balisciano - planning - hope 1998 2h

8/12/2019 Balisciano - Planning - HOPE 1998 2h

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Part 3

Market Failure or

Market Efficiency


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Hope for America: American Notions of

Economic Planning between Pluralism

and Neoclassicism, 19301950

Mrcia L. Balisciano

National Planning is an essential to the future prosperity, happiness, and

the very existence of the American people. (Franklin Roosevelt,

quoted in Beard [1932] 1969, 340)

In 1932, at the depths of the depression, one U.S. economist noted:Economic planning recently has become the epigrammatic program

of practically every economic interest group in our Nation. From the

radicalism of the extreme left to the conservatism of the extreme right,

from the Communists to the United States Chamber of Commerce, eco-

nomic planning has come to be the accepted way out of our economic

plight (Loucks 1932, 114).1 Indeed, pluralism was a fundamental char-

acteristic of the ideologies of economic planning in the interwar period.

I thank all the participants of the 1997HOPEconference for their helpful comments during

the initial presentation of this paper. In particular, I am grateful for the time and insight of

Malcolm Rutherford, Mary Morgan, Craufurd Goodwin, Bob Coats, and Fred Lee, all of

whom commented on the written draft. I accept full responsibility, however, for the final prod-

uct. Correspondence may be addressed to me at the Department of Economic History, Lon-

don School of Economics, Houghton Street, London WC2 2AE.

1. Notions of planning in the United States between 1930 and 1950 were prevalent on

many fronts, including local (e.g., city planning efforts from Boston to Los Angeles), state

(e.g., through the proliferation of state planning boards; by 1935 all but two states, Louisiana

and Delaware, had a planning agency), regional (e.g., the Tennessee Valley Authority), and

international (e.g., debate over U.S. tariff policy). Likewise, planning was frequently sug-

gested as a tool at these various levels for the efficient utilization of natural resources, for

redressing physical infrastructure problems, or for reshaping legal or political frameworks.


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Although inquiries into the way free market processes might be aug-

mented, especially in the wake of some economic or social problem,

are a long-standing American tradition, economic planning represented

a conceptual departure. Unlike previous economic policy ideals such asprogressive reform (the economy needed help through new public

and private initiatives) and regulationism (the economy needed legis-

lation to curb economic sinning), planning was predicated on the

assumption that interventioneither through direct or indirect meth-

odswas necessary for a well-functioning, dynamic economy.2

Among events and circumstances that helped foster planning in

the years between the two world wars was the World War I mobiliza-

tion experience, which highlighted the potential of government controland government-business cooperation (Crowell and Wilson 1921; Gra-

ham 1976, 68); the 192021 recession, which hastened the search for

new ways to offset destabilizing economic fluctuations (Barber 1985);

and, in an age of technological advance, a growing faith in science,

which promised to deliver efficiency in both government and business.

Yet by far the most pivotal event that led to the enunciation of economic

planning as a national tool was the Great Depression. In the wake of the

October 1929 stock market crash, economic chaos mounted. Whereas

only 3.2 percent of the labor force was unemployed in 1929, by 1933

that figure climbed to 2125 percent of the working population. In the

same period, real output fell by 29 percent (Atack and Passell 1994,

584). National product shrank in nominal terms from $103 billion in

1929 to $56 billion by 1933 (Historical Statistics 1975, 224).

In this climate, planning developed as a flexible and fluid concept.

Forward actions of all kinds were proposed beneath the banner of plan-

ning in order, it was hoped, to define, shape, and ultimately improve

economic outcomes. A planner came to be seen as one who discussedand debated economic problems. Discussion and debate became plan-

ning. Proposed solutions became plans. For example, to see Amer-

154 Mrcia L. Balisciano

This study, however, is principally concerned with ideologies of economic planning at the

national level during the period.

2. Reform (progressive taxation, resource conservation) and regulation (laws, regulatory

agencies) were responses to sweeping economic and social change wrought by rapid indus-

trialization and urbanization in late-nineteenth- and early-twentieth-century America. In the

case of regulation and the Sherman Antitrust Act, as Anne Mayhew has shown in this vol-

ume, economists were not early supporters; in a choice between large industrial combination

and atomistic competition, many preferred the latter.


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icas economic problem as too much regulation and to call for greater

liberty for industry became business planning. Or to see the problem as

a lack of liquidity in financial markets and to call for an infusion of cur-

rency into the economy became monetary planning. Because of itsmany hues, planning became the epigrammatic program of . . . every

economic interest group. Planning was a mirror for the pluralism of

American society in the 1930s and thus defied precise definition. As

such, it was also a mirror for the pluralism of American economics and

American economists during those years.

Four distinct though frequently overlapping ideologies of economic

planning at the national level came to light in the depression, the

strands of which affected the immediate shape of the New Deal, thetenor of the wartime economy, and, finally, plans and aspirations for

the postwar era. By 1950, however, enthusiasm for planning was fading

and, with it, much of the heterodoxy of American economics. Of the

four approaches, only one, macroeconomic planning, appeared to sur-

vive the tests of economic success and political feasibility and, as such,

held considerable sway over economic thought and policy in subse-

quent decades. Although the popularity of planning in general waned

as the fortunes of neoclassical theory rose, a planning ideal(the com-

mon thread among the four) remained, leaving a definitive imprint on

American political economy.

The Four Approaches and Their

Influence on the New Deal

An examination of the statements of a diverse group of planners before

the New Deal reveals a planning ideal rooted in common perceptions

(see Haan 1931). Among these was the notion that old economics, theeconomics of original sin, had failed (Foster 1932, 52). There was

further agreement on the need to identify national objectives in order to

halt socioeconomic drift. Recurring national objectives included the

balancing of production with consumption, more equitable income dis-

tribution, and conservation of national resources. The ultimate aim was

economic democracy, a new American right, united with an older

right, political democracy. The intertwining of the two formed the

essence of the planning ideal as it emerged in the depression. Plannersbelieved the two were not mutually exclusive; they could coexist. A job

for all Americans who could and wanted to work, decent housing and

American Notions of Economic Planning 155


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wages, and help through social legislation for those in need were the

practical concerns of economic democracy. Yet another binding tie

among an otherwise disparate group of planners was general optimism

that through planning, these aims could be achieved. There was a res-olute faith in Americas resources, technological capability, collective

intelligence, and cooperative spiritin sum, the forces that would

allow American planners to get the job done.

