlled economies were being touted across Europe and Great Britain. Scuttlebutt had it that capitalism, free market economies, and even democracy could be lumped together in a heap and considered failed relics of another day.

Keynes did not see himself as just another author of economic ideas. His writings portray himself as an historic individual who had the answers to the inadequate and seemingly failed economic systems especially of the UK and America. His confidence and insistence almost spilled over into an elitist position as he endeavored to guide and mentor Roosevelt through the social and economic changes in America.

Much of the Roosevelt and Keynes relationship for years had been left to conjecture. More recently, however, letters between Keynes and Roosevelt have surfaced and been made available to the viewing public. My response, as I study the era more closely, is that of surprise that the U.S. did not travel more quickly and farther down the road of progressive socialism than it did. FDR was never defeated in a presidential election. In history’s supermarket of dictators, eyebrows are usually raised when the Castros, Kim Il Sungs and Robert Mugabes approach that mark of continuous control.

When FDR ran into opposition over his programs of deficit spending, regulation, and unparalleled politics, he sought to enlarge the Supreme Court to guarantee the proper legal interpretations. He lost the battle of direct takeover but was still able to appoint eight of the nine Supreme Court Justices. What followed was a pattern of presidential Executive Orders and a constitutional law revolution that ultimately resulted in the government legally being able to regulate the economy.

I would encourage you to read some of the Keynes/Roosevelt correspondence for yourself. The personal letter, from which I will be quoting here as an example, can be located at www.fdrlibrary.marist.edu/about fdr/pdfs/smFDR-Keynes_1938.pdf. I love it because it was hand-typed on King’s College stationery, Cambridge, UK

In Keynes’ letters he does not hesitate to put pressure on FDR to take control and move America to a centralized, government controlled, economic system. Allow me to share some direct excerpts from the 1938 personal letter from John Maynard Keynes:

• Can your administration escape criticism for the failure of these factors to mature? Take housing. When I was with you three and a half years ago the necessity for effective new measures was evident. I remember vividly my conversations with Riefler at that time. But what happened? Next to nothing. The handling of the housing problem has been really wicked . . . I should advise putting most of your eggs in this basket, caring about this more than about anything, and making absolutely sure they are hatched without delay . . . If a direct subsidy is required to get a move on . . . it should be given without delay or hesitation.
• Next, utilities . . . Why not tackle the problems by insisting that the voting power should belong to the real owners of the equity, and leave the existing organizations undisturbed, so long as the voting power is so rearranged . . . that it cannot be controlled by the holders of a minority of the equity . . . Personally I think there is a great deal to be said for the ownership of all the utilities by publicly owned boards.
• Finally, the railroads. The position there seems to be exactly what it was three or four years ago . . . Nationalize them if the time is ripe.
• Businessmen have a different set of delusions from politicians, and need, therefore, 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 . . . 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 the market . . .
• I accept the view that durable investment must come increasingly under state direction.
• I regard the growth of collective bargaining as essential.
• I approve minimum wage and hour regulation.
• 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.

It is easy to see how Roosevelt needed Keynes to accomplish his political aspirations, and Keynes needed Roosevelt to accomplish his grand international economic dreams. It was almost as if Keynes was afraid that FDR would not act quickly and completely enough to allow Keynes’ grand ideas to be implemented into America’s economic and political system as true answers sufficient to save the economy and culture. Keynes was trying to establish the shining light of a controlling centralized government, and to extend across the ocean the new titillating socialist experiment.

It seems to me that Keynes saw himself as the economic maestro who was afraid that his pupil would not quite get the scope and importance of the performance and mess up the whole concert, thereby disallowing the maestro his deserved place in history. What a lucid example of cultural economics, where historic transformation was taking place at the intersection of culture and economics.

Next week: So long, FDR and Keynes

     (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson  

Permissions granted by Winston-Crown Publishing House

  

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: ECONOMICS VS POLITICS

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

We are a people who love to extol the truth. The problem is we deal mostly in half-truths, and the problem with that is that we almost always get hold of the wrong half. Maybe it’s a habit . . . maybe it’s strategy . . . maybe our strategy has become a habit. But we usually choose the part of truth that allows us to successfully defend what we really wanted to do in the first place.

The problem seems to be particularly rife within the disciplines of statistics and economics: “What would you like this to say?” A great example can be found in the discussion we have been having regarding Bathtub Economics. A gaggle of economists can be gathered around concentrating on trying to smooth out the gaps in production and employment. Why are there gaps and why do the short business cycles seem to go in a boom and then bust fashion? Simply because the owner invests his money in facilities, then invests in materials to make his product, and goes out and hires enough employees to produce the goods. That’s what he is supposed to do.

