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Home , Adam Tooze, Administered prices, Commercial state, Daniel Hertzberg, David Ames Wells, David Barboza

Inventing the American

Timothy Shenk

Submitted in partial fulfillment of the requirements for the degree of in the Graduate School of Arts and Sciences

COLUMBIA UNIVERSITY

2016

© 2016 Timothy Shenk All rights reserved

ABSTRACT

Inventing the American Economy

Timothy Shenk

The economy is perhaps the central topic of political debate in the world today.

Yet familiarity has obscured the concept’s novelty. Far from being a natural feature of social life, the economy has a —in crucial respects, a surprisingly recent one.

Inventing the American Economy considers the place of the in this history, exploring the intellectual, economic, and political shifts that allowed the economy to become an object of governance and a way of understanding the divisions of collective life.

Offering a coherent narrative of a history that has been addressed in more scattershot form elsewhere, centering it on the experience of the United States, and pushing the chronology into the second half of the twentieth century, this dissertation analyzes the recasting of brought about in the twentieth century by the rise of the social sciences, above all . Weaving together studies of the who made this transformation thinkable, the institutions that supported their work, and the novel styles of governance that became possible as a result, Inventing the American

Economy examines the process by which an academic conceit became a cultural fact.

Table of Contents

Acknowledgements ii

Dedication v

Introduction 1

Chapter 1: Economics Before the Economy 35

Chapter 2: Charting the Economic Seas 83

Chapter 3: The Politics of the Economy 154

Chapter 4: The Birth of 237

Chapter 5: The Enemy Within 312

Conclusion 396

Bibliography 425

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Acknowledgements

All dissertations, I suspect, are products of gift . This one certainly is.

Funding from , the Jacob K. Javits Fellowship Program, and a

Mellon/ACLS Dissertation Completion Fellowship gave me the time and resources to complete this work. Eric Foner has shown me what it means to be a historian since my freshman year at Columbia. More years have passed since that date than I care to recall, but he has remained a peerless teacher throughout, and an exemplary supervisor for this dissertation. Luckily for me, he was supported by an outstanding dissertation committee.

Betsy Blackmar’s rigorous standards pushed me to be a better historian, and her stray suggestion that I take a look at Wesley Mitchell sent me down a path I’m still following today. Sam Moyn’s incisive comments and capacious thinking encouraged me to formulate an argument that was both ambitious and precise. Adam Tooze provided a template for this work with his first book, and a model for serious intellectual engagement that I have benefitted from incalculably since I stumbled into his classroom in the spring of 2008. Two years later, I encountered a surprising argument about the late emergence of the idea of the economy in an article by Timothy Mitchell. Once I started thinking about the subject, it was hard to think about anything else. Tim’s arrival at

Columbia was the best piece of luck I had in graduate school—except, perhaps, for the support he has shown this dissertation from our earliest conversation.

And that is just the beginning. At Columbia, Alan Brinkley, Meg Jacobs, Karl

Jacoby, Matthew Jones, Ira Katznelson, Malgorzota Mazurek, Mae Ngai,

Susan Pedersen, Anders Stephanson, Carl Wennerlind all took time out of the busy

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schedules that are part of a faculty member’s life at a major research university to help me work through different aspects of this project. Outside Columbia, so did Roger

Backhouse, Howard Brick, Jennifer Burns, Bruce Caldwell, Crauford Goodwin, Manu

Goswami, David Grewal, Chris Jones, Jon Levy, Jim Livingston, Julia Ott, Sherene

Seikaly, Guy Ortolano, Steven Pincus, Quinn Slobodian, Jedediah Purdy, and Tom

Stapleford. I am especially grateful to Angus Burgin and Daniel Immerwahr, who I could have told you in 2006 were destined for big things.

My fellow grad students at Columbia were some of my most careful readers, and, failing that, were at least willing to talk shop over a beer. For all that and more, I owe special thanks to Andre Deckrow, Suzanne Kahn, John Kuhn, Jessica Lee, Tom Meaney,

Nick Mulder, Ollie Murphey, Keith Orejel, Allison Powers, Casey Primel, Nick Serpe,

Asheesh Siddique, Simon Stevens, Simon Taylor, and Stephen Wertheim. Alexander

Arnold, Tim Barker, Rudi Batzell, Susanna Berger, Eli Cook, William Derringer, Stefan

Eich, Benjamin Feldman, Ted Fertik, Katrina Forrester, Daniel Hirschman, Jeremy

Kessler, Dan Luban, Mira Siegelberg, Charles Pedersen, Gabe Winant, and honorary grad students Jim Newell and Brendan Ballou allowed me to extend this intellectual community beyond Morningside Heights. Sarah Leonard and David Marcus let me test drive some of my arguments in Dissent. John Palatella did the same in the Nation, a privilege that, along with his brilliant , transformed this project. So have thousands of e-mails (literally) and countless conversations with Jamie Martin—my closest intellectual companion, and an even better friend.

Academic conferences provided me with an opportunity to present portions of this dissertation in a more formal setting. Thanks to organizers at University; the

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University of , Santa Barbara; the History of Economic Society; the Center for the History of Workshop at Duke University; Princeton’s seminar on

Readings in and History; the Society for U.S. Intellectual History Conference; the Social Rights After the State Workshop; the Modes of Economic Governance

Research Group at the Wissenschaftszentrum für Sozialforschung and the Dahlem

Humanities Center of Freie Universität Berlin; Yale’s Workshop on the Invention of the

Economy; the Intellectual and Cultural History Workshop at Columbia; and the Graduate

Workshop at the Harvard Center for History and Economics. Students in my Origins of the Economy seminar deserve particular thanks for subjecting themselves to my earliest attempt to think through this argument.

My students had a choice in the matter; my family did not, which means I owe them even more. To Doraikannu and Leelavathi Regunathan; Sandip, Monica, Kiran, and

Kayla Agarwala; Carolyn and Emma Shenk—I promise I’ll come up with something better to talk about now. My parents, Meg Hawco and George Shenk, Jr, knew from early on that graduate school was in my future, and they encouraged me to follow that strange ambition. As for my wife, Renu Regunathan-Shenk, dedicating this to her doesn’t begin to cover my debts. But it’s a start.

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Dedication

For Renu, for everything.

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Introduction In the autumn of 2008, Alexis Feliciano, a nine-year-old girl from , decided to give President-elect some advice. “One thing you could fix,” she suggested, “is the economy.” Alexis wasn’t the only pre-teen with the economy on her mind.1 From , eight-year-old Hanna wrote, “I watch the news with my parents at dinner and my parents make noises when the economy is mentioned.”2 Eleven- year-old Henri, a self-described “Obama fanatic,” leveled with his idol: “The economy, it is bad.”3

Almost a century earlier, not far from where Alexis Feliciano would some day grow up, one of America’s leading economists struggled to explain the meaning of a concept these children regarded as a natural part of their world. Wesley Mitchell is forgotten today, but in 1916 he was just entering the prime of a career that would see him become a counselor to presidents and inspiration to figures ranging from partisans of the like to socialist planners in the . A specialist in the nascent field of theory, Mitchell had done graduate work in , where he encountered a term he now attempted to explain to undergraduates enrolled in his economics seminar at Columbia University.

The troublesome word was Volkswirtschaft. Mitchell noted that “national economy” was the most direct translation, but he was not sure it captured the meaning.

“Commonwealth,” he suggested, might be a better fit. Volkswirtschaft, Mitchell told his

1 Jory John, ed., Thanks and Have Fun Running the Country: Kids’ Letters to President Obama (: McSweeney’s Books, 2009) 7.

2 Bill Adler and Bill Adler, Jr., eds., Kids’ Letters to President Obama (New York: Ballantine Books, 2009), 112.

3 John, ed., Thanks and Have Fun Running the Country, 78.

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students, blended two different subjects: “economic activity” and the “social organization of human life.” National economy was not just a matter of buying and selling . It was about relationships among the “the fundamental features of social life”—about race, law, land, culture, psyche, and so much more. Whatever this strange thing called

“national economy” was, its existence could not be taken for granted.4

Mitchell’s foray in translation gave him so much difficulty because Americans, like most people across the world, did not yet use the concept of “the economy” to make sense of their collective life. Though we often describe figures of this era, and much earlier, as preoccupied with the economy, the phrase did not enjoy anything like its current prominence until well into the twentieth century. Political leaders have long sought to encourage prosperity, but the identification of that broad ideal with a growing economy is a much more recent development. Large-scale surveys like the

Ngram Viewer suggest what close readings of sources demonstrate. Americans of

Mitchell’s generation relied on a variety of concepts to interpret the world, but the economy was not one of them.5

4 “Historical School, and , L. Maxwell,” May 10, 1916, Box 1, Series 1, Wesley Clair Mitchell Papers, Columbia University.

5 On the conceptual history of the economy, see Hugo Radice, “The National Economy: A Keynesian Myth?” & Class 22 (1984), 111-140; Susan Buck-Morss, “Envisioning Capital: Political Economy on Display,” Critical Inquiry 21.2 (1995), 434-467; Timothy Mitchell, “Fixing the Economy,” Cultural Studies 12.1 (1998), 82-101 and Carbon Democracy: Political Power in the Age of Oil (New York: Verso, 2011), esp. 123-143; Adam Tooze, “Imagining National Economies,” in Imagining Nations, ed. Geoffrey Cubitt (Manchester: Manchester University Press, 1998), 212-228 and and the German State: The Making of Modern Economic Knowledge (Cambridge: Cambridge University Press, 2001); U. Kalpagam, “Colonial Governmentality and the 'Economy,'” Economy and Society 29.3 (2000), 418-438; Alain Desrosières, “Managing the Economy: The State, The Market, and Statistics,” in Theodore Porter and Dorothy Ross, ed., The Cambridge History of Science, vol. 7: Modern Social Sciences (Cambridge: Cambridge University Press, 2003), 553-564; Daniel Breslau, “Economics Invents the Economy: Mathematics, Statistics, and Models in the Work of and Wesley Mitchell,” Theory and Society 32.3 (June 2003), 379-411; Manu Goswami, Producing India: From Colonial Economy to National Space (Chicago: Press, 2004); Mary Morgan and Marcel Boumans, “Secrets Hidden by Two-Dimensionality: The Economy as a Hydraulic Machine,” in Models: The Third Dimension of Science, eds. Soraya de Chadarevian and Nick Hopwood (Palo Alto:

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Figure 1: Usage of “the American economy” in English-language books, 1890-1990.6

Press, 2004), 369-401; Margaret Schabas, The Natural Origins of Economics (Chicago: University of Chicago Press, 2005) and “Constructing ‘The Economy,’” Philosophy of the Social Sciences 39.3 (Jan. 2009), 3-19; Quinn Slobodian, “How to See the World Economy: Statistics, Maps, and Schumpeter’s Camera in the First Age of Globalization,” Journal of Global History 10.2 (July 2015), 307-322; Keith Tribe, The Economy of the Word: Language, History, and Economics (Oxford: Oxford University Press, 2015); and Daniel Hirschman, “Inventing the Economy: Or, How We Learned to Stop Worrying and Love the GDP” (PhD diss., , 2015). David Grewal, The Invention of the Economy: A History of Economic Thought (Cambridge: Press, forthcoming). promises to be significant, although to my eyes a more appropriate title would be “The Invention of The Economic.” The argument, to the extent there is one, turns on the value of conflating eighteenth-century notions of commercial society, nineteenth-century understandings of national economy, and later discussion of the economy (and, in Grewal’s case, “the market”). The United States has figured prominently in some of this literature, but historians of the United States have so far not engaged with this scholarship, despite the obvious relevance. See, for instance, Andrew Yarrow’s observation that “Articles about the economy as a seemingly autonomous entity or about the social consequences of economic change began to appear in the late 1920s and 1930s.” Yarrow, Measuring America, 105. In addition to providing a coherent, analytic narrative of the emergence of the economy in the United States, this dissertation makes two further contributions to current scholarship: it extends the chronology into the twenty-first century, exploring the ramifications of the economy’s appearance, and it broadens the scope of its inquiry, treating the economy’s creation as part of a political history that reaches back to the eighteenth-century invention of society.

6 On the uses of surveys like the Ngram Viewer, see Jean-Baptiste Michel, Yuan Kui Shen, Aviva Presser Aiden, et al., “Quantitative Analysis of Culture Using Millions of Digitized Books,” Science 331.6014 (January 2011), 176–182.

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Other measurements of the term’s usage replicate these findings. In , for example, references to the economy did not occur regularly until the 1940s.

350

300

250

200

150

100

50

0 1880 1900 1920 1940 1960 1980 2000 -50

Figure 2: Usage of “the American economy” in the New York Times, 1890-1990.

Author’s calculation.

The economy was one member in an ensemble of concepts that became part of

everyday descriptions of economic activity during this period. Discussions of

, , , business cycles, , and

were all vastly more frequent at the close of the twentieth century than they were at its

start. Meanwhile, expressions that had once been familiar, like “ economy” or

“commercial crises,” faded away.

Charts of a word’s usage cannot by themselves demonstrate a concept’s rise or

fall. Putting aside the challenges that particular surveys face, there remains the deeper

problem of tracking the prevalence of a notion like the economy, which has both a

precise technical definition and a vaguer public meaning. Economists think of the

economy as a circular flow linking production and through constant cycling

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of money, but outside the academy it stands for much more than this specialized classification allows. Viewed as an entity operating by its own logics that exists in uneasy relation to state and society, the economy has become the central object of domestic political debate, both in the United States and across the world. Ideas may exist without the words later attached to them: liberalism, for instance, whose history long precedes its coinage early in the nineteenth century.7 In the case of the economy, however, a shift in terminology was bound up with a much larger history—a history at once economic, cultural, intellectual, and, crucially, political. That is the history examined in this dissertation.

“TRADE WAS NEVER ESTEEMED AN AFFAIR OF STATE till the last century,” observed the Scottish philosopher , with only some exaggeration, in 1742.8

Shortly after Hume wrote, the first comprehensive interpretations of what was known as

“political economy” appeared.9 Claiming to have uncovered laws that not even the most powerful monarch could defy, political economists drew attention to an economic logic they applied to subjects ranging from money and trade to agriculture and population. The

7 Duncan Bell, “What Is Liberalism?,” Political Theory 42.6 (December 2014), 682-715.

8 David Hume, Essays, Moral, Political, and Literary (Indianapolis: , 1987), available at www.econlib.org/index.html.

9 On political economy in the early modern period, see Keith Tribe, Land, Labour, and Economic Discourse (London: Routledge & Kegan Paul, 1978); Istvan Hont, Jealousy of Trade: International and the Nation-State in Historical Perspective (Cambridge: Harvard University Press, 2005); Donald Winch, Riches and Poverty: An Intellectual History of Political Economy in Britain, 1750-1834; Emma Rothschild, Economic Sentiments: , Condorcet, and the Enlightenment (Cambridge: Harvard University Press, 2001) and “Global Commerce and the Question of Sovereignty,” Modern Intellectual History 1 (2004), 3-25; Isaac Nakhimovsky, The Close Commercial State: Perpetual Peace and Commercial Society from Rousseau to Fichte (Princeton: Press, 2011); Jonathan Sheehan and Dror Wahrman, Invisible Hands: Self-Organization and the Eighteenth Century (Chicago: University of Chicago Press, 2015).

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wise sovereign would seek not to impose his will on the market but to respect its verdict and to practice “economy”—that is, to use the state’s resources effectively.

Voicing a common sentiment, one early political insisted that

“economic science” was “nothing but the application of natural order to the government of societies.”10 The object of this dictum was just as important as its subject. Political economy came into its own during the same period that faith in the divine basis of political authority came under withering assault, setting off a search for new foundations of collective life. Civilization, the public, and the nation were just a few of the concepts that appeared during this period, but in this crowded field society remained an especially popular candidate. “And thus civil government is the defence and security of human society,” declared the authors of Cato’s Letters, one of the most widely read political tracts in colonial America.11 “Upon this point all speculative politicians will agree,” John

Adams remarked in 1776, “the happiness of society is the end of government.”12 The consensus was large enough to include leaders of the French Revolution, which Adams fiercely opposed, who in 1790 debated the measure: “Resolved: that the National

Assembly considers the entire human race as forming but a single and same society, whose object is the peace and happiness of each and all of its members.”13 The belief that society existed prior to the state, that it obeyed its own internally generated rules, and that these rules could be discovered by rational investigation was a quintessential product of

10 Quoted in Tribe, Economy of the Word, 50.

11 John Trenchard and Thomas Gordon, Cato’s Letters, or Essays on Liberty, Civil and Religious, and Other Important Subjects, ed. Ronald Hamowy, vol. 1 (Indianapolis: Liberty Fund, 1995), 155.

12 John Adams, “Thoughts on Government,” in The Political Writings of John Adams, ed. George Peek, Jr. (Indianapolis: Hackett Publishing Company, 2003), 85.

13 Quoted in David Bell, Shadows of Revolution: Reflections on , Past and Present (New York: Oxford University Press), 191.

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the age.14 Despite the intensity of the disagreements that separated Adams from the radicals he condemned in , they were united by a shared commitment to promoting the of society—however they defined it.

Political economy was an essential part of a more comprehensive science of society that underpinned a distinctively liberal style of government.15 The archetypal subject of this new regime was the economic man, a rational actor devoted to pursuing self-. When these economic agents came together, however, a novel creation emerged that had imperatives of its own—a society. Humans were inherently sociable, but society was a frail institution that demanded constant protection, especially from threats posed by an overweening state. Society became an independent arbiter of the state, a judge whose rulings determined the value of government action.

Developing alongside this nascent liberalism was a republican worldview that traced social disorders to defects in the body politic. Prosperous societies were the products of well-designed governments led by disinterested representatives of the common good. Danger came when corrupt politicians acting in the name of a faction or their own self-interest seized power. Capable of accommodating opposed views about

14 Claude Lefort, The Political Forms of Modern Society: Bureaucracy, Democracy, Totalitarianism, ed. John Thompson (Cambridge: MIT Press, 1986), 139-236; Michel Foucault, Birth of Biopolitics: Lectures at the Collège de France, 1978-1979 (Basingstoke: Palgrave Macmillan, 2008), 291- 316; Keith Baker, “Enlightenment and the Institution of Society: Notes for a Conceptual History,” in Main Trends in Cultural History, ed., Willem Melching and Wyger Velema (Amsterdam: Rodopi, 1994), 95-120; Daniel Gordon, Citizens Without Sovereignty (Princeton: Princeton University Press, 1995), 43-85; David Bell, The Cult of the Nation in France: Inventing Nationalism, 1680-1800 (Cambridge: Harvard University Press, 2001), 22-49; and Sheehan and Wahrman, Invisible Hands.

15 On liberalism in this period, see Andreas Kalyvas and Ira Katznelson, Liberal Beginnings: Making a Republic for the Moderns (Cambridge: Cambridge University Press, 2008). Cautions against reading the history of the United States as the unfolding of a liberal tradition like those offered by James Kloppenberg, “Requiescat in Pacem: The Liberal Tradition of Louis Hartz,” in The American Liberal Tradition Reconsidered: The Contested Legacy of Louis Hartz, ed. Mark Hulliung (Lawrence: University Press of Kansas, 2010), 90-124 are well taken, but Kloppenberg does not reckon with the subtler reinterpretation of liberalism as boundary condition offered by J. David Greenstone, The Lincoln Persuasion: Remaking American Liberalism (Princeton: Princeton University Press, 1993).

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who counted as “disinterested” and “corrupt,” republicanism encouraged Americans to find the origins of society’s ills in the structure of their polity.16

Operating on a less abstract level, practitioners of “political arithmetick” had sought to quantify the common good since the seventeenth century, when devised his pioneering estimates of ’s national income. Petty had supporters, but they held little influence over the actual practice of politics. Although proponents of statistical inquiry gained influence over the eighteenth century, measuring national income continued to be an idiosyncratic concern, and even political economists made little effort to adapt their theories to the cascade of statistics.17

Numbers alone could not resolve the debate over what constituted prosperity.

According to Adam Smith, political economy was an art of governance—“the science of a statesman,” in his words—that had “two distinct objects”: “to provide a plentiful revenue or subsistence for the people” and “to supply the state or commonwealth with a revenue sufficient for the public services.”18 During political economy’s formative years, population growth was widely seen as the surest means of promoting both ends.19 The

16 Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge: Harvard University Press, 1967); Gordon Wood, The Creation of the American Republic, 1776-1787 (Chapel Hill: University of Press, 1969); Eric Foner, Tom Paine and Revolutionary America (New York: Oxford University Press, 1976); Sean Wilentz, Chants Democratic: and the Rise of the American Working Class, 1788-1850 (New York: Oxford University Press, 1984); and Daniel Rodgers, “Republicanism: The Career of a Concept,” Journal of American History 79.1 (June 1992), 11-38.

17 Ted McCormick, William Petty: And the Ambitions of Political Arithmetic (New York: Oxford University Press, 2010). On in early modern Europe, see Mary Poovey, A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society (Chicago: University of Chicago Press, 1998) and William Deringer, Calculated Values: Financial Politics and the Quantitative Age, 1688-1776 (Cambridge: Harvard University Press, forthcoming).

18 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: Methuen & Co., 1904), available at www.econlib.org/index.html.

19 Keith Tribe, “Continental Political Economy From the Physiocrats to the Marginal Revolution,” in The Cambridge History of Science, Volume 7: The Modern Social Sciences, ed. Theodore Porter and Dorothy Ross (Cambridge: Cambridge University Press, 2003), 155.

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connection between population and prosperity was broken in the nineteenth century, when Malthusian fears raised the specter of ferocious struggles over scarce resources, but national income estimates did not step into the space previously occupied by demographic tallies. Countries could be rich or poor, but how to determine national wealth remained a puzzle.

Confusion did not preclude the development of a variety of economic nationalisms.20 In the United States, Alexander , Henry Clay, and Abraham

Lincoln were only some of the most celebrated advocates of programs designed to bolster national prosperity. The German economist became an ardent proponent of

Hamilton’s system after living in the United States, attracting disciples around the world with his enormously influential National System of Political Economy.21 But economic nationalists did not take what we think of as the economy as their focus. According to

List, “national economy” was equivalent to “state administration”—that is, the set of policies that managed economic transactions within a nation. “The economy of the people becomes identical with national economy,” he explained, “where the State or the confederated State embraces a whole nation fitted for independence by the number of its population, its extent of territory, by its political institutions, civilisation, wealth, and power.”22 In fact, List explicitly rejected one of the key features of later definitions of the

20 For the United States, see Alfred Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge: Harvard University Press, 1977) and Richard Bensel, The Political Economy of American Industrialization, 1877-1900 (Cambridge: Cambridge University Press, 2000). Cynthia Taft Morris and Irma Adelman, Comparative Patterns of , 1850-1914 (: Press, 1988).

21 On List, see Keith Tribe, Strategies of Economic Order: German Economic Discourse, 1750- 1950 (Cambridge: Cambridge University Press, 2007), 32-65.

22 Friedrich List, National System of Political Economy, trans. Sampson Lloyd (Kitchener: Batoche, 2001), 188.

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economy when he dismissed the claim that a nation’s wealth could be judged by totaling

“the mere exchangeable value of things.”23

Matters became even more uncertain when the conversation moved outside learned treatises. Genealogists of the economy sometimes cite the eighteenth-century

Frenchman and self-described “économiste” François Quesnay’s “tableau économique” as proof of the concept’s arrival.

Figure 3: François Quesnay’s tableau économique.24

Quesnay did make an important early contribution to breaking the identification of wealth and population, but portraying the tableau économique as an early model of the economy

23 List, National System, 169.

24 There are multiple versions of the tableau. This one appears in Smith, Wealth of Nations, available at http://www.econlib.org/library/Smith/tableau1.jpg.

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does not capture Quesnay’s own understanding of his project.25 He saw the tableau as a representation of the path revenue generated by agriculture took through society. In his eyes, it was a tool for revealing “the source and product of earthly riches” and unlocking

“the principles behind the ‘economic governance’ of agricultural nations.”26

Even if Quesnay were a founding investigator of the economy, another mystery would arise: why did so few people understand what he was talking about? One of his critics labeled the tableau “an obscure metaphysical conceit,” and even his followers admitted they could not decipher it.27 ( encountered similar difficulties when he wrestled with the tableau a century later.28) By contrast, what distinguished the economy in the twentieth century is that it was simultaneously a technical object for experts to debate and a commonplace that Americans could evaluate for themselves. It was complex and simple, academic and democratic, all at the same time.

Economic debates before the twentieth century were oriented around a broad array of subjects that fell within the range of what called, in his popular survey of political economy, “the economical phenomena of society.”29 Economic reasoning could be applied to particular situations, the word “economic” could be attached to a variety of objects or practices, and over time references to larger “economic systems” became more frequent. Following Mill, however, it is better to think of these as

25 My account follows Liana Vardi, The Physiocrats and the World of the Enlightenment (Cambridge: Cambridge University Press, 2012).

26 Quoted in Vardi, Physiocrats, 81.

27 Quoted in Vardi, Physiocrats, 146.

28 Christian Gehrke and Heinz Kurz, “Karl Marx on ,” European Journal of the History of Economic Thought 2.1 (Spring 1995), 53-90.

29 John Stuart Mill, Principles of Political Economy with Some of Their Applications to Social Philosophy (London: Longmans, Green, Reader, and Dyer, 1871), 421.

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arguments about a cluster of issues revolving around the category of “the economic” than as discussions of an object called “the economy.”30 The economy is our preoccupation, not theirs. Projecting the economy backward does more than distort our analysis of economic debate. It also conceals a more important—and more surprising—history that had begun to unfold.

“THE POLITICS OF THE FUTURE ARE SOCIAL POLITICS,” declared the reform- minded British politician Joseph Chamberlain in 1883.31 A century later, Friedrich Hayek looked back on the era that Chamberlain had foreseen and complained that the “weasel word ‘social’” had “become the most confusing expression in our entire moral and political vocabulary.”32 Chamberlain’s announcement came at the dawning of the age of social politics, Hayek’s after it had drawn to a close, but both recognized the magnitude of this transition. By the turn of the twentieth century, a new political vocabulary had emerged across the Atlantic world. Building upon earlier liberal, republican, and democratic traditions in some respects, breaking from them in others, advocates of social politics depicted themselves as adapting older traditions to deal with transformations they believed were no less than revolutionary.

30 Keith Tribe has tracked the development of the economic as a category of analysis in Economy of the Word and Land, Labour and Economic Discourse, but also see , The Great Transformation: The Political and Economic Origins of Our Time (New York: Farrar and Rinehart, 1944); Louis Dumont, From Mandeville to Marx: The Genesis and Triumph of (Chicago: University of Chicago Press, 1977); Michel Foucault, Security, Territory, Population: Lectures at the Collège de France, 1977-1978 (Basingstoke: Palgrave Macmillan, 2007). Hirschman, “Inventing the Economy,” 22-59 is especially insightful on this point.

31 Quoted in Daniel Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (Cambridge, Harvard University Press, 1998), 54. Also see Daniel Rodgers, “An Age of Social Politics,” in Rethinking American History in a Global Age, ed. Thomas Bender (Berkeley: University of California Press, 2002), 250-273.

32 F.A. Hayek, The Fatal Conceit: The Errors of (Chicago: University of Chicago Press, 1991), 114.

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Economic growth is the concept often used today to summarize these changes.

Persistent rates of economic growth over extended lengths of time were not a part of the human experience before the eighteenth century, when a slow but steady uptick became a norm in the United States and parts of Europe. The real breakthrough, however, occurred in the 1870s, the dawning of what Robert Gordon has termed a “special century” of economic growth in the United States that exceeded anything that prevailed before—or since. With economic growth came both spectacular increases in the standard of living and violent clashes over the distribution of its benefits.33

For most of this “special century,” however, Americans did not attribute the changes the country was experiencing to economic growth. The limits of an old political vocabulary and the uncertain promise of the new collided early in this period. In the aftermath of a devastating Civil War, the extension of voting rights to African-American men during the Reconstruction that followed was meant to provide the ultimate expression of American democracy’s forward march, turning chattel into citizens with the stroke of a pen. Instead, the rapid collapse of Reconstruction marked the beginning of democracy’s retreat across the nation. Even when bolstered by state governments taking on expanded responsibilities for the general welfare, suffrage by itself was not enough to protect African Americans from enemies of the new regime intent on terminating this experiment in interracial democracy. Reconstruction’s demise was hastened by the onset of a panic in 1873 that ushered in what one journal referred to as “the politics of class

33 Robert Gordon, The Rise and Fall of Economic Growth: The U.S. Standard of Living Since the Civil War (Princeton: Princeton University Press, 2016), 3.

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feeling.”34 While self-described liberals concluded that democracy would lead to mob rule, their opponents focused on the limits of narrowly political reform. “All political

Republics,” announced one labor newspaper, “have heretofore perished because not based on a social Republic.”35

Strained by pressures from all sides, the fusion of republican and liberal tenets that had framed political debate for a century broke down. Society remained the foundation of collective life, but it had taken on a darker cast. No longer were political fixes enough to secure a healthy society. In an age of escalating conflict between the leaders of ever expanding corporations and increasingly recalcitrant workers, cries grew louder for an answer to “the social question”—a question that, at the end of the nineteenth century, gave rise to the new field of “social economy.”36

Scientific research proved an especially attractive means for confronting this challenge. In 1865, the American Association was founded in

Massachusetts.37 Not coincidentally, was also one of the most industrialized states in the country, and in 1869 it also became the first state with its own

Bureau of Labor Statistics.38 Although society’s workings now seemed more opaque than earlier theorists had assumed, faith that its laws could be revealed united a group large enough to include Karl Marx and John Stuart Mill. Because society was one object—

34 Quoted in Eric Foner, Reconstruction: America’s Unfinished Revolution, 1863-1877 (New York: Harper Perennial, 1989), 484.

35 Quoted in Foner, Reconstruction, 479.

36 Holly Case, “The ‘Social Question,’ 1820-1920,” Modern Intellectual History 12.1 (April 2015), 1-29.

37 Lawrence Goldman, “Exceptionalism and Internationalism: The Origins of American Social Science Reconsidered,” Journal of Historical Sociology 11.1 (March 1998), 6.

38 Barbara Young Welke, Recasting American Liberty: Gender, Race, Law, and the Railroad Revolution (Cambridge: Cambridge University Press, 2001), 9.

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even a society riven by class struggle, like Marx’s capitalist mode of production—its investigators needed to be similarly comprehensive. “We can never either understand in theory or command in practice the condition of a society in any one respect,” Mill remarked, “without taking into consideration its condition in all other respects.”39 The campaign to establish specialized disciplines gained momentum at the end of the nineteenth century, especially in the United States, but this remained an age of social science, not of the social sciences.40

The dream of a unified social science was especially popular among economists.

One typical nineteenth century text described political economy as “a department of the science of society which selects a special class of social phenomena for special investigation”—namely, those that had an “economic” aspect. “The phenomena of wealth,” it continued, “may be made the subject of a special inquiry by a special set of inquirers, but the laws of coexistence and sequence by which they are governed must be sought in the great Science of Society.”41 An 1888 textbook from Richard Ely, one of the most influential of a rising generation of American economists, described political economy as a “branch of sociology” devoted to maximizing “the welfare of society.”42

“Humanity is now ‘society,’” insisted Ely’s younger colleague Allyn Young, who added

39 John Stuart Mill, A System of Logic, Ratiocinative and Inductive: Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation (New York: Harper and Brothers, 1900), 622.

40 On this distinction see Cheryl Welch “Social Science From the French Revolution to Positivism,” in The Cambridge History of Nineteenth Century Political Thought, eds. Gareth Stedman Jones and Gregory Claeys (Cambridge: Cambridge University Press, 2011), 171-199 and Howard Brick “Society,” in Encyclopedia of the United States in the Twentieth Century, vol. 2, eds. Stanley Kutler, Robert Dallek, David Hollinger, and Thomas McGraw (New York: Charles Scribner’s Sons, 1996), pp. 917-39.

41 Thomas Leslie, Essays in Political and Moral Philosophy (London: Longmans, Green, & Co., 1879), 404, 241.

42 Richard Ely, An Introduction to Political Economy (New York: Hunt & Eaton, 1889), 14, 98.

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that society was “the concrete reality, of which the individual is a mere abstraction.”43

There was a warning here for those who trimmed their intellectual horizons. If political economy could not supply a comprehensive account of the social laws regulating economic conduct, another discipline would.

Even the leaders of a campaign among economists hoping to turn their discipline into a mathematical science of markets, a drive that gathered force in the last quarter of the nineteenth century, acknowledged the significance of the social.44 Léon Walras, usually cited as one of this movement’s founding fathers, built his theories upon a very specific kind of market: a well-regulated stock exchange. Markets had a similar, tangible quality for , though in Marshall’s case the archetypal instance was not a stock exchange but one of the marketplaces that had become landmarks in cities around the world. (Marshall’s celebrated Principles of Economics also defined its subject as the study of “the economic aspects” of “social life.” 45) The American economist John Bates

Clark believed that “value is a measure of made by society considered as one great isolated being.”46 All of these figures accepted that markets could only be understood if they were set against thickly social contexts.

Economics was a social science, just like anthropology, political science, psychology, and, of course, sociology. And all of these fields included members who

43 Allyn Young, “Social Economy,” 1908, Box 2, Folder 8, Allyn Abbot Young Papers, Harvard University Archives.

44 This is often called a marginal revolution. On the term and its limits, see R.D. Black, A.W. Coats, and Crauford Goodwin, eds., The Marginal Revolution in Economics (Durham: Duke University Press, 1973).

45 Alfred Marshall, Principles of Economics (London: Macmillan and Co., Ltd., 1920), available at www.econlib.org/index.html.

46 , The Philosophy of Wealth: Economic Principles Newly Formulated (Boston: Gin & Company, 1894), 82.

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believed they had an obligation to answer “the social question.” Advocates of “modern social movements” pushed for a variety of policies—curbing , instituting progressive taxation, and promoting labor rights, to name some of the most prominent— united by a common grounding in the demands they claimed to have discerned within society.47 For skeptics, the range of subjects grouped under society could prove exasperating. As one grumbled, “There should evidently be somewhere a social insane asylum in which to confine the social organism.”48

BY 1950, ALL THAT HAD CHANGED. Society remained an item of concern, but the economy now stood alongside it. This was not the strange, vaguely Teutonic notion that

Wesley Mitchell had labored to explain to his students. The new understanding of an economy was thinner than its predecessor. It had a weightless quality that gave it , allowing it to be stretched across a wider terrain: the economy, not a village economy, a national economy, a world economy, or any of the other modifier-dependent variations that had earlier prevailed. No longer viewed as particular structures that had to be made over time, economies now appeared as much a natural part of collective life as society itself.