Whereas representatives of Joseph Stalin at the World Social Eco-

nomic Congress, held in Amsterdam in 1931, believed American plan-

ning to be a Russian import (Obolensky-Ossinsky 1932), U.S. planners

countered that in fact the Russians had expropriated planning from

America.3

Planning, they maintained, was a politically neutral concept.Herein lay its principal justification. Planning could and must be sepa-

rated from its execution. One could not cast aspersions on the planning

idea just because it had been used in a totalitarian fashion by one

nation. In its pursuit of economic democracy, Russia was willing to

forgo political democracy; that is, the ends of Russian planning justi-

fied totalitarian means. In contrast, American planning, they argued,

would pursue and achieve economic and political democracy simulta-

neously.

Although planners held the ideal in common, agreement on objec-

tives proved easier than agreement on how to achieve them. One com-

mentator noted, The problem confronting us is not the simple issue of

planning or no planning. The real challenge was how much planning,

by whom, [and] under whose auspices (Beard [1932] 1969, 403).

Responses to this dilemma were conditioned by planners perceptions

of economic problems, which determined the solutions or plans they

put forth. Their views were based on a set of interrelated variables


3. Influential economic writer and planning popularizer Stuart Chase (1931, 568)

argued, With highest respect these Slavs seem to think that they discovered national plan-

ning; that unless one knows Papa Marx backward he cannot locate an industry near its

source of raw material or untangle a problem of cross-hauling. Yet President Herbert

Hoover declared, I presume the plan idea is an infection from the slogan of the five year

plan through which Russia is struggling to redeem herself from . . . ten years of starvation

and misery. Nonetheless he was not dissuaded from proposing his own American plan on

the occasion (Beard [1932] 1969, 396). Hoover had actually been instrumental in fostering

limited advisory planning in the 1920s at both the national level (through his sponsorship of

studies into ways of mitigating the business cycle) and the state and local level (through

his support for numerous local planning measures, including the Standard City Planning

Enabling Act of 1927).


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the planning mixcomprising their personal background, conception

of history, objectives, and so forth. The planning mix was the ideolog-

ical baggage planners brought to their analysis of economic issues. And

from their planning mix, planners frequently pulled forth metaphors,existing or prior economic or other experiences around which they built

their plans.

In fact, the plans proposed during the early years of the depression

frequently dealt with a wide spectrum of issues that resists narrow clas-

sification. However, in looking at the economic problems and solutions

suggested before the New Deal, four different ideologies can be iden-

tified: social management planning, technical-industrial planning, busi-

ness economy planning, and macroeconomic planning (see table 1).4

Itis important to note, however, that economic planners often straddled

ideological boundaries, given the common elements in their planning

mix (e.g., the influence of shared teachers and texts). None of the aspi-

rants to economic planning, for example, sought to overturn the capi-

talist system; they sought only to improve it. Furthermore, their views

often changed over time, making planners interesting and complex

examples of the economic pluralism of the age.

Social Management Planning

Two prominent social management planners in the 1930s were Colum-

bia University economists Rexford Tugwell and J. M. Clark. Their

thinking on planning reflected the writings of both John Dewey (1920)


4. Indeed, these are my categories, not those of the economists I have attempted to fit

within them, but I believe they are generally descriptive of the type of planning that was pro-

posed. Noticeably absent from the taxonomy is a category for liberal planners (in the tradi-

tional economic sense), best exemplified by members of the Chicago school in those years.

This group believed that it was governments responsibility to take positive steps in order to

foster free and competitive markets (see Director 1933 and Tippetts 1933). By far the most

well-known expositor of this position was Henry Calvert Simons. InA Positive Program for

Laissez Faire, Simons (1934, iii) laid out his Chicago or 100 Per Cent Reserve plan,

which called for, among other measures, government action to limit wasteful selling and

advertising practices; to eliminate monopoly; to establish definitive monetary rules (including

the end of universal banking); to revamp the tax system with an eye toward redistributing

wealth and income; and to institute the gradual withdrawal of subsidies and tariffs. Simons

believed his program was drastic enough to satisfy the most ardent reformers and offered

abundant opportunity for real economic planning (36). However Simons and others are not

included in this discussion because they were not considered by contemporaries as planners;

in Simonss words, The real enemies of liberty in this country are the naive advocates of

managed economy or national planning (2).


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Table1

FourIdeologiesofAmericanEconomicPlanning

attheNationalLevelinthe1930s

Te

chnical-

Business

SocialManagement

In

dustrial

Economy

Macroeconomic

Planning

Planning

Plan

ning

Planning

Viewof

economicproblem

Econom

iccollapseresults

Industryisproneto

Individualbusinesses,

Savings(profi

ts)

froman

undirected,unco-

structur

alimbalance;

sufferingfromlackof

accumulatefaster

ordinated,andunbalanced

lackofrationalindustrialinformation,overpro-

thanproductive

econom

icsystemfocused

controlfromthecenter

duce,causingacycleofinvestment,cr

eating

onthep

rofitmotive

leadsto

economicchaos

deflationandunemploy-imbalancesthatlead

ment

tospeculation

and

depression

Viewof

economicsolution;

