Epilogue: Transition to the New Deal – continuities and discontinuities

Summary

As president, Herbert Hoover understood one of the basic insights of a theoretical system later to be identified as Keynesianism: that the behavior of the macroeconomic system is determined by the aggregate volume of spending. Indeed, he grasped this point as well as did anyone of his time – and better than did most of the economists in that period. This was the basis for his initial effort in depression fighting when he called for accelerated construction spending by public authorities and for increased capital outlays by the major private investors. Similarly, his appeals to employers to resist wage cutting was a plank from what later would be regarded as a Keynesian platform.

Nor did he lose sight of the importance of demand management when he made tactical adjustments in his programs in late 1931 and 1932. At first glance, the stance he then took – with his insistence on the importance of a balanced budget and on tax increases to achieve it – seems to be at odds with the objective of stimulating spending in a depressed economy. From Hoover's perspective, such a reading of his actions would be incorrect. The larger goal remained the same. In the circumstances of the time, however, the ultimate objective would be beyond reach unless an instrumental one, solvency in the banking system, could be secured first. The immediate priority was thus to ensure that the institutional preconditions for recovery in spending were in place.