That conceptual adjustment occurred alongside a series of technical, institutional, and political developments that turned the economy into an object that political leaders could plausibly argue they had tamed. This complicated history can be usefully simplified by focusing on three connected innovations from this era. Think of it as a story

47 For example, F.W. Taussig, Principles of Economics, vol. 1 (New York: The Macmillan Company, 1911), 137.

48 Herbert Joseph Davenport, The Economics of Enterprise (New York: The Macmillan Company, 1919), 391.

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of three M’s: measurement, via statistics like national income accounts, which the United

States government, like a handful of other governments, began regularly producing during the ; modeling, which became the lingua franca of economics, replacing looser styles of verbal reasoning that had dominated the discipline at the turn of century; and management through fiscal and monetary policies implemented by an ensemble of institutions at the federal level, made possible in the United States by events like the creation of the and passage of a national income , both approved in 1913.

Combined, these advances created a perpetual-motion machine devoted to the production of economic knowledge: economic statistics encouraged the construction of more ambitious economic models, which guided the conduct of economic policymaking, which called for better statistics, which led to another turn of the cycle. Where social politics were amorphous, the economy lent itself to precise formulations. Not just an abstract “,” the economy was a measurable object whose fluctuations could, with the appropriate policies, be controlled.

The invention of the economy reflected important changes in what members of an earlier generation would have called “economic life.” A wave of economic concentration had given rise to corporations of previously unimaginable size that became some of the most reliable producers and consumers of economic statistics. With fewer firms to count, leviathan corporations also simplified the task of economic calculation. production and self- waned, turning labor into an increasingly prevalent mode of life, once again making it easier to gather data. The Federal Reserve helped bring order to a crazy-quilt system of rival , while the obligation to file

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income made economic tabulation into an annual ritual for a rising number of

Americans.49

Yet, as a young discovered in the 1950s when he sought to recruit clients for his economic consulting agency, reports on the economy had little interest for executives worried about next quarter’s bottom line. “Knowing what the gross national product (GNP) was going to do wasn’t useful to him,” he recalled. “But if you talked to the CEO of an automobile parts manufacturing company and could tell him that

‘assemblies for Chevrolet over the next six months are going to be different from what

General Motors has announced,’ that was something he could understand and act on.” 50

Economists supplied a more enthusiastic audience for research into the broader economy. Political economy, observed the Walter Bagehot in 1885,“is an abstract science which labors under a special hardship. Those who are conversant with its abstractions are usually without a true contact with its facts; those who are in true contact with its facts have usually little sympathy with and little cognizance of its abstraction.”51

That, too, had changed by 1950. An explosion of economic statistics enabled the transformation in economic theory often described as the “.” That label obscures the character of this history, casting a global intellectual and political shift as the product of a notion dreamed up by a single Cambridge don. is better understood as one contributor to the larger enterprise of turning the economy into an object that could be governed.

49 On this combination of factors, see Hirschman, “Inventing the Economy,” 64-68.

50 Alan Greenspan, The Age of Turbulence: Adventures in a New World (New York: Penguin Books, 2008), 46.

51 Walter Bagehot, The Postulates of English Political Economy (London: Longmans, Green, and Co., 1885), 10.

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Like other economists at roughly the same time, Keynes turned the aggregate economic statistics that had started to appear with predictable regularity into the elements of what would soon be called . Even among self-described Keynesians, interest quickly moved away from Keynes’s baroque masterpiece, The General Theory of

Employment, Interest, and Money, a text whose simple mathematics and reliance on largely verbal argument stamped it as a product of a period before economists refashioned themselves as practitioners of an essentially mathematical science. The cutting edge of academic economics in the middle of the twentieth century, macroeconomics provided fertile ground for advocates of this mathematical turn, who generated innumerable models designed to represent the economy as a whole.52

The global scale of this turn raises a question that has so far lurked in the background of this account. Although the American economy is an inherently national phenomenon, the intellectual history of the economy spilled outside national borders from the start. In the USSR, bureaucrats at organizations like the Supreme Council of the

Economy sought to give meaning to the ideal of a .53 Members of the so-called Stockholm School made a site of macroeconomic theorizing that rivaled anything taking place in Cambridge.54 Germany, where talk about the economy

52 On The General Theory and its ramifications, see , “Keynes and : On the Interaction Between the Macroeconomic Revolutions of the ,” Econometrica 44.6 (November 1976), 1091-1123; Peter Clarke, The Keynesian Revolution in the Making, 1924–1936 (Oxford: Clarendon Press, 1988); Peter Hall, ed., The Political Power of Economic Ideas: Keynesianism Across Nations (Princeton: Princeton University Press, 1989); Bradley Bateman, “Keynes and Keynesianism,” in The Cambridge Companion to Keynes, eds. Roger Backhouse and Bradley Bateman (Cambridge: Cambridge University Press, 2006), 271–90; and Michel De Vroey, A History of Macroeconomics: From Keynes to Lucas and Beyond (Cambridge: Cambridge University Press, 2016), 3-49.

53 For a contemporary description, see , Russian Economic Development Since the Revolution (London: George Routledge and Sons, 1928).

54 Don Patinkin, “On the Relation between and the ‘Stockholm School,” Scandinavian Journal of Economics 80.2 (1978), 135-143. For background, see Mark Blyth, Great

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began in the first place, also pioneered the application of these macroeconomic theories to practical policy.55 And the list could be multiplied.

Yet the place of United States in this international history deserves an examination of its own. During the same period in which the economy became a settled mode of thinking about collective life, the United States experienced the most rapid economic growth in the world. This growth funded the creation of an unrivaled system of higher that, by the middle of the twentieth century, made the United States into the world’s preeminent site for the study of economics. 56 With would-be economists from around the globe flocking to universities from Boston to Berkeley, a particular approach to economics became one of the country’s most important exports. Close study of the United States does more than show how a particular notion that flourished across the globe took on a particular meaning in one nation. It reveals something important about how power was exercised in the American century.

Nor, simply because this history took place in the United States, does that make it an exclusively American project. Some of the earliest people to speak of the American economy did so with foreign accents. A Dutch socialist acting at the behest of the League of Nations created the first model of the American economy, and the first national income accounts issued by the Commerce Department were produced by a team working under the supervision of a Russian émigré. In this case, as in so many others, national and

Transformations: Economic Ideas and Institutional Change in the Twentieth Century (Cambridge: Cambridge University Press, 2002), 96-125.

55 Tooze, Statistics and the German State, esp. 103-148.

56 Marion Fourcade, “The Construction of a Global Profession: The Transnationalization of Economics,” American Journal of Sociology 112.1 (July 2006), 145-194; Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s (Princeton: Princeton University Press, 2009); and “The United States: An Economist’s Economy,” in Economists in the Americas, eds. Veronica Montecinos and (Cheltenham: Edward Elgar, 2009), 253-273.

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global developed in tandem.

But the birth of macroeconomics alone cannot explain how the subjects of articles in academic journals became the stuff of everyday life. If economists could not do it by themselves, and if businessmen showed little interest in the project, who helped introduce the concept to the wider world? That riddle can be answered by looking not to corporate boardrooms or academic conferences but to figures Americans welcomed into their living rooms every night, first in their radios and then on their televisions.

IN 1946, ALMOST ONE YEAR INTO HIS TENURE AS PRESIDENT, Harry Truman delivered his first State of the Union address. In the speech, he noted an important, recent change. “With the growing responsibility of modern government to foster economic expansion and to promote conditions that assure full and steady employment opportunities,” he announced, “it has become necessary to formulate and determine the

Government program in the light of national economic conditions as a whole.”57 Almost fifty years later, stood at the same podium to deliver his first speech to

Congress. What had seemed novel to Truman was natural to Clinton. “[F]or all the many tasks that require our attention,” he said, “I believe tonight one calls on us to focus, to unite, and to act. And that is our economy. For more than anything else, our task tonight as Americans is to make our economy thrive again.”58

A survey of references to the economy and its cognates in earlier State of the

Unions explains why Truman felt compelled to draw attention to the originality of his

57 Harry Truman, “Message to the Congress on the State of the Union and on the Budget for 1947,” January 21, 1946, available at http://www.presidency.ucsb.edu/ws/index.php?pid=12467.

58 Bill Clinton, “Address Before a Joint Session of Congress on Administration Goals,” February 17, 1993, http://www.presidency.ucsb.edu/ws/index.php?pid=47232.

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program. Before the 1920s, presidents did not consider the economy in their annual messages to Congress. Even Franklin Roosevelt made only occasional references to the subject. It was Truman himself who established the topic’s centrality in the speech. By the time Lyndon Johnson gave the first State of the Union broadcast on television during the evening, the economy had become a routine subject of inquiry for the president.

The appearance of the economy 50 40 30 20 10 0 1880 1900 1920 1940 1960 1980 2000 2020 2040 -10

Figure 4: References to the economy and its cognates in State of the Union addresses and

messages, 1900-2016. Author’s calculation.

Explicit discussion of the economy is just a partial measure of the concept’s prominence. Even more illuminating, and staying within the State of the Union genre, is a study that tracks clusters of terms that appear together over time. Beginning with George

Washington, two streams of discourse ran next to each other without intersecting, one focused on the federal government’s budget, another on agriculture and industry. Around

1950, the two merged, forming what the authors call “a unified discourse of the modern,

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domestic, economy.”59

Figure 5: River network of State of the Union discourse.60

This was not just a matter of rhetorical presentation. Politicians had become covinced that their careers were bound up with the economy’s trajectory. John Kennedy was assasinated on November 22, 1963. On November 23, Lyndon Johnson had his first meeting with the head of the Council of Economic Advisers.61 Soon, his administration was taken over by the campaign to achieve one of Kennedy’s great unfinished tasks: passing the first tax cut in American history designed to stimulate the economy. During

59 Alix Rule, Jean-Philippe Cointet, and Peter Bearman, “Lexical Shifts, Substantive Changes, and Continuity in State of the Union Discourse, 1790-2014,” Proceedings of the National Academy of Sciences of the United States of America 112 (2015), 10842.

60 Rule et al., “Lexical Shifts,” 10842.

61 Robert Caro, The Passage of Power: The Years of Lyndon Johnson, Vol. IV (New York: Vintage, 2012), 395-397.

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Johnson’s presidential campaign a year later, the Democratic Party platform described the

“expansion of the American economy” as “the national purpose.”62 That same year the

New York Times remarked on “the contemporary concept of a strong President as chief legislator and chief economist of the Republic,” a union consummated when Johnson won approval for his tax cut.63

Politicians fixated on the economy because of the problems it seemed to resolve.

Some were as straightforward as a balance sheet. Before approval of the income tax in

1913, most of the federal government’s funding came from customs duties, with another third provided by taxes on alcohol and tobacco. By 1920, the income tax supplied two- thirds of the budget, linking the financing of the American state to the fluctuations of national income.

62 Democratic Party Platform of 1960, July 11, 1960, available at http://www.presidency.ucsb.edu/ws/?pid=29602. This change was part of a broader shift in platforms, which a generation earlier had consisted of sweeping outlines of policy goals, and had by mid-century given way to specific macroeconomic targets. Hirschman, “Inventing the Economy,” 106.

63 Tom Wicker, “THE ISSUES: Stress Will Be on Foreign Policy and Civil Rights but Personalities May Hold Key,” New York Times, July 19, 1964, 105.

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70

60 Customs duties 50 Alcohol and Tobacco 40 Income Taxes 30 Other 20

10

0 1880 1890 1900 1910 1920 1930

Figure 6: Sources of US federal budget, 1880-1930.64

Other concerns were more abstract but no less exigent. Despite the country’s reputation for stability, fears of violent political upheaval surged regularly in the United

States from the Gilded Age through World War II. Whether those concerns seem reasonable in history’s cool retrospect is not the point; what matters is how they felt at the time—and for many Americans, including some of the most powerful figures in the country, the threats appeared very real.65 A healthy economy promised steady employment, keeping potential firebrands on the clock and out of the streets. Putting aside the the possibility of revolutionary turmoil, politicians soon learned to identify their chances of reelection with the economy’s fortunes, a conclusion validated by political

64 Based on data in Ajay Mehrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877-1929 (Cambridge: Cambridge University Press, 2013), 7.

65 Beverly Gage, The Day Exploded: A Story of America in Its First Age of Terror (Oxford: Oxford University Press, 2009) and Ira Katznelson, Fear Itself: The and the Origins of Our Time (New York: Liveright, 2013).

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scientists researching the connection between economic and electoral performance.66

Loyal partisans looking for policies that could bind together factious coalitions found it in economic growth, an objective they argued could transcend divisions of race, class, region, religion, or ideology—that could, for instance, unite both conservative segregationists and liberal civil rights activists, two pillars of the Democratic Party at mid-century. The economy’s performance also offered a scorecard in the Cold War, a seemingly neutral way of measuring the achievements of rival powers.67 And it gave coherence to policymaking. The details were complex, the data partial, and the tools limited, but the ideal could still bring consistency to a process always threatening to lurch out of control. In the possibility of unity, there even lay the hope of moving beyond politics altogether, replacing squabbling politicians with disinterested technocrats.68

Bolstered by its political significance, the economy became the subject of endless conversation—in stump speeches, newspaper headlines, radio broadcasts, television specials, and, in the twenty-first century, phones buzzing with updates on the latest GDP numbers. That is how an academic conceit became a cultural fact.

What is most striking, looking at aggregate measurments of the economy’s usage over time, is how quickly the change occurred. Time and again, these charts depict a

66 Gerald Kramer, “Short-Term Fluctuations in U.S. Voting Behavior, 1896-1964,” American Political Science Review 65.1 (March 1971), 131-143; Christopher Achen and Larry Bartels, “Blind Retrospection: Why Shark Attacks Are Bad for Democracy,” Working Paper 5-2013 (Center for the Study of Democratic Institutions, May 2013), available at http://www.reed.edu/chinese/chin- hum/claypools09/PDFs/Chicago.pdf; and Andrew Healy and Neil Malhotra, “Retrospective Voting Reconsidered,” Annual Review of Political Science 16 (May 2013), 285-306.

67 Robert Collins, More: The Politics of Economic Growth in Postwar America (New York: Oxford University Press, 2000), 46-47 and David Engerman, Know Your Enemy: The Rise and Fall of America’s Soviet Experts (New York: Oxford University Press, 2009), 97-128.

68 Suzanne de Brunhoff, The State, Capital and (London: Pluto Press, 1978) and Michael Beggs, Inflation and the Making of Australian Macroeconomic Policy, 1945-85 (New York: Palgrave Macmillan, 2015).

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virtually nonexistent concept rocketing upward in just a few years. Although the transformation was sudden, it owed more to an earlier history than such broad-gauge surveys allow. Grappling with this transition requires a better understanding of the ideas, the institutions, the technical innovations, and even the inidviduals below the trend lines.

Providing that more fine-grained analysis is the goal of this dissertation.

THE BEST PLACE TO BEGIN IS WITH ECONOMISTS. Though not representative of the larger population, this group of highly educated, generally well-off, typically white men clarified the scope of what was economically thinkable. If the concept did not appear in their work, it was not going to appear anywhere else. Their number was still small at the onset of the twentieth century, which gave a handful of figures outsize influence— patriarchs standing at the top of rapidly growing family trees.69

“The world is ours,” said the president of the American Economic Association in a 1908 speech to his colleagues, “if we enter it by the right door.”70 A decade later, World

War I kicked that door open. Economists were brought into the government in record levels, giving them a taste of what it meant to wield power. They were forced out just as swiftly after the war ended, but their time in Washington inspired a generation to look for ways they could use economic theory to remake politics. Launched in the aftermath of the war, the National Bureau of Economic Research, or NBER, was a quintessential example of this impulse. It straddled the division between the age of social politics and

69 Michael Bernstein, A Perilous Progress: Economists and Public Purpose in Twentieth-Century America (Princeton: Princeton University Press, 2001).

70 , “The Making of Economic Literature: Annual Address of the President,” American Economic Association Quarterly 10.1 (April 1909), 14.

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the new regime concerned with the state of the economy already coming into being. So did its intellectual leader, Wesley Mitchell. Through a careful investigation of the ideas that guided this group in its early years, a much broader history—the history behind the invention of the economy—comes into focus.

The Bureau soon attracted the attention of a formidable benefator. became Secretary of Commerce the year after the NBER’s founding. An admirer of

Mitchell’s, Hoover enlisted the Bureau in his effort to use social science to remold government. An economic theory associated with both Mitchell and the NBER became an essential feature of this campaign: business cycle theory, a way of thinking about issues now understood as macroeconomic before the emergence of macroeconomics as such. Just as rigorous intellectually, but not nearly as successful politically, was a simultaneous campaign to reorient policymaking at the Federal Reserve around another precocious instance of macroeconomic theorizing, a controversial economic doctrine known as the . Two examples of how ideas shape politics, or fail to, the histories of these programs reveal the contours of economic policy in the last moment before the economy became an obsession.

Then came the Great Depression. The New Deal ushered in a period of extraordinary intellectual fertility that witnessed the creation of the first national income accounts regularly published by the United States government and the first model of the nation’s economy. Observers recognized that government was taking on a new role, but the full effect of that shift was unclear. At the start of the New Deal, some economically minded reformers yoked robust programs for a planned economy to visions of a transformed society. During Franklin Roosevelt’s second term, however, a more modest

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alternative stepped forward. Instead of nationalizing industries and breaking up monopolies, this agenda relied on more distant measures—tax cuts to boost waning demand, hikes to curb unsustainable booms, and constant oversight from trained economists. Quickly but misleadingly dubbed “Keynesian,” this approach was compatible with more comprehensive visions of , at least in theory.

Whatever the details of the vision for governing the economy, however, the importance of the economy had been established.

With this account in mind, the history of the United States in the second half of the twentieth century looks different than it is usually understood. A postwar economic boom led politicians and economists alike to claim they had unlocked the secrets of managing the economy. After growth rates slipped in the 1970s, politicians across the world retreated from the responsibility to govern the economy they had claimed during more prosperous times and sought to hand off that authority to central bankers. But the disavowal was never complete. Like it or not, politicians knew they would be held responsible for the economy’s performance. As James Carville pointed out during Bill

Clinton’s 1992 presidential campaign, a person would have to be stupid to think otherwise.71 This was not a period of triumphant where deference to markets became the watchword for policymakers. Though could proceed on any number of fronts, there was one object too important to be left alone: the economy itself.

That is not the only facet of the American experience that takes on a different cast when seen from this vantage point. Following the economy’s ascent forces us to move across the divides that too often separate economic, political, intellectual, and cultural

71 Peter Levy, Encyclopedia of the Clinton Presidency (London: Greenwood Press, 2002), 205.

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history.72 Blending these methods produces a kind of synthesis, but one that cuts across customary narratives. It is an , but not one dictated by the relentless expansion of capitalism.73 It is an intellectual history, but not one focused on self- described intellectuals.74 It is a political history, but not one defined by the struggle between left and right or the rise and fall of a New Deal order.75 It is a history of the twentieth century, told at a slant.

Consider, for example, the unlikely legacy of Wesley Mitchell. A former student of and ’s, Mitchell devoted his life to fusing the legacy of these two influences. The NBER was his practical realization of this ideal, an organization devoted to revising economic theory so that it better captured the realities of economic life. Mitchell had two great students. One, , pioneered the

72 Such eclecticism is one of the strengths of what is sometimes called historical ontology or historical epistemology, on which see Arnold Davidson, The Emergence of Sexuality: Historical Epistemology and the Formation of Concepts (Cambridge: Harvard University Press, 2001); Ian Hacking, Historical Ontology (Cambridge: Harvard University Press, 2002); and Sarah Igo, The Averaged American: Surveys, Citizens, and the Making of a Mass Public (Cambridge: Harvard University Press, 2007).

73 Jeffrey Sklansky, “The Elusive Sovereign: New Intellectual and Social Histories of Capitalism,” Modern Intellectual History 9.1 (Apr. 2012), 233-248; Seth Rockman, “What Makes the History of Capitalism Newsworthy?,” Journal of the Early Republic 34.3 (Fall 2014), 439-466; Timothy Shenk, “Apostles of Growth,” The Nation, November 24, 2014, 17-28; Kenneth Lipartito, “Reassembling the Economic: New Departures in Historical Materialism,” American Historical Review (February 2016), 101- 139.

74 Graham Burchell, Colin Gordon, and Peter Miller, eds., The Foucault Effect: Studies in Governmentality (Chicago: University of Chicago Press, 1991) and Samuel Moyn, “Imaginary Intellectual History,” in Rethinking Modern European Intellectual History, eds. Darrin McMahon and Samuel Moyn (New York: Oxford University Press, 2014), 112-130 pursue a similar goal from different angles.

75 The spirit outlined here is also displayed in William Novak, “The Myth of the ‘Weak’ American State,” American Historical Review 113.3 (June 2008), 752-772; James Sparrow, Warfare State: World War II Americans and the Age of Big Government (New York: Oxford University Press, 2011); James Sparrow, William Novak, and Stephen Sawyer, eds., Boundaries of the State in US History (Chicago: University of Chicago Press, 2015); William Novak, “Beyond : The Need for a Democratic (Not Aristocratic) Theory of the State,” Tocqueville Review/La revue Tocqueville 36.1 (2015), 43-91; and Brian Balogh, The Associational State: American Governance in the Twentieth Century (Philadelphia: University of Pennsylvania Press, 2015). For a recent survey of scholarship prizing ideological conflict, see Kim Phillips-Fein, “Conservatism: A State of the Field,” Journal of American History 98.3 (December 2011), 723-743.

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development of national-income accounting and conducted path-breaking studies of economic inequality.76 If Kuznets carried the torch in academic research, Arthur Burns took up the mantle in policymaking. Head of the Council of Economic Advisers under

Dwight Eisenhower, Burns later became the first chairman of the Federal Reserve to hold a in economics. Before any of that happened, Burns succeeded Mitchell as research director at the NBER.77

At the NBER, Burns encouraged a protégé of his own. While a graduate student at

Columbia, where he was studying under Mitchell, Burns helped make ends meet by lecturing undergraduates at Rutgers. There he met a young , who had arrived at Rutgers planning to become an actuary, but who, under Burns’s influence, graduated an aspiring economist.78 Friedman split his graduate career between the

University of Chicago and Columbia, where he also worked with Mitchell. That connection helped secure him a post at the NBER, a valuable opportunity in the midst of the Depression. There, Friedman served as a research assistant for Kuznets, who ultimately co-authored the younger man’s dissertation.

With his doctorate in hand, Friedman embarked on an extraordinarily successful career, but his affiliation with the NBER was not done yet. In 1950, Burns asked

Friedman to study the influence of the on business cycles, enlisting his former student in a project that dated back to the Bureau’s founding. Thirteen years later,

Burns’s request led to the publication of the book for which Friedman is most known

76 , Enid Fogel, Mark Guglielmo, and Nathaniel Grotte, Simon Kuznets and the Empirical Tradition in Economics (Chicago: University of Chicago Press, 2012).

77 Wyatt Wells, Economist in an Uncertain World: Arthur F. Burns and the Federal Reserve, 1970-1978 (New York: Columbia University Press, 1994).

78 Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (Chicago: University of Chicago Press, 1998), 29-31.

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among economists. Weighing in at more than eight-hundred pages, A Monetary History of the United States, 1867-1960 did more than any other work to make Friedman’s views on macroeconomics acceptable to the rest of his profession—and, eventually, to politicians, central bankers, and the general public.79 ( is one of many who credits it with sparking his interest in monetary theory.)80 It was an NBER book through and through: published under the NBER’s auspices, based on data produced by NBER investigations, and co-authored with , a NBER staffer. There is a thread running from John Dewey to Milton Friedman, and it goes through Wesley Mitchell.

Libraries could be filled with histories of the twentieth century focused on the clash of ideologies in an age of extremes, and just as many based on the unfolding of grand structures like capitalism or modernity. Tracing the history of the economy brings a different subject into the spotlight—namely, the technical practices that became essential to exercising power. Grassroots activists can put politicians in office—if they are lucky, even the —but the repertoire of policies available to these newly elected representatives are crafted by different hands. Emphasizing the practices of power and the objects they helped create displays the limits of accounts that depict the twentieth century as a battle between a clearly defined left and right. There are objects in political debate—objects like the economy—that warp these seemingly established categories, just like black holes can become large enough to bend normally straight rays of light. We live today with the legacy of this history: a politics with a different vocabulary, different goals, different tools, and different kind of policymaker than anything that existed when

79 Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1963).

80 Ben Bernanke, The Courage to Act: A Memoir of a Crisis and its Aftermath (New York: W.W. Norton and Company, 2015), 30.

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Mitchell introduced his students to Volkswirtschaft. The economy is the favorite child of a third age in the history of American democracy—not the republican politics of the founding, or the social politics that flourished a century ago, but the techno-politics that today defines the boundaries of the possible.81

Behemoth corporations and commodified production, a federal government dedicated to maintaining national prosperity, economists claiming to have mastered their subject with the instruments of science—all of this still appeared strange just a hundred years ago. The economy is the name Americans used to make sense of this world after it became all but impossible to imagine that life had ever been otherwise.

81 On techno-politics, see Gabrielle Hecht, “Technology, Politics, and National Identity in France,” in Technologies of Power: Essays in Honor of Thomas Parker Hughes and Agatha Chipley Hughes, eds. Michael Allen and Gabrielle Hecht (Cambridge: MIT Press, 2001), 253-294; Timothy Mitchell, Rule of Experts; Egypt, Techno-Politics, Modernity (Berkeley: University of California Press, 2002); James Vernon, “The Ethics of Hunger and the Assembly of Society: The Techno-Politics of the School Mean in Modern Britain,” American Historical Review 110.3 (June 2005), 693-725; and Iginio Gagliardone, “‘A Country in Order’: Technopolitics, Nation Building, and the Development of ICT in Ethiopia,” Information Technologies and International Development 10.1 (Spring 2014), 3-19. Sheila Jasanoff, Designs on Nature: Science and Democracy in Europe and the United States (Princeton: Princeton University Press 2005) reflects on consequences this shift has had for political theory and democratic practice.

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Chapter 1: Economics Before The Economy

IN , a band of economists, statisticians, sociologists, and technically minded reformers gathered at a hotel in to decide how they would save the world.

Visitors had flocked to Richmond for the annual conferences of the five societies—the

American Economic Association, American Statistical Association, American Sociological

Association, the American Association for Labor Legislation, and the American

Association for Agricultural Legislation—that had chosen to hold their meetings jointly that year. They intended to review , elect officers, plan for the year ahead, and offer panels on subjects more tractable than recasting geopolitics. But larger aspirations lurked beneath these pedestrian surfaces.

The old order lay in ruins. Peace had been reached in Europe a few weeks earlier, bringing an end to what was then known as the Great War, but the conflict had thrown much of the continent into a revolutionary crisis that continued to unfold. Many commenters, both sympathetic and critical, believed they were observing the birth pangs of a socialist epoch—or something that did not yet have a name. There were skeptics, inevitably, but they recognized that war had shattered the world they had known.82

Matters looked different on the other side of the Atlantic. With a homeland untouched by war and a political system that emerged from the ordeal bruised but intact, the United States had become the world’s dominant power.83 Yet even there, as one

82 Mark Mazower, Dark Continent: Europe’s Twentieth Century (New York: Alfred A. Knopf, 1999), 3-40; Geoff Eley, Forging Democracy: The History of the Left in Europe, 1850–2000 (Oxford: Oxford University Press, 2002), 123-233; Adam Tooze, The Deluge: The Great War and the Remaking of Global Order (London: Allen Lane, 2014), 33-251.

83 Robert Wiebe, The Search for Modern Order, 1877-1920 (New York: Hill and Wang, 1967) and Ellis Hawley, The Great War and the Search for a Modern Order: A History of the American People and their Institutions (New York: St. Martin’s Press, 1979) remain invaluable guides to this period. The most

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observer remarked, it seemed that “the trend of the time is leveling.”84 A novel constellation of possibilities had appeared, and the prospects were exhilarating. The

United States could conquer the internal divisions that had fractured its society, often violently, and then redeem the world. The question for those who had come to Richmond was what kind of world the United States would create, and whether they would be lucky enough to help build it.

Some of them would get that chance. Two decades earlier, Alfred Marshall had observed that “the problem of social aims takes on new forms in every age.”85 Even when ideals remained constant, the problems confronting reformers shifted, and so did the resources they could draw upon to address them. Within his own discipline of economics,

Marshall predicted that novel social challenges would inspire the next generation to produce “far greater work” than any of its predecessors.86 Marshall was too cautious to predict what that “greater work” would resemble.87 He did not realize that social sciences

recent major synthesis is Jackson Lears, The Making of Modern America, 1877-1920 (New York: Harper Perennial, 2010), though also see Nell Irvin Painter, Standing at Armageddon: The United States, 1877- 1919 (New York: W.W. Norton, 1987) and Martin Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, The Law, and Politics (Cambridge: Cambridge University Press, 1988). Robert Johnston, “Re-Democratizing the : The Politics of Progressive Era Political Historiography,” Journal of the Gilded Age and Progressive Era 1.1 (2002), 68-92 provides a valuable canvas of the historiography. Although the literature on the politics of this era is vast—much of it still engaged with Richard Hofstadter’s classic Age of Reform: From Bryan to F.D.R. (New York: Vintage, 1955)—the essential work is Daniel Rodgers, Atlantic Crossings.

84 F.W. Taussig, Principles of Economics, vol. 1 (New York: The Macmillan Company, 1911), 256.

85 Alfred Marshall, “The Old Generation of Economists and the New,” Quarterly Journal of Economics 11.2 (January 1897), 134.

86 Marshall, “Old Generation,” 134.

87 Marshall’s historicism owed itself in part to his deep familiarity with Hegel, on which see Simon Cook The Intellectual Foundations of Alfred Marshall’s Economic Science: A Rounded Globe of Knowledge (Cambridge: Cambridge University Press, 2009).

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would help reinvent politics, nor could he see that his own discipline would be at the vanguard of this transition.

The economists who travelled to Richmond in 1918 knew their Marshall but did not share this humility. Visions of a democracy remade by social science beguiled these would-be reformers, but they approached the project strategically. During his presidential address to the American Economic Association, Yale’s Irving Fisher predicted that soon the three rightful pillars of economic governance—“labor, capital, and economists”— would take up their appropriate roles. Before that occurred, however, the country required a humbler reform: “a laboratory for the study of the great economic problems before us,” in Fisher’s words.88 This recommendation was seconded by Wesley Mitchell in his presidential address to the American Statistical Association, delivered in the same room a few hours after Fisher’s lecture.

According to Mitchell, a center where the statistics generated by the industrial age in such daunting amounts could be compiled, studied, and synthesized would perform two functions. It would bring empirical precision to the social sciences, which despite their recent advances were still “immature, speculative, filled with controversies,” and it would guard the polity against the “wasteful” temptations of “reform by agitation or class struggle.”89 Better social science would make for better politics. Achieving those goals, however, demanded more than a mastery of statistics. Economists would have to link their empirical research to a social vision large enough to encompass the challenges they faced. As Fisher remarked, “if we are to serve the great world democracy which we hope

88 Irving Fisher, “Economists in Public : Annual Address of the President,” 9.1 (March 1919), 20.

89 Wesley Mitchell, “Statistics and Government,” Publications of the American Statistical Association 16.125 (March 1919), 229-230.

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to see arise from the ashes of this great world conflagration, we must see the problem whole.”90

One year later, the institution Fisher and Mitchell called for had become a reality.

The National Bureau of Economic Research—or, as the inevitable acronym had it, the

NBER—had important supporters from the outset, including Mitchell himself, who served as its research director. It soon acquired an even more valuable patron in Herbert

Hoover, leader of the campaign to reorient politics around information and Secretary of

Commerce from 1921 to 1929, when he was inaugurated President of the United States.91

The NBER was a modest institution that owed its existence to enormous transformations. It was, as Mitchell later noted, “a baby, posthumously born.”92 The triple shocks of continuing fallout from the Great War, the beginning of the transition to peace, and Bolshevik victory in Russia all helped spur the NBER’s founding.

But there was a deeper history, too, one that connected the tiny organization to some of the largest forces remaking the United States and much of the world—the growth of a robust national state,93 the ascent of the corporation,94 and the birth of an academic system with grand ambitions and an unprecedented scale to match. 95

90 Fisher, “Economists,” 20.

91 Much work remains to be done on Hoover, but Ellis Hawley, Herbert Hoover as Secretary of Commerce: Studies in New Era Thought and Practice (Iowa City: University of Iowa Press, 1981) is still an indispensable starting point. Brian Balogh extends the perspective that frames Hawley’s analysis in The Associational State: American Governance in the Twentieth Century (Philadelphia: University of Pennsylvania Press, 2015). On Hoover’s economics, see Guy Alchon, The Invisible Hand of Planning: Capitalism: Social Science, and the State in the 1920s (Princeton: Princeton University Press, 1985) and William Barber, From New Era to New Deal (Cambridge: Cambridge University Press, 1989).

92 Wesley Mitchell, “Economic Research and the Needs of the Times: Twenty-Fourth Annual Report, April 1944,” (New York: National Bureau of Economic Research, 1944), 11.

93 In the past generation, scholarship in the field of American political development has transformed our understanding of the American state and its history. Especially significant have been Theda Skocpol, Protecting Soldiers and Mothers (Cambridge: Harvard University Press, 1992); Elizabeth

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Recognizing the political, economic, and institutional transformations that made the NBER possible still does not explain why it seemed like a compelling response to these changes. Although the sight of economists seeking to replace political conflict with expert consensus would soon become familiar, the NBER, like American economics as a whole, belonged to a conceptual world that quickly became foreign—a world where the study of economics was inextricably tied to larger visions of society, where the specific challenges of industrialism had become an obsession, and where the idea of the economy had a marginal position in academic and political debates, when it figured at all. The staffers at the NBER considered themselves expert observers. A century later, watching these watchers captures a moment of transition. The language, theory, and politics of the economy had not yet emerged, but elements indispensable to this later history were being assembled. A new world was incubating within the old, and a vocabulary developed in the eighteenth century was giving way to one that would dominate the twentieth.