Collectiveactionguidedby

Revamp

industrial

Industrial

combination

Countercyclicalexpend-

planningmetaphor

planningboardtoensure

structur

e;scientific

andpricecontracts;

itureandadvisory

continuedgrowthand

manage

ment

tradeasso

ciationmove-planning;1920sidea

develop

mentofthe

mentofla

tenineteenth

ofpublicwork

sasaway

industrialeconomy;World

century

tooffsetthebusiness

WarIW

arIndustriesBoard

cycle

Whotak

estheleadin

Governmentincollabora-

Governmentandtechni-

Business

Government-b

usiness

planning

tionwithalleconomic

calexperts

partnership

actors

Objectiv

e

Institutionalrestructuring

Improvementofunder-

Enlightenedbusiness

Manipulation

ofmacro-

ofeconomic(andsocial)

lyingindustrialstructure

self-management

variablestoac

hievea

lifetoa

chievefullutiliza-

andhen

cemarket

throughcartelization

stable,

high-performing

tionofnationalresources

processes

economy


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and Thorstein Veblen (1921).5 Deweys theme of knowledge as a vehi-

cle for change is found in Clarks (1936, 61) pronouncement that eco-

nomics should contribute to the solution of [societal] problems. More-

over, the lag Veblen found between changing social and economicconditions and prevailing laws and institutions provided the under-

pinning for their pursuit of planning (see Gruchy 1939). As Tugwell

(1932, 88) prescribed, The first series of changes will have to do with

statutes, with constitutions, and with government. The intention of

eighteenth and nineteenth century law was to install and protect the

principle of conflict; this . . . we shall be changing once and for all, and

it will require the laying of rough, unholy hands on many a sacred

precedent. It was here that other economists, like Wesley Mitchell,who prized the ideal of social management planning, parted company

with the stronger rhetoricthe implied compulsionin the planning

statements of those like Tugwell. Mitchell felt it was far better to con-

centrate on research in order to dispense valuable information to busi-

ness, which could then institute its own intelligent planning.6

Tugwell and Clark, like other social management planners, surveyed

the debris of the depression and concluded that Americas economic

problem was an undirected and uncoordinated economic system

focused on the profit motive rather than production based on social

need (see Soule 1932 and Hinrichs 1934). Pursuit of profit for profits

sake had resulted in structural imbalance between sectors and hence

price inflexibility. Although efficiencies had reduced production costs,

benefits in the form of higher wages for workers and lower prices for

consumers had not been forthcoming. The long-term remedy for under-

consumption was a restructuring of economic and social lifewith

government at the helm in cooperation with other economic partners

to ensure complete utilization of national resources for the greater good(Clark 1932, 245). The interim step was the creation of planning asso-

ciations by industry to oversee production and pricing, with overall

coordination by a national planning board (Tugwell 1933, 21112).

Concurrent measures would redistribute income (Clark 1939, 455).

Social management planners, including economic writers Stuart

Chase and George Soule, disseminated these ideas to the public at large


5. Tugwell noted Veblens impact on his thinking inBooks That Changed Our Minds (Cow-

ley 1939), while he remarked of Dewey, I feel myself deeply in his debt (1982, 156).

6. Thus Mitchells (1927) research into the nature of business cycles was a way of reveal-

ing information about the economy that might prove useful to government and industry.


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by comparing the proposed national planning board with the War

Industries Board (WIB) of World War I. However, there was a problem

in using the WIB as a metaphor to cope with overproduction in 1932

given its design to cope with underproduction of wartime necessities in1918. In their insistence that their brand of planning would be compat-

ible with American democracy, social management planners over-

looked the fact that the WIB had curbed rather than broadened liberties

and that such measures had been tolerated only because of the patriotic

imperative of war. They maintained, however, an abiding faith in the

unlimited potential of cooperation: If war had required teamwork, col-

laboration, and control from the center for mobilizing men and tanks,

such factors could also be engaged for a successful peacetime economy.Although they were criticized for being vague on details, social man-

agement planners responded that planning was an evolutionary process

that could be learned only by experimentation.

Technical-Industrial Planning

Economic democracy was an end to which technical-industrial planners

aspired, but they differed from social managers in their emphasis on

the industrial sector in their analysis of economic problems and solu-

tions.7 The ideas of Gardiner Means and Mordecai Ezekiel are exem-

plary. In 1937, as director of the Industrial Section of the Industrial

Committee of the National Resources Committee (NRC), Means

(1937a) advocated an economic research agenda on the structure of

industry. It would be concerned primarily with the units through

which industry is now carried on, the extent of concentration or dis-

persion of authority and of responsibility, of control and of interest.

. . . It should result in recommendations as to the structure of planning


7. According to Gardiner Means (1940a, 16), The system of policies consistent with

[adjusting short-run price insensitivity] will add to governments other responsibilities a pos-

itive and continuing responsibility for insuring reasonably full employment. Mordecai

Ezekiel (1939, 3) cited the travesty of ten million wage earners and 25 million people . . . on

the bare edge of existence as justification for planning. Both were familiar with the work of

social management planners Tugwell and Chase. As assistant secretary of agriculture

(1933 36), Tugwell had worked with both Ezekiel and Means and suggested the latter for the

Industrial Committee. Upon reading Chases review of MeanssModern Corporation and Pri-

vate Property (1932), Means (1933) was prompted to write, You have said what [Adolph

Berle and I] have been trying to say, but you have said it very much more lucidly so that I wish

you had written the book yourself.


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and acting for overall balance toward which this country should work.

Means recognized that macropolicy was an important counterpart to

his examination of microframeworks. He believed that investigations

into achieving balance in the total economy would illuminate effectivesolution[s] to more concrete problem[s].8 Consequently, as part of

his research agenda, Means constructed disaggregated statistical mod-

els of the entire economy in order to analyze its resources (Qin 1993,

5152).

