Economist Challenges New Deal's Keynesian Label, Citing Keynes's Critique of Price-Raising Policies

A recent social media post by economist Craig Duddy has reignited debate surrounding the economic underpinnings of Franklin D. Roosevelt's New Deal. Duddy asserted that the New Deal, particularly its fiscal policy, was "not Keynesian," and that John Maynard Keynes himself delivered a "devastating" critique of its approach. According to Duddy, Keynes believed that "FDR facilitated high prices at the expense of output," contrary to the Keynesian ideal where rising prices are symptomatic of increasing production. Keynes's criticisms largely focused on early New Deal initiatives, such as the National Industrial Recovery Act (NIRA). This act, which cartelized numerous American industries, was designed to raise prices and wages but often led to reduced output. In a 1933 letter to President Roosevelt, Keynes stated, "I cannot detect any material aid to recovery in N.I.R.A., though its social gains have been large." He further warned against "too much emphasis on the remedial value of a higher price-level as an object in itself," arguing that "The stimulation of output by increasing aggregate purchasing power is the right way to get prices up; and not the other way round." Historical analysis supports the view that Roosevelt's early New Deal policies were not strictly Keynesian. Many scholars, including George Selgin, have highlighted the "Keynesian myth," pointing out that FDR remained fiscally conservative until after the 1937 recession. The initial phase of the New Deal involved a mix of experimental and sometimes contradictory measures, with key components developed independently of Keynesian theory. While Keynes advocated for government intervention through deficit spending to stimulate aggregate demand and employment, some early New Deal programs prioritized price stability and industrial codes that inadvertently hindered production. It was primarily after the 1937 economic downturn that Roosevelt's administration began to more overtly embrace deficit spending as a tool for recovery, aligning more closely with later interpretations of Keynesian fiscal policy. This nuanced perspective suggests that the New Deal's economic legacy is more complex than often portrayed, with a gradual evolution of policy influenced by both pragmatic needs and shifting economic thought.