Sanders, Roots of Reform: Farmers, Workers and the American State, 1877-1917 (Chicago: University of Chicago Press, 1999); Daniel Carpenter, The Forging of Bureaucratic Autonomy: Reputations, Networks and Policy Innovation in Executive Agencies, 1862-1928 (Princeton: Princeton University Press, 2001); William Novak, “The Myth of the ‘Weak’ American State,” American Historical Review 113 (June 2008), 752-72; Brian Balogh, A Government Out of Sight: The Mystery of National Authority in Nineteenth- Century America (Cambridge: Cambridge University Press, 2009); Margot Canaday, The Straight State: Sexuality and Citizenship in Twentieth-Century America (Princeton: Princeton University Press, 2011); Sparrow, Warfare State; and William Novak, Stephen Sawyer, and James Sparrow, “Beyond Stateless Democracy,” Tocqueville Review/La revue Tocqueville 36.1 (2015), 21-41.

94 On the corporation’s rise, see Chandler, The Visible Hand and Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge: Harvard University Press, 1990); Olivier Zunz, Making America Corporate, 1870-1920 (Chicago: University of Chicago Press, 1992); Charles Perrow, Organizing America: Wealth, Power, and the Origins of (Princeton: Princeton University Press, 2002); Naomi Lamoreaux, Daniel M. G. Raff, and Peter Temin, "Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History," American Historical Review 108 (April 2003), 404-33 and Richard White, Railroaded: The Transcontinentals and the Making of Modern America (New York: W.W. Norton and Company, 2011).

95 The crucial work for this period remains Dorothy Ross, The Origins of American Social Science (Cambridge: Cambridge University Press, 1991), but see also Mary Furner, Advocacy and Objectivity: A Crisis in the Professionalization (Lexington: University Press of , 1975); Andrew Jewett, Science, Democracy, and the American University: From the Civil War to the Cold War (Cambridge: Cambridge University Press, 2012); and Jonathan Franklin, “Irrelevant : A History of Professional Economists and Policymaking in the United States” (PhD diss, University of Maryland, 2016).

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“THE POINT OF VIEW FROM WHICH THE EARLY, and even the later, classical economists discussed economic life was that of ‘the society’ taken as a collective whole and conceived as an organic unit,” Thorstein Veblen remarked in 1901.96 Veblen was an insightful reader of his predecessors, but his comment also reflected the preoccupations of his time. As it had for more than a century, society remained the unifying framework for economic inquiry. As Irving Fisher put it, economics was “only one branch of a greater subject,—Sociology,” or, as he elsewhere phrased it “Societology.”97

By the close of the nineteenth century, however, an increasing number of

Americans were convinced the character of their society had changed. The country had become “industrial.” The rise of massive corporations had created an “industrial society,” or “industrial world,” or “industrial organism” that generated both “industrial discontent” and “industrial crises,” along with calls for an “industrial democracy” adapted to the demands of the new order, all the more necessary after 1919, with humanity tending its wounds after an encounter with “industrial warfare.” Many of these changes were scrutinized by the aptly named United States Commission on Industrial Relations, which related a troubling discovery in its final report, issued in 1915: “The conviction that the wealth of the country and the income which is produced through the toil of the workers is distributed without regard to any standard of justice is as widespread as it is deep-

96 Thorstein Veblen, “Industrial and Pecuniary ,” Publications of the American Economic Association, 3rd Series, 2.1 (February 1901), 193.

97 Irving Fisher, Elementary Principles of Economics (New York: The Macmillan Company, 1916), 514 and “Principles of Economics, 1909-10,” 1910, Box 38, Folder 525A, Series 3, Irving Fisher Papers, Manuscripts and Archives, Library (hereafter Fisher Papers). “Societology” was the preferred term of Fisher’s mentor Sumner, on which see A.G. Keller, “,” American Journal of Sociology 15.6 (May 1910), 835.

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seated.”98 Nostalgia for a more innocent time runs through these laments, but that was a psychic consolation, not a program for the future. Political debate turned, instead, around competing proposals for managing the transition to an industrial age—Theodore

Roosevelt’s New Nationalism, Woodrow Wilson’s New Freedom, and the revolutionary socialism advocated by a small but vocal minority were just some of the most significant projects united by the belief that (as the ubiquitous modifier emphasized) a “new” age was dawning.

Woodrow Wilson traced the contours of this moment in a speech he delivered two years before his election to the presidency. “Society is looking itself over, in our day, from top to bottom,” he announced. 99 It was a period with few, if any, precedents. The nation’s industrial capacity had reached levels Americans just a few decades earlier could not have imagined, but so had tensions between labor and capital. Wilson attributed all of this to a single culprit. “The economic power of society,” he explained, had become focused in corporations, each of which constituted “an economic society, a little economic State” that existed in uneasy relation to the national state.100 That transformation had brought economic concerns to the fore of American politics, replacing the political issues that Wilson said had occupied earlier generations. “The life of the nation” no longer revolved around “questions of governmental structure or of the distribution of governmental powers. It centres upon economic questions, questions of

98 Commission on Industrial Relations, Final Report of the Commission on Industrial Relations (Washington, 1915), 23. This analysis appeared under the heading “Unjust Distribution of Wealth and Income.”

99 Woodrow Wilson, “The Lawyer and the Community,” North American Review, 192.660 (November 1910), 605.

100 Wilson, “Lawyer,” 612.

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the very structure and operation of society itself.”101 Economic laws had once guarded society against the state; now, Wilson argued, economic conditions demanded state intervention. This was the sweeping historical narrative behind the reimagining of

American liberalism undertaken in the Progressive era.102 According to Wilson, the stakes were as high as could be imagined: society itself hung in the balance.

For economists, this grim diagnosis sounded like a call to arms. Despite his fixation on the corporation, Wilson paid little attention to the dismal science. Under his watch, however, economists flocked to Washington. Over a hundred worked directly for more than twenty federal agencies during the Great War, helping to allocate food and fuel, guns and boats, and much more besides.103 With the prospect of rebuilding Europe looming, economists would be more in demand than ever. Most of them agreed that laissez faire was dead, and so were the debates that had torn apart the discipline before the war, which typically pitted Anglophile skeptics of state intervention against Germanic enthusiasm for social change. The dichotomy caricatured both German and British economics, but it had rhetorical force, and it also mapped onto a generational divide that pitted younger, reform-minded scholars trained in Germany against their older, generally more conservative colleagues.

By 1918, however, those debates were confined to the dusty pages of archived journals, and Irving Fisher could inform his assembled colleagues that the next era would be neither British nor German but distinctively American. This was, in part, a clever

101 Wilson, “Lawyer,” 608.

102 Though slightly dated, Johnston, “Re-Democratizing the Progressive Era” is the best recent survey of scholarship on the period.

103 On economists in wartime, see Michael Bernstein, A Perilous Progress: Economists and Public Purpose in Twentieth-Century America (Princeton: Princeton University Press, 2001), 34-38.

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attempt to strip the profession of any lingering affiliation with Germany, which the

United States government had spent the war portraying as the epitome of despotism. (The term “,” coined in 1919, was one product of this rebranding.104)

But Fisher also had a more substantive rationale. Germans had shown that economists could serve the state; Americans would prove they could be the agents of a far greater cause. “It is our opportunity and our duty,” he announced, “to dedicate ourselves to the task of working out economic measures in the interests of humanity and democracy.”105

Nowhere was the public demand for wise counsel greater, Fisher believed, than on the question of economic inequality. Fisher acknowledged that many issues required attention from “scientific students of society,” but he dwelled on inequality, spending over a third of his address on various proposals for its amelioration.106 “The war revealed great industrial discontent in our country,” he elsewhere maintained, adding that

“something radically wrong” had occurred in American society.107 Fisher could summon

Olympian disdain for economists who defended labor radicalism while acknowledging that every subject he touched upon seemed to be framed by a widening chasm between the classes. Or, at least, he thought the chasm was widening. “The real scientific study of the distribution of wealth,” he admitted, “has scarcely begun.”108

104 Walton Hamilton, “The Institutional Approach to Economic Theory,” American Economic Review 9.1 (March 1919), 309-318.

105 Irving Fisher, “Economists in Public Service: Annual Address of the President,” American Economic Review 9.1 (March 1919), 10.

106 Fisher, “Economists,” 11.

107 Irving Fisher, “Humanizing Industry,” Annals of the American Academy of Political and Social Science 82 (March 1919), 83.

108 Fisher, “Economists,” 11.

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And that was as good a place as any for an economic research center to start.

Fisher was too mercurial a thinker to devote himself to the laborious task of leading such an enterprise, but his diagnosis of the forces at play was acute. One of the few people who better understood the dynamics of the moment was Wesley Mitchell.

FISHER AND MITCHELL WERE ABOUT AS DIFFERENT as two hyper-educated white American men of roughly the same age could be. The oldest surviving child of a

Congregational minister, Fisher inherited his father’s crusading zeal but harnessed it to his own ambitions. After graduating as valedictorian of his class at Yale, he produced a doctoral dissertation under the mentorship of the sociologist William Graham Sumner and the mathematician-cum-physicist . The dissertation,

Mathematical Investigations in the Theory of Value and , fused the influences of his teachers. Fisher’s methodology would be conventional half a century later, but at the time it broke from the standards of a discipline still more comfortable with verbal reasoning than mathematical modeling. Not many of his colleagues understood the book, but they respected his analytical rigor. That earned Fisher renown across his profession, both in and outside the United States, and won him a post in Yale’s faculty of social and political science that he held for the rest of his career. It was a career defined by obsessions: , eugenics, conservation, dietary reform, financial consulting, and

American membership in the League of Nations, to name some of the most prominent.109

109 The scholarly literature on Fisher, for decades underdeveloped, is beginning to mature. Irving Norton Fisher, My Father Irving Fisher (New York: Comet Press, 1956) and Robert Allen, Irving Fisher: A Biography (Oxford: Basil Blackwell, 1993) offer fine details on Fisher’s life. William Barber, "The Fortunes of Political Economy in an Environment of Academic Conservatism: Yale University," in Breaking the Academic Mould: Economists and American Higher Learning in the Nineteenth Century, ed. William Barber (Middletown: Wesleyan University Press, 1988), 132-168 covers economics at Yale in

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If Fisher was a prophet, Mitchell was a pragmatist. A native of Illinois, Mitchell spent his childhood scraping just above poverty. In 1892, he became a member of the first class at the recently founded University of Chicago, where he fell under the influence of two of : John Dewey, who taught Mitchell’s first course in philosophy, and Thorstein Veblen, who did the same for economics. Many years later, when both Mitchell and Dewey were teaching at Columbia University, the younger man told his former teacher, “There is no one to whom I feel under heavier intellectual obligation than yourself.”110 But Veblen came close. Iconoclastic and pugnacious, Veblen was just beginning to attract attention from an economics profession that he devoted considerable energy to antagonizing. Like Fisher at around the same time, though for very different , Mitchell viewed the English economic tradition as admirable but limited, and the attempted German reformation of economics as already showing signs of exhaustion. But Mitchell channeled his heterodox views into meticulous empirical inquiries using skills he acquired under J. Laurence Laughlin, chair of Chicago’s economics department and a more conventional figure than Veblen. Out of this incongruous collection, Mitchell forged a synthesis distinctly his own.111

Fisher’s time, while Walter Friedman, Fortune Tellers: The Story of America’s First Economic Forecasters (Princeton: Princeton University Press, 2014), 51-85 summarizes Fisher’s business career.

110 Wesley Clair Mitchell to John Dewey, December 7, 1934, Box 8, Series 3, Wesley Clair Mitchell Papers, Rare Book and Manuscript Library, Columbia University (hereafter Mitchell Papers).

111 For Mitchell’s biography, consult Arthur Burns, ed. Wesley Clair Mitchell: The Economic Scientist (New York: National Bureau of Economic Research, 1952); Lucy Sprague Mitchell, Two Lives: The Story of Wesley Clair Mitchell and Myself (New York: Simon and Schuster, 1953); Mark Smith, Social Science in the Crucible: The American Debate over Objectivity and Purpose, 1918-1941 (Durham: Duke University Press, 1994), 49-83; and Jeff Biddle, "Social Science and the Making of : Wesley Mitchell's Vision," in The Economic Mind in America: Essays in the History of American Economics, ed. Malcolm Rutherford (New York: Routledge, 1998), 43-79. Though Laughlin’s training was conventional by the standards of his day, it is difficult to imagine his doctoral supervisor, the historian Henry Adams, taking on a Harvard economics PhD of a later generation.

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“Money economy” was the name he gave to the framework that integrated his disparate influences. The term came from the German economist Bruno Hildebrand, who used it in an 1864 essay to clarify the difference between a society where exchanges were conducted with money and one that relied on “natural economy” (i.e. or credit).112

According to Mitchell, Veblen later gave the phrase a much “broader and deeper meaning” than Hildebrand imagined.113 For Veblen, money was not just a tool that simplified a messy trading process. The introduction of money, Veblen argued, had reframed the perennial desire for distinction, turning the world into a site where profits could always be calculated, and extracted. Money also gave rise to an ensemble of institutions that molded economic life to fit a pecuniary logic—and made a category like

“economic life” thinkable in the first place. Economics itself, Veblen insisted, was an unknowing byproduct of this transformation.

Veblen had sketched an outline of money economy’s ascent, but he left the details blank. Here, Mitchell spotted an opportunity. Convinced by Dewey that economic theories must rest on solid empirical foundations, Mitchell set out to write the treatise that

Veblen never could. By Mitchell’s own admissions, his first two books, both detailed excavations of American monetary history, bore stronger evidence of Laughlin’s empirical rigor than Veblen or Dewey’s philosophical ambitions. By 1911, Mitchell was ready to undertake a project he judged much “larger in its scope and more penetrating in

112 Bruno Hildebrand, “Naturalwirthschaft, Geldwithschaft und Creditwirthschaft,” Jahrbücher für Nationalökonomie und Statistik 2(1864), 1-24.

113 Wesley Clair Mitchell, Lectures on Types of Economic Theory (New York: A.M. Kelley, 1949), 546.

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its interest.”114 He pictured a grand narrative centered on the triumph of money economy.

It would be much more than a simple work of economics. Plucking insights from across the sciences of society, it would capture the social world in its totality.

Mitchell’s vision was ambitious—too ambitious for him to pull off. He worked diligently but could never get his jumble of manuscript pages to come together. Instead, he spun off a piece of the larger enterprise into a standalone work on business cycles.

Discussions of what had been more frequently referred to as credit cycles—locating the phenomenon in the sphere of banking and —were common in the nineteenth century, and so were accounts of crises that punctured boom times.115 But the belief that a cohesive business world experienced rhythmic oscillations of prosperity and depression was newer, and still controversial. Business cycle theory was, at its core, an attempt to tailor economics to fit the dimensions of industrial society—a new kind of theory for a new kind of world. Even skeptics of that project were impressed by Mitchell’s dogged statistical research. He stuffed the book with details gathered by researchers in the United

States, Germany, England, and France on , bankruptcies, unemployment population movement, the quantity of money, equity markets, and the volume of trade (both in money and in mass).116

It was not the masterpiece he had hoped for, but it was enough to establish

Mitchell, still in his thirties, as one of the country’s premier economists. Soon, he was on his way to making himself, as a friend later remarked, "connected up with more different

114 Wesley Clair Mitchell to Lucy Sprague Mitchell, October 18, 1911, Box 11, Series 3, Mitchell Papers.

115 , The Golden Age of the Quantity Theory (Princeton: Princeton University Press, 1991), 41.

116 Wesley Clair Mitchell, Business Cycles (Berkeley: University of California Press, 1913).

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sorts of undertakings, statistical and economic, than anyone else in the country.”117 He left Chicago for Columbia, lured to New York by the promise of ready access to the objects of his inquiry. The work on money economy, he wrote to his future wife, required

“a chance to come into contact at first hand with the workings of pecuniary institutions.”118 He would stay in New York, and Columbia, for the rest of his career, minus a few interruptions.

The most significant of those gaps came when the United States entered the Great

War. Mitchell’s expertise made him a logical recruit for a government bent on maximizing military production, and his fate was essentially sealed when his friend

Edwin Gay—who, in his capacity as dean of Harvard Business School, had tried to hire

Mitchell away a few years earlier to run what became Harvard’s Committee of Economic

Research—received an appointment to the War Industries Board, one of the most important planning agencies in wartime Washington.119 Mitchell began work in February

1918, just a few months after being elected president of the American Statistical

Association. Few people in the country rivaled Mitchell’s command of the numbers flooding into and out of the government, but even he was overwhelmed. At one moment he might be asked to evaluate demand for lambskin, the next for canned meat, then for corn, and then on to another item in a parade of decisions only partially grounded in what he regarded as trustworthy data. Although the establishment of a Central Bureau of

Planning and Statistics in the summer of 1918 brought some order to this confusion,

117 John Cummings to Wesley Clair Mitchell, October 9, 1923, Box 8, Series 3, Mitchell Papers.

118 Mitchell to Mitchell, Oct. 18, 1911.

119 On Edwin Gay’s life, see Herbert Heaton, A Scholar in Action: Edwin F. Gay (Cambridge: Harvard University Press, 1952), and on the War Industries Board Robert Cuff, The War Industries Board: Business-Government Relations During World War I (Baltimore: The Johns Hopkins Press, 1973).

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Mitchell left government work frustrated. More records were available than ever, but they were, as he later wrote, “bewildering in their very abundance.”120 The war had been a triumph for the nation, yet this virtuoso of quantification was not sure how to measure his own contribution.

Mitchell channeled this ambivalence into his lecture at Richmond. Fisher had spoken in his capacity as head of the AEA; Mitchell gave his talk as a statistician. The border separating their subjects was porous, but a contrast in tone was clear from the outset. After congratulating members of the audience for their work in the war, Mitchell framed their recent experience as a test of statistics in government. It was a test he said they had failed, not due to individual incompetence but because of a bureaucracy overwhelmed by the scale of the challenge it faced.

Despite the bleak opening, Mitchell looked to the future with anticipation. True, the challenges ahead were substantial. “No thoughtful person can be satisfied by our present social regime” of “revolting inequality” and “frightful waste,” he taught his students at Columbia.121 In Richmond, he told the audience, “we could not keep social organization what it is even if we wanted to.”122 The dangers they faced were enormous in scope and unprecedented in complexity, muddying the line between natural and social, economic and political. Rapidly declining coal reserves left humanity’s future up to the invention of an alternative energy source, while the intensifying feud between capital and

120 Wesley Mitchell, “Review: Money and Foreign Exchange after 1914,” Journal of the American Statistical Association 18.142 (June 1923), 822.

121 Wesley Mitchell, “Development of Economics,” October 1917, Box 1, Series 1, Mitchell Papers.

122 Mitchell, “Statistics and Government,” 229.

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labor made it increasingly likely that discontented masses would no longer be restrained by democratic niceties.

In typically Progressive fashion, Mitchell thought both problems could be solved with “intelligent experimenting and detailed planning”—in short, “knowledge.” Mitchell could never match Fisher’s messianic fervor. He presented his argument in a humbler key, noting that for statistics to have the most effect they should be “presented concisely, in standardized form, both in charts and in tables” and “must be simple enough to be sent by telegraph and compiled overnight.”123 Try as he might, he could not stray too far from the details of his data, the materiality of his labor. What he could not know was how well this inclination would serve him in the decade ahead. Fisher had sketched an impressive vision of the world to come, but he would do little to bring it into being. The world already had plenty of prophets. What the times demanded were engineers.

FISHER AND MITCHELL WERE FAR from the only figures calling for economic research in the Great War’s aftermath. By the end of the 1920s, connoisseurs of data had an unprecedented array of sources to draw from, including Harvard’s Committee of

Economic Research, the Institute of Economics (later to become the Brookings

Institution), numerous bureaus of business research established within universities, and even more private organizations launched by corporations and unions. The government moved aggressively into the game as well.

All that was just in one country. Glancing around the world turned up an overwhelming profusion of knowledge production, especially around economics:

Germany and Austrian both had institutes for business cycle research (the latter run by

123 Mitchell, “Statistics and Government,” 235.

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Friedrich Hayek, who credited the idea to Mitchell); France the Institute of Statistics;

Great Britain the London and Cambridge Economic Service; Russia the Conjuncture

Institute, under the guidance of Nikolai Kondratieff; and the League of Nations its

Committee of Experts on Economic Barometers.124

The ubiquity of these associations makes their creation seem inevitable. But to contemporaries matters were far murkier. In 1912, economic research became an object of discussion among some of the most powerful men in the United States—J.P. Morgan,

Jr.; John D. Rockefeller, Sr. and Jr.; Theodore Vail, then president of AT&T; and Senator

Nelson Aldrich, key shaper of policy on such issues as tariffs and the nascent Federal

Reserve. (Aldrich was also Rockefeller Jr.’s father-in-law). These men wielded remarkable influence, yet they felt themselves besieged. Large portions of the public had turned against them, a dangerous situation in a democracy. Summarizing the consensus, the younger Rockefeller worried that “radical and ill-digested legislation” was

124 On the explosion of statistical knowledge that began in the nineteenth century, see Donald Mackenzie, Statistics in Britain, 1865-1930: The Social Construction of Scientific Knowledge (Edinburgh: University of Edinburgh Press, 1981); Ian Hacking, The Taming of Chance (Cambridge: Cambridge University Press, 1990); Theodore Porter, The Rise of Statistical Thinking, 1820-1900 (Princeton: Princeton University Press, 1988) and Trust in Numbers: The Pursuit of Objectivity in Science and Public Life (Princeton: Princeton University Press, 1995); Stephen Stigler, The History of Statistics: The Measurement of Uncertainty Before 1900 (Cambridge: Harvard University Press, 1990); Adam Tooze Statistics and the German State: The Making of Modern Economic Knowledge (Cambridge: Cambridge University Press, 2001); Alain Desrosières, The Politics of Large Numbers: A History of Statistical Reasoning, trans. Camille Naish (Cambridge: Harvard University Press, 1998); Mary Furner and Barry Supple, eds., The State and Economic Knowledge (Cambridge: Cambridge University Press, 1990); Michael Lacey and Mary Furner, eds., The State and Social Investigation in Britain and the United States, (Cambridge: Cambridge University Press, 1993); Dietrich Rueschemeyer and Theda Skocpol, eds., States, Social Knowledge, and the Origins of Modern Social Policies (Princeton: Princeton University Press, 1996); Kyung Deok Roh, “Stalin’s Think Tank: The Varga Institute and the Making of the Stalinist Idea of World Economy and Politics, 1927-1953” (PhD diss., University of Chicago, 2010); Caitlin Rosenthal, “From Memory to Mastery: Accounting for Control in America, 1750-1880" (PhD diss., Harvard University, 2012), and Eli Cook, “The Pricing of Progress: Economic Indicators and the Capitalization of American Life” (PhD diss., Harvard University, 2013).

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“rampant.”125 The battle against this assault would have to take place on many fronts, but all agreed on “the urgent need” for “systematic education of public sentiment in matters,

[sic] financial, economic, and industrial” by “some intelligent, well-conceived, non- political” organization.126

Luckily, AT&T supplied a model for this kind of endeavor. It already published economic research, including a monthly report on business conditions. These studies were part of Vail’s larger attempt to weaken the hold of “demagogues” on the popular imagination.127 Articles in newspapers, lectures across the country—he would entertain anything that might aid the cause. With both envy and admiration, Rockefeller, Jr. noted the results of this effort: AT&T “one of the greatest, if not the greatest, single in the country, is allowed to continue unmolested.”128 All parties recognized that others might challenge the notion that a group funded by icons of capital would offer a neutral perspective, but the exigency of their mission and confidence that honest scholarship could only aid their cause pushed them onward.

Still, the task confronting them appeared daunting. A memo on the proposed

“Bureau of Economic Research” coauthored by the Rockefellers and Vail revealed their anxiety. “The political, social and economic organization of society is the subject of general complaint,” they announced. “A feeling of unrest and of dissatisfaction with

125 John D. Rockefeller, Jr. to Frederick Gates, July 27, 1912, Box 18, Series E, Cultural Interests, Office of the Messrs. Rockefeller Records, Rockefeller Archive Center (hereafter Rockefeller Papers).

126 Theodore Vail, John D. Rockefeller, John D. Rockefeller, Jr., “Bureau of Economic Research,” August 21, 1912, Box 18, Series E, Cultural Interests, Rockefeller Papers.

127 Ellen Condliffe Lagemann, The Politics of Knowledge: The Carnegie Corporation, Philanthropy, and Public Policy (Chicago: University of Chicago Press, 1992), 53. Inderjeet Parmar Foundations of the American Century: The Ford, Carnegie, and Rockefeller Foundations in the Rise of American Power (New York: Columbia University Press, 2012) details the larger history of foundations in the United States.

128 Rockefeller to Gates, July 27, 1912, Rockefeller Papers.

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existing conditions is now prevalent throughout the country,” fueled by a climate of

“undiscriminating distrust and suspicion.” What was worse, they could see no basis for the attacks. Heroes of industry were transformed into villains, and “an unprecedented era of prosperity” became justification for some of the most ferocious labor battles the world had ever seen. Politics had somehow become detached from reality; the solution was to ground public debate in basic truths. “Full and exact information on social and economic industrial and commercial conditions” would restore balance to a democracy unhinged.129

With the outlines of the project set, responsibility for carrying out the proposal shifted to the Rockefeller Foundation, the family’s recently established philanthropic organization. Then the economists were brought in. Edwin Gay presided over a team that included Mitchell’s former teacher J. Laurence Laughlin. Less concerned than their patrons with protecting the interests of business, Gay and his colleagues focused on the details of the proposed institute. A lofty vision soon developed: an “Institute for

Economic Research” that would serve as “a laboratory for the ascertainment of facts and methods derived from a minute study of human society in its economic and social relations.”130 The economists might have sensed that the opportunity was right for an ambitious program. A few months earlier, the death in Ludlow, Colorado of more than twenty workers and their family members participating in a strike against Rockefeller- owned mining companies had become a national scandal.131 Perhaps a foray into scientific reform could redeem the family in the public’s eyes.

129 Vail, Rockefeller, and Rockefeller, Jr., “Bureau.”

130 Edwin Gay, “Institute for Economic Research,” August 27, 1914, Box 94, Series E, Cultural Interests, Rockefeller Papers.

131 On the origins of Ludlow and its aftermath, see Thomas Andrews, Killing for Coal: America’s Deadliest Labor War (Cambridge: Harvard University Press, 2008).

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Much rested on selecting the right subject for the Institute. An investigation of prices quickly emerged as the consensus pick for its first undertaking. Existing information was “notoriously incomplete and unreliable,” and a firm grasp of prices— everything from commodities and precious metals to wages and rents—was a prerequisite for almost any major research program the Institute would conduct. The subject had the added benefit of contributing to a better grasp of the issue skulking behind the

Rockefellers’ deepest concerns: “the problem of distribution,” which, the economists noted, “is bound to be increasingly pressing.” The problem was a deep one that could not be settled by statistics alone. But, they insisted, “the first requisite for its study is the statistical information which such a study could supply.” Empirical research of impeccable quality on such a controversial issue would have the added benefit of burnishing the Institute’s reputation for unbiased inquiry. Gay even had a candidate in mind to oversee the operation: Wesley Mitchell.132

Already, differences between the Rockefellers and the economists had surfaced.

Propaganda had no place in the institute envisaged by the economists; even popular outreach seemed out of place for an essentially academic organization. To be sure, the professors had pragmatic aspirations. Gay and his colleagues assured the Foundation that they, too, valued the “discovery or invention of practical devices conducing to industrial peace and welfare.”133 They wanted the Institute to narrow the gap separating the academy from the public, and hoped to turn the pursuit of knowledge into a mission with obvious benefits for the wider world. But the economists wanted the duty to change that world to fall on those who drew upon data the Institute supplied, not the Institute itself.

132 Gay, “Institute,” Rockefeller Papers.

133 Gay, “Institute,” Rockefeller Papers.

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The economists also encountered intellectual obstacles that had not occurred to the businessmen. A topic like prices that might appear narrow to the general observer raised a seemingly endless series of difficulties. Looming over them all was the challenge of examining in manageable form problems that were ultimately international in scope.

Before their first day on the job, the economists were urging the Rockefellers to imagine

“the more complete whole” a global exploration would disclose.134

Prior to reaching that happy resolution, more immediate complications would have to be overcome. Frederick Taylor Gates, Rockefeller Sr.’s most respected counselor, warned that the entire exercise would almost certainly be a waste of effort. The economic landscape was rife with conflict, and academics could not be trusted to navigate such hazardous terrain. Reliable testimony could only be elicited by a state agency that had the power to force testimony under oath; anything else would yield distortions that were harmless at best, actively misleading at worst. Far better, Gates advised, to return to the original plan of promoting “elemental principles of economics on which all sensible persons are substantially agreed,” the most important being that strikes and other tactics endorsed by “labor agitators” were the surest routes to lower wages. There was no need to embark on baroque explorations of prices when “simple, one syllable words, with simple, homely illustrations” could accomplish their goals with a fraction of the time, and cost. “Beware of an institute of economic research,” he concluded. “But create, if you can, a bureau of economic publicity, that for once shall be really popular and efficient.”135

134 Gay, “Institute,” Rockefeller Papers.

135 Frederick Gates to John D. Rockefeller, August 18, 1914, Box 94, Series E, Cultural Interests, Rockefeller Papers.

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Gates need not have worried. By the time Gay’s committee gathered their thoughts in the summer of 1914, war had broken out in Europe. Suddenly, detailed surveys of prices seemed less compelling to the Rockefellers. (Though not, of course, to the federal government, which summoned Gay to Washington.) The Institute was scuttled, an early and unlamented casualty of the Great War.

WHILE THE BATTLE RAGED OVERSEAS, the man charged with producing the monthly reports on business that Vail boasted about to his colleagues launched a project of his own. Malcolm Rorty had picked up degrees in mechanical and electrical engineering at Cornell two decades earlier, but economics became his passion after he was hired by AT&T.136 The life of a researcher soon came to feel constricting, and Rorty tip-toed into public activism. These forays into the public sphere brought him into contact with an especially nettlesome adversary. Nahum Stone was a statistician, socialist, translator of Karl Marx, and, in their first encounters, a persistent irritant to Rorty. Later, while perusing an issue of a socialist journal, Rorty came upon Stone again, this time as the author of a review dismantling a study on the controversial subject of national income. Impressed with the critical rigor displayed by a man he had once considered a lunatic radical, Rorty struck up a friendship with Stone. Though superficially a curious pairing, the two recognized each other as kindred spirits, happy to let a shared reverence for data trump clashing politics.

136 On Malcolm Rorty and the early years of the NBER, see Malcolm Rutherford, The Institutionalist Movement in American Economics (Cambridge: Cambridge University Press, 2011), 257- 288. Yuval Yonay, The Struggle Over the Soul of Economics: Institutionalist and Neoclassical Economists in America Between the Wars (Princeton: Princeton University Press, 1998) surveys American economics in this period.

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Soon, the onetime sparring partners were collaborators on a project blending their common interests. As Stone recalled many years later, at their second meeting Rorty grumbled that, despite the vast store of data researchers could draw upon, no consensus existed on “what part of the national income goes to each element of society.”137 Stone, as Rorty already knew, shared his frustration. Both also realized they were far from alone. What the United States needed, they agreed, was an institute that would conduct unbiased research on income inequality. Economists would be essential to the endeavor, but so would representatives from the country’s major interests, including finance, labor, industry, and agriculture. The undertaking would be demanding, but they knew just who to start with: Edwin Gay and Wesley Mitchell.

Gay and Mitchell signed up quickly, helped along by Rorty, for whom the endeavor had become something of an obsession. The economists would handle the scholarship, Rorty assured them, while he would take care of the money. Gay endorsed the program and pushed for them to base the organization out of the Chamber of

Commerce and the Research Division of Harvard Business School. Meanwhile, Rorty drafted board members and composed a memo outlining the institute’s goals and naming the group advocating its creation: the Committee on the Distribution of Income.

The Committee, Rorty explained, had emerged “to meet a growing demand for a scientific determination of the distribution of national income,” a question “of vital consequence in the consideration of almost every important political and social problem,”

137 N.I. Stone, “The Beginnings of the National Bureau of Economic Research,” in The National Bureau’s First Quarter Century, ed. Wesley Mitchell (New York: National Bureau of Economic Research, 1945), 6.

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especially those connected to funding and supplying the war effort.138 Rorty brandished the names of the economists and statisticians he had enlisted, promising that farmers, workers, and industrialists would all have roles. Together, they would ensure that the

Committee maintained the “freedom of action and impartiality of attitude” essential to its functioning.139 Given the institute’s manifold benefits, the small sum he asked for—

$10,000—appeared eminently reasonable. At least, that is how it seemed to Rorty.

Few shared his enthusiasm. The Committee fizzled, deprived of funding by widespread apathy and of Rorty’s energies by his volunteering for military service. Gay lobbied for the cause from his post at the Central Bureau of Planning and Statistics, where he urged Woodrow Wilson to preserve the Bureau in peacetime. The Bureau could provide the League of Nations with information on the United States, he enthused, and supply government officials with the data they needed to establish an effective national budget system that would bring order to a bewildering appropriations process.

Wilson shrugged off Gay’s entreaties. This was the same president, after all, who included no economists in his roster for the Peace Commission when he was preparing to leave for Versailles. Though Wilson added one, eventually, to quell the mild furor the exclusion had caused, Gay and his subordinates had no substantive influence over postwar planning.140

It was a disappointing resolution, though not an entirely surprising one. Gay and

Mitchell both ended the war feeling like an opportunity had slipped from their hands.

They had come so close, they were sure, to showing what a politics made statistical could

138 Quoted in Stone, “Beginnings,” 8.

139 Quoted in Stone, “Beginnings,” 9.

140 Heaton, Edwin Gay, 132.

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achieve. All they had needed was a little more time to launch their most ambitious projects—a national “business barometer” was one favorite candidate—and consolidate their gains.141 That was a comforting belief, and it became more comforting still when the

Central Bureau expired altogether, trimmed from the government’s ledgers by a legislature that viewed statistical inquiry as an easy target for postwar economizing.

Congressional apathy, repeated proclamations of neutrality, and the banality of data all might make it seem as if Rorty, Stone, Gay, Mitchell, and their fellow advocates for expanding economic research had embarked on a disinterested exercise in knowledge production. But the project’s appeal stretched across ideological divides not because it was antipolitical but because of how many different political interests it might serve. Two battles were going on simultaneously, and the coalitions changed with the subject under consideration. First, there was the question of whether research into social conditions was worth conducting in the first place. Then there was the related but distinct issue of what to do with the information after it was produced.