In an NRC report based on research he conducted on the structure of

the American economy, Means (1940a, 17) suggested, It is possible

that, in periods of deficient buying, the more important key industries

could be induced to develop a combined program of expanded produc-tion which would both increase employment and supply the increased

buying power capable of purchasing the additional goods produced. In

the same publication, Ezekiel (1940, 4145), an agricultural econome-

trician who served with Means on the Industrial Committee, drew out

similar themes of industrial coordination, with oblique references to

the industrial expansion program he had presented in Jobs for All

(1939).9 In the latter, Ezekiel suggested that the . . . idea is to have

each of the key basic industries prepare tentative programs for expand-

ing its operations and pay roll in the year ahead, and then to check and

revise those tentative programs against each other to be sure they fit

together properly. Then each concern in these industries will be given

advance orders for planned production, through contracts with a special

government agency. These contracts will provide for the public pur-

chase at a discount, of any portion of the programmed production

which remains unsold (3).10 Ezekiel used the ever-normal granary


8. To this end, Means (1937a) advocated a study of the way over-all operating policy now

made by government . . . the way Federal Reserve policy, essential Treasury policy, interna-

tional exchange policy, etc., actually come into being.

9. Ezekiels subdued reference to his plan for expanding industrial output (first sketched in

Ezekiel 1936) was a reflection of the noncontroversial advisory planning focus of NRC lead-

ers like Charles E. Merriam and Frederic A. Delano. Although Means was willing to ask hard

questions, he did not advocate enforcing answers. In his NRC report on production-

consumption patterns, Means (1937b, Introduction, 5 6; emphasis added) stated, The pur-

pose of drafting such patterns is to aidin the making of government, corporate and private

policy with the r espect to the future.

10. Ezekiel (1939) envisaged Industrial Authorities as the administrative mechanisms

for coordinating plans by industry; their work would in turn be integrated into the interindus-

try plan of a Central Administrative Authority. Ezekiel proposed that prices should only

fluctuate between a 10 percent maximum and minimum price range, with the minimum being


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of the Agriculture Department (where he served as economic adviser)

which stored excess crops from one year to the next as the basis

for his ever-normal warehouse. In popular expressions of technical-

industrial planning, however, the most pervasive metaphor was that ofscientific management, which had introduced science into the life of the

factory. Frederick Winslow Taylors time and motion studies on the

plant floor had led to standardization of materials and processes, espe-

cially in multiplant firms, and apparent increases in production and

profitability. Significantly for technical-industrial planners, they had

shown that the planning of work could be separated from its execu-

tion.11 Thus, in their accounts, technicians would take the lead in plan-

ning. Certainly Veblens influence is palpable. It was, after all, Veblen(1921, 141) who hoped for the overturning of vested interests by a

Soviet of technicians.12 Ezekiel (1936, 227) noted, Our present con-

fused economic system acts as a dam to hold back the flood of goods

and services our technicians and industries could produce, if we turned

them loose. Meanss (1937b) proposed inquiry into the structure of

industry called for the talents of political scientists, economists and

perhaps lawyers. In his opinion, The coordination of operating policy

is fundamentally a technical job which should be handled within the

administration. This means that the membership of a coordinating

committee should be made up of technicians (1938).

Business Economy Planning

Business economy planners, like technical-industrialists, considered

the experience of the multiplant firm the best metaphor for planning.

However, they saw that its success depended on managements ability

to coordinate the activities of each plant in accord with overall com-pany goals. Greater stress, therefore, was placed on managers than on


the price at which government would buy unsold goods of the planned production. Those who

did not wish to comply with the voluntary contracts would be subject to a tax.

11. See, for example, the use of scientific management as the basis for technical-industrial

planning by H. S. Person (1932, 1934), director of the Taylor Society.

12. In Veblens (1921, 133) view, the power of technicians rested on the fact tha t they con-

trolled technology and information. Their expertise was the indispensable factor in the

everyday work of carrying on the countrys productive industry. The institutionalist charac-

ter of Veblens theories also influenced technical-industrial planners. Means (1940a, 16)

argued that inherited policies and the existing economic structure were not consistent.


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technicians. Government was relegated to benevolent oversight: Orga-

nized industry should take the lead, recognizing its responsibility to its

employees, to the public, and to its stockholdersrather than that

democratic society should act through its government. . . . If either theIndividual States or the Federal Government act, the power of taxation

has no economic restraints (Frederick 1931, 22). Yet they, too, were

motivated by the planning ideal, recognizing that the responsibility

for six millions of people out of work is too heavy to be borne without

humility, shame and energetic thinking by the countrys leading indus-

trial leaders (Frederick 1931, 14).

The aim of enlightened self-government through cartelization was

expressed in the two dominant business economy proposals of theday: the 1931 Swope plan, authored by Gerard Swope, president of

General Electric, and the U.S. Chamber of Commerce plan of 1931.

Both advocated the reform of outmoded antitrust laws in order to

achieve a vision of economic planning based on the metaphor of the

trade association movement of the late nineteenth century. The Swope

plan took a bottom-up approach, establishing trade associations with no

overall coordinating body at the top other than a General Board of

Administration made up of and appointed by employers and employees

(along with public representatives) to oversee the plans social insurance

scheme. The Chamber of Commerce in contrast advocated a top-down

strategy, with a National Economic Council as the foremost indepen-

dent research body in the nation but with no formal industry groupings.

Businesses would simply enter into contracts for the purpose of equal-

izing production to consumption and so carrying on business on a sound

basis. Contracts would be filed with some governmental authority

. . . [and remain] effective unless the governmental authority having

supervision finds on its own initiative or on complaint that such agree-ments are not in the public interest, in which event such agreements

would be abrogated (quoted in Beard [1932] 1969, 204). At the heart

of both plans was the idea of collective business action to outline trade

practices, set standards in ethics and accounting procedure, share per-

tinent information, apportion market share, and set prices through

production agreements. While business economy plans for carteliza-

tion and self-government were not surprising, they were original in

their call for business-initiated comprehensive social insurance mea-sures, including unemployment and disability insurance and pension

programs.