He is such a good manager and efficient businessman that his production runs smoothly, and soon he has made enough pieces of his product to fill his warehouses. He has also saturated the market, having sold his product to all who needed to buy it at that time. He now has to stop and let his sales catch up with what he has produced and put in his warehouses. So he stops buying material and sends his workers home until he needs them to crank the machinery back up and start producing his product for the market again.

So the gaggle of economists put together a matrix to help the owner manage his production better. “Pace yourself,” they tell the owner. “Don’t stock up on so much material all at once and don’t hire all the laborers to get the job done so fast that you have to keep sending them home and make them unemployed. Stretch out the gaps and the economy will run more smoothly.”

The economists, however, would have said it in jargon like, “workers and machinery will be idled when there are no markets for their goods and services. When aggregate expenditures fall, then total output and employment decreases. When aggregate expenditures rise, then total output and employment increases.” Don’t hold it against them because they talk funny. That’s what economists are supposed to do.

Well, economist Keynes from Cambridge, England, was in another gaggle of economists. They did not believe that the simple ups and downs and gaps of the business cycle could be worked out by themselves. He argued that the decline in the investment in materials and workers would result in insufficient total spending, and would result in serious reduction in output and massive unemployment. Keynes said that recessions and depressions would not likely correct themselves and argued that it was imperative that government must be in charge of stabilizing an economy.

The fact that the Great Depression did not cure itself made Keynes appear very brilliant and opened the door wide for the acceptance of outlandish government intervention. The depression was held up as evidence certain to prove that capitalism and the free market system were inherently defective and needed to be replaced by an efficient centralized economic system.

Up to this point in our story there have been a couple of opinions, and simple economic models have been presented to explain them. One model encourages the smoothing out of the boom and bust cycles in a slow, moderate, disciplined way. The other insists on immediate and radical intervention through the means of government involvement. That’s pretty straight- forward economic theory being presented. That’s what everybody is supposed to do. But now enter the game changers.

Why is it so difficult to choose and administer economic policy? Why do such straightforward economic concepts and models wreak such havoc on individual citizens, policies, governments, and cultures? Because, it has everything to do with the phenomenon of politics!

We are a people who love to extol the idea of truth. The problem is we deal mostly in half-truths, and the problem with that is that we almost always get hold of the wrong half. Maybe it’s a habit . . . maybe it’s strategy . . . maybe our strategy has become a habit. But we usually choose the part of truth that allows us to successfully defend what we really wanted to do in the first place. I refer to it as the political perversion of the practical principle of the apparent problem. I talk funny, too. But I am loveable.

As the little host mouse was narrating the imaginary story taking place in the Governor’s Mansion in Albany , New York, the future president wasn’t really concerned about how the boom and bust cycles of business could be worked out. He saw the magic of taking deficit spending of the government that could be transposed into real money and exchanging that for dependency and votes to secure the positions of control of both the political machinery of the nation and the vulnerable economy. As soon as he could manage to get fifty percent of the voters dependant on his subsidies, in exchange for their vote, there would be no need to negotiate with such concepts as capitalism, free market, or democracy as it had been known. All he had to do was keep the bathtub full.

As many of you know, my international travels of the past took me many times to the country of North Korea, where I had meetings with the top leaders. They don’t like to be referred to as North Korea. “We are DPRK. That stands for Democratic People’s Republic of Korea.” I would always thank them for the correction. They would continue, “We are more of a democracy than you are. We have more elections in our Republic in any given year than you do.” I would smile graciously and pat them on the arm and tell them that our words were descriptors of two different birds. At some time I would enjoy discussing the two different birds.” That would usually elicit a bit of a frown.

If democracy is viewed as a simple function to measure a one-vote-over-50% of those voting, then we are dealing with another half truth, and we will more than likely get hold of the wrong half.

There never was a mystery as to why it was important to lift the well-known English economist Keynes to a near position of divinity. An outside, once-removed authority had to be established and elevated to a position of the high moral and intellectual authority, who would add the sanctity to the action that the politicians wanted to pursue in the first place. Roosevelt needed Keynes and Keynes needed Roosevelt. Keynes’ reputation remained intact throughout the Roosevelt, Kennedy, Johnson, and part of the Nixon administrations, and is now back again. The economic and political agendas of the gaggles were so closely tied together that even sunlight could not reveal a crack.

Naturally, it would be enjoyable for a politician to be able to hand out benefits and subsidies to the citizens in exchange for their votes and support. That is especially true when included in the package would be the lessening of personal responsibility and industriousness of the citizens. One huge problem for the politician is if he should in the future ever try to take back or withhold anything that is promised, or perceived to be promised, in exchange for the constituent’s vote.