For those comfortable with the status quo, statistics offered the possibility of scientific confirmation for beliefs that could otherwise be dismissed as convenient prejudices. Working conditions might be harsh, but they were improving; inequality might be high, but expropriating the rich would raise median incomes by paltry sums; class struggle might seem like a panacea, but progress would only come when labor and capital acted as one, with assistance from impartial experts. Yet socialists could also make faith in statistics a cornerstone of their creed. Rorty would later quote an anonymous socialist critic (almost certainly Stone) who insisted that “socialists believe

141 See, for example, Warren Persons, “Construction of a Business Barometer Based Upon Annual Data,” American Economic Review 6.4 (December 1916), 739-769.

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that society as a whole, with hundreds of statisticians at its command” could “perform the function of and investing now performed by the individual capitalist more economically and wisely than at present.”142 Then there were those, like Mitchell, who saw the pursuit of unbiased information as both a necessary tool for states trying to govern a rapidly changing industrial world and a test case for democracy itself. If trained experts could not come to a consensus, who could? More optimistically, if those experts overcame clashing ideologies and reached agreement they would furnish a template for modern democratic debate.

Champions of all these positions came together at Chicago’s LaSalle Hotel in the last days of 1919. One year had passed since Mitchell and Fisher had issued their calls for a national institute of economic research. The demise of the Central Bureau dimmed their hope that the federal government would take up the task. But, with his military service completed, Rorty had thrown himself back into fundraising, and this time he found a more receptive audience. A majority of the first board of directors for the proposed institute had come to Chicago that December for the annual meeting of the American

Economic Association. They broke away from the larger conference to approve the bylaws for their organization. And so the NBER was born.

ECONOMIC STATISTICS WERE AS MUCH PRODUCTS of this moment as the

NBER itself. Railroads, telegraphs, and the other constitutive elements of the new corporate world made it possible to create new kinds of economic statistics, and a thriving financial sector created a potential market for this data among investors. AT&T had pioneered statistical research among corporations, but even critics of the system did

142 Malcolm Rorty, Some Problems in Current Economics (Chicago: A.W. Shaw, Co., 1922), 53.

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their part to document its effects: trade unions, for example, supplied the most important early data on unemployment. Newspapers and other private enterprises dedicated to tracking what was described as “economic life” proliferated; was launched in 1883, and Charles Dow’s index of stocks, including the famous Dow Jones

Industrial Average, followed soon after. Economic periodicals both reported on a community and helped bring one into being. By doing so, they endowed the statistics they presented with new, and greater, meaning.143

Economists gazed with anticipation at the vistas these statistics opened up. From

David Ricardo to Léon Walras, even economists with a knack for mathematics had often left no space for data in their theorizing. But in the second half of the nineteenth century, more and more economists, especially those of a historical bent, became convinced that statistics were an essential item in their instrumentalism. To their advocates, statistics would do more than add color and nuance to existing theories. In Mitchell’s words, statistics promised “to reorganize the framework of our science.”144 Economic theory would be transformed by revolutions in economic knowledge.

Economists could foresee grand restructurings of their discipline because its foundations were already shaking. Although the intellectual history of economics in the early twentieth century is still too often depicted as the unfolding of a marginalist revolution launched in the 1870s, this account caricatures a much more complex process.

It is true that for political economy’s traditional concern with cycles of production and

143 Friedman’s Fortune Tellers is the best available treatment on this history in the United States, but as will become clear later the interpretation offered here differs in several respects. Also see Thomas Stapleford, The Cost of Living in America: A Political History of Economic Statistics, 1880-2000 (New York: Cambridge University Press, 2009) and Yarrow, Measuring America.

144 Wesley Mitchell, “Economics, 1904-1929,” 1931, Box 38, Series 5, Mitchell Papers.

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consumption and the distribution of value among social classes, some who would later be termed marginalists substituted a problematic centered on individual economic agents relying on prices to maximize utility and, albeit unintentionally, arrive at market equilibrium. But, especially in the United States, the field was characterized much more by the extent of its pluralism than by the force of any consensus. Institutional structures, natural resource management, the mechanics of empire, the intricacies of finance, and racial improvement were only some of the subjects that vied for disciplinary dominance with more familiar work now gathered under the misleading title of .145

World War I inaugurated a new stage in this history by providing American economists with an invaluable prospective client: the United States government. Neither

Wilson nor his successor, Warren Harding, paid much attention to economists, but the federal bureaucracy was porous, and enthusiasm for economics spread throughout its ranks. Hoover was an invaluable ally, but far from the only one. The Department of

Agriculture, for example, became a stronghold for the discipline after it established the

Bureau of in 1922.146

145 Donald Stabile, “Veblen and the Political Economy of the Engineer: The Radical Thinker and Engineering Leaders Came to Technocratic Ideas at the Same Time,” American Journal of Economics and Sociology 45.1 (1986), 41-52; Mary Morgan and Malcolm Rutherford, eds., From Interwar Pluralism to Postwar Neoclassicism (Durham: Duke University Press, 1998); , How Economics Forgot History: The Problem of Historical Specificity in Social Science (New York: Routledge, 2001); and Erik Grimmer-Solem, The Rise of Historical Economics and Social Reform in Germany, 1864-1894 (New York: Oxford University Press, 2003) provide some resources for a counter-narrative to ’s ascent.

146 On the BAE, and the Department of Agriculture more generally, see Ellis Hawley, “Economic Inquiry and the State in New Era America: Antistatist and Positive Statism in Uneasy Coexistence,” in Mary Furner and Barry Supple, eds., The State and Economic Knowledge: The American and British Experiences, 287-324; Jess Gilbert, “Eastern Urban Liberals and Midwestern Agrarian Intellectuals: Two Group Portraits of Progressives in the New Deal Department of Agriculture,” Agricultural History 74 (2000), 162-180 and “Agrarian Intellectuals in a Democratizing State: A Collective Biography of USDA Leaders in the Intended New Deal,” in The Countryside in the Age of the Modern

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The economists descending on Washington understood that their options were shaped by an object that had emerged within living memory: the immense, bureaucratically administered corporation. In the closing decades of the nineteenth century, the corporation had sidelined its chief rival, the small, family-owned firm that had dominated before the Civil War. During what the historian Jefferson Cowie has called “the age of incorporation,” ready access to capital, an exploding population, an accommodating government, and the development of a national communications and transportation infrastructure provided outstanding conditions for expansion.147 Savvy businessmen seized the opportunity, gobbling up competitors and firms along the supply chain. Managerial posts multiplied, along with novel types of economic calculation.

Revealingly, both Andrew Carnegie and John D. Rockefeller, Sr. had started out their careers as clerks. When the mindset of an accountant was yoked to the productive capacity of what advocates proudly labeled the modern corporation, the antebellum era that had given rise to free labor ideals of independent proprietorship receded into an irretrievable past.

Together, the reformation of economic life brought about by the triumph of the corporation and support from a national government invigorated by wartime achievements made a new kind of economics possible. Nobody was a keener observer of these developments than Wesley Mitchell. Spurred on by support from both the state and the business community, “the statistical movement,” he announced, was “proceeding at a

State: Political Histories of Rural America, eds. Catherine Stock and Robert Johnston, (Ithaca: Press, 2001); Richard Kirkendall, Social Scientists and Farm Politics in the Age of Roosevelt (Columbia: University of Missouri Press, 1966); Richard Kirkendall, Social Scientists and Farm Politics in the Age of Roosevelt (Columbia: University of Missouri Press, 1966); and Sarah Phillips, This Land, This Nation: Conservation, Rural America, and the New Deal (Cambridge: Cambridge University Press, 2007).

147 Jefferson Cowie, The Great Exception: The New Deal and the Limits of American Politics (Princeton: Princeton University Press, 2016), 35.

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pace which leaves many of us rather breathless.”148 Empirically oriented economists credited their advances not to luck but to the exigencies of the age. Mitchell drew up a lengthy catalogue of “social needs” that had thrust statistics into prominence: “the increasing interdependence among individuals and nations, the expansion of marketing areas, the efforts to use government as a common agency for promoting welfare, and above all the imperative need of mobilizing all economic resources in wartime.”149 Just one “modern large-scale business” absorbed and generated data at a rate that dwarfed anything its predecessors could boast. Governments, from municipal to national, required information on a dizzying array of issues: “agriculture, mining, fisheries, forestry, foreign and domestic commerce, railroads, shipping, labor, banking, business combinations, education, public lands, patents, law enforcement, child welfare, public health, weights and measures, income and corporation taxes, coinage, paper , and many other matters.” With so many topics jostling for attention, the market for statistical inquiries had boomed. Mitchell’s list of potential consumers included “philanthropic foundations, universities, libraries, business enterprises, labor unions, governmental agencies, and hundreds of individuals from different walks of life.”150

The details might seem overwhelming, but Mitchell detected an underlying logic.

“As society becomes more highly integrated,” he explained, “it becomes increasingly necessary to know about other groups.” 151 Forces that knit society closer together also

148 Mitchell, “Economics in a Changing Social Order.”

149 Wesley Mitchell, “Fifty Years as an Economist,” Talk to the Economics Club, Columbia University, New York, May 11, 1945, Box 27, Series 9, Mitchell Papers.

150 Mitchell, “Fifty Years.”

151 Wesley Mitchell, “Money Economy and Economic Efficiency,” 1923 or 1924, Box 34, Series 6, Mitchell Papers.

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produced the cascade of statistics that made its components seem so distinct. But there was a way to uncover the higher unity that could be lost in the avalanche of numbers.

Increasingly sophisticated statistical research techniques could break apart the data and stitch it back together, synthesizing otherwise disparate records and revealing the larger tendencies behind them. With those mysteries exposed, all that remained was to use these insights to address the problems they revealed. Knowledge and mastery were intertwined from the outset. As Mitchell later explained, the goal of all his efforts was to establish a solid grounding “for more intelligent efforts to control.”152

One nation supplied an especially striking illustration of the dynamics at work.

“Probably,” Mitchell speculated, “the United States collects and publishes more square yards of statistics per capita than any other country in the world.”153 The same powers that turned the country into an industrial giant during the closing decades of the nineteenth century also made it a leader in the development of statistical knowledge. But the United States was distinctive in this narrative only for its timing. Americans charted a path that others were already following, and the rest of the world was sure to come along eventually.

All of these weighty trends converged around figures that would otherwise appear innocuous: economists buried in their studies of production and exchange, wages and profits, commodities and prices. They created a novel kind of knowledge, less sweeping than the majestic theorizing of their predecessors, but more precise. Theirs was a world,

152 Wesley Mitchell, “Research into Business Cycles,” Talk to Rockefeller Foundation Luncheon, March 19, 1928, Box 5, Series 2, Mitchell Papers.

153 Wesley Mitchell, “Institutes for Research in the Social Sciences,” 1929, Box 39, Series 5, Mitchell Papers.

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as Mitchell put it, of “compilers, copyists and computers,” housed in new laboratories of research.154 The trends converged, in short, around the staffers of the NBER.

MITCHELL AND HIS ALLIES FELT THEY WERE moving with the tides of history.

Before the war, the most insidious fear was that industry could no longer be managed.

Booms and busts were fiercer and more frequent than ever, class conflict more intense, and technological change accelerating at a rate that was both thrilling and terrifying.

Modernity had unleashed intimidating powers, but nobody knew if they could be controlled—until wartime planning supplied a model validated by success on the battlefield. The state was slimmed down after the war, but the style of governance pioneered during the conflict offered a program that could be adapted to meet the challenges of peace.

Social scientists believed that if anybody was going to master the new order it should be them. Mitchell proudly, though inelegantly, labeled the 1920s “The Social

Science-Conscious Decade.”155 While experts grew more confident in their mastery of discrete fields, they hoped that their efforts would cohere into something larger.

According to Mitchell, “the several social sciences are gaining a clearer conception that they have a common task—the understanding of human behavior—and that they must pool their resources to attain the best results.”156 Better still, it looked like there would be more resources to pool. Money had begun to sluice through foundations designed to

154 Mitchell, “Institutes for Research.”

155 Wesley Mitchell, “Institutes for Research.”

156 Wesley Mitchell, “Institutes for Research,” 1929, Box 39, Series 5, Mitchell Papers.

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promote inquiries that transcended disciplinary boundaries, most prominently at the

Rockefeller-supported Social Science Research Council.

All the social sciences were buoyed, but none floated higher than economics.

Although other disciplines were useful, economics had a special claim on the public’s attention: it could unlock the secrets of prosperity. The goal was an old one, reaching back centuries, but the forms it took had changed significantly with time. Defining

“prosperity” was a way of settling a political argument over what constituted the common good disguised as a dispute over terminology.

It was clear that the United States produced more stuff—more commodities, more consumer items, more manufactured goods, even more people—than ever before. But how to measure the contribution this made to the general welfare provoked sharp disputes. No official estimates of national income existed, and even if they had economists regarded the statistic as a distorted reflection of social welfare. That suspicion had deep roots. As one nineteenth-century political economist had warned, “what we call prosperity is on the contrary a national calamity” if “it creates proletarians.”157 Decades later, Arthur Pigou, Alfred Marshall’s student and successor as of political economy at Cambridge, argued “that any transference of income from a relatively rich man to a relatively poor man of similar temperament, since it enables more intense wants to be satisfied at the expense of less intense wants, must increase the aggregate sum of satisfaction.”158 For the same that in general tended to decline, wealth also suffered , meaning that an extra dollar offered greater

157 J. de Sismondi, “Comment les manufactures contribuent-elles au boneheur national?” in Études sur l'économie politique, vol 2. (Paris, 1837), 331.

158 Arthur Pigou, The Economics of Welfare (London: Macmillan and Company, 1932), available at www.econlib.org/library/.

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benefits to the poor than to the rich. At a time when it was widely agreed that, in the words of Irving Fisher, economic inequality was “the most important subject in political economy,” Pigou’s caveat was significant.159

That did not stop advocates of national income measurement—including, despite his caveats, Pigou—from trumpeting the statistic’s potential use. According to Pigou, national income was “not an academic toy but a practical instrument of great power designed for service in the concrete solution of social problems.”160 Yet the subject had to be approached with a keen sense of its limits. In the words of an introductory economics textbook published in 1926, while obtaining reliable information on inequality was “important,” knowledge of national and per capita income was merely “of interest.”161

As for collective prosperity, Mitchell and his likeminded colleagues recast it as a stage in the business cycle, the study of which had become an obsession at the NBER.

Familiar though the concept would become, in the 1920s the business cycle was still a novel conceit. As noted above, in the nineteenth century, theorists had concerned themselves more with the “credit cycle,” a phenomenon they located not in society at large but in the smaller world of finance. Measures of bank lending, interest rates, commodity prices, and the money supply were the crucial indices. What connection these fluctuations had to variables like employment remained opaque.

159 Irving Fisher, “Principles of Economic Science,” 1901-1902, Box 38, Folder 524, Fisher Papers.

160 A.C. Pigou, “Review: Principles of Economics,” Economic Journal 17.68 (December 1907), 533-534.

161 Fred Fairchild, Edgar Furniss, and Norman Buck, Elementary Economics, vol. 1 (New York: The Macmillan Company, 1926), 274, 290.

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Theories suggesting potential links abounded. One prominent hypothesis named the sun as the culprit: sunspots affected the harvest, which set off a process that led to oscillations in finance. Others kept the blame in the heavens, but shifted culpability to

Venus, whose eight-year cycles around the sun were alleged to form “the natural, material current which drags upon its surface the lagging, rhythmically changing values and prices with which the economist is more immediately concerned.”162 The German economist , by contrast, highlighted discrepancies between agricultural and industrial cycles. Socialists homed in on contradictions as well, but their analysis made the divergence between individual profits and collective production into the chief causal factor. (Marx himself never developed a unified theory of the cycle.) Less radical observers attributed fluctuations to the caprices of investor psychology, sometimes linked to changes in the death rate, on the assumption that bereavement made for gloomy economic actors.163

And there were still more, including popular discussions where vaguely defined

“hard times” could be attributed to everything from the machinations of scheming politicians to the whims of Providence. Despite the number of explanations available, theories of the credit cycle, or its slightly grander cousin “the commercial cycle,” remained a minority interest through the nineteenth century. There was much talk of

“crisis,” but the structure that could fit these periodic breakdowns—sometimes confined to single industries, at other times more widely diffused—into a larger framework had not yet appeared.

162 Henry Moore, Economic Cycles: Their Law and Cause (New York: The Macmillan Company, 1914), 149.

163 Ellsworth Huntington, World-power and Evolution (New Haven: Yale University Press, 1919), 29.

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By the onset of the twentieth century, however, the business cycle had emerged as the leading candidate for the job. Reflecting on recent trends in his field, one economist noted in 1924 that after the war theories of the cycle had undergone “a growth almost miraculous.”164 Mitchell’s voluminous writings on the subject marked him as the leading authority on the topic in the United States, and arguably the world. As he did with the progress of the social sciences more generally, Mitchell depicted growing concern with the business cycle as a predictable response to structural changes in the country and technical innovations within the academy. A proliferation of companies that claimed to be able to forecast business fluctuations offered one marker of this larger process. More inspiring, to the civic minded, was an investigation launched at Hoover’s request by the

NBER into business cycles and unemployment, finally making a connection that had eluded prior generations of economic thinkers. If the business cycle could be understood, then it could be predicted for profit, but it might also be tamed for the .

There was, in this certainty, something comforting about the cycle. Bad times would come, but theorists of the cycle promised that prosperity would soon follow and that coordinated action might even abolish the cycle altogether. Modern life need not feel like a railroad charging ahead with breaks cut; it could be gentler, more like waves undulating rhythmically before washing onto shore. Beneath the remorseless cycling of vertiginous expansions careening into ruinous panics, economists discerned a calming regularity: equilibrium, the logic by which the industrial world regulated itself.165

164 George Soule, “Economics—Science and Art” in The Trend of Economics, ed. (New York: Alfred A. Knopf and Company, 1924) 365.

165 On modernity as uncontrollable change see Henry Adams, The Education of Henry Adams: An Autobiography (Boston: Houghton Mifflin Company, 1918), 379-390, 474-488 and Reinhart Koselleck, Futures Past: On the Semantics of Historical Time, trans. Keith Tribe (New York: Columbia University Press, 2004).

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BUSINESS CYLE THEORISTS TAPPED into a hunger for efficiency that was at the heart of Progressivism. Liberalism and the maximization of utility had been joined together for more than a century, but Progressives turned the determination of utility into a question for experts to adjudicate. “He didn’t believe in democracy; he believed simply in government,” H.L Mencken observed of Theodore Roosevelt, in a line that applied to many of TR’s followers.166 Faith in endless expansion appeared lost to a time before the frontier closed and overproduction seemed a constant threat. In the twentieth century, trusting to the free play of economic forces fell somewhere between an outdated fantasy and an unaffordable luxury. Waste was the enemy, conservation the ideal.167 In 1912,

Roosevelt described “national efficiency” as both the goal of his entire agenda and “the principle of conservation widely applied.”168 This was also the heyday of Taylorism and, during the war, of nationwide drives for maximizing , both of which Hoover and his acolytes later drew upon in their campaign to rationalize government. Students of the business cycle could easily fit their subject into this larger fixation. “From the viewpoint of society,” Mitchell insisted, “booms are wasteful, crises are costly, and depressions are periods of wide-spread suffering.”169 It was a problem ripe for what

166 Quoted in Eric Foner, The Story of American Freedom (New York: Norton, 1999), 154.

167 On the turn to efficiency, see Charles Maier, “Between Taylorism and Technocracy: European Ideologies and the Vision of Industrial Productivity in the 1920s,” Journal of Contemporary History 5.2 (1970), 27-61; Samuel Hays, Conservation and the Gospel of Efficiency: The Progressive Conservation Movement, 1890-1920 (Pittsburgh: University of Pittsburgh Press, 1979); and Jedediah Purdy, After Nature: A Politics for the (Cambridge: Harvard University Press, 2015), 153-187.

168 Theodore Roosevelt, “The New Nationalism” in Selected Speeches and Writings of Theodore Roosevelt, ed. Gordon Hunter (New York: Vintage, 2013), 98.

169 Wesley Mitchell, “Accountants and Economics with Reference to the Business Cycle,” Journal of Accountancy 35.3 (March 1923), 165.

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economists specialized in: exacting the greatest returns from scarce resources. Or, more simply, economizing.

By the 1920s, a new vocabulary for discussing these issues had developed, a language filled with terms like economic community, economic world, economic situation, economic life, economic environment, economic machine, the economic structure of society, and economic commonwealth. The economy was part of this group, but its definition was vague. In 1893, one political scientist had complained “that the

English language contains no generally accepted word to describe the conscious activity of human beings in the joint satisfaction of their individual desires” and suggested that

“economy” might be an acceptable translation for what the Germans called

“Wirtschaft.”170 But before deploying the concept he felt compelled to ascertain its

“constituent elements”—“first, the surface of the earth, with its annuity of heat, light, air and moisture, and second, the human beings who inhabit this surface”—and then moved to an explication of Socrates on the duality of human nature and the essence of the self.171

Less metaphysical definitions of the economy avoided these difficulties, but the term’s meaning was contested and unstable. Bearing older connotations, it could still be used to explain a style of economic management, as when the Progressive journalist

Herbert Croly wrote, “a system of national economy appears to make for a higher level of economic vitality than a system of international economy.”172 Almost inevitably,

“economy” appeared as the second item in a pair: for instance, village economy, town

170 Lindley Keasbey, “The Economic State,” Political Science Quarterly 8.4 (December 1893), 602.

171 Keasbey, “The Economic State,” 602.

172 Herbert Croly, The Promise of American Life (New York: The Macmillan Company, 1914), 235.

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economy, slave economy, capitalist economy, planned economy, , national economy, world economy, and money economy (a favorite subject at the

NBER). In these formulations, an economy was not a natural feature of collective life. It was something that had to be created through the extension of commerce and subsequent remaking of state and society. “The economic life of a politically organized independent people,” a textbook published in 1889 observed, “is often called a national economy,” but without “independent political unity” supported by “an independent state” no economy could be said to exist.173 The question was not, for example, what kind of world economy existed, but whether the idea of a “world economy” made sense. Assuming that it did, debate then turned to whether an infrastructure had emerged that justified the term’s use.

These complexities help account for the concept’s marginality in the early decades of the twentieth century. References to various kinds of economy appeared in economic tracts, especially from authors who had studied in Germany, but they were sporadic. Often, scholars dodged the challenge of translation altogether by deploying the original German (Wirtschaft, Volkswirtschaft, Weltwirtschaft, and so on).

Economists did not refrain from discussing “the economy” because they had little to say. If anything, they had too much—a profusion of concepts offered a variety of competing frameworks, each of which could provide larger meaning for local problems.

It was a time when a typical introductory economics textbook could include, in addition to discussions of , chapters on “the economics of railroad transportation,” “industrial monopoly and its control,” “population,” “immigration,”

“problems of the working day,” “the organized labor movement,” and, often by way of

173 Ely, Introduction, 22.

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conclusion, “socialism.”174 When economists reached for those bigger structures, they were far more likely to use “society” than “economy.”

It might seem that the “industrial world” and “business cycle” referred to by so many figures—including radical socialists, academic economists, and hustling economic forecasters on Wall Street—were synonyms for what later generations would call “the economy.” But a closer look at what fell within the purview of industrial reveals a more complicated relationship. There was no agreement on what constituted the industrial system’s key metrics, or on how to understand the relationships among them.175 A hodgepodge of sources was available—Mitchell listed “bank clearings, railway gross earnings, number of idle cars, imports and exports, coal, copper, pig-iron, and steel , shipments of grain, , live stock” as some of the most prominent—with no obvious way of determining priority among them. With so much conflicting information to draw upon, it could seem as if each supposed expert on the cycle had an idiosyncratic favorite: the physical volume of business, perhaps, or wholesale prices, or unemployment. National income seemed far too crude a measure to serve as a proxy for industrial rhythms, even if reliable data on its fluctuations were available. When subjects ranging from alcohol consumption to the marriage rate could be counted as part of the cycle, it was impossible to know where to stop.176

174 See, for example, Fred Fairchild, Edgar Furniss, and Norman Buck, Elementary Economics, 2 vols. (New York: The Macmillan Company, 1926).

175 Soule, “Economics—Science and Art,” 365.

176 See, for instance, ’s construction of “the pulse of the nation,” in Unemployment: A Problem of Industry (London: Longmans, Green, and Co., 1912), 38-67.

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But economists could switch in an instant to complaining about what they did not have. Data on vital issues like corporate profits were frustratingly meager. Research that was supposed to endow vague references to booms and busts with empirical clarity could muddy things even further. With a few adjustments to the formula, prosperity could turn into depression and reverse itself just as quickly.

There were also questions about the boundaries of the industrial system that statistics could not resolve. The most aggressive proponents of business cycle theory still acknowledged the limits of their investigations. Mitchell insisted that his analysis was

“primarily” confined “to a certain type of business enterprise.”177 Oil was one “very peculiar” sector that fell outside the purview of business cycle theory. Even more important was agriculture.178 Both had profound influences on prosperity, but they moved at rhythms that could not be reduced to those of business. Cycles appeared when a cohesive business community moved as one. Although the reach of that community had expanded, it was still far from universal. That point was driven home during the 1920s, when boom times for much of the nation coincided with a disastrous period for its farmers.

Agriculture’s deep history in economic thought made it an especially significant exclusion from the industrial sphere. Ecology and economy had grown out of a shared etymological root, the Greek oikos. Sciences of commerce and cultivation had flourished alongside each other since the eighteenth century, often within the same text. They continued to do so in Mitchell’s time, when one of America’s leading agricultural

177 Wesley Mitchell, “Financial Processes in Revival. The Psychological Factor. Construction Enterprises. The Petroleum Industry,” January 28, 1928, Box 5, Series 2, Mitchell Papers.

178 Mitchell, “Financial Processes.”

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journals was founded by an economist and titled Land Economics. Agricultural economics, and subdisciplines like “forest economics,” were recognized elements of the larger economics discipline. This was a moment when the country’s leading economic journal could dedicate a roundtable to “farm management.”179 By the turn of the twentieth century, it seemed to many economists, especially in the United States, that the discipline was poised between two alternative paths: becoming a science of resource management or a science of money.

Contemporaries described this as a choice between a focus on efficiency and . As Mitchell explained, “Efficiency is the theme of , which deals with the relations of man to nature, with the physical input and output of industrial processes, with use values. Scarcity is the theme of institutional economics, which deals with the relations of man to man, with pecuniary outgo and income, with scarcity values.”180 Veblen had done much to spread this view within the profession, but similar claims had also become a staple of socialist tracts. There, socialism was depicted as the mode of production where profit seeking would finally be subordinated to the exigencies of production—where engineers would replace businessmen. More straitlaced economists were inclined to restrict their field to issues circling around scarcity, but whether they would succeed in that effort was by no means obvious. In these disputes, more than the outlines of the industrial system were unclear. The contours of collective life—the divisions separating the social, economic, and natural—threatened to collapse into each other.

179 “Farm Management: Round Table Discussion,” American Economic Review 3.1 (March 1913), 96-113.

180 Wesley Mitchell, “ on Institutional Economics,” American Economic Review 25.4 (December 1935), 643.

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One object that crossed these borders, and had become an obsession for many, was racial purity. Fisher provided a particularly striking example of this prevalent fixation with race. A staunch advocate of promoting “racial economy,” Fisher viewed economic prosperity and racial vitality as inseparable elements of national wealth.181 His embrace of eugenics put him within the mainstream of a profession composed of men like Edward Ross, one of the founding members of the American Economic Association and coiner of the phrase “race suicide”—a racialized variant on political economy’s traditional concern with managing population.182 Some of population’s centrality had been lost in recent decades, but it had plenty of advocates, including Mitchell, who believed that “population must be restored as one of the basic factors in economic theory.”183 In this environment, race was a standard part of economic analysis, and of the social sciences more generally. (The country’s first publication devoted to international relations theory was titled Journal of Race Development, and it counted Veblen among its contributors.)184 Debates over eugenics were standbys of introductory textbooks, where endorsements of sterilization and other tools for what one described as “getting rid of an inferior population” were common.185 From this perspective, race was just another factor determining potential productivity. Statistics themselves were bound up with eugenics:

181 Irving Fisher, A Report on National Vitality: Its Wastes and Conservation (Washington: Government Printing Office, 1909), 52.

182 Edward Ross, “The Causes of Race Superiority,” Annals of the American Academy of Political and Social Science 18 (July 1901), 88. For more, see Thomas Leonard, Illiberal Reformers: American Economics in the Progressive Era (Princeton: Princeton University Press, 2016).

183 Mitchell, Types of Economic Theory, vol. 2, 764.

184 Robert Vitalis, “Birth of a Discipline,” in David Long and Brian Schmidt, eds., Imperialism and Internationalism in the Discipline of International Relations (Albany: State University of New York Press, 2005), 159-182 details racism’s constitutive role in the early years of international relations theory.

185 Fairchild, Furniss, and Buck, Elementary Economics, vol. 1, 318.

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biometric analyses of populations relied on advanced statistical methods to justify eugenicist conclusions, employing techniques that later migrated to economics.

Fisher’s promotion of racial economy was part of his quintessentially Progressive fixation with efficiency. In a report for Theodore Roosevelt’s Conservation Commission,

Fisher listed three areas in need of economizing: “physical environment,” “social environment,” and “human nature.”186 Physical efficiency included the conservation of land, water, and other natural resources; social efficiency the management of the era’s major public controversies; and human efficiency the maximizing of individual potential through promotion of hygiene, both of the body and the soul.187 The body was a persistent source of concern for Fisher, who warned that “social diseases” like syphilis posed “one of the gravest of the menaces to national efficiency.”188 Guarding the purity of rivers, regulating the working day, and (in Fisher’s words) “the unsexing of rapists, criminals, idiots, and degenerates generally” were all aspects of his campaign to maximize national efficiency.189

General concerns with population management often took specific shape around questions relating to immigration. , then early in his career as the founding chairman of Princeton’s revealingly titled “Department of Economics and Social

Institutions,” used a 1912 presidential address at the American Economic Association to

186 Fisher, National Vitality, 14.

187 Fisher, National Vitality, 14.

188 Fisher, National Vitality, 3.

189 Fisher, National Vitality, 129.

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explore the subject.190 Offering an analysis he portrayed as “wholly impersonal and without race prejudice,” he declared that an influx of immigrants endangered the delicate balance between population and resources that he claimed was essential to maintaining prosperity.191 Fetter’s colleagues did not always play so coy on race. As Rorty noted, the belief that a nation “striving for an advanced civilization must preserve a substantial unity of races” enjoyed widespread acceptance.192

Immigration, though, was only one way that global trends framed national conflicts. The extent to which business cycles rippled across national borders sparked pitched debate among economists, as did the related question of whether nationally bound research institutes could hope to grasp forces that transcended their humbler domains of inquiry. Fear that excess production would lead to crisis without the opening of new markets abroad preoccupied economic and political elites, while calculating wartime reparations propelled economic statistics into the forefront of some of the period’s most vicious international disputes.193

Economists trying to untangle the relationship between national and international economic trends also faced a statistical problem. Estimating flows across borders, whether of commodities or currency, had been a standard part of commercial life for hundreds of years. Tariffs supplied the federal government with its chief source of

190 Derek Hoff, The State and the Stork: The Population Debate and Policy Making in US History (Chicago: University of Chicago Press, 2012) 44-71 supplies background on Fetter’s address.

191 Frank Fetter, “Population or Prosperity: Annual Address of the President,” American Economic Review 3.1 (March 1913), 13.

192 Rorty, Some Problems, 118.

193 On interwar reparations, Michael Hogan, Informal Entente: The Private Structure of Cooperation in Anglo-American Economic Diplomacy, 1918-1928 (Columbia: University of Missouri Press, 1977) and Melvyn Leffler, The Elusive Quest: America's Pursuit of European Stability and French Security, 1919-1933 (Chapel Hill: University of North Carolina Press, 1979) remain valuable.

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funding, and customhouses provided a site for tabulating the value of export and imports.

Through the early years of the twentieth century, production of statistics on international trade dwarfed what was available on the domestic side. Economists believed this imbalance had warped the popular understanding of foreign trade’s significance. As one textbook speculated, although “the domestic trade of the United States is much larger in volume and hence presumably more significant to the welfare of the nation than the foreign trade,” because statistics on exchanges across borders were more readily available, “the course of our foreign trade is eagerly followed by business men, and as a result popular emphasis is wrongly placed.”194 National taxation on income and corporations would help alleviate this discrepancy—and shift the bulk of the state’s revenues to the domestic front—but it was not easy to shrug off the accumulated weight of habits built up over generations.

THE NBER WAS BUILT TO produce the kinds of statistics that would illuminate the domestic market until then cloaked in relative obscurity. Its charter announced that the organization had been founded

To encourage, in the broadest and most liberal manner, investigation, research, and discovery, and the application of knowledge to the well- being of mankind; and in particular to conduct, or assist in the making of, exact and impartial investigations in the fields of economic, social, and industrial science, and to cooperate with governments, universities, learned societies, and individuals.195

194 Fairchild, Furniss, and Buck, Elementary Economics, vol. 1, 530.

195 Quoted in Solomon Fabricant, “Toward a Firmer Basis of Economic Policy: The Founding of the National Bureau of Economic Research” (working paper, National Bureau of Economic Research, 1984), 7.

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These aspirations could seem mundane, but they would have been inconceivable without earlier changes of extraordinary magnitude. The transformations were both conceptual and structural, and they blurred the boundaries demarcating political, economic, social, and natural. A new era was dawning, and the stafffers at the NBER believed their role— experts capable of providing disinterested counsel to leaders of the indispensable nation—had earned them a vital part in the drama ahead. Economists had already been called upon for their advice on a host of novel issues. A partial list from Fetter included

“banking, immigration, railroads, public , labor, accident compensation, [and] tax reform.”196 And their advice on these matters was sought both at home and abroad, from

Mexico and to and .197

Yet the work that still needed to be done in the United States carried special importance. Economists were convinced that they could supply essential guidance on the pivotal debates of their time—debates over conserving natural resources, disciplining the industrial system, controlling the population, and grappling with income inequality.

These were the great challenges of modern society, but they could be solved. And who better to solve them than the foremost authorities of the planet’s most powerful country?