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Macroeconomic Planning

In the depression, macroeconomic planning came to be seen by advo-

cates as the middle ground between the standardized existence of

social managers, the protected monopolies and unsocial speculative

profit of business economists, and the microfocus of technical-

industrialists (Flanders 1932a, 9697). Macroeconomic planning

meant countercyclical expenditure by government to bring the econ-

omy into equilibriumto fill the gap between consumer spending

and the level of income which could be reached were all factors

employed (Barber 1996, 124)in order to solve Americas economic

problem, seen as the accumulation of savings (profits) faster than pro-

ductive investment, which led to speculation and depression. Wellbefore John Maynard Keyness General Theory of Employment, Inter-

est, and Money (1936) appeared in the United States, many macroeco-

nomic planners (who were not academic economists) were prepared to

challenge fiscal orthodoxy.

The solution by way of taxation and public expenditure has other

possibilities which must be explored. It is a shortsighted and sopho-

moric prejudice which leads us to demand the balancing of govern-

mental budgets within the fiscal year. Well-managed businesses are

run on a long-time budgeting basis extending over the business cycle;

and cities, counties, states, the Federal Government, and the finan-

cial agencies with which they deal must be persuaded to follow suit.

In the course of the business cycle there is a time to borrow and a

time to retire indebtedness; there is a time to expand public works

and a time to contract them; there is a time to tax and a time to

relieve taxation; there is a time to expand the volume of money and

a time to contract it. If these various actions are studied and con-trolled, they will act as effective balances on unemployment, on vari-

ations in the price level, on the emergence of the sterile profits, and

thus on the business cycle itself. (Flanders 1932b, 3334)

An essential ingredient of popular macroeconomic plans in the 1930s

was a planning and research board (inside government but composed of

policy makers, business leaders, and techniciansespecially econo-

mists) to gather and disseminate information about the aggregate lev-

els of macrovariables such as employment and consumer spending that

would be useful to both public and private planning. These notions had



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been gathering steam since the 1920s, when public works as a counter-

cyclical tool were first advocated.13

Among academic and government economists in those years, Lauch-

lin Currie perhaps went the furthest in developing concepts of macro-economic planning at the national level. Between 1922 and 1925, Cur-

rie was at the London School of Economics and discovered Keyness

early ideas about economic policy (Currie 1972, 139). Later, at the

Treasury Department, Currie began to study the net contribution of

the federal government to national buying power. His work pointed out

the ineffectiveness of increasing public works while simultaneously

cutting government salaries and raising taxes (Sweezy 1972, 118). In

the early days of the depression, Currie became increasingly disillu-sioned with the idea that expansionary monetary policy without requi-

site fiscal action would achieve economic recovery. In late 1934, he

moved to the Federal Reserve, becoming the principal economic

adviser to its chairman, Marriner Eccles, who shared his views on mon-

etary and fiscal policy. In a 1935 memo, Currie (1972, 140) laid out the

principles of the multiplier effect of government spending and called

for a relatively high monthly deficit of $400$500 million, not to fall

below $300 million until the recovery had gathered momentum. Circu-

lation of the memo was restricted, Currie later recalled, because one

could not advocate publicly such magnitudes as $5 or $6 billion a year

and remain respectable.

Others like Clark understood the possibilities of the multiplier but

did not stress it in their writing (Sweezy 1972, 118; Salant 1986, 6).

Clark may well have agreed with Tugwell and Means that counter-

cyclical expenditure was just one part of the story of a balanced econ-

omy (Sternsher 1964, 1089).

Synthesis of the Four Ideologies in the New Deal?

Franklin Roosevelts arrival at the White House in 1933 inaugurated

the New Deal; many hoped economic planning would be its central

strategy. Roosevelt gave quasi support for planning but seemed torn

between the progressive atomist tradition to which he was heir and the


13. Among these were the Kenyon bills of 1920 and 1921; the 1927 proposal by Senator

George W. Pepper; and Senator Wesley L. Joness and Maine governor Ralph Brewsters calls

for advance public works planning in 1928.


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new school of economic thought suggested by some of his closest

advisers, including Tugwell, a key member of the Brains Trust.14 The

tension between planning and fiscal orthodoxy evident in his presiden-

tial campaign was not resolved in the First Hundred Days.15 Tugwellnoted that Roosevelt was a symbol, agent, and vessel of our contra-

dictions, our hopes, our external cynicism and our internal reaching for

fellowship. . . . He was like the rest of us. . . . His New Deal would not

have turned out to be like us or in tune with the times if he had been dif-

ferent (quoted in Sternsher 1964, 110). As the president of all the peo-

plewith all their diversity of opinion about the problem of the

depression, the modern economy, and planningRoosevelt did not

have a mandate for one of the four approaches. Consequently, NewDeal programs became battlegrounds for economists of all persuasions,

and programs were weakened by the very pluralism they represented.

The National Recovery Administration (NRA) was but one example.

Roosevelt wanted to engage an industrial plan soon after he

assumed office. Planners converged in Washington, but consensus was

not forthcoming. Tugwell (1992, 351) recalled: It came to loggerheads

and we finally took it to F. D. R. Each side told a story and he too leaned

toward shorter and quicker action but his mandate was to go away and

agree. In fact, the National Recovery Act, passed by Congress in June

1933, contained something for everyone. Business economy planners

got the suspension of antitrust laws by allowing businesses to enter into

collusive price contracts. Social management planners got the promise

of centralized industrial control, with government as the main partner

in a collaborative union of economic actors. Technical-industrial plan-

ners got expert technicians in positions of authority; the act established

a planning staff of economists and other professionals who would osten-

sibly chart and guide industrial development. Macroeconomic plannersgot Title II, the acts $3.3 billion public works provision.

But from the moment of passage, the act ran into difficulties. First,


14. For Roosevelts digressions on planning and his use of the metaphor of city and

regional planning in the 1910s and 1920s, see Roosevelt 1932. There he wrote, I have been

interested in not the mere planning of a city, but in the larger aspects of planning. It is the way

of the future (483). See also various campaign speeches reprinted in Beard [1932] 1969,

32550.

