John Kenneth Galbraith reviews Daniel R. Fusfeld's The Economic Thought of Franklin D. Roosevelt, Commentary magazine, August 1956
A young Columbia University scholar, Mr. Daniel R. Fusfeld, who is now on the faculty of Hofstra College, has just completed a careful investigation of the economic ideas to which Franklin D. Roosevelt was exposed in school and college and in the years prior to his becoming President—The Economic Thought of Franklin D. Roosevelt. Historians, the author regretfully points out, are taking a very poor view of F.D.R.’s economic knowledge. They tend to conclude, as a result, that his economic program was based on extensive improvisation or even downright opportunism. Evidence to support the point has come not only from Roosevelt’s enemies, who have jubilantly proven that he knew less than nothing about anything, but also from his friends. Frances Perkins, for example, has said that Roosevelt did not read much in economics, and she has also told of the reciprocal bewilderment which afflicted the principals after the famous meeting between J. M. (later Lord) Keynes and Roosevelt in 1934. Keynes was distressed that Roosevelt was not “more literate, economically speaking,” while Roosevelt hazarded the puzzled guess that Keynes “must be a mathematician rather than a political economist.”
Mr. Fusfeld comes strongly to the defense of Roosevelt’s economic education and his knowledge of economics. (He notes that a lot of professional economists were baffled by Keynes in the 30’s.) Except on the matter of what to do about depressions—a rather critical weakness but a common one in those days—Roosevelt’s “views on basic economic matters were well-articulated.” His general economic philosophy led quite directly to his political program. Building on the much discussed noblesse oblige which is now supposed to be part of the Roosevelt, and I gather also the Hudson Valley, tradition, F.D.R. had a sound general education including a liberal training in economics at Harvard. Mr. Fusfeld attributes a good deal to the influence of Professor W. Z. Ripley.
Ripley was the great authority of his time on corporations and railroads and he had the most exact and extensive knowledge of high corporate skullduggery of any man of his generation. It is easy, in the light of F.D.R.’s later attitudes, to suppose that he was influenced by Ripley, always assuming that he went to classes as he should. Roosevelt had a further education in Wilsonian liberalism, and more specifically in labor relations, while Assistant Secretary of the Navy in World War I. All of this came before the opportunity to read and reflect which was a by-product of his attack of polio, and to which biographers have always attached much significance. Mr. Fusfeld thinks they have greatly exaggerated its importance. Finally, there was the rich experience in the farm, welfare, conservation, and power problems of the state of New York, and the knowledge that came from the peculiarly talented group of people on which, as governor, Roosevelt drew. Roosevelt went to Washington, in Mr. Fusfeld’s view, with a very good working knowledge of economics indeed.
It seems to me that Mr. Fusfeld has made his case about as well as anyone could. He is an economist and has known what to look for, and he has researched his material competently and well. Yet I find myself unpersuaded and so, I think, will quite a number of readers. There is a closely related and even more interesting question, which is how much knowledge of economics a man must have to be a good President.
Mr. Fusfeld does not say what he means by a “well-articulated” approach to economic problems, but I assume, at a minimum, it means that the individual has a set of controlling ideas which he brings to bear on the specific facts of any situation. Given the facts, his reactions then will be tolerably certain and predictable. We like people who are so supplied with a basic working theory: it enables us to type them as conservative, liberal, Keynesian, Marxian, or whatever, and this is convenient and comforting. It enables us also to make further in-grade distinctions—as between sound and extreme Keynesians, ordinary and rabid conservatives, good liberals and poor liberals—except that now, I believe, almost any liberal is likely to be called a confused liberal. In politics these categories also give us some feeling of certainty as to how a man will react after he has been elected. If a man has well-developed economic ideas, even though they may be unpalatable, we pay him the compliment of saying that we know where he stands.
Yet some doubts about the value of such well-formed views begin to emerge when we think back to the 1932 election. No one, and incidentally not Mr. Fusfeld, would go so far as to suggest that Roosevelt’s economic views were nearly as well articulated as Mr. Hoover’s. Mr. Hoover knew where he stood, and the American people knew where he stood. He believed that the responsibility for the well-being of the American people rested not with the Federal government, but with the people themselves or with their local governments. He was not at all impressed by the argument that modern capitalism, especially the rise of large corporate units, had removed from the people (and also from local and state governments) the power to work out their salvation at home. If the Federal government would balance the budget, strongly affirm its intentions to remain on the gold standard, keep the bureaucrats on leash, and leave private enterprise to its own resources, things would get better. There might be suffering, but there would be less than under any other arrangement. Mr. Hoover had said all of these things with clarity and sincerity. There was no similar blueprint of Roosevelt’s views; even today nothing could be said about them within similar compass.
Yet Mr. Hoover’s economic policy has not had a great deal more sympathy from the historians than it had from the contemporary voters. In fact, it stands, like Wilson’s League of Nations, as one of the flat failures of the century and without the redeeming quality of seeming to have been a good try. The economic policy of Roosevelt was not a prompt, immediate, and widespread success. But its reputation as a vast step forward is completely secure.
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Someone before now will have wanted to plead that there are economic systems and economic systems, and that Mr. Hoover’s, however well-developed, was singularly ill-adapted both to the temper and economic situation of 1932. That it was ill-adapted can be agreed, but the availability of alternative systems is less than clear. In 1932 respectable economic opinion was all on Mr. Hoover’s side. The cranks, crackpots, eccentrics, and the vaguely irresponsible talked about cutting loose from gold, having a big bond issue to alleviate unemployment, of the need for some kind of national planning, or of the possible virtues of something like the Domestic Allotment Plan for agriculture. These were not the ideas of the men of established reputation. Had Roosevelt affiliated himself too obviously with the cranks in 1932, his contemporary reputation as a man of economic sense would have suffered. (Many looked askance at his flirtation with the monetary ideas of Professor George F. Warren of Cornell.) On the other hand, if Roosevelt had mastered and accepted the ideas of the men of established reputation, his views would not have been different from those of Mr. Hoover.