The NBER’s founders can seem both pedestrian and grandiose, bureaucrats and academics stuffed with delusions of grandeur, trying to save the world one national income estimate at a time. Of course, their dreams went unrealized. But their accomplishments were almost as impressive, and more surprising. A distinctive assemblage of concepts and institutions had made an organization like the NBER

196 Fetter, “Economists and the Public,” 15.

197 Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900-1930 (Durham: Duke University Press, 2003).

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possible: a politics centered around the exigencies of society, an economics attuned to the particularities of industry, a planet haunted by the prospect of revolution, and a nation confident that it was about to assume its rightful place as global leader. With remarkable speed, however, a different set of forces appeared that fostered another way of governing the social world, and understanding it. Just a few years earlier, American political economy had revolved around the standard, a government funded chiefly by tariffs, and a decentralized banking system. By 1920, the had broken down, the

United States had instituted a national income tax, and the Federal Reserve System provided the country with the foundation of what could become a .198 A new kind of governance that had recently not even been plausible soon came into sight: an economic program that used monetary and fiscal policy to promote a steadily rising national income.

Much intellectual, institutional, and political work remained to be done before that vision could be made into a plausible, or thinkable, economic agenda. Economists would do much to make that order seem tractable. In the process, they helped reframe the study of economics, recast the meaning of prosperity, and reorient politics around an object that took on the importance that society had possessed for more than a century.

Though a novel concept, this object had a familiar name: “the economy.”

198 On the elements of this trinity, see , The Gold Standard and the Great Depression (New York: Oxford University Press, 1992), 29-99; Ajay Mehrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877-1929 (Cambridge: Cambridge University Press, 2013); and James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913 (Ithaca: Cornell University Press, 1989), Alan Meltzer, A History of the Federal Reserve: Volume 1, 1913-1951 (Chicago: University of Chicago Press, 2004), 19- 126, and J. Lawrence Broz, The International Origins of the Federal Reserve System (Ithaca: Cornell University Press, 2009). The subtlest treatment of economic theory in both the United States and Europe in the decade that followed is David Laidler, Fabricating the Keynesian Revolution: Studies of the Inter-war Literature on Money, the Cycle, and Unemployment (Cambridge: Cambridge University Press, 1999).

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Chapter 2: Charting the Economic Seas

A “GIFT TO THE TWENTIETH CENTURY,” and to humanity—that was the goal.199

Dismissing laissez-faire as a relic of the eighteenth century, Herbert Hoover called for a philosophy, and a government, that responded to the demands of a new age. As Hoover explained it, the United States had pioneered a social order that transcended the division between capitalism and socialism. American traditions—above all, its individualism— could be preserved in the twentieth century, but only if they were reinvented.200

There was little time to wait. A wave of unrest swept across the country in 1919, the year a fifth of the country’s labor force went on strike and a string of anarchist bombings provoked a crackdown dubbed the Red Scare.201 Even more disconcerting for partisans of order was the turmoil spreading outside the nation’s borders. “Every wind that blows carries to our shores an infection of social disease from this great ferment,”

Hoover said in 1920 during a short-lived campaign for the presidency.202 He returned to

199 Edward Eyre Hunt to November 19, 1920, Box 5, Edward Eyre Hunt Papers, Archives, (hereafter Hunt Papers).

200 On Hoover’s political vision and its connection to his economic agenda, see Barry Karl, “Presidential Planning and Social Science Research: Mr. Hoover’s Experts,” Perspectives in American History 3 (1969), 347-409; Ellis Hawley, “Herbert Hoover, the Commerce Secretariat, and the Vision of an ‘Associative State,’ 1921-1928,” Journal of American History 61.1 (June 1974), 116-140 and “Herbert Hoover and Economic Stabilization, 1921-22,” in Herbert Hoover as Secretary of Commerce, ed. Ellis Hawley (Iowa City: University of Iowa Press, 1981), 43-79; Evan Metcalf, “Secretary Hoover and the Emergence of Macroeconomic Management,” Business History Review 49.1 (Spring 1975), 60-80; Guy Alchon, The Invisible Hand of Planning: Capitalism, Social Science, and the State in the 1920s (Princeton: Princeton University Press, 1985); William Barber, From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921-1933 (Cambridge: Cambridge University Press, 1988), esp. 1-64. Charles Maier remains the most astute analysis of the larger dynamics at work here, on which see Maier, “Between Taylorism and Technocracy: European Ideologies and the Vision of Industrial Productivity in the 1920s,” Journal of Contemporary History 5.2 (1970), 27-61 and Recasting Bourgeois Europe (Princeton: Princeton University Press, 1975).

201 Robert Zieger and Gilbert Gail, American Workers, American Unions: The Twentieth Century (Baltimore: Johns Hopkins University Press, 2002), 37.

202 Herbert Hoover, “Report of the Institute Banquet,” Engineering and Mining Journal, February 21, 1920, 497. This was the period when Franklin Roosevelt called Hoover “a wonder,” adding, “I wish we

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the subject two years later in a 1922 booklet-cum-manifesto, American Individualism.

“Without question,” he wrote, “there exists, almost all over the world, unprecedented disquietude at the functioning of government itself.”203

The most pressing concerns circled around a particular cluster of issues. Not the old challenges of preserving liberty, promoting virtue, or upholding social order, where tested strategies for managing unrest were available. These new questions centered on the state’s attempt “to chart its relations to the economic seas.” 204 “Our Government’s greatest troubles and failures are in the economic field,” Hoover insisted: “These seas are new and only partly discovered.”205

Before the explosion of industrial development that had remade the country, the government could afford to maintain a distance from much of what Hoover called

“economic life.”206 According to Hoover, the emergence of leviathan corporations forced a new relationship between state and citizen, just as it had society and the individual, turning the government into both the greatest protector and the greatest threat to Hoover’s cherished individualist tradition. The most pressing issues of the time were economic, and the United States needed a strategy for navigating this unmapped territory. Resolving this dilemma would ensure domestic tranquility and enable Americans to take up their rightful place at the head of a new global order.

could make him President of the United States. There could not be a better one.” Roosevelt did not broadcast that view widely, and he wound up campaigning against Hoover’s Republicans as the vice- presidential nominee of the Democratic Party. Arthur Schlesinger, The Age of Roosevelt: The Crisis of the Old Order, 1919-1933 (Boston: Houghton Mifflin Company, 1957), 82.

203 Herbert Hoover, American Individualism (New York: Doubleday, Page & Company, 1922), 48.

204 Hoover, American Individualism, 51.

205 Hoover, American Individualism, 51.

206 Hoover, American Individualism, 39, 52.

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The goal was clear; how to reach it was not. What theories could make sense of economic problems that no previous generation had confronted? How should the government respond to these discoveries? What about the nation’s corporate leaders? Or its workers? Hoover wanted to replace political conflict with a consensus of experts, but in 1920 there was no expert consensus on how to steer through the “economic seas.”

Intellectual confusion, political unrest, and economic upheaval braided together in this disorienting moment.

Just a few years later, that had all changed. While the twenties roared, Hoover trumpeted the intellectual discoveries he claimed had remade American life—its economics, its politics, and society itself. And he attributed much of this success to the economists whose research had guided the project—none more so than Wesley Mitchell and his team at the NBER. Shortly after becoming Secretary of Commerce, Hoover told

Mitchell, “we need you to come to Washington to give us a hand.” “If this Department is to become the economic interpreter to the American people (and they badly need one) it has simply got to be stiffened up with stronger economic operators.” Proposing that

Mitchell serve as general economic adviser to the department, Hoover offered an expansive portfolio: postwar debt negotiations, German reparations, Argentine exchange policy, and the “100 domestic troubles in which this department must give some voice” would fall under Mitchell’s purview.207

Mitchell declined the appeal, but he remained close to the energetic Secretary.

“Your efforts to utilize whatever help economics can render to government,” he wrote to

207 Herbert Hoover to Wesley Mitchell, July 29, 1921, Box 10, Series 3, Mitchell Papers.

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Hoover, “seem to me one of the most promising developments of our time."208 Though

Mitchell did not join the administration, he became the intellectual leader of its attempt to lay the foundations for a new kind of economic governance. In a mutually reinforcing cycle, the NBER’s studies made them into a candidate for Hoover’s support, Hoover’s support legitimated the NBER in the eyes of donors, more funding led to more studies, and so on. The titles alone indicate the expansion of the NBER’s ambitions. Beginning with a two volume study of Income in the United States, it moved to a report on Business

Cycles and Unemployment commissioned by Hoover, then widened its purview to include subjects like The Growth of American Trade Unions, 1880-1923 and Migration and Business Cycles, brought these issues together in an updated version of Mitchell’s

1913 work on Business Cycles, and concluded the decade with a sweeping survey, again conducted at Hoover’s request, of Recent Economic Changes.209 As the phrase’s recurrence in this list suggests, business cycle theory provided the unifying framework for the project. Before the war, Mitchell’s notions had been the stuff of academic monographs; now they had become the basis for an attempt to remake politics.

The shift was made all the stranger by the persistent dispute among economists over whether business cycles existed at all. That was the position endorsed by Irving

Fisher, who believed the vicissitudes of business activity were no more cyclical than the

208 Wesley Mitchell to Herbert Hoover, August 3, 1921, Box 10, Series 3, Mitchell Papers.

209 This research was more likely to take the nation as the boundary of its inquiry than earlier studies of the business cycle. This chapter reflects that narrowing of horizons, not because intellectual advances were constrained to the United States, but because its focus is on how policymaking was understood level during this inward turn. For a suggestion of how, for example, discoveries made in the handling of German reparations might have (but, from the available evidence, did not) shape policy back in the United States, see Tooze, “Imagining National Economies,” 219.

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fortunes of a gambler over a long night at the casino.210 The swings Mitchell attributed to the logics of modern industry, were, according to Fisher, fluctuations around a mean produced by changes in the amount of money coursing through society. The divergence between these judgments was immense: different theories for understanding the vicissitudes of economic life, different statistics for measuring these shifts, and different tactics for responding to this instability. Where Mitchell dwelled on the almost unfathomable complexity of a business cycle thick with institutional peculiarity, Fisher offered the bracing simplicity of an equation known to economists as the quantity theory of money; where Mitchell’s countercyclical policies reserved a substantial role for private institutions with public aspirations like the NBER, Fisher’s required the support of a quasi-public institution that often appeared more like the agent of private interests—the

Federal Reserve.

Money and the business cycle—this was not macroeconomics as it would be known among economists in just a few decades, but these were the debates that made the birth of macroeconomics possible, and with it a politics preoccupied with governing the economy. Mitchell and Fisher themselves shared more than a superficial appraisal suggests. Both linked deep statistical research with a commitment to building larger theories that could make sense of their ever increasing collections of data; both fastened on money as the decisive causal factor in their analyses; both struggled to reconcile

210 Irving Fisher, “Our Unstable Dollar and the So-Called Business Cycle,” Journal of the American Statistical Association 20.150 (June 1925), 191. On Fisher’s economics more generally, see Mary Morgan, “The Technology of Analogical Models: Irving Fisher’s Monetary Worlds,” Philosophy of Science 64.4 (December 1997), S304-S314; Robert Diamand, “The Fall and Rise of Irving Fisher’s Macroeconomics,” Journal of the History of Economic Thought 20.2 (June 1998), 191-201; , “Irving Fisher (1867-1947),” American Journal of Economics and Sociology 64.1 (January 205), 19-42; and William Barber, “Irving Fisher of Yale,” American Journal of Economics and Sociology 64.1 (January 2005), 43-55.

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systems that took the nation as their implicit frame with the realities of an international economic order dominated by the United States; and both wanted to provide theories policymakers could use to guide their increasingly complicated work. A generation later, the collection of tools for governing the American economy—a phrase that became more familiar as this decade progressed, but had not yet assumed its later centrality—included pieces from both of their schemas while taking all of neither. Unthinkable without these earlier interventions, the program that emerged was something neither Fisher nor

Mitchell could have envisioned.

In the 1920s, however, all that lay ahead. To understand the complicated interplay of political, economic, and intellectual history during this period, it helps to split the discussion into two parts, and then consider how the pieces fit together. On one side lies the effort to understand and manage the business cycle led by Hoover and Mitchell; on the other is the related but distinct attempt to define the role of the Federal Reserve under conditions its founders had never anticipated. Both subjects have attracted substantial academic commentary, but they are usually treated as discrete. That division reflects the different institutional and intellectual histories at work, but it undermines the attempt to grasp the tactics and strategies that directed—or obstructed—economic policymaking as a whole.

When brought together, these histories become a study of how ideas gain traction in policymaking. Both Hoover’s Commerce Department and the Federal Reserve are often seen as quintessential examples of technocratic policymaking, but the experts themselves were acutely aware of how little they knew. In 1920, that included the

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national income of the United States. That was where the NBER decided to begin its research.

THE NBER TEAM HAD GOOD REASONS FOR starting with national income. An intimidating assortment of problems confronted those who would appraise the country’s worth. The economist and statistician Willford King described the problem in 1915 when he published his path-breaking findings on national income. “Everyone is aware that wealth has increased,” he wrote, but “in the present time of searching inquiry into the fundamentals of economics and politics, people wish to know more than this.”211 They wanted precision, clarity, and rigor, where before they had been content with hazy generalizations.

Those standards were difficult to meet when economists were forced to rely upon such inadequate data. As the esteemed Harvard economist Allyn Young complained in

1917, statistics for the national income of the United States were “largely guesswork, and their meaning and significance uncertain.”212 King himself drew upon a hodgepodge of sources for his 1915 estimates—scattered reports on wages, surveys of workers, records from Wisconsin state income tax returns, and federal income tax returns (limited in number, since a constitutional amendment permitting the establishment of a federal income tax had only passed in 1913).

The most immaculate data would still have left researchers with a litany of

211 Willford King, The Wealth and Income of the People of the United States (New York: Macmillan Company, 1915), 1.

212Allyn Young, “Do the Statistics of the Concentration of Wealth in the United States Mean What They Are Commonly Assumed to Mean?” American Economic Review 7.1 (March 1917), 155.

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conceptual difficulties. National income was a lackluster proxy for King’s ideal statistic.

King described the ultimate object of his inquiry as “social wealth,” but he believed that object could only be judged by the utility it generated, and money value was at best an

“indirect route” to this more robust (yet unattainable) metric.213 In one of the book’s most fascinating moves, however, King offered a qualified defense of his investigation. “In recent times, when a larger and larger percentage of social wealth is becoming economic,” he argued, “measures of economic wealth become better and better criteria of the actual social wealth of a community or nation.”214 Society was being economized, which made new types of measurement valuable and transformed the objects of economic inquiry.

Then there was the persistent question of how much national income mattered, when the real subject of debate was not the total amount of wealth but its distribution.

“The average wealth would be greatly increased by the addition of a few dozen billionaires to our population,” King noted, “but this might give little more shelter to the homeless or food to the hungry.”215 Then there were the difficulties of quantifying the effects of population growth, a statistic that was easier to grasp than national income and had a much-debated relationship to social welfare. King believed resource constraints placed insuperable limits on potential prosperity, and he thought ignoring those constraints ensured catastrophe. His portrait of a society straining at the edge of resource exploitation doubled as a thinly concealed representation of the United States in 1915: a nation where the frontier had closed, where railways and canals brought distant markets

213 King, Wealth and Income, 11.

214 King, Wealth and Income, 12.

215 King, Wealth and Income, 50.

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together, where factories churned out goods with unprecedented speed, where energy was generated with the most modern technologies, where a powerful state ensured protection against enemies foreign and domestic—according to King, that was a nation where rising population diminished general welfare, and that was the contemporary United States.

A thoroughgoing progressive, King sought an answer to this challenge in a powerful state acting in tandem with the latest developments in social science. He insisted that poverty would only be abolished if the country raised barriers against “low- standard alien invaders” and resolved to “eliminate the section of our population remaining, from the reproductive standpoint, on the low plane of their four-footed ancestors.”216 Americans had become familiar with the consequences of inaction:

“riotous strikes, wholesale murders, dynamite outrages and that most contemptible of all modes of attack, sabotage.”217 Prosperity was a fragile thing, and the secret to its maintenance was not government management of the national income, at least not directly, but the less abstract work of ending “the absurd folly of breeding great troops of paupers, defectives and criminals to be a burden upon organized society.”218

Fevered denunciations of reprobate foreigners and native-born degenerates were common enough to attract little commentary from King’s reviewers. Some quibbled with his analysis, and it was often suggested that he demanded more of his sources than they could provide. But the significance of research into the distribution of income helped excuse King’s sometimes implausible conclusions. “We know just enough about the real

216 King, Wealth and Income, 254.

217 King, Wealth and Income, 253.

218 King, Wealth and Income, 249.

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facts to be certain of their tremendous import,” remarked Allyn Young.219 The North

American Review stepped back from academic disputes to explain why King’s topic deserved their consideration. Anticipating Hoover by several years, the journal noted that

“[i]ntelligent citizenship” now required “something like accurate knowledge of the facts underlying those economic conditions concerning which so many questions are asked and so many assertions are made.”220 King’s study was an early response to this demand, but it was one raindrop in what would become a flood.

PESCIENCE HAS ITS REWARDS, and King’s pioneering efforts made him a logical choice when the NBER was searching for assistance on their study of national income.

King joined a team, becoming one of four authors credited in the NBER’s first publication, Income in the United States: Its Amount and Distribution, 1909-1919. The book was not King’s work; it was the NBER’s. That distinction was evident from the outset. The study replaced King’s occasionally fulminating tone for a style that Mitchell, not without pride, called “a cross between a census report and a treatise on statistical method.”221 Brandishing the diversity of their supporters like a weapon, the authors opened by declaring their hope “to aid all thoughtful men, however divergent their views

219 Allyn Young, “Review: Nearing’s Income; King’s Wealth and Income,” Quarterly Journal of Economics 30.3 (May 1916): 575.

220 “Review of The Wealth and Income of the People of the United States,” North American Review 202.719 (October 1915), 605.

221 Wesley Mitchell, “Annual Report of the Director of Research,” February 5, 1923, 6, available at http://www.nber.org/chapters/c12272.pdf.

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of public policy, to base their discussions on objective knowledge.”222 They followed this statement of intent with a list of the Bureau’s directors, a group that included academics, government officials, and , along with representative for banking, agriculture, industry, and labor.

More important than the sponsors were the statistics. Enumerating thirteen kinds of sources they drew upon—ranging from rent surveys conducted by AT&T to appraisals of crop value issues by the Department of Agriculture—the authors depicted their conclusions as the best that could be arrived at with data that left “much to be desired.”223

Despite the imperfections, continued accumulation of income tax data supplied the most reliable evidence researchers had yet acquired on income and its distribution. That held true outside the United States as well. Placing their effort in a global frame, Mitchell and his co-authors cited studies in Germany and England that relied upon income tax data, and offered a special commendation to Australia for launching a 1915 income

“census.”224 When combined with the cataloguing of source material, these myriad examples of the quantifying spirit suggested a project that was both possible (because of new evidence) and necessary (to avoid falling behind in a global race).

But the authors could not escape the politics of their project, a fact they embraced at some moments and denied at others. While their account of total national income conveyed the impression that their conclusions were chiefly a subject of interest to specialists, they recognized that income distribution had urgent political relevance. The

222 Wesley Mitchell, Willford King, Frederick Macauley, Oswald Knauth, Income in the United States, its Amount and Distribution, 1909-1919 (New York: Harcourt, Brace and Company, 1921), v.

223 Mitchell et al, Income in the United States, ix.

224 Mitchell et al, Income in the United States, viii.

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report formalized this separation, devoting one chapter to measuring the size of the income and another to its distribution. Though preferring to cast themselves as impartial scientists, recognition of the politics behind their empiricism broke into the text: the exclusion from their calculations of unpaid labor performed by women in the household, for instance, which they admitted could have led to an “appreciable” overstatement of recent economic progress.225 Less troubling, they believed, was their refusal to account for declining natural resources. Though actions taken today might reduce wealth in the future, they did not believe that should force a reduction in their evaluations of the present.

Mastery of data also justified academic interventions with obvious political relevance. Most notable on this front was their assault on a thesis advanced by the Italian economist and sociologist , who had argued that income distribution obeyed iron laws that reflected the logic of economic life.226 Pareto had developed this argument by using the logarithmic scale, a tool that allowed researchers to plot shifts in the rate of change, rather than just tracking overall levels. (Fisher had devoted an article to explaining the value of this strange device to his colleagues in 1913 for a journal published by the American Statistical Association.227) The device makes large numbers more tractable than they would otherwise be, but for that reason, the NBER authors charged, it endowed a jagged pattern with deceptive uniformity. Pareto’s mistake did not

225 Mitchell et al, Income in the United States, 58.

226 Vilfredo Pareto, Cours d’Economie Politique (Geneva: Droz, 1896).

227 Irving Fisher, “The ‘Ratio’ Chart for Plotting Statistics,” Publications of the American Statistical Association 15.118 (June 1917), 577-601.

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oblige economists to discard this “powerful instrument.”228 The logarithmic scale would remain in the economist's toolkit, and it would be taken up after World War II by a later generation more concerned with analyzing the growth of national income than its distribution.

In the 1920s, the hierarchy was reversed. Reviews often described the book as a study of income distribution rather than (as the report presented itself) of both total overall income and its distribution. As one explained matters, “popular writers and speakers are likely to be more interested in the inequality of distribution of income than in its total.”229 If the NBER’s staffers wanted to reflect the nation back to itself, there was no guarantee that the image would be attractive. Those who marshaled the Bureau’s evidence to indict the United States were, Mitchell later wrote, “dealing with inconsistencies, foibles, and superficialities in our scheme of institutions, which are rather cruelly exposed when one sums up in definite figures society's own records of its economic valuations.”230

Academics praised the NBER for navigating politically charged territory. One review judged the book “a landmark in the progress of statistical research”; another claimed that “it ranks with the best that American economic scholarship is producing”; yet another deemed it an “excellent work” that supplied “the most reliable source of

228 Mitchell et al, Income in the United States, 124.

229 Arthur Bowley, “Review: Income in the United States,” Quarterly Journal of Economics 37.3 (May 1923), 511.

230 Wesley Mitchell, The National Bureau’s First Quarter-Century, (New York: Academy Press, 1945), 16.

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information” on its subject.231 The NBER did not escape criticism, especially from those still unsatisfied with the available data on national income, but even those strictures were restrained.

Overcoming apathy presented a more difficult challenge. Despite the academic plaudits, the study had a tepid reception in the wider world, putting further pressure on the Bureau’s already shaky finances. Disappointing public support had forced the Bureau to rely upon a small number of large downers, not the broad base of contributors they had intended. Even then, the funding never seemed to be enough, and straitened conditions in the early years left NBER staffers feeling that the organization was, as Malcolm Rorty complained, “operating almost from hand to mouth.”232 In 1922, Mitchell warned that without “a considerable addition to our income we shall be forced to shut up shop.”233

Faith in the academic merit and ultimate relevance of their work brought the

NBER to the attention of a key figure in the Rockefellers’ philanthropic empire. After receiving a PhD in psychology and education from the University of Chicago, Beardsley

Ruml had sought refuge from the academy with a career in the nation’s expanding network of philanthropies.234 He followed a yearlong stint at the Carnegie Corporation with a lengthy tenure as head of the Laura Spelman Rockefeller Memorial. Ruml

231 Arthur Bowley, “Review,” 510; , “Review: Income in the United States, Its Amount and Distribution, 1909-19. By the Staff of the National Bureau of Economic Research, Incorporated; Wesley C. Mitchell; Willford I. King; Frederick R. Macauley; Oswald W. Knauth; Willford I. King,” Journal of the American Statistical Association 18.139 (September 1922), 411; J.C.S., “Review: Income in the United States, 1909-19. By Wesley C. Mitchell; Willford J. King; Frederick R. Macaulay; Oswald W. Knauth,” Journal of the Royal Statistical Society 85.4 (June 1922), 635.

232 Malcolm Rorty to H.S. Learned, October 28, 1922, Box 51, Folder 538, Series 3, S Laura Spelman Rockefeller Memorial, Rockefeller Archive Center (hereafter Spelman Papers).

233 Wesley Mitchell, “Annual Report of the Director of Research,” February 6, 1922, 9, available at http://www.nber.org/chapters/c12271.pdf.

234 Patrick Reagan, Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst: University of Massachusetts Press, 1999), 140-167 details Ruml’s biography.

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considered the NBER “one of the most important influences in the establishing of opinion in this country,” and he persuaded the Rockefeller to back up that opinion with

$25,000 of annual funding.235

Dipping into Rockefeller coffers supplied its own set of problems. “It is a moral certainty,” the New Republic journalist and NBER director George Soule informed

Malcolm Rorty, “that if Rockefeller should be the main supporter of the Bureau, and the

Bureau should at any time issue figures which labor leaders for any reason wished to discount, the charge would be made that these figures were the result of Rockefeller influence.”236 Soule still encouraged accepting the contribution, but only after its potential costs were tallied. Rorty conveyed these anxieties to Ruml, writing in the letter agreeing to the offer that he could take this move because it had received unanimous support from the NBER’s “radical directors.”237

After the war, it had become more difficult to argue that an organization like the

NBER was, as one skeptic cautioned the Rockefellers when they were considering their own economic research institute, a “merely academic and futile instrument for gathering useless data.”238 But not impossible. Even Hoover recognized that the government would not take up the kinds of inquiries that occupied the NBER. Writing to Edwin Gay,

Rorty’s predecessor as head of the NBER, Hoover said he could not foresee “any

235 Beardsley Ruml to Raymond Fosdick, “Memo to Mr. Fosdick: NATIONAL BUREAU OF ECONOMIC RESEARCH,” October 20, 1922, Box 51, Folder 538, Series 3, Spelman Papers.

236 George Soule to Malcolm Rorty, October 18, 1922, Box 94, Folder 143, Series E, Rockefeller Papers.

237 Malcolm Rorty to Beardsley Ruml, November 4, 1922, Box 51, Folder 538, Series 3, Spelman Papers.

238 Jerome Davis Greene to Starr Murphy, February 16, 1921, Box 18, Folder 95, Series 2, Rockefeller Papers.

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possibility that Congress would for a moment entertain the necessary appropriations to make such studies” of national income.239 Conditions were more amenable to an enterprise like the NBER than they had ever been, yet that still did not make for a welcoming environment. Not even a masterful treatise on a subject widely viewed as possessing existential importance for American democracy could accomplish that feat.

But economic crisis would.

HERBERT HOOVER WAS NOT THE FIRST government official to call for investigations of economic activity, but he pushed that project farther than any of his predecessors. Even before taking office as Secretary of Commerce, he initiated a “survey of waste” overseen by the Federated American Engineering Societies. The project took on new urgency in 1921. Prices had climbed across the world during the war, and the

United States offered no exception to the trend. Military expenditure had surged, but neither overall output nor taxation rates had matched the pace of its rise. Inflation made up the difference, escalating at a speedy clip through 1919. When demobilization commenced, interest rates soared. Concerned about ensuring financial liquidity during the transition to peacetime and maintaining gold reserves at a legally mandated minimum, officials at the Federal Reserve pushed the discount rate—the interest it charged commercial banks—to 7 percent, and kept it there until May 1921. Meanwhile, prices collapsed, taking production down with them and sending unemployment skyrocketing.

While Americans worried about malign foreign influences fomenting unrest at home, the rest of the world grappled with the consequences of a vicious deflationary cycle

239 Herbert Hoover to Edwin Gay, October 20, 1921, Box 234, Commerce Papers Series, Herbert Hoover Presidential Library (hereafter Hoover Papers).

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unleashed by the United States.240

All this, however, only became clear in retrospect. The government was swarming with social scientists—in Hoover’s Commerce Department, but also in the Department of

Labor, the Federal Trade Commission, the Census Office, and the Department of

Agriculture, not to mention the Federal Reserve. Yet the statistical blindness that Mitchell had complained about during the war continued in peacetime. There were no official measurements of national income or output, the government had only recently begun producing a general cost of living index, and estimates of unemployment differed by millions.241

The downturn was more than a year old when Warren Harding became president, but his inaugural address urged Americans to resign themselves to their circumstances.

“Perhaps we shall never know the old level of wages again,” he said. “We must face a condition of grim reality, charge off our losses and start afresh.”242 While Fed officials denied responsibility for falling prices, anxiety continued to mount as they struggled to comprehend a slump whose causes remained opaque and whose extent they lacked statistics to measure. Meanwhile, calls for action grew louder. “The purpose and place of the Government in expediting economic recovery is raised in Washington every hour of

240 Tooze, The Deluge, 353-373 ; , “World War I and the Postwar Depression: A Reinterpretation Based on Alternative Estimates of GNP,” Journal of 22.1 (July 1988), 91-115; and James Grant, The Forgotten Depression: 1921: The Crash That Cured Itself (New York: Simon & Schuster, 2014).

241 Joseph Duncan and William Shelton, Revolution in United States Government Statistics, 1926- 1976 (Washington, D.C.: Government Printing Office, 1978) and Udo Sautter, Three Cheers foe the Unemployed: Government and Unemployment Before the New Deal (Cambridge: Cambridge University Press, 1991) 151-154.

242 Warren Harding, “Inaugural Address,” March 4, 1921, available at http://www.presidency.ucsb.edu/ws/?pid=25833.

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the day,” Hoover said in the summer of 1921.243

Though Hoover rejected demands for wage and controls, he did not believe these policies exhausted the government’s potential role. He hoped to center responsibility for economic management at Commerce, but soon encountered resistance from rival bureaucrats, hostile business leaders, and government officials worried that his more ambitious programs ran afoul of antitrust laws. The combined force of this opposition compelled Hoover to abandon his most ambitious proposal: an economic advisory council drawing its members from the country’s major industrial and trade organizations.

By now, the scale of the downturn was becoming apparent, and Hoover devoted his energies to crafting a recovery program. The resulting agenda emphasized three goals: promoting spending among private businesses, slashing waste, and publicizing economic statistics. Hoover waged this struggle on multiple fronts: the introduction of a monthly

Survey of Current Business produced by the Census Bureau; bureaucratic reorganization designed to streamline policymaking; and a seemingly unending parade of conferences. A summit called the Conference on Unemployment that took place in the fall of 1921 became a crucial front in this larger war.

Woodrow Wilson’s administration had hosted two similar meetings—the first and second “Industrial Conference”—but Hoover and his followers were keen to distinguish their version from its predecessors. Reflecting on the effort, Hoover factotum and secretary for the Conference on Unemployment Edward Hunt depicted it as having found a successful middle ground: not so open that it tempted participants to upset debate with

243 Herbert Hoover, “Constructive Forces in the Solution of the Housing Problem,” in U.S. Department of Commerce, Commerce Reports, vol. 3 (Washington DC: Government Printing Office, 1921), July 16, 1920, 274.

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grandstanding, but transparent enough that it might “educate the country.”244 Where representatives of labor had withdrawn from Wilson’s first conference, Hoover’s sequel had closed with a “moving valedictory” delivered by Samuel Gompers, head of the

American Federation of Labor.245 Hunt admitted that “labor was baited” during the conference, and he skipped past areas where the supposedly diverse group was decidedly homogenous: out of about one hundred attendees, the conference included one African-

American man and four women, all white.246 But Hunt was too busy celebrating what he considered the meeting’s signal achievement to note these deficiencies.

One break from the Wilson administration escaped Hunt’s notice: the shift in title from “Industrial” to “Unemployment.” He was clearer about the transition elsewhere, writing that, as a result of the Conference, “‘Public opinion for the first time in American history has been focused on unemployment.”247 From Hunt’s perspective, the decision might have seemed too obvious to require much comment. The conference was prompted by a business depression whose most visible manifestation was a rising number of jobless

Americans. Hoover wanted to cleanse the nation of waste, and unemployment was the greatest waste of all.

Following the conference, Hoover’s team set out to institutionalize their gains by launching a Standing Committee on Unemployment charged with ascertaining the causes of the crisis and preventing future downturns. Responsibility for distilling the latest

244 Edward Eyre Hunt, “Speech to the Industrial Engineers,” October 25, 1921, Box 58, Hunt Papers.

245 Hunt, “Speech to the Industrial Engineers.”

246 Hunt, “Speech to the Industrial Engineers.” On the conference’s demographics, see Clements, Herbert Hoover, 134.

247 Edward Eyre Hunt, “Memorandum,” January 20, 1930, Box 37, Hunt Papers.

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findings on the business cycle fell to the NBER, which had provided four members for an

“Advisory Committee” to Hoover’s conference. Political time moved at a faster rate than the stately pace the NBER was accustomed to, and Mitchell complained that their work was rushed, but its release attracted all the publicity the Bureau’s supporters had hoped would greet their investigation of national income. Hunt judged the outpouring of commentary “astonishing.”248 Published by McGraw Hill under the title Business Cycles and Unemployment, the report sold over twelve thousand copies and more than eight hundred editorials lauded the effort, with even more articles providing a less partisan evaluation of its contents.249

The study benefitted from exquisite timing. Prices had stabilized, and a recovery from the short but sharp downturn was underway by the time Hoover assembled his conference. Though it was not yet clear, the combination of severe decline followed by a return to prosperous conditions for much of the country—along with a determined campaign of state repression that accompanied the Red Scare—undercut the radical menace that had once loomed so ominously. Hoover and his supporters declared victory over the business cycle. Much work still remained if they were going to complete their mapping of the “economic seas,” but they were convinced the administration had done enough to protect the nation against the most dangerous storms.

Economists recognized the importance of focusing on unemployment. As the

NBER report noted, unemployment—defined as “society refus[ing] participation in its organized activities of production”—occupied a “position midway between the economic

248 Edward Eyre Hunt, “League of Nations World Economic Conference: Memoranda: Economic Investigations,” 1927, Box 16, Hunt Papers.

249 Hunt, “Economic Investigations.”

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and the social.”250 The “connecting link” between two realms, unemployment was bound up with both economic and social welfare—as tied to commerce and industry as to

“suicide, crime, prostitution, pauperism, marriages, migration, and other social phenomena.”251 Neither “purely” economic nor social, unemployment was almost uniquely positioned to serve as a measure of general prosperity.252

Important though unemployment was, the economists insisted that it could not be understood in isolation. The title of the report made their position clear. A study of

Business Cycles and Unemployment, it presented episodic surges in joblessness as a characteristic feature of the business cycle. Nor was this just an economist’s conceit.