15. At certain points, Roosevelt advocated public works, welfare, relief, and a progressive

tax rate; at others, he called for tightening belts and balancing the budget (Sternsher 1964, 47;

Barber 1996, 1920).


17/28

there was the problem of using the WIB as a model (which reflected the

influence of NRA administrator and WIB veteran Hugh Johnson).

Whereas the WIB had encompassed comprehensive planningcentral

allocation of resources, price fixing, productionthe peacetime NRAhad no such latitude. Furthermore, the WIB had attempted to increase

output and also set maximum prices, while the NRA attempted to set

minimum prices and also control output. Because the NRA was the

result of a tangle of designs and ideologies, it was not based on any

clear planning idea or theory of recovery.

Not only was the experiment not working, but by 1934 the NRA

appeared to be inhibiting recovery.16 Social management planners soon

found governments role marginalized in favor of business interests,and they were outraged by monopolistic abuses pursued behind the

NRAs cover. Technical-industrial planners found business rather than

technicians at the helm, without the benefit of a real planning council

(Stuart 1933, 3). Macroeconomic planners were dismayed by the slow

pace of public works spending, which defeated the intent and effec-

tiveness of the Title II allocation.17 When the act was declared uncon-

stitutional by the Supreme Court in 1935, none mourned its passing,

although there was never another program that contemplated planning

on such a broad scale.

Elevation of the Macroeconomic Approach

The NRA did nothing to advance the cause of three of the planning

ideologies, for despite the fact that it had not been a model for one

approach, its failure cast a pall on social management planning with

its comprehensive outlook (the NRA had attempted too much); damp-

ened enthusiasm for technical-industrial planning (the NRA had notachieved industrial coordination); and discredited business econ-

omy planning (the NRA enforced monopoly at the expense of other

economic interest groups).18 However, economic eventsnamely, the


16. Although there was a slight rise in GNP from $56 billion in 1933 to $65 billion in 1934,

this was hardly a stellar result, considering GNP of $103 billion in 1929 (Historical Statistics

1975, 224).

17. There was a difference in opinion between those who thought spending should be grad-

ual and those like Johnson who felt funds should be spent rapidly. By the end of 1933, less

than $1 billion had been spent (Graham 1976, 2930).

18. Other New Deal programs also suffered from mixed economic notions. See Balisciano

1998.


18/28

recession of 193738 and the governments economic policy reac-

tionenhanced the stature of the fourth approach: macroeconomic

planning.

The Federal Reserves index of industrial production plunged 33 per-cent in the months between July 1937 and May 1938. A veterans bonus

paid out in 1936, which aided consumer spending and increased gov-

ernment expenditure, was not continued in 1937. Yet another deflation-

ary action was the institution of payroll taxes under the new Social

Security law; benefits payments were not begun to any degree until

1938.19 The recession had shown that the multiplier effect of govern-

ment spending (priming the pump) was not sufficient in itself, since the

economy declined when the fiscal stimulus was withdrawn.Roosevelt did not help matters with his desire to move toward a bal-

anced budget. It no doubt made good 1936 reelection fodder that he

could lay claim to relief, recovery, and orthodoxy, all at the same time.

Roosevelt, true to his class, never lost the feeling that unearned

income weakened character; believing in the sanctity of balanced bud-

gets, he only haltingly supported relief measures. Although cautioned

by Federal Reserve chief Eccles, relief administrator Harry Hopkins,

and others, the president did not heed the first warning signs of reces-

sion when they appeared in 1937. However, by April 1938 Roosevelt

relented and asked Congress to resume large-scale spending. He had

come, however grudgingly, to understand the power of fiscal unorth-

odoxy. This understanding was no doubt advanced by tutoring he

received from Currie, who became the first economic adviser in the

White House. Curries influence was also tangible at the National

Resources Planning Board (NRPB), which replaced the National

Resources Committee in 1939, where he served on the Industrial

Committee. The NRPB increasingly stressed themes related to macro-economic planning in its publications (see Lee 1990). One of these,

After the WarFull Employment, was written by Alvin Hansen (1941),

whom Currie (1972, 141) described as his most important recruit. In

it Hansen (1941, 4) spelled out the responsibility of Government to

insure a sustained demand. . . . Private industry and Government

together must act to maintain and increase output and income suffi-


19. Currie noted, I think I always opposed the idea of a fund for social security on the

ground of . . . the deflationary effect, and finally convinced Roosevelt on this point in early

1940 (quoted in Sweezy 1972, 118).


19/28

ciently to provide substantially full employment. Hansen had been

skeptical about the tenets of macroeconomic planning throughout much

of the 1930s, subscribing to the crowding out thesis of public works

expenditure government borrowing limited borrowing opportunitiesfor private industry, which in turn delayed recovery (Barber 1987, 194).

Among other factors, the 1937 recession confounded Hansens business

cycle theory, since a fresh collapse occurred when the economy was

still operating substantially below capacity.20 By 1938, with coaching

from Currie (and a list of suggested words from Chase), Hansen was

the star expositor of macroeconomic policy at the hearings of the

Temporary National Economic Committee (Currie 1972, 141).

The rise of macroeconomic planning was also a function of thedevelopment of data on national income and expenditures and the dis-

persion of Keynesian ideas. Walter Salant (1986, 11) argued that the

General Theory provided a theoreticalfoundation for popular concep-

tions of macroeconomic planning. Keyness influence onpolicy, how-

ever, has been the subject of much debate.21 Tugwell, who introduced

Keynes to Roosevelt in 1934, recalled that after their first meeting the

president told him, Well, that damned Englishman is trying to tell us

what were doing already (quoted in Frisch and Diamond 1966, 137).

Rather, Tugwell stated, in what later came to be called the Keynesian

manner . . . he [Roosevelt] kept feeling for a balanced economy rather

than a balanced budget (quoted in Sternsher 1964, 136).