It has always been my feeling that Roosevelt would have been much happier had he been able just once to balance the Federal budget. While the Keynesian thesis that the times called for a deficit was almost incredibly convenient, it is my hunch that he regarded it as another of the rationalizations which his advisers, in the tradition of their master, were exceptionally skilled at providing. The belief in the balanced budget, if it existed, was the residue of some past exposure to economics. Had the latter been more extensive and penetrating it would also have left a deeper feeling for the gold standard, a dislike for monkeying with the price system, a suspicion of the monopolistic potentialities of unions, and any number of taboos of which, in fact, F.D.R. was blessedly free.
In May of 1932, in a speech at Oglethorpe University in Georgia which is quoted by Mr. Fusfeld, Roosevelt said: “The country needs and, unless I mistake its temper, the country demands, bold, persistent experimentation. It is common sense to take a method and try it: if it fails, admit it frankly and try another. But above all, try something.” (Roosevelt subsequently adhered to the first rule of politics, which is never to concede an error. Your opponents are never gracious about such concessions. On the contrary, they hasten to point out that you have even admitted yourself that it was all wrong.) This was the voice of unabashed empiricism. It denied the existence of a controlling view of events. But in the context of 1932 it was greatly to be preferred to a systematic economic doctrine. Such a doctrine was certain to be wrong.
Economics is in a far better way now than it was in the early 30’s. In the latter part of that decade, under the combined stimulus of the depression, Keynes’s General Theory, and the new system of social accounts (which gave us the now familiar Gross National Product, National Income, and their components, and enabled us for the first time to have a sense of total economic performance), economics had a great renaissance and this carried on through the war years. Of late there has been a recurrence of the relative stagnation of economic thought which is endemic in times of opulence, but it is unlikely that it has yet carried the subject to the extremes of irrelevance that characterized the late 20’s and early 30’s. One can more safely set store by economic knowledge now than then. I still doubt if a President or any high administrator should be controlled, as was Mr. Hoover, by too many fixed views. There must still be a general and pragmatic willingness to adapt to circumstances.
Proof of the point lies in the number of recent economic and political errors which can be traced to efforts to adhere to seemingly impeccable principle when the circumstances suggested a different course. In 1946 the Anglo-American Financial Agreement of that year, which provided the postwar loan of $3.75 billions to Britain, specified that Britain would make sterling convertible into dollars on current account in accordance with a time-table laid down in the agreement. The fact of a serious and perhaps not too readily curable lopsidedness in Britain’s balance of payments was clear, but it was passed over. The great and nostalgic principle of convertibility was sacrosanct. It must control at all cost. In the end, convertibility was proclaimed on schedule. The proceeds of the loan were dissipated in a windfall gain to alert holders of sterling in a few weeks’ time, and then sterling became inconvertible again. It was one of the most fantastically expensive episodes in recent history.
The Eisenhower administration made its most foolish economic blunder in 1953 under the influence of the theory, which had attained the standing of a cliché in financial quarters, that the New and Fair Deals had gone much too far in depressing interest rates. A series of abrupt increases in early 1953, for which there was no circumstantial justification, had a decidedly unsettling effect on business. The policy had to be abandoned and reversed. It was the deathless principle that TVA is creeping socialism, and that private utilities should produce all possible power regardless of circumstances, that led to the recent fiasco of Dixon-Yates.
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None of this argues either that economic theory is unuseful or that a President should be without convictions on economic matters. We know a good deal about economic behavior, and most of it is the result of the effort to develop applicable generalizations. The trouble is that the generalizations are not in themselves a complete guide to action. They must be tested against the circumstances of the particular situation. Perhaps there were times—had he been President in 1920-21, for example—when Mr. Hoover’s belief in the self-corrective character of depressions and the wisdom of a hands-off policy would have been, if not ideal, at least possible. But a generalization that was appropriate for mild depressions was intolerable for a grave one. Only by an open-minded testing of the theory against the new facts could grave error be avoided. But here is the rub. It can probably be put down as a rule that acceptance of an economic position and an open-minded testing of its applicability are incompatible. The choice, under these circumstances, had better lie with open-mindedness.
This, as I have suggested, does not argue against conviction. There is still need for a definite attitude on economic problems. On this more general level we know that Roosevelt reacted favorably to economic change. He also regarded the government as a natural instrument for effecting change. He saw no special virtue in big business and did not regard successful businessmen as a special repository of skill or knowledge. He was not a Jeffersonian, although he was pleased to regard himself as one, but he was certainly not a Hamiltonian. He regarded the country in its physical aspect as a kind of estate to be improved, beautified, and conserved for those who would possess it later. None of these attitudes implies of itself deep and precise economic knowledge. It did, however, make his reaction to particular circumstances broadly predictable.
Thus, faced with, say, the agricultural depression, it was inevitable that Roosevelt would be disposed to positive government action, quite apart from the political pressures of the case. He would not suppose that the head of International Harvester or of Swift and Company was the man to call on for help. On the other hand, he would not be clear about what to do himself. He would be open to advice and suggestions.
At times, in defending F.D.R.’s economics, it seems to me that Mr. Fusfeld himself is really defending his general attitude toward economic problems. It is this, and not specific positions, that seems to me important. To cite another recent example, Mrs. Hobby did not get into her terrible troubles with the Salk vaccine as the result of inadequate medical knowledge. Her difficulty was an attitude toward her department which kept her from seeing, much less welcoming, an opportunity to put it fully at the service of the people.
As with medicine so with economics. There will always be a doctor in the house.
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