Hoover endorsed the position wholeheartedly, writing in the report’s preface that everything covered in the document was tied to the ebbs and flows of “the so-called business cycle.”253 The “so-called” catches the idea’s novelty, but that was no hindrance for so ardent a proponent of the new world disclosed by the marvels of scientific inquiry.

Distancing himself from peddlers of “panaceas or economic revolution,” Hoover cast his project as a pragmatic endeavor.254 He supported research into business cycles not because of his enthusiasm for academic inquiry—otherwise he might also have put more effort into promoting studies of national income—but because he believed they had influenced the course of the cycle itself. For Hoover and his supporters, the report itself

250 Business Cycles and Unemployment: Report and Recommendations of a Committee of the President’s Conference on Unemployment, Including an Investigation Made Under the Auspices of the National Bureau of Economic Research, with a foreword by Herbert Hoover (New York: McGraw-Hill Book Company, 1923), 108, 43.

251 Business Cycles and Unemployment, 43, 44.

252 Business Cycles and Unemployment, 44.

253 Hoover, Business Cycles and Unemployment, v.

254 Hoover, Business Cycles and Unemployment, vi.

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proved the point. In their telling, its publication in the spring of 1923 had curtailed a potentially dangerous boom, ensuring the continuation of a more sustainable prosperity.

Historians have tended to dismiss this position as a conveniently self-interested delusion, but if the goal is to understand policymaking in the 1920s what matters is that senior government officials believed they had discovered, in Hoover’s words, a “strategic point of attack” for the crusade against the business cycle—namely, the production and dissemination of economic information.255

Publicity was not an end in itself, although they reveled in that too. “I have never known of an economic investigation which had anywhere near so much attention,” Hunt bragged in 1923.256 Four years later, he was even bolder, writing that the inquiry was

“without doubt the most important economic investigation ever undertaken,” and declaring that the business cycle’s “more violent and destructive extremes have been definitely curtailed because of this study.”257 Hunt conceded that the idea of business cycles was already familiar to economists, but he credited the Conference with liberating the doctrine from its academic confines. As he boasted, thanks to the governments efforts

“newspapers continue to refer to the idea of business cycles and the technical papers indicate that most business men have accepted it substantially as gospel.”258

Businessmen were the crucial figures here. The report succeeded as a countercyclical measure, Hoover partisans believed, to the extent that it encouraged entrepreneurs to calibrate their actions to fit the cycle’s rhythms, pulling back when an

255 Hoover, Business Cycles and Unemployment, vi.

256 Edward Eyre Hunt to Frederick Keppel, October 26, 1923, Box 37, Hunt Papers.

257 Edward Eyre Hunt, “Business Cycles and Unemployment,” October 1, 1927, Box 37, Hunt Papers,

258Hunt to Keppel, October 26, 1923, Hunt Papers.

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unsustainable boom threatened and rushing forward when a depression loomed. Their policy would work by creating a new kind of entrepreneur.

A survey conducted for the report hinted at the challenge they faced. The questionnaire elicited many responses supporting increased production of economic statistics, but that opinion was not universally shared. "We do not require any additional information,” one critic replied, “and would not have the time or inclination to read any more than we now use."259 Even those who called for statistical research had not adjusted their own behavior, and the report concluded by observing, “The necessity for predicting and preparing for approaching changes in the major cycle and taking business advantage of them before the changes occur appears not yet to be recognized as a business principle.”260 That glum appraisal also served as a call to action. Belief in the cycle had always enjoyed a stronger hold on economists than business leaders; now, the government set out to change that.

The project was an experiment in economic self-fashioning on a national scale, and optimists believed its success was difficult to deny. As the postwar depression receded into memory, more evidence of the policy’s triumph accumulated, at least from the perspective of its supporters. Reflecting on the project in 1930, Hunt argued that despite a wealth of academic research, “the idea of business cycles made no apparent impression on the policy of business men or of the Government until the calling of the

President’s Conference on Unemployment.”261 Disseminating economic information had shaped the decisions of businessmen, bringing rationality to disorder, and pacifying the

259 Business Cycles and Unemployment, 382.

260 Business Cycles and Unemployment, 388.

261 Edward Eyre Hunt, “Memorandum,” January 20, 1930, Box 37, Hunt Papers.

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cycle. “There are no monetary terms by which such an achievement can be measured,”

Hunt wrote, perhaps not realizing the extent to which by his own telling this supposed conquest owed itself to monetary measurements.262

Nor were these celebrations restricted to the United States. It was a decade where governance by experts was routinely proclaimed the essence of the age, a conviction on full display at a 1927 meeting of the World Economic Conference hosted at Geneva by the League of Nations. The omnipresent Hunt attended for the United States and produced a report summarizing its noteworthy elements—the “amazing amount of data” prepared by the Economic Section of the League of Nations, for instance, or the behavior of a Soviet delegation that “chose to use the Conference as a forum for ideas which were news in 1917 but which seemed stale and unprofitable in 1927.”263 While lauding the goals of the non-Soviet conference goers, Hunt expressed skepticism about their feasibility. Absent effective mechanisms for global economic governance, all League meetings were preludes to actions taken by national governments.264 They posed “a challenge to the organized movement for scientific management the world over; and a challenge which must be accepted”—but not a challenge the League itself could address.265 That test could only be met at a national level.

262 Hunt, “Business Cycles and Unemployment,” Hunt Papers. For more on early forays in transnational economic governance from this period, see Jamie Martin, “Governing the World Economy: Economic Expertise and the Reshaping of Global Order, 1916-1948” (PhD diss, Harvard University, forthcoming).

263 Edward Eyre Hunt, “League of Nations World Economic Conference: Memoranda: Report by EE Hunt,” Box 16, Hunt Papers.

264 Hunt, “Report by EE Hunt,” Hunt Papers.

265 Hunt, “Report by EE Hunt,” Hunt Papers.

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Insistence on returning to the national scale might appear curious, especially when the nation in question is the United States in 1927. Subjects that could only be addressed internationally—from conflicts over repayment of war debts to the speed with which the gold standard would be restored—preoccupied the same officials in Washington who trumpeted their taming of the business cycle. Students of business cycles in the United

States also recognized that they had yet to develop a serious interpretation of the relationship between domestic and transnational, perhaps even global, cycles. In a characteristic move, Mitchell acknowledged the view “that business enterprise has been silently establishing” what he called, flanked by quotation marks, a “world economy” or

“commercial league of nations,” while adding that reliable data for the hypothesis remained lacking.266 (This marked a change from his 1913 work on business cycles, when he had used the German “Weltwirtschaft” without translation.)267 Justified partly by inadequacies of data, a national focus also provided a comforting excuse for discarding fears about domestic overproduction that had shadowed economic debate for decades.268

Critics of Hoover’s approach to the business cycle shared his nationalist focus.

The Conference on Unemployment had ended with Washington officials encouraging mayors across the country to take responsibility for mitigating the cycle, a disappointing resolution for those who favored a stronger role for the federal government. One of those mayors charged with picking up the burden, William Thompson of Chicago, denounced the program as “a capitalistic move with the following objects: a blacklist, a refusal of

266 Wesley Mitchell, Business Cycles: The Problem and Its Setting (New York: National Bureau of Economic Research, 1927), 424.

267 Wesley Mitchell, Business Cycles (Berkeley: University of California Press, 1913), 86.

268 For a contemporary discussion of overproduction, see F.W. Taussig, Principles of Economics, vol. 2 (New York: Macmillan Company, 1921), 51-61.

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charity to American union laboring men, a drive against union labor, a conspiracy to lower wages.”269 Thompson was one of many local skeptics, a number that included an especially sizable proportion of Democrats. Advocates of expansive public works programs considered Hoover’s preferred cocktail of policy measures, with its focus on self-regulation, a tepid substitute for their ideal. And even champions of the cycle acknowledged that the national could be both too small a framework for policymaking and too large. As Mitchell observed, “in a large country whose economic organization is not highly integrated different sections sometimes have cyclical fluctuations more divergent than those of neighboring nations.”270

The mere idea of regulating the ebbs and flows of business proved offensive to some. That group included Republicans like Senator George Norris of Nebraska, who said that, with respect to business activity, “we had better let God run it as in the past, and not take the power away from Him and give it to Hoover.”271 Partisanship also influenced perceptions of economic conditions. Democratic Senator James Heflin asked, “when

Woodrow Wilson—God bless him—was in strength in the White House was anybody out of employment?” (“We destroyed your hobo army under Democratic rule,” he also claimed.) 272 Prophets of the new era defended their faith, but they had to do it against a sizable contingent of doubters.

Although the business cycle could only be mapped with statistics, the discussion had a moralizing undercurrent. Calvin Coolidge illustrated the tendency in a 1925 State

269 John Corbin, The Return of the Middle Class (New York: Charles Scribner’s Sons, 1922), 203.

270 Mitchell, Business Cycles: The Problem and its Setting, 456.

271 Robert Littell, “The Unemployed and a Weather Man,” The New Republic, March 1, 1922, 22.

272 Littell, “The Unemployed,” 22.

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of the Union message that chastised the “selfishness” of those who risked another depression by either “seeking immediate riches by nonproductive speculation” or

“wasteful quarreling over the returns from industry.” Coolidge placed himself above irresponsible financiers and misguided labor activists—above class struggle altogether.273

Anxieties over the business cycle gave a new force to this old tactic. With prosperity always threatening to collapsing into depression, the class conflicts that had so recently been a familiar aspect of American life became a threat to the rhythms of the industrial world. Booms were not inherent to modern business; they had to be earned with virtuous behavior.

Yet the results of all that self-denial still had to be measured, and here the quantifiers returned. The United States had more of them in the 1920s than in all its previous history. Economists took special pleasure in this development. The University of Wisconsin’s John Commons spoke for many when he declared in 1923 the launching of “a new era in economic theory.”274 Statistical knowledge was remaking economic theory, with ramifications that spread far beyond the universities. According to

Commons, the union of economic knowledge and political power that had begun during the Great War and flourished in its aftermath marked a profound rupture. “For the first time,” he declared, “economic theory has the foundations for a theory of prosperity, and such a theory is at the same time the foundation for a national economic policy.”275

273 Coolidge could support this endeavor without embracing Hoover, about whom he later remarked, “That man has offered me unsolicited advice for six years, all of it bad.” Quoted in William Leuchtenburg, Herbert Hoover (New York: Times Books, 2009), 64.

274 John Commons, “Wage Theories and Wage Policies,” American Economic Review 13.1 (March 1923), 112.

275 Commons, “Wage Theories and Wage Policies,” 112.

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Manifestations of the trend were abundant, but in an increasingly congested field one organization retained a privileged standing: the NBER.

READ WITH THE RIGHT SPIRIT, it sounded like the start of an adventure. As Wesley

Mitchell explained in the opening of Business Cycles and Unemployment, the report was

“a reconnaissance survey, run quickly through a wide territory.”276 Though Mitchell claimed that he and his coauthors adhered to rigorous empirical standards, this was a map for “social engineers,” not an exercise in satisfying academic curiosity.277 The groups thanked for their contributions to the report testified to the novel intellectual community that had come into being: the NBER, of course, and their chief funders the Carnegie

Corporation, but also government departments (Agriculture, Commerce, and Labor) and professional associations (the American Statistical Association, the American Economic

Association, and the Federated American Engineering Societies), along with dozens of individuals.278

What distinguished the NBER from its rivals, and encouraged Hoover to select them to lead his prized investigation? According to Mitchell, the explanation had its origins in the Bureau’s work on national income. Examining that subject had opened up a host of issues neglected by previous researchers, including the question of what factors accounted for changes in national income. Having mastered the empirics of national income, they could develop a theory explaining its fluctuations. Mitchell’s earlier work

276 Business Cycles and Unemployment, 2.

277 Business Cycles and Unemployment, 2.

278 As mentioned in chapter 1, the best source on the NBER’s early years is Malcolm Rutherford, The Institutionalist Movement in American Economics (Cambridge: Cambridge University Press, 2011), 257-288.

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on business cycles made that framework an obvious choice, but he insisted there was a deeper rationale. As their research progressed, he claimed, the Bureau’s staffers had made a startling discovery: “our investigations were contributing to one another, revealing relations that bound superficially diverse undertakings into an organic whole.”279 The NBER’s studies had formed a coherent program, but not because of any prefabricated agenda. “The unity inheres in the process we are trying to understand,” he argued, “and forces itself upon the attention of everyone who examines them thoughtfully.”280

The object slowly coming into sight was the interconnected world of business, a subject linked to Mitchell’s earlier fixation, money economy. In Mitchell’s telling, the

NBER happened to be ideally suited to investigate that business world and the strange phenomena it brought into existence. Those issues “grew out of its own work, they were of grave importance to the country, they could be attacked by quantitative methods—in short, they were questions of precisely the sort which the National Bureau had been organized to treat.”281 Much about the business world and its attendant cycles remained unknown, but Mitchell could date its emergence with relative precision. After first appearing in parts of Europe around the turn of the eighteenth century, it had spread across the globe. Though he believed that measuring the gains and losses incurred by the

279 Mitchell, Quarter-Century, 36.

280 Mitchell, Quarter-Century, 36.

281 Wesley Mitchell, foreword to The Growth of American Trade Unions, 1880-1923 (New York: National Bureau of Economic Research, 1924), 5.

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cycle was “impossible,” Mitchell offered national income as a substitute for this unattainable ideal.282

Even at this late stage in the evolution of the business cycle, Mitchell still recognized limits to its scope. Agriculture offered the greatest exception to the cycle’s dominance. There, Mitchell wrote, “production is affected more by the weather than by the business cycle.”283 This was no small exception, since, as Mitchell elsewhere noted, at the time “small-scale agriculture” was “the most important form of economic organization in the world.””284

But independence from the cycle did not guarantee prosperity. Quite the opposite held in the United States during the 1920s, where much of the nation enjoyed a boom while farmers struggled to claw out of a protracted downturn. This disjuncture became one of the decade’s great economic riddles, and kept the boundaries of business’s influence at the center of debates over the cycle. While Calvin Coolidge reassured citizens outraged by the plight of farmers, “the Government has given this subject more attention than any other,” the Bureau found itself with little to say, outmatched by the army of researchers devoted to canvassing the subject in Washington.285

Though lagging on agriculture, staffers at the NBER plunged ahead on a variety of other fronts: reports on international migration, the health of the labor movement, trends in philanthropy, variations of income among states, and a collection of “business

282 Business Cycles and Unemployment, 32.

283 Business Cycles and Unemployment, 35.

284 Wesley Mitchell, “Sombart’s Hochkapitalismus,” Quarterly Journal of Economics 43.2 (February 1929), 319.

285 Calvin Coolidge, Fourth Annual Message, December 7, 1926, available at http://millercenter.org/president/coolidge/speeches/speech-3809.

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annals” for seventeen countries that gathered journalistic and state-sponsored observations on business conditions. That last volume supplied information on total population, railway mileage, imports, exports, and other statistics deemed of pressing interests—statistics that were gathered with the assistance of an eclectic group of supporters that included both Friedrich Hayek and the Soviet economist Nikolai

Kondratieff.286

National income was conspicuous by its absence in this statistical catalogue, but it remained a preoccupation at the Bureau. As the NBER’s annual report observed in 1925,

“The first reputation of the Bureau gained in this field practically necessitates the periodical extension and revision of our estimates.”287 From the outset, Mitchell and his colleagues had hoped to move from their “central field” of national income to studies on connected subjects—rent, wages, and profits were some of the candidates—united by the business cycle. As the decade advanced, the question of prices became more enticing.

Studies of the general , they believed, had stayed at the surface of much deeper phenomena. Content with this superficial perspective, economists had left the latticework of interconnections within the price level unexamined. Mitchell had long referred to the as a “living organism,” but he still believed the Bureau’s latest project constituted an important departure.288 Unlike their previous inquiries, this “pioneer effort, to explore, with all available statistical instruments, the recesses of the labyrinth of

286 On Mitchell’s influence on Hayek, see Alan Ebenstein, Friedrich Hayek: A Biography (New York: St. Martin’s Press, 2001), 33. Kyung Deok Roh examines the applicability of Mitchell’s work to the USSR in “Stalin's Think Tank: The Varga Institute and the Making of the Stalinist Idea of World Economy and Politics, 1927-1953,” (PhD diss, University of Chicago, 2010), 184-196.

287 Edwin Gay and Wesley Mitchell, “Annual Report of the Directors of Research,” February 2, 1925, 2, available at http://www.nber.org/chapters/c12274.pdf.

288 Mitchell, Business Cycles, 31.

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prices” promised not just to enrich the understanding of an already existing topic, but to break open a novel field of inquiry.289

Yet just as they depicted their research on business cycles as flowing out of the study of national income, Mitchell and Gay described the NBER’s report on the inner logics of the price system as a natural sequel to Business Cycles and Unemployment. And from a certain perspective it was: for those who accepted Mitchell’s history, national income, business cycles, and the price system were all children of the money economy.290

Not coincidentally, this was the same period when Mitchell offered a course at Columbia on a subject that, in his lecture notes, he claimed had “Never before given, so far as I know” and “May never be given again": money economy.291

Not that readers had to subscribe to Mitchell’s worldview in order to appreciate the effort. Mitchell might have aligned himself with Hoover, but NBER staffer Leo

Wolman became a valued counselor to Sidney Hillman’s Amalgamated Clothing

Workers Union, which put a left-wing spin on Hoover’s zeal for efficiency.292 Across the

Atlantic, John Maynard Keynes deemed the NBER’s study of prices a “very high-grade work,” but he added a caveat. Pronouncing it a “work of a kind which, as yet, simply does not exist outside the United States,” he marveled that after hundreds of pages of statistical research the text ended without trying to draw any major theoretical

289 Edwin Gay and Wesley Mitchell, “Foreword,” The Behavior of Prices (New York: National Bureau of Economic Research, 1927), 9.

290 Frederick Mills, The Behavior of Prices (New York: National Bureau of Economic Research, 1927), 33.

291 Wesley Mitchell, February, 4 1926, Box 34, Series 6, Mitchell Papers.

292 Steven Fraser, Labor Will Rule: Sidney Hillman and the Rise of American Labor (New York: Free Press, 1991), 163-165.

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conclusions.293 The economists at the NBER had prepared a feast while declining to sample it for themselves.

Much the same charge was leveled at the NBER’s other major study of this period. Mitchell’s Business Cycles: The Problem and its Setting appeared in 1927, little more than a decade after his first book on that question. Yet as one reviewer observed,

“not fifteen years but fifty seem to separate the present work from its 1913 predecessor.”294 The earlier work had drawn on statistics from four countries that stretched back just over twenty years; the sequel had data from seventeen countries that, in the case of England and the United States, reached into the eighteenth century.

Although the subject attracted commentary on both sides of the Atlantic, Mitchell insisted that “the statistical study of business cycles has had its headquarters in the United

States.”295 And while he nodded to contributions from other American economists— including , William Foster, and Waddill Catchings—there was little doubt that he put the NBER at the top of this hierarchy.

Despite the abundance of new data, Mitchell acknowledged one stark omission:

”we have,” he wrote, “no statistical evidence of business cycles as wholes.”296 Some industries generated abundant data, but scaling upward from the individual to the general had so far defied investigators. The problem sprang from the fundamental character of business in the twentieth century—a “maze of interacting processes” always looping into

293 J.M. Keynes, “Review: The Behaviour of Prices,” Economic Journal 38.152 (December 1928), 606.

294 O. Ingraham, “Review: Business Cycles,” American Economic Review 18.4 (December 1928), 748.

295 Wesley Mitchell, The Business Cycle: The Problem and its Setting, 201.

296 Mitchell, Business Cycles: The Problem and its Setting, 2.

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itself; a “congeries of diverse fluctuations in numerous processes” at once “physical, psychological, and economic.”297 “A real chart of one business cycle,” he concluded,

“would be a hopelessly complex tangle of hundreds of curves.” What comprehensive measure could emerge from such a morass? National income supplied a handy

“measuring stick,” but more ambitious projects required caution.298

Caution—it was the theme Mitchell always returned to. Caution with statistics:

“once data have been compiled into neatly published tables,” Mitchell warned, “the figures gain a pontifical authority over many minds.”299 Caution with theory: the business cycle was both a reflection of reality and a label applied to make sense of a messy world.

Caution, above all, with language: sounding more like a philosopher of language than an economist, Mitchell declared that “the words we use set traps for us.”300

By the 1920s, he was also more cautious politically. His standing in the world had risen, and he recalibrated his tone to fit this elevated position. The 1913 study of business cycles, for example, had referred to “The great captains of finance and industry wield an authority swollen by the capital which their prestige attracts…and often augmented still further by working alliances among themselves.” The tamer 1927 edition noted, “The captains of finance and industry wield an influence increased by the capital which their

297 Mitchell, Business Cycles: The Problem and its Setting, 58, 180.

298 Mitchell, Business Cycles: The Problem and its Setting, 93.

299 Mitchell, Business Cycles: The Problem and its Setting, 364.

300 Mitchell, Business Cycles: The Problem and its Setting, 454.

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prestige attracts…and sometimes augments still further.”301 Increased, not swollen; sometimes, not often; and no need for the “great,” with its sarcastic pitch.

Mitchell would move forward, but tortoise-like. Reflecting on business cycles near the book’s close, he noted the modesty of his findings. “Even now,” he wrote, “we can do no more than frame a working definition to use in trying to learn more.”302 He offered a precise definition grounded in all that had come before, carefully restricting its purview to a specific realm (“activities which are systematically conducted on a commercial basis”) exhibiting a specific pattern (“fluctuations which . . . recur with a measure of regularity”).303

Not all of Mitchell’s partners were so cautious. Rorty, for one, declared that the

NBER’s studies had revealed “the essential soundness of American institutions.”304 He acknowledged that challenges remained, among them managing population growth, ensuring the efficient use of natural resources, and keeping income inequality within tolerable limits. But these were matters for expert administrators, not the stuff of revolution.

Little wonder that journalists translating the Bureau’s work for the general public treated any potential radicalism as conjectural. The New York Times explained the concept of per capita income to their readers—underneath a headline blaring “America’s

Prosperity Reaches New Heights”—as “how much every man, woman and child would

301 Mitchell, Business Cycles 33-34 in 1913; Mitchell, Business Cycles: The Problem and its Setting, 158-9.

302 Mitchell, Business Cycles: The Problem and its Setting, 894.

303 Mitchell, Business Cycles: The Problem and its Setting, 468.

304 Rorty, Some Problems, 116.

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get if a hypothetical Communist State were to distribute its earnings equally.”305 There was talk of revolution, but it was the “second fully as important as the first.”306

This second industrial revolution was far better documented than its predecessor, thanks to the work of groups like the NBER. The Bureau alone was responsible for seventeen books, each volume charting a limb of what Rorty, grasping for a label, called the nation’s “economic tree.”307 Combined, these publications sold just under forty thousand copies, but millions more came across their conclusions in the rhetoric of the politicians and the columns of newspapers.308 In these articles, the NBER became a chronicler of the , the accountant in green eyeshades tallying the costs of every party at Gatsby’s.

STAFFERS AT THE NBER were far from the only economists who fancied themselves suited to charting their times and counseling the powerful. The discipline was thriving thanks to the continued expansion of the university system and growing demand for economic guidance from both government officials and corporate magnates. And during this booming period, few questions received more attention than those surrounding the proper management of money. The subject had figured prominently in American politics for decades, most famously in William Jennings Bryan’s presidential campaigns, with its

305 Evans Clark, “America’s Prosperity Reaches New Heights,” New York Times, November 27, 1927, XX4.

306 Clark, “America’s Prosperity,” XX4.

307 Rorty, Some Problems, 76.

308 Edwin Gay and Wesley Mitchell, “Report of the President and Report of the Directors of Research: For the Year 1930,” 26, http://www.nber.org/chapters/c4298.pdf.

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thundering denunciations of a nation crucified upon a cross of gold. Devastating in Germany during the 1920s made debates over currency into a global concern, as did the campaign to revive the gold standard. Economists in the United States found their advice sought by governments across the planet, and a contingent flitted across the globe—from China to Mexico to Poland—playing “money doctors” to the world.309

Irving Fisher preferred a more domesticated lifestyle, but only a handful of his colleagues—not just in the United States, but anywhere—rivaled his authority over monetary theory. By the 1920s, he had been publishing major contributions in the field for decades, and he had acquired an enviable pulpit for disseminating his views. Author of a syndicated column on business conditions, he also supervised the production of statistical reports regularly sent out to newspapers across the country.

Undergirding this prodigious output was Fisher’s conviction that business cycles were for the most part a statistical artifact produced by chance vacillations around a mean. Fisher valued statistical research —hence all those reports to newspapers—but he combined an empirical mindset with a mastery of abstract mathematical reasoning matched by few economists in his lifetime. Seen from this perspective, tributes to the unending complexity of modern business of the kind favored at the NBER were more than anything signs of their authors’ intellectual limitations. Their faces pressed against

309 Bruce Dalgaard, “E.W. Kemmerer: The Origins and Impact of the Money Doctor’s Monetary Economics,” in Bruce Dalgaard and Richard Vedder, eds., Variations in Business and Economic History: Essays in Honor of Donald L. Kemmerer (Greenwich: JAI Press, 1982), 31-44 and Paul Drake, The Money Doctor in the Andes: The Kemmerer Missions, 1923-1933 (Durham: Duke University Press, 1989); Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900-1930 (Durham: Duke University Press, 2003).

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the wall, Mitchell and his colleagues could not step back and see the portrait hanging in front of them.

More to the point, they missed the engine of the fluctuations they studied.

Referring to the NBER’s recent work, Fisher claimed that ”almost every other factor that might influence employment was given careful consideration” except for what mattered most: inflation and deflation, which Fisher called “the dance of the dollar.”310According to Fisher, changes in unemployment or in overall trade levels reflected prior and more causally significant changes in the price level.

The rationale behind this argument had a genealogy that reached back centuries, but Fisher was one of the crucial figures in a generation that gave a distinctive twist to this long-standing conceit. Known today as the quantity theory of money, its basic assumptions were simple. The astronomer and dabbler in economics , writing in 1885, identified the quantity theory with what he called the “equation of societary circulation,” though it would later be more commonly known as the . Fisher, who dedicated one of his many books to Newcomb, developed this modification of the equation: MV = PT, where M is the stock of money, V is the velocity of circulation (or speed at which money changes hand), P is the price level, and T is the total number of market transactions during a set period. The mathematics are simple, but economists looking for predecessors to the Keynesian revolution judge the quantity

310 Irving Fisher, “I Discovered the : ‘A Statistical Relation Between Unemployment and Price Changes,” Journal of Political Economy 81.2 (March-April, 1973), 497 and “The Business Cycle Largely a ‘Dance of the Dollar,’” Journal of the American Statistical Association 18.144 (December 1923), 1024-28.

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theory of money as close to macroeconomic reasoning as anything available before the

Great Depression.311

It is also as a tautology. The equation is an accounting identity that reveals nothing about the causal relationship among its components; if the measurements of its variables are accurate, then by definition it holds true. Money could be the driving force in the relationship, or it could not. Useful for simplifying the complexities of monetary exchange, the equation by itself offered no guidance to economists seeking a deeper understanding of causation.

Here was where Fisher made his greatest contribution. Invoking “supplementary knowledge” derived from his own research, Fisher offered empirical backing for his insistence that the stock of money was the decisive variable in the equation.312 In his words (and italics), “The price level is normally the one absolutely passive element in the equation of exchange.”313 The details were complex, but the core of the quantity theory was simple. With prices held constant, a growing money supply pushed dollars into businesses, creating the illusion of surging demand; reductions to the money supply had the opposite effect, withdrawing funds and pushing economic activity downward. This relationship faded with time as prices adjusted, which meant that increases in the money supply would eventually lead to inflation, not permanent prosperity. But in the short run the influence of money was profound: “every enlargement of the dollar tends to hurt

311 On the quantity theory, see Laidler, Golden Age and J. Bradford De Long, “The Triumph of ?,” Journal of Economic Perspectives 14.1 (Winter 2000), 83-94.

312 Irving Fisher and Harry Brown, The Purchasing Power of Money: Its Determination and Relation to Credit Interest and Crises (New York: Macmillan Company, 1912), 157.

313 Fisher, Purchasing Power of Money, 172.

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business shortly afterward,” Fisher argued, while “every shrinkage of the dollar tends temporarily to boost business.”314

Price levels, inflation, deflation—a litany of concepts was propelled into the foreground by the quantity theory. Fisher was not the only economist defending this position during the 1920s, but his advocacy was distinguished by its rigor, and its enthusiasm. He credited part of his insight to experience with index numbers. “Prior to the advent of the index number as an instrument for measuring,” he claimed, “the concept of a stable buying power of money was too vague to form the basis of reform.”315 Even now, he believed, the notion that prices were determined by more than just the play of supply and demand—that inflation might push them up, or deflation down—was confined mostly to experts. As Fisher lamented, “the general public has no idea that money varies in value at all.”316 But the technical innovation of index numbers and the rendering of an old argument in mathematical terms had launched a new stage in the quantity theory’s history: a matter of economic theory had become a potential guide for policymaking.

Fisher’s monetary theory yoked his gifts for abstraction and empirical dexterity.

Mathematical brilliance had established Fisher’s reputation in the field. At a time when economists were still chiefly concerned with ascertaining economic laws that could be expressed verbally, Fisher was comfortable enough modeling his conclusion that he built a hydraulic machine to illustrate what he called “that beautiful and intricate equilibrium

314 Irving Fisher, assisted by Hans R.L. Cohrssen, Stable Money: A History of the Movement (New York: Adelphi Company, 1934), 386.

315 Quoted in William Barber, From New Era to New Deal, 25.

316 Fisher, Stable Money, 4.

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which manifests itself on the ‘exchanges’ of a great city.”317 But in his later work, Fisher grounded theoretical flights on empirical measurements, often of his own devising. He was not shy about highlighting these contributions. “During the last three years,” he noted in an article on the relationship between the price level and unemployment, “I have had at least one computer in my office almost constantly at work on this problem.”318 (By

“computer” he meant an employee using a calculator.) His theoretical work depicted money flows detached from particular origins—from land, from labor, from capital, those preoccupations of nineteenth-century political economy—but to achieve purposes he believed eminently practical. And high on that list of practical concerns was his hope that policies concerned with managing the price level would replace the misguided attempt to regulate an illusory business cycle.

Fisher’s concern with the business cycle was new to the 1920s, but the politics of money had drawn his attention for some time. He had denounced Populist in

1896, arguing that the woes Bryan and his supporters attributed to the gold standard were addressed by automatic shifts among interest rates. Later, Fisher concluded that he had been too hasty in his dismissal. While refusing to admit that he should have backed the

Populists, he conceded that neither Bryan nor the Republicans had a plan for achieving the monetary goals they claimed to support. In retrospect, Fisher concluded that all the positions in 1896 had been misguided, including his own.319

317 Irving Fisher, Mathematical Investigations in the Theory of Value and Prices, Transactions of the Academy of Sciences and Arts, Vol. IX, July, 1892, 24.

318 Fisher, “I Discovered the Phillips Curve,” 497.

319 On the politics of money at the close of the nineteenth century, see Bensel, The Political Economy of American Industrialization, 355-456; Charles Postel, The Populist Vision (Oxford: Oxford University Press, 2007), 150-153; David Laidler, “From Bimetallism to Monetarism: The Shifting Political Affiliation of the Quantity Theory,” in Political Events and Economic Ideas, ed. Ingo Barens, Volker

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Instead of resurrecting either platform, Fisher offered a new target: stability of the price level was the goal, and beginning in 1911 he argued that it could be achieved with a

“compensated dollar.” Instead of tying the dollar’s value to gold, Fisher’s program would have linked it to an index determined by a variety of commodity prices. He insisted that the compensated dollar could be reconciled with the gold standard, but he later claimed that he was motivated in part by an awareness that in this period “any proposal to ‘go off gold’ completely…would have been lampooned and hooted down.”320

Fisher was right to anticipate opposition. Even among economists, and even when discussion was confined to the quantity theory of money, rather than any policies that flowed from it, the conversation soon became heated. J. Laurence Laughlin—first head of the University of Chicago’s economics department, and one of his day’s most influential monetary theorists—was not alone in his conviction that “if the quantity theory is sound, if it is possible to regulate by government control of the quantity of money—we have socialism pure and simple.”321 The gold standard was cherished by the businessmen

Fisher appealed to, not least because it helped clarify the mess that characterized the actual condition of American money. One textbook from the period counted ten varieties, including “three kinds of coin,” ‘two forms of representative money,” and “five forms of credit money”—a chaotic jumble simplified by a common backing in gold.322

Caspari, and Bertram Schefold (Cheltenham: Edward Elgar, 2004), 9-36; and Richard Hofstadter, The Paranoid Style in American Politics (New York: Random House, 2008), 238-315. Angela Redish takes a longer view in Bimetallism: An Economic and Historical Analysis (Cambridge: Cambridge University Press, 2000).

320 Fisher, Stable Money, 382.

321 J. Laurence Laughlin, Money and Prices (New York: Charles Scribner’s Sons, 1919), 189.

322 Fairchild, Furniss, and Buck, Elementary Economics, vol. 1, 474

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Even other skeptics of gold-standard orthodoxy doubted the quantity theory.

Thorstein Veblen, Laughlin’s colleague at Chicago, dismissed it as one of “those creatures of the myth-maker.”323 Laughlin and Veblen’s former student Wesley Mitchell offered a more restrained appraisal of Fisher’s proposals. Mitchell was no stranger to the questions Fisher addressed. His first article—published in his senior year at Chicago— was a critique of the quantity theory, and he returned to the subject intermittently in the following decades.324 He addressed the topic explicitly in a 1904 article that sought to reorient debate away from disputes over theory toward more practical concerns amenable to statistical measurement.325 In a critical review of Fisher’s Purchasing Power of Money, published in 1911, Mitchell cast Fisher as “a loyal devotee of the mechanical type of economic theory,” a type he opposed to “the realistic viewpoint” adopted by economists like himself concerned with “actual economic processes.”326 Fisher’s attacks on business cycle theory in the 1920s pushed Mitchell even further away, and in the 1927 Business

Cycles volume Mitchell argued that while money could in theory drive the cycle in practice it was usually a passive factor.

Despite all this, Mitchell endorsed the broad thrust of Fisher’s campaign. In 1913, he deemed Fisher’s proposal to stabilize the dollar one of the most “promising lines of effort” for smoothing the cycle, and the NEBR’s reports of the 1920s regularly hailed the

323 Thorstein Veblen, “The Preconceptions of Economic Science,” The Quarterly Journal of Economics 13.4 (July 1899), 426.