Wartime Planning

With the outbreak of war in Europe in 1939, the economy gained new

momentum from Allied demand for American exports and defense pro-

duction. As the possibility of American engagement heightened, gov-ernment research units undertook studies of unrealized potential. Econ-


20. Barber (1987, 200) indicates that Hansens intellectual transformation was influenced

by Harvards graduate fiscal policy seminar, which he joined in 1937. There he liaised with

young economists, many of whom were struggling with fiscal questions from within New

Deal posts, which helped redefine his own focus.

21. Leon Keyserling (1972, 135), Tugwells student and second chair of the Council of

Economic Advisers, asserted, With all due respect to Keynes, I have been unable to discover

much reasonable evidence that the New Deal would have been greatly different if he had

never lived. Currie stated, Although I considered myself a Keynesian from way back, I felt

. . . we had little to learn forpolicy purposes from the General Theory (1972, 141; emphasis

in original).


20/28

omists like Robert Nathan at the Commerce Department pushed hard

for increases in defense spending without attendant decreases in pub-

lic and private spending. They estimated that the economy was func-

tioning at 80 percent of capacity and could support all-out defensepreparations while continuing New Deal programs.

In the piecemeal buildup to war, boards and agencies were created to

divvy up mobilization and management of the wartime economy. The

long-awaited successor to the WIB, the War Production Board (WPB),

was established in January 1942. The WPB did not, however, execute

war planning. One reason was its relinquishment to the military (the

Services of Supply) of final authority over assigning priorities and mil-

itary contracts for most finished products needed for war. That left theproduction board the realm of strategic raw materials and semifinished

goods. Greater coordination was further thwarted by a proliferation of

new agencies with overlapping functions.22 A 1942 Bureau of the Bud-

get report indicated, Locomotive plants went into tank production

when locomotives were more necessary than tanks. . . . Merchant ships

took steel from the Navy. . . . The Navy took aluminum from aircraft.

. . . We built many new factories . . . we could not use and did not need.

Many of these . . . we could not supply with labor or . . . materials, or

if we had, we would not have been able to fly the planes or shoot the

ammunition that would come out of them (quoted in Vatter 1985,

7273). By the time mechanisms seemed to be worked out for more

centralized coordination, the war was drawing to a close, and controls

were dismantled with haste.

Victory came despite the lack of coordinated planning: Planning had

been complicated and perhaps chaotic, but the war was won. It fit a dis-

tinctly American mode of bargain and compromise; the resulting war-

time blend of controls and market presaged the postwar mixed economy.Although the war was not a triumphant moment for any one approach,

elements of the four could be seen in the fabric of wartime economic

planning. First, in accord with social managers, there had been moves

toward comprehensive planning and plans.23 During the war, there had


22. An example of the competition for materials, personnel, and prestige was the creation

of the Economic Stabilization Board in October 1942 to assist the Office of Price Admin-

istration in stabilizing civilian price and demand (see Vatter 1985, 71 80). For a contempo-

rary version of the evolution of administrative responsibility, see Stein, Magee, and Ronan

1943, 2761.

23. For example, the WPBs dist ributive production requirements plan was heralded as a


21/28

also been the establishment of public companies (e.g., the Rubber

Reserve Company and the Metals Reserve Company), another central

feature of their proposals. Second, in sync with technical-industrial plan-

ners, there had been attempts at industrial coordination, and technicalexpertise, especially from economists, was much in demand.24 Third, in

harmony with business economy planners, big business dominated war

production.25 Fourth, for macroeconomic planners, the war proved a

successful test. It had indicated the willingness of government to spend

as needed (albeit due to wartime necessity).26 And in the face of infla-

tionary expansion, it demonstrated government could apply fiscal

brakes to keep the economy in balance.

The Promise of the Postwar Era

Before Pearl Harbor, some attention was given to the American econ-

omy after the defense period (National Resources Planning Board

1941). However, following Americas entry into the war, postwar plan-

ning became a national pastime. At the federal, state, and local levels

and across a wide spectrum of industries, universities, religious orga-

nizations, trade associations, and even breweries, postwar planning to

win the peace became the order of the day.27 Given such interest, it

appeared thatplanning was at hand. It was not. The interwar economic,

political, and intellectual milieu so hospitable to planning ideologies,

with their plural economics, was not replicated after victory. A feared

postwar recession never materialized. By 1948, the economy was oper-

ating at reasonably full employment, congressional foes equated plan-

ning with New Deal folly (in this camp were those who had helped to


great national budget of materials, a uniform accounting system, to balance supply against

demand (Gemmill and Blodgett 1942, 8).

24. A Roster of Scientific and Specialized Personnel begun in 1940 sought to match tech-

nical expertise with government and industry need. See Stein, Magee, and Ronan 1943, 52.

25. For a probusiness treatment of wartime production, see Walton 1956.

26. The federal deficit grew from approximately $1 billion in 1939 to $42 billion by 1945

(Historical Statistics 1975, 263).

27. Postwar Planning in the United States (Twentieth Century Fund 1943) listed nearly 150

entities in the United States focused on planning midway through the war. The brewery was

the Pabst Brewing Company of Milwaukee, which sponsored a postwar planning contest that

attracted thirty-five thousand entrants. In 1944, the winning plans were published in The Win-

ning Plans in the Pabst Postwar Employment Awards. Herbert Stein won first prize, Keyser-

ling came in second, and Ezekiel was among the top ten.


22/28

kill funding for the NRPB, leading to its demise in 1943), and ebul-

lience for the socioeconomic experiments of the New Deal had been

replaced by pragmatism.

Such attitudinal change contributed to a loss of credibility for socialmanagement planning. Although one might advocate extensive public

ownership or a planning board to apportion production, as had propo-

nents in the 1930s and during the war years, one was unlikely to find a

publisher willing to print such plans by 1950. Increasingly, democratic

collectivism was associated with authoritarian Soviet planning, a result

of the escalating political tension between the United States and its for-

mer wartime ally. The dangers of autarkic planning were exposed by

antisocialist economist Friedrich von Hayek. His antiplanning tract,The Road to Serfdom (1944), was even published in cartoon form in a

bid to capture the attention of the public at large. Furthermore, if both

depression and wartime emergency had not brought about comprehen-

sive social planning, it was improbable that it would occur in the peace

and relative prosperity of the late 1940s. Tugwells fate is illustrative.