Another disadvantage to the politician is the pressure that comes along with needing to come up with massive projects worthy of justifying the massive amounts of deficit spending necessary to keep the bathtub full. 

John F. Kennedy was the son of Joseph P. Kennedy, a wealthy businessman and importer of liquor. Roosevelt appointed Joseph P. Kennedy to head the newly organized Securities and Exchange Commission. Kennedy had been very effective in raising campaign funds for the Roosevelt elections. When John F. Kennedy was eventually elected to the presidency of the U.S., he was faced with an even larger burden: to keep the bathtub full with deficit spending. What was the mind-and-heart-challenging project presented to the citizens that would gain approval to allow the bathtub to be filled with deficit spending money? It was NASA, of course. Why was it so necessary to beat the “Ruskies” to the moon? Ooops . . . here comes another half-truth.

During the Johnson administration it was the emotional and powerful War on Poverty, along with Lady Bird’s bottomless expense account to Beautify America. Carter and the Clintons, as well as the Bushes, almost lost the bathtub with healthcare, the Arabs, and in the final hours of George W. Bush’s presidency, the mailing out of checks to everyone to spend and stimulate the economy.

Have you recognized the fact that the simple economic model in the beginning was to smooth out the gaps in the sometimes bumpy business cycle? But politicizing, and the involving and promoting the government in the model, transferred the ballgame into a whole different stadium. Each occasion of filling the bathtub with deficit government spending required a larger and more complicated program, where the swing of the cycle got bigger, deeper, and more explosive. Also, have you noticed that at the completion of the particular cycle it has nearly always taken an international crisis or war to catch up on the deficit extravaganza?

The grand expenditures of the New Deal’s Federal Relief Administration, the CCC, the FTC, the RFC, the AAA, the NIRA, the SEC, the WPA, the TVA, the NRA, or the thousands of Presidential Executive Orders did not lift the nation out of the Great Depression. It took the massive ramping up for the winning of World War II, the equities of the lives of millions of young men, the spending of unmeasured natural resources, and the alteration of the nation’s culture and employment methods to break the back of the Great Depression.

In order for a society to enjoy a successful economy, it has to produce something. Conflict and wars have a way of focusing attention on nationalism and self-preservation of a culture. That emotional thinking has a way of justifying wars. Such concentration allows for massive war-time production and employment that eventually stabilizes the economy because the economy is forced to produce something. What a sad economic model.

Free food stamps, market baskets of subsidized everything, and a culture of unrealistic expectations in exchange for political votes will not produce the successful sustainability of a national economy. At some point someone has to pay the price. Voting for a living instead of working for a living won’t work forever. At some place someone has to be allowed to produce something that is real and of value to others. It seems that a better economic model would encourage the expression, investment, and management of the necessary production in a more sustainable way over a measured period of time.

In the over one hundred-fifty countries I have worked in the past thirty years, I have carefully observed examples of the short-lived dictators, the charlatans, and the unashamed and selfish politicos who have stripped nations of their rightful equities and dignities in order to personally enjoy the glitter and bright lights of privilege and control. It’s no wonder that so many people down through the dark ages of history fanned the flame of hope within their own minds and hearts that one day there could be an experiment played out in real life where personal initiative, personal integrity, personal responsibility, personal risk, personal reward, personal management, and personal peace, quiet, and fulfillment could be initiated and encouraged so that everyone in the system could be better off.

Closer to home, the present privileged zip codes in Washington, New York, Boston, and San Francisco of the established administration represent projects and spending behaviors that move way past even political comprehension and way past the truth, half-truth paradigm. How much is a trillion dollars? How much is seventeen trillion dollars? What is the meaning of phrases like “Just too big to fail?” How can you monetize that much debt into the system? How can you even think about applying justice to the government- privileged stalwarts of Fannie Mae and Freddie Mac, whose untoward actions harmed untold millions of the citizens?

The whole sub-prime rate debacle was designed to redistribute advantage in exchange for votes and support. Then, however, it was taken one ratchet notch higher in form of a counter redistribution of wealth by depositing the ill-gotten proceeds into the accounts of the inhabitants of those privileged zip code areas.

It appears that we have gotten hold of the wrong half of the half-truth paradigm. The Bathtub that once fit nicely in the little adjacent room has expanded until now the whole house, garage, and barn are expected to comfortably nestle into the Bathtub.

 

Next week: Some slippery flaws of the Bathtub.

       (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

  

© Dr. James W. Jackson  

Permission granted by Winston-Crown Publishing House