324 Wesley Mitchell, “The Quantity Theory of the Value of Money,” Journal of Political Economy 4.2 (March 1896), 139-165.

325 Wesley Mitchell, “The Real Issues in the Quantity-Theory Controversy,” Journal of Political Economy 12.3 (June 1904), 403-408.

326 Wesley Mitchell, “Review: The Purchasing Power of Money: Its Determination and Relation to Credit, Interest, and Crises,” Political Science Quarterly 27.1 (March 1912), 163.

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benefits of price stability.327 The two also corresponded, privately continuing arguments initiated in journals, but also offering advice on statistical projects, along with mutual flattery. Mitchell supported Fisher enough to sign on to one of his most quixotic projects.

The Stable Money League was born on New Year’s Eve, 1921. As Fisher recalled, what began as a dinner bringing together a group devoted to monetary stabilization culminated “with a midnight visit by many of us to the Washington

Monument where we ushered in the New Year by dedicating ourselves to the new movement.”328 The organization charged with leading that movement would go through several names over the next decade—from the Stable Money League to the National

Monetary Association and then compromising on the Stable Money Association—but its dedication to controlling the price level endured. That ideal had been endorsed by a committee of the American Economic Association, and in the 1920s it attracted a diverse array of supporters. Economists, including Mitchell, enlisted in predictably large numbers, but more impressive were the recruits drawn from the wider world: John Davis, leader of the failed 1924 Democratic presidential campaign volunteered, and so did

Charles Dawes, vice presidential nominee on the ticket that defeated him; Henry Wallace served as Vice President of the Stable Money League before going on to serve as Vice

President of the United States under Franklin Roosevelt, whose uncle, Frederic Delano, was president of the Stable Money Association.

327 Mitchell, Business Cycles (1913), 586.

328 Fisher, Stable Money, 382. More work needs to be done on the politics of the price level in the 1920s, but, in addition to Fisher’s personal account in Stable Money, see , America’s Great Depression (Auburn: Ludwig von , 2000), 169-181.

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The stabilizers had specific policy goals, but they had broader intentions as well.

First on their agenda was the creation of a —“the Official Index Number,” as they termed it—whose authority was vouchsafed by the federal government. The statistic could guide policymakers, but it was also meant to reshape the business world. As one of their statements of principle explained, their proposal “would bring the Official Index

Number into the daily thoughs [sic] of men as a matter of vital importance in their everyday life, and would cause them to scrutinize closely measures tending to affect its movement.”329 Even when distancing themselves from explicit policy recommendations, they retained a commitment to reshaping public debate and private behavior. They would alter the trajectory of American politics, Rotary Club meeting by Rotary Club meeting.

Fisher’s optimism sprang from his conviction that any rational adult could understand his thesis. He admitted that at first his views might appear implausible. “In a matter as intensely human as the employment problem,” he wrote, “it seems a far cry from money and banking to an explanation of why working men are thrown out of jobs.”330 But his theory should have cleared away that confusion; even better, it had an obvious, and heartening, implication. If what economists had erroneously referred to as the business cycle was a byproduct of changes in the price level, and if the price level could be managed by the government, then unemployment could be, if not abolished, then at least severely curtailed. In Fisher’s words, “we have in our power, as a means of substantially preventing unemployment, the stabilisation of the purchasing power of the

329 “Preamble to the Plan of the National Monetary Association,” December 15, 1923, Box 34, Series 6, Mitchell Papers.

330 Fisher, “I Discovered the Philips Curve,” 497.

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dollar”—or of any currency, for that matter.331 Hoover and his ilk were optimistic about their ability to control the cycle, but Fisher’s confidence exceeded even theirs

Best of all, the government already had the tools it needed, and an institution designed to make use of them. The Federal Reserve was less than a decade old when the

Stable Money League was founded, and it had been created to grapple with a very different set of problems than the kind Fisher drew attention to. But the Fed had accumulated remarkable powers in its short lifespan. Fisher believed it had abused those powers, and he blamed the postwar downturn chiefly on what he considered a bungled attempted by the Reserve to check inflation. Yet even that indictment was a kind of compliment: he believed the Federal Reserve had enormous powers; now it just needed to learn how to use them.

Fisher’s rationale for the Federal Reserve taking on this role as manager of the price level, and therefore of unemployment, was clear; and he could point to a collection of statistics and policy options that would allow them to achieve this goal. But one major problem remained. Irving Fisher, regarded by colleagues as one the most brilliant minds in economics, was viewed inside the Federal Reserve as a “crank.”332

ADOLPH MILLER WAS A FOUNDING MEMBER of the Federal Reserve’s Board of

Governors, and the only person in that cohort trained as an economist. Expertise gave him some leverage within the institution, but he benefitted even more from his connections with the powerful. Miller was friends with Herbert Hoover, an easy enough

331 Fisher, “I Discovered the Philips Curve,” 502.

332 Allan Meltzer, A History of the Federal Reserve, vol. 1: 1913-1951 (Chicago: University of Chicago Press, 2004), 53.

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task to accomplish given that the two were neighbors. He was also, as it happens, one of

Laughlin’s former students and Wesley Mitchell’s brother-in-law.333

Though economists had little presence in the upper echelons of the Reserve, economic theory had a deep influence over the institution’s formation and subsequent trajectory. A central bank tailored to fit the demands suggested by the quantity theory would have been a very different creature from the institution born in 1913. The founders of the Federal Reserve had not even intended to construct a true central bank. Restrained by anxieties over concentrating power, they had designed a Federal Reserve System—as the institution was formally labeled—where power was parceled out among twelve regional banks and a Board of Governors in Washington. The precise delineation of these powers was left fuzzy, providing a source of frequent conflict.334

Less controversial within the Federal Reserve was the intellectual justification for their efforts, which also happened to be the rationale most congenial to skeptics of a central bank. Called the real bills doctrine, it held that, in Laughlin’s words, the money supply was “a machine which expands exactly in proportion to the work to be done, and

333 Silvano Wueschner, Charting Twentieth-Century : Herbert Hoover and Benjmain Strong, 1917-1927 (London: Greenwood Press, 1999), xv. Barry Eichengreen, “Doctrinal Determinants, Domestic and International, of Federal Reserve Policy 1914-1933,” February 2015, 5, available at http://behl.berkeley.edu/files/2015/02/WP2015-02_Eichengreen.pdf.

334 Meltzer’s study is invaluable, but the bank’s early history—like its history as a whole— remains underexplored. In addition to Meltzer’s work, though, also see W.P.G. Harding, The Formative Period of the Federal Reserve (During the World Crisis) (Boston: Houghton Mifflin Company, 1925); J. Laurence Laughlin, The : Its Origin and Problems (New York: Macmillan, 1933); Lester Chandler, Benjamin Strong: Central Banker (Washington DC: The , 1958); Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1963), 189-700; Livingston, Origins of the Federal Reserve System; Broz, The International Origins of the Federal Reserve System; , The New Lombard Street: How the Fed Became the Dealer of Last Resort (Princeton: Princeton University Press, 2008), 30-48; and Roger Lowenstein, America’s Bank: The Epic Struggle to Create the Federal Reserve (New York: Penguin Press, 2015).

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contracts as transactions fall off.”335 Contra Fisher, real bills advocates focused not on fluctuations in the money supply but on whether credit was used to fund productive activity or mere speculation. Guided by the real bills doctrine, most of the Fed’s senior figures believed that their task was to ensure adequate funding for the “needs of trade.”

Shifts in “real” economic activity governed the money supply, not the other way around.

When combined with support for the gold standard, the result was a conceptual framework that left no room for the management of price level and output through manipulation of the money supply. The Federal Reserve had a humbler job description: helping bring some order to the money stock by disseminating Federal Reserve notes, ensuring ready access to credit in the wake of financial panics, and guarding against seasonal fluctuations that accompanied the agricultural cycle. With those obligations fulfilled, the money supply could be trusted to regulate itself.

At least, that was the theory when the Federal Reserve Act passed in 1913. But then war broke out, the gold standard collapsed, and Fed officials were forced to improvise. The bank was transformed into an agent of war, becoming a key instrument in the financing of American military involvement. Exigencies of war justified temporary suspension of both the principles that had guided the institution’s formation and the restrictions curbing its power.

The Federal Reserve’s influence expanded further in peacetime. By the close of the 1920s, it was clear that, as one economist remarked, “few of the persons who were most active in planning the system had a clear vision of the possibilities of the machinery

335 J. Laurence Laughlin, The Principles of Money, vol. 2 (New York: Charles Scribner’s Sons, 1903), 120. Thomas Humphrey, “Real Bills Doctrine,” of Richmond Economic Review 68.5 (September/October 1982), 3-13.

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which they were bringing into existence.”336 Senior figures within the Fed believed they had an important role to play in restoring the international gold standard and in maintaining price stability until the gold standard revived. The absence of guidelines once provided by gold supplies forced policymakers to look for new measures they could use to set their course.

Although the real bills doctrine still commanded majority support, it had undergone substantial modifications. The Fed’s creators had assumed its activities would be restricted to commercial loans, where requests for funds could be met by member banks borrowing from the . According to the Federal Reserve Act, so long as these loans were used for legitimate “agricultural, industrial, or commercial purposes”—not “stocks, bonds, or other securities”—it would be impossible for the money supply to become excessive.337 But the war pushed the Fed into the novel realm of Treasury debt, and those experiments continued during peacetime.

In 1922, Fed officials discovered that buying and selling government securities— so-called “open-market operations”—supplied a potentially powerful tool for conducting monetary policy. Defending this shift in policy, they portrayed it as a necessary response to changed circumstances: “until the restoration in some form of the international gold standard,” a 1923 report maintained, “discretion must inevitably play a larger role in central banking administration.”338 Intervening in the market for government debt constituted an aggressive display of government intervention for an institution whose

336 , Modern Economic Society (New York: Henry Holt and Company, 1928), 255.

337 Text of the act is available at http://www.federalreserve.gov/aboutthefed/section13.htm.

338 Tenth Annual Report of the Federal Reserve Board Covering Operations for the Year 1923 (Washington D.C.: Government Printing Office, 1924), 38.

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creators said would passively respond to external demands. Hardline devotees of the real bills doctrine opposed stepping into territory they regarded as the province of speculators.

Fed officials continued to deny that they had either the capacity or the desire to regulate the price level, but perceptive outsiders believed a profound transition was underway— the cautious acceptance of a duty new to central banking whose meaning, though obscure to the public, amounted to a transformation of the Fed.339

To make matters even more complicated, the most powerful figure at the Fed did not adhere to either the quantity theory or the real bills doctrine. As Governor of the

Federal Reserve Bank of New York, Benjamin Strong was the closet substitute the entire system had for a national leader. Strong insisted that it was “not the business, the duty, or the function of the Federal Reserve System, or of central banks generally, to deal with prices,” but he also rejected the metrics relied supporters of the real bills doctrine relied upon to determine whether credit was being used for speculative purposes.340 Instead,

Strong focused on the total volume of borrowing from member banks, with more borrowing indicating that policy was loose and cutbacks that it had become tighter.

Strong’s technical argument was part of a larger vision that shifted over time. At the start of the 1920s, Strong listened sympathetically to calls for the bank to push against the business cycle, but by the decade’s midpoint he was increasingly preoccupied with resurrecting the international gold standard. That did not mean he believed the US always had to abide by the rules a functioning gold standard would have prescribed, especially when they would have led to inflation. But restoring the gold standard was important

339 See, for example, John R. Commons, “The Stabilization of Prices and Business,” American Economic Review 15.1 (March 1925), 43-52.

340 Quoted in Meltzer, A History of the Federal Reserve, 125.

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enough to cause a rift between Strong and his colleagues who placed more emphasis on the domestic than on the international.

On this issue, Miller was one of Strong’s chief antagonists, and he had a powerful supporter. Strong’s priorities had generally accorded with Miller’s in the first half of the

1920s, which meant that they also generally accorded with Herbert Hoover’s.341 Miller was Hoover’s man at the Fed, and when he conveyed displeasure with Strong’s turn toward an international stage he spoke for the Secretary of Commerce. The conflict between Miller and Hoover stemmed from so many differences that it can seem inevitable: economist versus banker, Washington versus New York, national versus global, real bills versus Strong’s more eclectic criteria. But the clash took concrete form over a push for lower interest rates led by Strong in 1927. While Miller and Hoover worried about inflation, Strong defended the move as a necessary sacrifice that would ease the ’s return to gold.

Miller and Hoover tried to undermine Strong’s campaign, but neither had sufficient pull within the bank to win the battle. Hoover was an outsider with competing demands on his attention, and soon he withdrew from the contest. Miller’s toxic unpopularity within the Fed did little to help the cause. According to a later survey,

Miller “was familiarly known among the younger members of the staff as ‘that

S.O.B.’”342 The same unpleasantness that made him a pariah at the office was well known to his family members, including his sister-in-law, Wesley Mitchell’s wife, who

341 Wueschner’s Charting Twentieth-Century Monetary Policy is the best discussion of this dynamic.

342 “Sidelights on A. C. Miller,” March 3, 1935, Box 2, Folder 4, Committee on the History of the Federal Reserve, Brookings Institution (hereafter Committee Papers).

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remembered Miller as “tighter than a frozen nickel.”343 (She told an interviewer that shortly before Miller’s death he had “frightened his wife badly by threatening to kill himself and saying at the same time, ‘I do not intend to die alone.’”344)

More persistent, and more willing to mobilize forces outside the bank, was Fisher.

He saw grounds for optimism on a number of fronts. Discussion of monetary stabilization policies occupied a series of international conferences organized in the aftermath of the war, and in 1922 representatives from over thirty nations meeting at Geneva agreed on the importance of maintaining price stability. “Still more epoch-making,” he added, “was the inauguration of actual efforts in this direction by the Federal Reserve System in

1922.”345 He was referring to open-market operations, which he believed had given the

Fed the power to act as “the greatest public service institution in the world.”346

Fisher received a sympathetic audience in Congress’s farm bloc. Representatives of an agricultural sector mired in depression, they had also inherited a Populist hostility toward moneyed interests. (The first congressional hearings on Federal Reserve policy were conducted by an agricultural committee.347) Fisher’s congressional allies were strong enough to get their legislation considered—one hearing featured testimony from the eminent Swedish economist —but not to win a majority.348 Opposition

343 “Interview with Mrs. Wesley Mitchell on May 18, 1954,” May 9, 1955, Box 2, Folder 5, Committee Papers.

344 “Interview,” Committee Papers.

345 Irving Fisher, The (New York: Adelphi Company, 1928), 131.

346 Fisher, Money Illusion, 133.

347 Joint Commission of Agricultural Inquiry, Agricultural Inquiry, 67th Congress, First Session, August 2, 3, 4, 5, 8, 9, and 11.

348 Robert Hetzel, “The Rules Versus Discretion Debate Over Monetary Policy in the 1920s,” 3 Federal Reserve Bank of Richmond Economic Review 71.6 (November/December 1985), 3-14.

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from the bank helped stymie their movement, but the most effective impediment to reform was the general conviction that the organization was functioning as it should.

“The Federal reserve system is not a panacea for all economic or financial ills,” Calvin

Coolidge said in his 1926 State of the Union address, but he claimed that it had enjoyed admirable success achieving its more modest agenda of “exercis[ing] a steadying influence on credit conditions.”349 Supporters of the Fed could point to the same evidence that Hoover’s partisans relied upon to trumpet their success: steady prices, a pacified business cycle, a thriving stock market, and an international economic order moving back toward the gold standard. Farmers complained, but their protests were drowned out by self-congratulation, and in 1927 Congress made the Fed’s charter permanent.

Stability within the bank meant that it would continue to serve another function less noticed by the public but of significant importance for economists. When Miller had joined the Federal Reserve Board in 1914, it did not even have an internal research division he could consult. By the 1920s, the Fed had become a major producer of economic knowledge. A sizable portion of the credit for that achievement was owed to

Walter Stewart, another former Veblen student and head of the Fed’s major research office for much of the decade. Stewart had worked under Wesley Mitchell during the war, and Mitchell’s glowing recommendation had convinced Miller to bring him onto the bank. There, Stewart represented Mitchell’s brand of empirically oriented economics,

349 Calvin Coolidge, Fourth Annual Message, December 7, 1926, Miller Center, Presidential Speech Archive, http://millercenter.org/president/coolidge/speeches/speech-3809.

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presiding over investigations designed to provide Fed officials with the data that would guide their decisions.350

What data should serve that purpose triggered fierce disagreement. “It is no accident,” one historian has observed, “that the age of measurement in economics coincides with the rise of central banking, for that epoch produced the statistical indicators that central bankers employ in conducting monetary and credit policy.”351

Abundant information provided grounds for radically different evaluations of economic conditions. These arguments were especially significant for policymakers in the United

States because the country’s enormous supply of gold provided them with considerable leeway in charting their course domestically. Global dominance was the hidden foundation of national autonomy.

Monetary theorists relied on competing sets of data to justify their evaluations.

Those who sided with Fisher looked to indicators that gauged the price level and money stock; adherents of the real bills doctrine preferred estimates of commercial loans and a measurement of industrial production that Stewart had helped create (which borrowed from an earlier statistic Mitchell had devised for the War Production Board). Where quantity theorists focused on shifts in the total money supply, their opponents looked to

350 William Yohe, “The Mysterious Career of Walter W. Stewart, Especially 1922-1930,” History of Political Economy, 14.4 (Winter 1982), 583-607 and “The Intellectual Milieu at the Federal Reserve Board in the 1920s,” History of Political Economy, 22.3 (Fall 1990), 465-488.

351 Thomas Humphrey, “Quantity Theory and Needs-of-Trade Measurements and Indicators for Monetary Policymakers in the 1920s,” History of Political Economy 33.5 (2001), 162.

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the uses money was put to; so long as credit matched the needs of business and was not funding speculation, they did not worry about inflation.352

Abstract disagreements had real consequences. As the 1920s came to a close, the booming stock market fostered anxiety over the prospect of inflation among real bills advocates at the Federal Reserve, a concern that baffled Fisher and other quantity theorists, who saw the country’s declining price level as proof that deflation was the more immediate threat. Strong, characteristically, preferred his own set of measurements, and balanced domestic concerns with his sense of responsibility for the international financial order.

Others just struggled to keep up. In a 1930 meeting with a governor on the

Federal Reserve Board, Fisher drew attention to a reduction in demand deposits, a key part of the money supply. The confused Governor responded by asking Fisher what demand deposits were.353

With an economic boom rolling along, ignorance seemed innocuous, even among the policymaking elite. The United States experienced two mild recessions after 1921, but these temporary interruptions did little to dampen the good feelings. For most people, the theories explaining prosperity were complicated, and the statistics dull. When combined with evaluations of their own experiences, arguments voiced by academics and politicians could help turn headlines in newspapers and snippets from radio broadcasts into a cultural fact: prosperity had arrived. This conviction was plausible enough to

352 Thomas Humphrey, “Monetary Policy Frameworks and Indicators for the Federal Reserve in the 1920s,” Federal Reserve Bank of Richmond Economic Quarterly 87.1 (Winter 2001), 65-92 provides an insightful overview of the relationship between monetary theories and statistical indices.

353Quoted in Allan Meltzer, “Lessons from the Early History of the Federal Reserve,” Atlantic Economic Journal 28.3 (2000), 275.

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legitimize the Federal Reserve in the eyes of Congress, but that was just one of its consequences. In 1927, with no end to the good times in sight, and a presidential election looming, one of the boom’s greatest beneficiaries—Herbert Hoover—launched what was at the time the most ambitious investigations of economic conditions in American history. Though it drew on the experience of previous surveys, the inquiry was a novel enterprise, and it had a novel object of investigation. Its goal, as the report that emerged from this process would explain, was “to observe and to describe the American economy as a whole.”354

THE MYSTERY FASCINATED AUDIENCES far outside the United States. “As you know,” Hoover wrote to the head of the Carnegie Corporation, “a number of investigating bodies have come here from Europe to look into the sources of American prosperity.”355 Hoover waved off those studies: “their contributions to our thinking are insignificant,” he wrote, adding that Americans would not “be satisfied with the superficial conclusions of strangers.”356 The time was ripe for such an inquiry.

Explorations of economic activity had multiplied in recent years—“at least four or five times as numerous as they were a decade ago,” by Hoover’s estimation. One observer judged the explosion of research tantamount to “the new Discovery of America.”357 But more work—much more work—lay ahead. Hoover believed “an overhauling of some of

354 Recent Economic Changes in the United States: The Report of the President’s Conference Committee, Herbert Hoover, Chairman, Including the Reports of a Special Staff of the National Bureau of Economic Research, Inc., vol. 1 (New York: McGraw-Hill Book Co., 1929), v.

355 Hebert Hoover to F.P. Keppel, October 26, 1928, Box 38, Hunt Papers.

356 Hoover to Keppel, October 26, 1928, Hunt Papers.

357 Gay Intro, Recent Economic Changes, 1.

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our basic statistics” was due, and he saw a thorough canvassing of the economic terrain as a valuable prelude to that project.358 Better data would lead to better policy, which was

Hoover’s other goal for the report.

Taming the business cycle had preoccupied Hoover since the postwar depression, and he depicted the forthcoming investigation as the next stage of the project begun with the Conference on Unemployment. As with that earlier venture, this would be the joint product of private and public efforts. It would be conducted under the auspices of a

Committee on Recent Economic Changes. Hoover superintended, while Hunt served as the Committee’s secretary. But, as with Business Cycles and Unemployment, the research was led by the NBER, with funding supplied by the Laura Spelman Rockefeller

Memorial and the Carnegie Corporation. The biggest change was intellectual, not structural, and it was evident in the broad sweep of the title given to the volume that resulted from the investigation: Recent Economic Changes in the United States.

Following another pattern set by prior experiments in managing the cycle, publicity was crucial. In January 1928 the New York Times announced that Hoover had brought together “leading business men and economists” for “a broad inquiry into changes in economic currents.” (References to “the economy” were becoming more frequent, but the concept was unfamiliar enough to require locutions that would strike later generations as strange linguistic contortions.) The template for the project was already set, but the article noted one significant departure from precedent. As Wesley

Mitchell explained, where the Conference on Unemployment was called “to learn why things had gone wrong in business following the war,” this sequel was supposed “to find out why the nation has done so well economically since 1923.” Especially puzzling was

358 Hoover to Keppel, October 26, 1928, Hunt Papers.

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the coinciding of general prosperity with a falling price level.359 “Economists are thoroughly at sea in endeavoring to explain the current phenomenon,” Mitchell admitted; but if the committee met Hoover’s request they would supply “a basis for drawing rules for continued prosperity in the future.”360

Over the next year, accounts of the committee’s work leaked out in dribs and drabs, building anticipation for the final document. Early in 1929, the Times reported

“much interest today in an announcement that a compilation of the findings of the

Committee on Recent Economic Changes of the President’s Unemployment Conference was nearing completing.”361 Between the first story and this latest update, Hoover had won a landslide election to the presidency, lending special weight to the findings of a group so associated with the new president. More previews followed: a story on the

Committee’s research on railroads, one on women’s purchasing habits, another on construction, then prices.362

Finally, in May 1929, came the debut. “I have never known anything like the interest in Recent Economic Changes,” Hunt had written to Edwin Gay two weeks earlier.363 (Probably forgetting he had said virtually the same thing about Business Cycles

359 According to one preferred contemporary estimate, the Consumer Price Index, prices fell from 1920 to 1923 and 1926 to 1929: http://data.bls.gov/pdq/SurveyOutputServlet.

360 “Leaders to Survey Economic Currents,” New York Times, January 27, 1928, 23.

361 “Hoover Economic Body Will Report in May,” March 17, 1929, New York Times, 2. For background on the conference, see Carolyn Grin, “The Unemployment Conference of 1921: An experiment in National Cooperative Planning,” Mid-America: An Historical Review 55 (April 1973), 83-107.

362 “Reports Railroads at High Efficiency,” May 26, 1929, New York Times, N1; “Study Shows Shift in Women’s Buying,” March 17, 1929, New York Times, N21; “High Building Rate Held Business Aid,” April 28, 1929, New York Times, 14; “Greater Firmness in Prices Reported,” April 28, 1929, New York Times, 41.

363 Edward Hunt to Edwin Gay, May 2, 1929, Box 38, Hunt Papers.

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and Unemployment.364) “Both here and in New York we have been stormed by newspaper and magazine men,” Hunt continued. “Our publicity men tell me that it is unprecedented in their experience.”365 Its publisher, McGraw-Hill, received more than two thousand advance orders for the book. By April 1930, the full report had gone into its fourth printing and, Hunt bragged, was “constantly referred to in magazines, newspapers and public addresses.”366 Those who lacked the zeal required to make it through the two- volume document could refer to an abridged one-volume edition that later appeared.

There was an international audience for its findings as well, and a Russian edition was released that May. Closer to home, a movement emerged at Columbia University to add

Mitchell’s summary chapter to its course on Contemporary Civilization, a survey course that had been hastily assembled during the Great War to stiffen undergraduate resolve for the battle against the Kaiser by familiarizing them with Columbia’s version of the

Western canon.

Americans with less grandiose pretensions could turn to their newspapers for summaries of the report. The New York Times greeted the story with a lavish spread under the headline “The Rise of a New America: A Stirring Drama Underlies the Report on Economic Changes.” After initial complaints about the abundance of material spread, the Times remarked on the “national interest” excited by this moving tale “of human achievement, of revolutionary social and cultural change, of swiftly shifting scenes of human life and work.” Announcing that “no greater changes have come upon the economic and social life of a community than in the United States during the past two

364 Edward Eyre Hunt to Frederick Keppel, October 26, 1923, Box 37, Hunt Papers.

365 Hunt to Gay, May 2, 1929, Hunt Papers.

366 Edward Eyre Hunt to Edwin Gay, April 22, 1930, Box 39, Hunt Papers.

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decades,” the newspaper trumpeted Recent Economic Changes as the best available rendition of a drama with world-historical significance.367

What were the contents of the report that aroused such enthusiasm? They included discussions of construction, transportation, marketing, labor, management, agriculture, price movements, money and credit, foreign markets, and national income. Mitchell described it as a “moving picture of the economic changes now going on in the United

States,” combining “scenes from real life” with “impersonal records” supplied by economic statistics.368 “No individual is equipped to gather and to analyze all of the evidence which should be canvassed,” he argued, which is why the NBER relied upon a team of specialists to survey the transformations that had remade the United States:

“engineers, business executives, public officials, bankers, economists, statisticians, labor specialists, and agricultural experts,” the standard roll call in Hoover’s program for modern governance.369

Speed was the clue to unraveling the mystery Hoover had called upon his experts to solve. Americans had earned their prosperity—and the report emphasized that prosperity was earned—by working existing resources more intelligently. Two factors loomed especially large in this narrative: scientific progress and the triumph of finance.

“Besides being an era of extraordinary technical advance,” the report observed, “the present is likewise, as in no other stage of history, a money and credit age.”370 The spread of electricity symbolized one advance, the growing sophistication of finance the other.

367 Evans Clark, “The Rise of a New America,” June 16, 1929, New York Times, BR1.

368 Recent Economic Changes, 841.

369 Recent Economic Changes, 842

370 Recent Economic Changes, 753.

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Both accelerated the pace of economic activity driving the economic boom. Minds, not bodies, were the agents of this revolution; they had devised the “intricate machine” responsible for prosperity.371

Those complex mechanisms were susceptible to breakdowns, a weakness that compelled the state to take up a new role. The pace of economic activity would continue to accelerate “only if we develop a technique of balance.”372 Prosperity was the product of a delicate but dynamic equilibrium, and the perpetuation of this order could not be left to chance, or, what amounted to the same thing, the whims of private actors. “[T]he outstanding fact which is illuminated by this survey,” the report argued, was that

Americans must “consciously accept the principle of equilibrium and apply it skillfully in every economic relation.”373 Justifying both its own existence and Hoover’s domestic agenda, the report insisted that Americans would “learn to maintain the economic balance” only with “incessant observation and adjustment of our economy.”374

Shuttling across scales was essential to this project. Mastery of the system as a whole rested “upon a general knowledge of the relations of the parts each to the other.”375

No comprehending the particular without understanding the general, or the general without the particular. The leaps could be jarring: from estimates of national unemployment to apologies for the absence of “accurate figures on the production of

371 Recent Economic Changes, xxi.

372Recent Economic Changes, xxii.

373Recent Economic Changes, xx.

374Recent Economic Changes, xxii.

375 Recent Economic Changes, xxii.

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electric refrigerators which produce their own ice.”376 After almost a decade of work, the

NBER was no closer to distilling the findings of their grand surveys into an elegant model. Complexity remained the Bureau’s watchword, and their report had made it into a guiding principle for national policymaking.

Attention to detail could turn up remarkable discoveries, including the spread of a similar commitment to rationalizing economic life among the nation’s business leaders.

Noting the surging popularity of budget-making among businesses—about eighty percent of businesses with budgets, the report estimated, had adopted them after 1920—the committee celebrated the ordering of a previously chaotic realm. In these undertakings, it saw “the germ of what is likely some day to be a full-fledged and functionalized

Department of the Future” that would allow businesses to predict and accommodate swings of the business cycle, internalizing “the principle of balance” Hoover and his allies brought to the government.377 The federal government had also joined in the trend, establishing both the Bureau of the Budget and General Accounting Office in 1921.

As for monetary policy, the report devoted only part of a single chapter to an explicit assessment of the Federal Reserve. Arguing that such an appraisal should “be done tentatively” because the Fed was just “one of many influences” on recent economic history, the report dwelled on the institution’s role as manager of gold flows and guardian of the international monetary system.378 Eventually, however, it moved to less cosmopolitan matters, concluding that while there was “no convincing proof that the

376 Recent Economic Changes, 58.

377 Recent Economic Changes, 546.

378 Recent Economic Changes, 696.

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Reserve System has reduced the fluctuations of the business cycle” it seemed likely that

“its influence has been in that direction.”379

The report was just as cautious when addressing national income. Emphasizing that the statistics “need to be used with care,” it described them as “not perfectly accurate” and possessed of “several different meanings.” “Conditions in different countries are so dissimilar that international comparisons are fraught with danger,” it warned.380 Matters were also tricky within the United States. National measures reflected

“an era of great prosperity,” but regional breakdowns revealed this prosperity was mostly confined to sections of the country that accounted for under half the total population.

Steering clear of political controversy, it found “little satisfactory information on the question as to distribution of national income among the different income classes.”381 The evaluation of national income—the first topic investigated by the NBER; the last chapter in the body of the report—might have provided the opportunity for grandiose statements on the progress of knowledge. Those did appear elsewhere, but the report approached this essential subject with humility.

This careful tone helped account for the warm reception that Recent Economic

Changes found among both academics and the general public. The Nation judged it

“probably as good a picture of the economic position of the United States as it is possible to draw,” and even found justification for a repudiation of Republican policies. 382 “There is no ground in this whole study,” it claimed, “for prosperity ‘blah’ of the Coolidge

379Recent Economic Changes, 707.

380 Recent Economic Changes, 762.

381 Recent Economic Changes, 838.

382 Henry Mussey, “Spying Out the Land,” September 4, 1929, The Nation, 251.

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variety.”383 The New Republic was even more enthusiastic. Its editors noted the occasionally questionable statistics the committee had to rely upon and nodded to the duller aspects of a project that was “long,” “not easy reading,” and “full of statistical tables and charts.”384 But the magazine urged readers to look deeper: through inquiries that might appear “of slight import or dull” ran “the golden thread of enthusiasm for the effort of modern man to master his economic processes for the greater fulfillment of human life.”385 That was a dream worth sacrificing for, even if the sacrifices required wading through tomes filled with sentences like “The per capita use of cereals in the

United States—notably corn meal and wheat flour—has tended downward for many years.”386 Acknowledging the possibility that “those with the greatest economic power” might have bent the social order to their will, the magazine’s editors insisted that a struggle against this corrupt elite would be futile without a precise grasp of the situation confronting them and a set of institutions to build an alternative model.387

For academics, the details were part of the book’s triumph. “No nation ever before had nearly as much information about its own economic life,” declared a reviewer in the Journal of Political Economy.388 The statement was echoed by William Ogburn, a dissenter in the Conference on Unemployment—he endorsed more extensive measures than Hoover preferred—who claimed that “never before has the economic life of a nation

383 Mussey, “Spying Out the Land,” 252.

384 “An Economic Program,” July 10, 1929, The New Republic, 191.

385 “An Economic Program,” 193.

386 Recent Economic Changes, 31.

387 “An Economic Program,” 193.

388 Charles Hardy, “Review: Recent Economic Changes in the United States,” Journal of Political Economy 38.2 (April 1930): 215.

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been so exactly measured and analyzed.”389 No wonder a statistician remarked on the

“virtually unanimous praise” Mitchell and his colleagues had received.390

The book was widely discussed, but even more telling than the number of articles was their character. After the glowing tributes, reviewers often moved to expansive ruminations on the issues raised by the report. A British economist found in it evidence for “a contest between two types of civilisation”—an American variety dedicated to maximizing production and consumption, and a European alternative willing to trade a reduction in per capita output for greater equality, more worker autonomy, and the preservation of artisanal craftsmanship.391 For Richard Ely, an honored member in the generation of economist’s that preceded Mitchell’s, the report provided an opportunity to announce the victory of a reforming project within economics that he traced back to the founding of the American Economic Association almost half a century earlier. According to Ely, that generation had been guided by the belief that “A new world needs a new political economy.”392 Zeal for empirical research defined this new political economy— or new economics, as it would soon be dubbed. And a generation later, Recent Economic

Changes marked the latest milestone on this path.

389 William Ogburn, “Review: Recent Economic Changes in the United States,” American Journal of Sociology 35.2 (September 1929), 312-313.

390Arthur Marget, “Review: Recent Economic Changes in the United States,” Journal of the American Statistical Association 25.169 (March 1930), 104.

391 T.E. Gregory, “Is America Prosperous?” Economica 28 (March 1930),13. For a related argument, see Charles Maier “Between Taylorism and Technocrazy: European Ideologies and the Vision of Industrial Productivity in the 1920s,” Journal of Contemporary History 5.2 (1970), 27-61 and “The Politics of Productivity: Foundations of American International Economic Policy after World War II,” International Organization 31.4 (Autumn 1977), 607-633.