Although his views were never popular with colleagues, he was at least

allowed a place on an economics faculty in the 1930s (at Columbia); by

1950, he was consigned to a government department (at Chicago).

Out of favor as well in the postwar period were detailed examina-

tions of microstructure, which had been one of the cornerstones of

technical-industrial planning. Yet the importance of technical experts

was obvious by the close of the war and therefore taken for granted in

the years following (see Craufurd D. Goodwins essay in this volume).

Technical-industrial planners found themselves absorbed in other tasks.

Means left the NRPBs Industrial Committee in 1940 when he found

his approach to economic planning pushed aside (Means 1940b).28

Later Means found work at the Committee for Economic Development(CED), a business policy and research organization that had a macro-

economic planning focus. His tenure at the CED is indicative of posts

available to such economists after the war.29 By 1947, Ezekiel was still

at the Agriculture Department but no longer espousing innovative plans

for industrial restructuring. In Towards World Prosperity (1947, 29), his

only prognosis was that stimulating and working out . . . long-range


28. For Means at the Bureau of the Budget, see Barber 1996, 138.

29. It is doubtful whether Meanss tenure at the CED implied wholesale acceptance of the

macroeconomic approach; Means (1937a) recognized it as one side of the scale in a balanced

economy.


23/28

readjustments, and keeping all the many varied phases of agriculture

and industry in proper dynamic balance . . . will be a long task.

Business economy planning was not revitalized after 1945. Many of

the nations largest companies had become even larger in the war. Thatfact, in combination with ready postwar markets, helped minimize bus-

iness discontent and pursuit of economic modifications. Also, despite

wartime relaxation of antitrust laws, traditional arguments against

business collusion regained strength after the war. In this climate, gov-

ernment-sanctioned monopoly as national policy was improbable.

Moreover, business moved toward acceptance of macroeconomics:

Governments responsibility for building aggregate demand promised

stable conditions without a great deal of regulation and control. In thelonger term, the continuing success of the military-industrial com-

plex provided new opportunities for business-government partnering.

Macroeconomic planning was aided by an understanding of national

income data and the sophistication in using the various estimates of

multipliers and gaps which had developed in Washington during the

war (Jones 1972, 130). Availability of aggregate-level data and under-

standing of how to use it spurred econometricians like Simon Kuznets,

Abba Lerner, and Wassily Leontief to continue their explorations into

formalized models of the economy. The homegrown version of macro-

economic planning was officially melded with Keynesian theory fol-

lowing the war and was brought to generations of new scholars through

economic textbooks like Paul Samuelsons classicEconomics: An Intro-

ductory Text(1948).

Another measure of the shift toward a more consensual macroeco-

nomic approach was the renaming of the National Economic and Social

Planning Association as the National Planning Association (NPA).

Although it was founded in 1934 by prominent social management andtechnical-industrial planners, new recruits after the war indicated that

they would not join unless the words Economic and Social were

removed from the name (Miller 1996). Gerhard Colm, who had been

brought to the Bureau of the Budget by Currie, became the NPAs chief

economist. With Colms help and that of other economists like Thomas

Blaisdell (Meanss nemesis at the NRC), Kuznets, and Ezekiel, the

NPAsNational Budgets for Full Employment(1945) was published by

the board of trustees, which declared, We must prepare now for fulland continuing employment under a peacetime economy. The basis of

Americas post-war economy should be private enterprise, with the



24/28

Government acting as impartial referee and effecting fiscal policies

through taxation and expenditure programs, such as public works, that

will mesh with private undertakings (v).30

Conclusion

At midcentury, there was little room for plural approaches to economic

planning. Instead, there was conformity around one ideology: macro-

economic planning. It did not necessitate major alterations to existing

American institutions and appeared both economically attractive and

politically feasible. Yet all four approaches are integral to the story of

American economic planning and together contributed to the legacy ofthe planning ideal. In the immediate postwar era, the goal of economic

democracy was universally accepted and became codified by the phrase

full employment. Roosevelts 1944 Economic Bill of Rights set the

target at sixty million jobs (see Hamby 1968).

Such notions were the impetus for the proposed Full Employment

Act of 1945. The legislation stated one ideal explicitly: All Americans

able to work and seeking work have the right to useful remunerative,

regular, and full-time employment. The word right (as an open-ended

government responsibility), however, was considered objectionable

(U.S. Senate 1945, 22) and was noticeably absent from the Employ-

ment Act of 1946, which stipulated that government would use all

practicable means to foster maximum employment, production and

purchasing power. The watering down of the act was a disappointment

to many planners, but the final version represented a consensus that

the government not only had the obligation to try to achieve the Acts

objectives but . . . that it also had the power to do so (Salant 1986,

17).31 Furthermore, through the Council of Economic Advisers, the actcrystallized another element common to plans of the period: a planning

board to gather economic information and disseminate it to public and

private enterprise.

When planning became a word to curdle the milk of human kind-


30. Hansen was then a member of the board of trustees. Of the original founders, only one,

labor leader Marion H. Hedges, remained.

31. Those who leaned toward social management planning regretted that the act did not

require quantitative goals and coordinated, as opposed to ad hoc, action (see Keyserling 1972,

136). Some macroeconomic planners felt that the act did not clearly spell out fiscal policy as

the key to achieving full employment (see Jones 1972, 131).


25/28

ness, it was retermed policy by some planning groups such as the

NPA (Crane 1952). But as the cold war intensified, even macroeco-

nomic planners were not immune from being branded un-American,

the code word for communist sympathizer.32 Such developments indi-cated the passing of the heyday, though not the historical importance,

of American economic planning.33

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