392 Richard Ely, “The New Economic World and the New Economics,” Journal of Land & Public Utility Economics 5.4 (November 1929), 341.

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While Ely looked to the past, one of the few critical reviews came from a young economist with his gaze locked on the future. Arthur R. Burns taught economics at

Barnard, across the street from Mitchell at Columbia. (He was not related to Arthur F.

Burns, a Mitchell protégé who later became a professor at Columbia and research director at the NBER.) Collegiality did not stop Burns from writing that “the study has revealed no new relationships between economic phenomena” and complaining that despite its quantitative rigor the report had “failed to yield a sharper or more comprehensive and satisfying picture” of its subject.393 Burns placed a sizable portion of the blame on one of the report’s most novel features. The NBER had been tasked with scrutinizing “the

American economy as a whole,” but that mission, Burns argued, was fraught with

“vagueness” and “ambiguity.”394 The economy might be a striking formulation, but it offered “no precise standard of relevance” for investigation.

For Burns, this pointed to a still deeper problem: “the difficulty of classifying the data of the economic world into existing analytical categories,” he argued, suggested the need for “a new system of categories.”395 Especially necessary, he believed, were statistics that could build “bridges between the categories in which the data are available and those in which the economist and, to a large extent the common man thinking economically, expresses himself.” These categories would have to satisfy both practical and theoretical requirements. Based upon data that could “in practice, be made

393 Arthur Burns, “The Quantitative Study of Recent Economic Changes in the United States,” Weltwirtschaftliches Archiv 31 (1930), 542.

394 Burns, “Quantitative Study,” 543.

395 Burns, “Quantitative Study,” 543, 545.

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available,” they would also have to “prove capable of interrelation” and reflect the connectedness of the phenomena they captured.396

When they paused to reflect, even the most enthusiastic proponents of Recent

Economic Changes acknowledged flaws in the report. Gay and Mitchell conceded that

“exigencies of time and space” pushed them to work faster than they preferred.397

Commenting on similar research projects undertaken by Germany and the United

Kingdom, Hunt remarked in May 1929 that “Fact-finding seems to be in fashion the world over.”398 But he later acknowledged that a global trend had fostered a provincialism of its own: “The method adopted implies an isolation of American society” that, he wrote to Mitchell, “while a convenience for research purposes, falsifies the findings.”399

Such concessions did little to curb celebrations of their accomplishments.

Technical achievements were made all the sweeter by electoral validation. Hoover had won election to the presidency just a few months earlier with almost sixty percent of the popular vote, and an even more lopsided victory in the electoral college. Whatever their disagreements on economic theory, Mitchell and Fisher united in their approval of

Hoover. Fisher made his endorsement in the New York Times, where he depicted Hoover as heir to the reforming tradition embodied by Roosevelt and Wilson in an earlier generation and as “a practical economist . . . to whom is due more largely than to any

396 Burns, “Quantitative Study,” 545.

397 Edwin Gay and Wesley Mitchell, “Annual Report of the Directors of Research,” February 4, 1929, 2, available at http://www.nber.org/chapters/c12277.pdf.

398 Edward Eyre Hunt, “Under the Microscope,” May 10, 1929, Box 58, Hunt Papers.

399 Edward Eyre Hunt to Wesley Mitchell, Feb 17, 1932; President’s Research Committee Social Trends Correspondence, Individual File, 1930-1934, Hoover Archives, Box 21.

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other one man improvement in our prosperity.”400 The president as “practical economist”: it truly was a new era.

“[W]E HAVE REACHED A HIGHER DEGREE of comfort and security than ever existed before in the history of the world,” Hoover intoned from the steps of the

Capitol.401 Technological innovation made Hoover’s the first inaugural address captured on talking newsreel, and he intended to carry that same ardor for experimentation to the

White House. Nowhere was this spirit more evident than in his plans for economic policy. Just a few years earlier, he had insisted that “Our Government’s greatest troubles and failures are in the economic field,” where it sought to navigate “economic seas” that were “new and only partly discovered.”402 Almost a decade of research had illuminated much that was previously shrouded in darkness. Now Hoover was looking to the next step.

The American economy was a monumental subject of inquiry, but the economy was one part of an even larger entity—society—that Hoover believed was now ready for its own comprehensive investigation. Funded by a grant of over half a million dollars from the Rockefeller Foundation, it would provide the culmination of a mission that had occupied him since the war.403 Once again, the choice to lead the project was obvious:

Wesley Mitchell.

That was not the only social scientific endeavor making demands upon Mitchell’s

400 “Fisher Says Hoover Is ‘A Genuine Dry,” July 30, 1928, New York Times, 3.

401 Herbert Hoover, “Inaugural Address,” March 4, 1929, available at http://www.presidency.ucsb.edu/ws/?pid=21804.

402 Hoover, American Individualism, 51.

403 Reagan, Designing a New America, 75.

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attention. The NBER continued its work, but Mitchell carved out time to serve on the

“Advisory Council” for a new but promising organization called the Econometric

Society. Founded in 1930, its lengthy full title characterized it as “an International

Society for the Advancement of Economic Theory in its Relation to Statistics and

Mathematics.” Though launched in the United States—in a Cleveland hotel, to be precise—membership reached outside the nation’s borders from the outset. Soon its ranks swelled to include many of the profession’s most prominent figures, including John

Maynard Keynes, , , and Nikolai Kondratieff, along with less remembered figures like the NBER’s Malcolm Rorty and Carl Snyder, one of the Federal Reserve’s few quantity theory sympathizers. It was an impressive collection, but when it came time to select the society’s first president the decision was as uncontroversial as selecting Mitchell had been for Hoover’s investigation of society:

Irving Fisher.

A patron in the White House, major research initiatives, advances within the academy—economists had achieved considerable progress in the past decade, and conditions seemed ideal for sustaining their forward march. Prosperity had kept the stakes of disputes among economists low. Outside their rarified circles, theoretical disputes mattered far less than the more pragmatic conviction that deft economic governance had led to unprecedented prosperity. Scientific management of the American economy was a new conceit, like the idea of the economy itself. In the early months of

1930, it was just one concern among many, subordinate to the more ambitious program of mastering society that Mitchell and his colleagues were about to undertake. The business cycle theories propagated by the NBER, the quantity theory advocated by Fisher, and the

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conflicting interpretations bruited about within the Federal Reserve—advocates of all these positions could find evidence for their cause in the history of the last decade.

Looking back on this period, Mitchell recalled that at the time “it was hard not to believe that we had solved all our major economic problems.”404 Not even Wall Street’s dramatic crash in October 1929 could dampen their spirits. Four months later, Mitchell was still warning about the threat not of a collapse in employment but of “the danger that we may upset our working by producing too many goods.”405 The one hundredth issue of the Commerce Department’s Survey of Contemporary Business had recently maintained that “While it may be too early to say that the utilization of business data has entirely eliminated the business cycle, there is agreement today among business leaders everywhere that the wider use of facts will mitigate in a large degree many of the disastrous effects of the one-time recurrent business cycle.”406 Mitchell seconded this confident appraisal. Judging the government’s reaction to the downturn a subject “of great technical interest,” he lauded early steps from Hoover to “organiz[e] the economic forces of the country to check the threatened decline at the start.”407 “A more significant experiment in the technique of balance,” he added, “could not be devised than the one which is being performed before our eyes."408

404 Wesley Mitchell, "Economic Trends in the United States,” February 24, 1933, Box 26, Series 9, Mitchell Papers.

405 Wesley Mitchell, "Industrial Equilibrium in a Business Economy,” Bulletin of the Taylor Society 15.1 (February 1930), 5.

406 Quoted in Barber, From New Era to New Deal, 82.

407 Mitchell, "Industrial Equilibrium,” 6.

408 Mitchell, "Industrial Equilibrium,” 6.

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Chapter 3: The Politics of the Economy

A DIRE WARNING FOR THE NEW YEAR greeted readers of the New York Times when they opened their newspapers on January 2, 1933. A committee of “fifty eminent authorities and many assistants” organized by President Hoover had concluded “that the

United States could have no assurance against violent revolution if it failed to coordinate its governmental, economic, scientific and educational forces by some form of integrated national planning.”409 A special eight-page section within the paper reprinted the committee’s official summary of its findings, with, the Times noted, “the pages being so arranged that they can be detached and folded for preservation.”410 It was a document worth remembering.

But it was not the document Hoover had envisioned three years earlier when he announced the formation of a Research Committee on Social Trends. Staffed by “trained technicians” concerned with “strictly scientific research,” the committee would produce a sequel to the blockbuster report on Recent Economic Changes published earlier that year.411 Building on the success of its predecessor, the new study—titled, filially, Recent

Social Trends—would synthesize the results of the inquiries that had occupied Hoover’s attention for almost a decade. At each step, the ambitions of the reports had expanded, advancing from industrial efficiency to unemployment to business cycles to the American

409 “Long-Range Social Plan for Nation Urged by Hoover Board to Stabilize Economic System and Curb Unrest,” New York Times, January 2, 1933, 1. On the Committee’s work, see William Tobin, “Studying Society: The Making of Recent Social Trends in the United States, 1928-1933,” Theory and Society 24.4 (August 1995), 537-56.

410 “Long-Range Social Plan,”1.

411 Herbert Hoover, “White House Statement on the Appointment of a Research Committee on Social Trends,” December 19, 1929, available at http://www.presidency.ucsb.edu/ws/?pid=22047.

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economy as a whole. But there was one final stage left—a study of society that would synthesize these earlier efforts while placing them in the largest possible context.

Two weeks before unveiling his latest foray into combining the social sciences with the arts of governing, Hoover used his first State of the Union address to celebrate the country that made his project possible. Bound together by economic, social, religious, and national ties, Americans had “created a solidarity in a great people unparalleled in all human history.”412 The stock market crash of October had threatened that harmony, but quick action by the Federal Reserve had limited the damage to the financial sector and protected the world outside Wall Street from spreading contamination.

As the months passed and the scale of what Hoover later called “the greatest economic emergency in all the history of the world” came into sight, the assumptions that had framed the committee’s inquiry at the outset—domestic tranquility, economic stability, national unity—became increasingly untenable.413 On its surface, the investigation remained a quintessential Hoover product. Though initiated by the president, the committee was organized by an independent group of expects funded with a hefty contribution from the Rockefeller Foundation and chaired by Wesley Mitchell.

Yet this familiar cast of characters produced a report the Nation judged, in a triumphant editorial, “the most formidable revolutionary document in our day and country.”414 “It is no slight irony,” the magazine observed, that “under the aegis of the apostle of ‘rugged individualism,’ . . . the interpretative material was assembled which

412 Herbert Hoover, “Annual Message to Congress on the State of the Union,” December 3, 1929, available at http://www.presidency.ucsb.edu/ws/index.php?pid=22021.

413 Herbert Hoover, “Address Accepting the Republican Presidential Nomination,” August 11, 1932, available at http://www.presidency.ucsb.edu/ws/?pid=23198.

414 “A Revolutionary Document,” Nation, January 18, 1933, 53.

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makes plain the imminence of and the imperative necessity for a profoundly altered political, economic, and social order.”415 The president appeared to distance himself from his prized endeavor, writing in a terse foreword that the report was “entirely the work of the committee.”416 He signed this introduction in October 1932, a month before his overwhelming loss Franklin Roosevelt in that year’s election.

Hoover left Washington soon after, but members of the Committee on Social

Trends received a warm welcome from the new administration. Roosevelt had promised the nation a New Deal, but he left the contents of that program vague. The spirit of his pledge, though, was echoed by Hoover’s experts. Declaring that “the line between so- called ‘pure’ economics and ‘pure’ politics has been blurred” almost beyond recognition,

Recent Social Trends urged the creation of “hybrid” entities, “quasi-governmental agencies” adapted to the “new social boundaries” of the age.417 The country faced a

“bewildering confusion of problems,” including “dangerous torsions and tensions in our social arrangements” and rising fear of “plutocratic dictatorship.” 418 But there were grounds for optimism too. Lauding the readiness with which Americans had previously embraced scientific advances and the country’s growing comfort with planning—an attribute “keenly appreciated by the Soviets”—Mitchell and his colleagues expected the nation would emerge from its trials intact.419

415 “A Revolutionary Document,” 53.

416 President’s Research Committee on Social Trends, Recent Social Trends in the United States (New York: McGraw-Hill, 1933), v.

417 Recent Social Trends, lxii.

418 Recent Social Trends, xii, xv, lxviii.

419 Recent Social Trends, lxix.

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Reviving one of Hoover’s favorite themes, the committee insisted that American institutions would be preserved only if they were transformed—transformed not by the collision of forces beyond human control, but by government planners guided by a cohesive vision of the society they wished to make. And there was no doubt that

“society” was the center of this vision. Noting “the emphasis upon ‘society’ as the dominant ‘entity’” in the report, the Wall Street Journal shrewdly observed that the document portrayed the social order “as a machine with many parts and it lays the troubles of our time to a lack of synchronization in the changes affecting each one of those parts.”420

Dedication to viewing society as a totality shaped the committee’s views on what the government should do next. Committed to stitching together a nation they feared was breaking apart, the authors urged the adoption of a “new synthesis” in planning that brought together “the scientific, the educational, as well as the economic (including here the industrial and agricultural)”—in short, all the forces “inextricably intertwined in modern life.”421 This new order would baffle ideologues, but its necessity was clear to

“the student of social trends.”422 Ending with language more suited to a sermon than a bureaucratic document, the report trumpeted its own role in “the construction of the new symbols to thrill men’s souls,” along with the “new ideals, ideas and emotional values”

423 that would make possible novel “ways of life” in the world to come. The great challenges of the day could only be mastered if experts placed them within their social

420 Thomas Woodlock, “Society’s Future,” Wall Street Journal, January 13, 1933, 1.

421 Recent Social Trends, lxxiii-iv.

422 Recent Social Trends, lxiii.

423 Recent Social Trends, lxxv.

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context, revealing the hidden threads tying seemingly disconnected phenomena together.

There was one society, and one common good.

Roosevelt offered a ringing endorsement of that principle on the same day he replaced Hoover as president. In his inaugural address, Roosevelt explained that the

“basic thought” behind his incoming administration’s program was “insistence…upon the interdependence of the various elements in and parts of the United States,” an interdependence Americans “now realize[d] as we have never realized before.”424 He gave this sentiment colloquial expression in an early fireside chat, where he told listeners that the strategy behind his recovery program was inspired by “the basic idea of society” and the connected belief “that people acting in a group can accomplish things which no individual acting alone could even hope to bring about.”425 Roosevelt depicted his administration as a radical break from Hoover’s, and in crucial respects it was. But, consciously or not, he was reiterating a central claim from the Committee on Social

Trends. “The outstanding problem,” according to their report, was “that of bringing about a realization of the interdependence of the factors of our complicated social structure.”426

The continuity was both intellectual and institutional. In the words of Mordecai

Ezekiel—an economist at the Department of Agriculture under Hoover who transitioned smoothly to the Roosevelt era—“There were a lot of, if you want to call them, ‘economic liberals’ working in Washington and who, as a result of our experience, were developing

424 Franklin Roosevelt, “Inaugural Address,” March 4, 1933, available at http://www.presidency.ucsb.edu/ws/index.php?pid=14473.

425 Franklin Roosevelt, Fireside Chat (Recovery Program), July 24, 1933, available at http://www.presidency.ucsb.edu/ws/?pid=14488.

426 Recent Social Trends, xii.

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ideas and proposals and the Roosevelt Administration took them and used them.”427 That number included the two most important members of the team that produced Recent

Social Trends—the University of Chicago political scientist Charles Merriam, and

Wesley Mitchell himself, both of whom joined a new government organization called the

National Planning Board. Over the next decade, the group would shuffle through names, becoming first the National Resources Board, then the National Resources Committee, before finally landing on a synthesis in 1939 that dubbed it the National Resources

Planning Board. Despite the shifting nomenclature, it remained a bastion for those who hoped to apply the social sciences to the problems of government.428

Enthusiasm for that project was not confined to Washington. The Great

Depression ushered in a boom for peddlers offering cures to the nation’s ills. It was a time when responsible figures complained about a country gone “technocrazy” for

Technocracy, a movement claiming that prosperity would resume if the dollar was replaced with a price system administered by experts and based on energy consumption.429 And that was still one of the more respectable options.

Writing for the New Republic, John Maynard Keynes outlined an alternative path, turning the crisis into the jumping-off point for an expansive reflection on the

427 Mordecai Ezekiel, interviewed by Dean Albertson, 1956, Columbia University Oral History Collection, Columbia University, New York, New York.

428 On the National Planning Board and its descendants, see Landon Rockwell, “The Planning Function of the National Resources Planning Board,” Journal of Politics, 7.2 (May 1945), 169-178; Barry Karl, Charles E. Merriam and the Study of Politics (Chicago: University of Chicago Press, 1974); Philip Warken, A History of the National Resources Planning Board, 1933-1943 (New York: Garland Publishing, Inc. 1979); Marion Clawson, New Deal Planning: The National Resources Planning Board (Baltimore: The Johns Hopkins University Press for Resources for the Future, 1981); and Reagan, Designing a New America.

429 Peter Kuznick, Beyond the Laboratory: Scientists as Political Activists in 1930’s America (Chicago: University of Chicago Press, 1987), 50. On Technocracy, see William Akin, Technocracy and the American Dream: The Technocrat Movement, 1900-1941 (Berkeley: University of California Press, 1977).

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relationship between economic efficiency and social welfare. Although he described his

“ideal” as a society that “put economic considerations into a back seat,” achieving that goal required a temporary sacrifice. “For the next twenty-five years,” he wrote,

“economists, at present the most incompetent, will be nevertheless the most important,

[sic] group of scientists in the world.”430 That would mean passing through a “horrid interval when these creatures mattered.”431 But there was an upside: “it is to be hoped—if they are successful—that after that they will never be important again.”432

According to Keynes, the Depression had turned longtime pillars of the socialist agenda like centralized control of investment and a more egalitarian income distribution into economic necessities. Yet socialists had not realized that the ground had shifted under their feet. Blind to the changing times, they clung to obsolete principles, like faith in the gold standard and a conviction that falling wages could restore prosperity. Keynes portrayed a topsy-turvy world where bourgeois economics called for socialist politics, while actually existing socialists remained prisoners of economic orthodoxy. Only in this confused period, where economic crisis and intellectual uncertainty fed off each other, did the economist deserve a central role in policymaking, and economic efficiency merit as much consideration as social welfare.

It was a strange image, not least because of how much it contrasted with the vision outlined in Recent Social Changes. Hoover’s team had insisted on the primacy of the social, the inevitability of planning, the need for a recasting of American values, and

430 John Maynard Keynes, “The Dilemma of Modern Socialism,” New Republic, April 13, 1932, 228.

431 Keynes, “Dilemma,” 228.

432 Keynes, “Dilemma,” 228.

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the useful but ultimately subsidiary place of economists. Keynes offered a more modest prescription, stripped of exhortations to spiritual rejuvenation but readier to accord economists a crucial part in making a new society.

Ultimately, neither of these would-be prophets grasped what was to come, even though both helped bring it into being. Within a generation, a system of planning had emerged that was as ambitious in its own way as anything Mitchell and his colleagues had imagined. The system, however, was staffed by economists dedicated to managing the economy, not to controlling society. This commitment required its own set of institutions, and it vested economists with a significance that proved far more durable than Keynes had foreseen. In retrospect, it was common for the agents of this transition, and later historians, to describe it as a pragmatic response to shifting circumstance. But that perspective obscures all of the work needed to make the transition seem like a self- evident response to the necessities of the moment.

While New Dealers set up shop in Washington—moving into offices, building networks, and planning their first steps—advocates of conflicting agendas jostled for supremacy. Though confident in these heady early days, they acted in a world of profound uncertainty— uncertainty over what theories could make sense of the crisis; uncertainty over whether the upheaval spreading across the planet would reach the United

States; uncertainty over whether American democracy could weather the coming storm.

Lacking reliable measurements, they did not even know how bad economic conditions had become.

A profusion of theories, statistics, institutions, and other tools for making sense of the Depression arose in response to this confusion. Reactions to a crisis that

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contemporaries viewed as a fundamental challenge to society, they underpinned a new phase in the campaign to reinvent government that Hoover had once embodied. Hoover’s successors built on his legacy while making it serve purposes of their own.

Understanding this shift requires moving across scales, from the speeches of presidents to the ruminations of journalists to the debates of academics to the pages of bureaucratic reports. An examination of the change could begin at any of these levels, and it must eventually cross all of them, but it helps to start with the officials who bore the brunt of the novel obligation to govern the economy.

WHILE HOOVER STYLED HIMSELF an engineer in politics, claiming a scientific authority that lifted him above the messiness of democratic debate, Franklin Roosevelt made an ethic of political life.433 Historians have long sought to make sense of the almost volcanic eruption of government activity that took place during FDR’s administration by slicing the New Deal into discrete segments.434 But New Deal Washington contained

433 Kenneth Hendrickson, Jr., “FDR Biographies,” in A Companion to Franklin D. Roosevelt, ed. William Pederson (Oxford: Wiley-Blackwell, 2011), 1-14 offers a guide to the vast literature on Roosevelt’s life. Among the biographies, Frank Freidel’s four-volume series remains essential, but also see the single-volume condensation, Franklin D. Roosevelt: A Rendezvous with Destiny (Boston: Littler, Brown and Company, 1990).

434 As large as the scholarship on Roosevelt is, it is dwarfed by research on the New Deal. Arthur Schlesinger, Jr. is still the best starting point: The Age of Roosevelt: The Crisis of the Old Order, 1919-1933 (Boston: Houghton Mifflin Company, 1957); The Age of Roosevelt: The Coming of the New Deal (Boston: Houghton Mifflin Company, 1959); and The Age of Roosevelt: The Politics of Upheaval (Boston: Houghton Mifflin Company, 1960). William Leuchtenburg, Franklin D. Roosevelt and the New Deal, 1932-1940 (New York: Harper and Row, 1963) covers a longer period in a shorter space but largely follows Schlesinger’s interpretation. Ellis Hawley, The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence (Princeton: Princeton University Press, 1966) and Barry Karl, The Uneasy State: The United States from 1915 to 1945 (Chicago: University of Chicago Press, 1983) broke from the liberal triumphalism of these accounts, while James Patterson, Congressional Conservatism and the New Deal: The Growth of the Conservative Coalition in Congress, 1933-1939 (Lexington: University of Kentucky Press, 1967) emphasized the opposition Roosevelt encountered. A generation later, Colin Gordon, New Deals: Business, Labor, and Politics in America, 1920-1935 (Cambridge: Cambridge University Press, 1994) provided the most sophisticated account of business support for the New Deal yet published, while Alan Brinkely’s The End of Reform: New Deal Liberalism in and War (New York: Alfred A

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multitudes. Devotees of balanced budgets and a constricted state competed for influence with—and sometimes found unlikely allies in—fellow travellers straddling the division between socialist and communist (along with official party members).435 This was a time when a young radical could remark in a letter home that “Without revolution which transfers power to the workers and sets up a socialized state, little will be gained,” and then return to his day job as legislative assistant and privileged counselor to one of the nation’s most influential senators.436 One of the few characteristics that united this ideological menagerie was the conviction that the country was in crisis—and, perhaps, appreciation for the irony that Hoover’s attempt to transcend politics had given rise to such ferocious political debates.

Caricatured as a disciple of laissez-faire by contemporary rivals and some later scholars, Hoover responded to the Great Depression with what he described in his campaign against Roosevelt as “the most gigantic program of economic defense and

Knopf, Inc., 1995), reflecting the chastened spirit of liberals of the 1990s, explored the grim fate of reformist initiatives after Roosevelt’s first term. Landon Storrs accepts Brinkley’s assessment of stifled reformers but places more weight on state repression in The Second Red Scare and the Unmaking of the New Deal Left (Princeton: Princeton University Press, 2013); the fragility of the New Deal is also emphasized by Jefferson Cowie in The Great Exception: The New Deal and the Limits of American Politics (Princeton: Princeton University Press, 2016). Daniel Rodgers, Atlantic Crossings, 409-484 and Kiran Patel, The New Deal: A Global History (Princeton: Princeton University Press, 2016) have done much to de-provincialize this history. Ira Katznelson, Fear Itself: The New Deal and the Origins of Our Time (New York: Norton, 2013) has set the new standard for New Deal scholarship, and in the process given new standing to a more tempered version of Schlesinger and Leuchtenburg’s enthusiasm for the era’s achievements.

435 On economic theory and the New Deal, see William Barber, Designs Within Disorder: Franklin D. Roosevelt, the Economists, and the Shaping of American Economic Policy, 1933-1945 (Cambridge: Cambridge University Press, 1996); Dean May, From New Deal to New Economics (New York: Garland Publishing, 1981); Albert Romasco, The Politics of Recovery: Roosevelt’s New Deal (New York: Oxford University Press, 1983); Theodore Rosenof, Economics in the Long Run: New Deal Theorists and Their Legacies, 1933-1993 (Chapel Hill: University of North Carolina Press, 1997); Elliot Rosen, Roosevelt, the Great Depression, and the Economics of the Recovery (Charlottesville: University of Virginia Press, 2005); and Eric Rauchway, The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace (New York: Basic Books, 2015). Daniel Fusfeld, The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal (New York: Columbia University Press, 1956) examines Roosevelt’s perspective on the subject.

436 Quoted in Storrs, Second Red Scare, 160.

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counterattack ever evolved in the history of the Republic.”437 These were the pleas of a desperate politician up for reelection, but Hoover was right to draw attention to a program that had no precedent in American history. Although statistics on unemployment and output were slow to appear and unreliable when they did, once it became clear that the downturn had spread beyond Wall Street, Hoover initiated an aggressive countercyclical program based on lessons drawn from a decade of economic management. Against the advice of his more orthodox advisers, he advocated low interest rates and increased government spending. And there were the conferences—conferences to persuade corporate leaders to keep up wages and investment, conferences to coordinate the response to the slump, conferences to publicize the benefits that had supposedly resulted from his administration’s policies (including the other conferences).

Throughout, Hoover sought guidance from the lessons of history, as interpreted by his favored economists. Late in 1930, he informed an audience of bankers that their current struggles were just the latest stage of the business cycle. Noting that

“interruptions to the orderly march of progress have been recurrent for a century,” he assured the audience, “The leaders of business, of economic thought, and of government have, for the last decade, given earnest search into cause and remedy of this sort of instability.”438 Unlike earlier generations, today Americans understood what was happening and could take steps to contain the damage. They even had an instructive example from within living memory—what Hoover called the “far more severe”

437 Herbert Hoover, “Message Accepting the Republican Presidential Nomination,” June 16, 1932, available at http://www.presidency.ucsb.edu/ws/index.php?pid=23129.

438 Herbert Hoover, “Address to the American Bankers Association in Cleveland, Ohio” October 2, 1930, available at http://www.presidency.ucsb.edu/ws/?pid=22371.

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downturn of 1920 to 1921.439 Thanks to scientific advances and practical experience, the road back to prosperity would be smoother and shorter than ever.

The postwar example was especially instructive because of one crucial parallel between that moment and their own. In both cases, policymakers had to rely chiefly on national tools for problems they considered fundamentally international. With the

Depression grinding on, Hoover assigned a larger portion of the blame to the rest of the world. Overproduction in sites ranging from Brazil to China had flooded markets and sent prices tumbling downward. “[O]ur self-contained national economy,” he remarked, in one of his rare uses of the phrase from this period, “would have enabled us to recover long since but for the continued dislocations, shocks, and setbacks from abroad.”440

Invoking this global backdrop provided Hoover with a convenient scapegoat, but it also forced a critical reappraisal of the nationalistic focus of the forays into economic and social analysis conducted at his behest.

That altered perspective was shared by Edward Hunt, who continued to advise

Hoover in the White House. Looking back on their earlier report, Hunt saw that the committee had portrayed the United States “as a self-contained economy,” a picture that appeared dubious “in view of the events of 1929-31.”441 Hunt’s cosmopolitan turn was encouraged by his participation in a League of Nations conference on “World Economic

Depression,” where he presented the findings of the Committee on Recent Economic

Changes. (He also found time to read James Joyce’s Ulysses, which he deemed both

439 Hoover, “Cleveland.”

440 Herbert Hoover, “Annual Message to the Congress on the State of the Union” December 8, 1931, available at http://www.presidency.ucsb.edu/ws/?pid=22933.

441 Edward Hunt to Charles Merriam, March 29, 1932, Box 21, Hunt Papers.

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“extraordinary” and “the most detailed catalogue of filth that I have ever come upon in any language”).442 Despite the retrospective concern about their earlier parochialism,

Hunt remarked with pride on the appreciation for Recent Economic Changes at the

League. Anxiety about the future, however, soon darkened his mood. “Things economic and political seem to have pulled loose form their moorings and to be amazingly adrift,” he wrote to Mitchell after a month at the conference.443 Periods of cautious optimism gave way to moments when it seemed “as if all the prophecies of the Bolsheviks were about to be fulfilled.”444 Global depression was enough of a challenge by itself, but the mounting prospect of another war in Europe threatened even greater devastation.

With uncertainty mounting across the world and economic conditions at home worse than ever, Hoover recalibrated his approach. A countercyclical program remained his ideal, but he was increasingly worried about the stability of the financial community.

That concern pushed him toward the policies that would define the memory of his administration. Convinced that reviving business confidence was the essential prerequisite for economic recovery, Hoover transformed himself into an unyielding defender of balanced budgets and the gold standard.445

Hoover was clear about his position, but, in 1932, his opponent was not.

Roosevelt promised fundamental change, but he was cagy about what that would mean.

The specifics he offered usually hewed close to orthodoxy. On the budget, for instance,

Roosevelt cast himself as a proponent of fiscal discipline and Hoover as a reckless

442 Edward Hunt to Arch Shaw, March 10, 1931, Box 17, Hunt Papers.

443 Edward Hunt to Wesley Mitchell, July 20, 1931, Box 17, Hunt Papers.

444 Hunt to Mitchell, July 20, 1931, Hunt Papers.

445 This trajectory is best outlined in Barber, From New Era to New Deal.

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spender. Nor was the difference, as New Dealers later insisted, a result of Hoover’s doctrinal rigidity and Roosevelt’s pragmatism. Both considered themselves pragmatists, they just disagreed over what it meant to act pragmatically. What distinguished the two was not a willingness to experiment in pursuit of their goals, but the goals they deemed worth pursuing. Like Hoover, Roosevelt believed that confidence must be restored, but his target was as much political as economic: national confidence in the country’s ability to endure its latest trials, not just the confidence of a financial elite worried about the viability of its banks and the prospects for their .

Roosevelt acknowledged that the fate of American democracy was bound up with its economic trajectory. “[I]t is inevitable,” he declared in 1932, “that the main issue of this campaign should revolve about the clear fact of our economic condition.”446 Yet even the language he used to discuss these issues differed from Hoover’s. Roosevelt spoke with the colloquial tones of a seasoned politician holding a conversation about what he called “simple economics, the kind of economics that you and I and the average man and woman talk.”447 Economic statistics had their place, but when Roosevelt asked

Americans to evaluate their condition, he opted for a simpler measure: “Are you better off than you were last year?”448

He could be just as pointed when he shifted from “simple economics” to the teachings of academic economists. “I happen to know,” he remarked in one of his early fireside chats, “that professional economists have changed their definition of economic

446 Franklin Roosevelt, “Address Accepting the Presidential Nomination at the Democratic National Convention in Chicago,” July 2, 1932, available at http://www.presidency.ucsb.edu/ws/?pid=75174.

447 Roosevelt, “Chicago.”

448 Franklin Roosevelt, “Fireside Chat,” June 28, 1934, available at http://www.presidency.ucsb.edu/ws/?pid=14703.

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laws every five or ten years for a very long time.”449 He was even harsher during the campaign, when he depicted the Republicans as slaves to the delusion that “sacred, inviolable, unchangeable” economic laws condemned the nation to depression. “We must lay hold of the fact that economic laws are not made by nature,” he declared.450 “They are made by human beings,” and they could be remade.451

For Roosevelt, economic debates were never simply economic. Americans, he argued in one of his major addresses in the 1932 campaign, needed “a reappraisal of values.”452 The closing of the frontier and the completion of the Industrial Revolution had brought a period of radical change to an end. “Our task now is not discovery or exploitation of natural resources, or necessarily producing more goods,” he said.453 “It is the soberer, less dramatic business of administering resources and plants already in hand.”454 Rexford Tugwell, a Columbia economist and member of Roosevelt’s so-called brain trust, elaborated the point a year later for an article on the philosophy of the New

Deal. “We are learning,” he wrote, “to accept the limitations of maturity.”455 Expansion was no longer a panacea; in fact, it had become part of the problem. New challenges confronted the nation, and they demanded a new kind of government.

449 Roosevelt, “Fireside Chat,” July 24, 1933.

450 Roosevelt, “Chicago.”

451 Roosevelt, “Chicago.”

452 Franklin Roosevelt, “Campaign Address on Progressive Government at the Commonwealth Club in San Francisco, California,” September 23, 1932, available at http://www.presidency.ucsb.edu/ws/index.php?pid=88391#axzz1z0OwqgYZ.

453 Roosevelt, “Commonwealth Club Address.”

454 Roosevelt, “Commonwealth Club Address.”

455 Rexford Tugwell, “The Ideas Behind the New Deal,” New York Times, July 16, 1933, sm1.

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“The day of enlightened administration has come,” Roosevelt announced.456

Despite his shots at economists, he welcomed support from sympathetic practitioners of the dismal science, who descended on Washington in unprecedented numbers after he assumed office. As the widely read Walter Lippmann observed, this group constituted “something new in American politics”—namely, “men who are professionally trained in the field of political economy.” Though a familiar presence in much of Europe,

Lippmann explained, “professional economists are an innovation here.” With a sigh, he conceded, “the presence of professors in government posts is a sight to which we shall probably have to accustom ourselves.”457

No single ideology united all of these economists, but many would have seconded a qualified version of Roosevelt’s statement on the malleability of economic laws. The contingent and historical character of economic life enjoyed vigorous support from much of the discipline, including Wesley Mitchell. But the change in vocabulary signaled a more basic commitment: Roosevelt would govern not as an engineer but as a politician.

More specifically, he would govern as a politician in a democracy. Looking back on his first term in 1937, Roosevelt observed, “Ours was the task to prove that democracy could be made to function in the world of today as effectively as in the simpler world of a hundred years ago.”458 That was a comparatively minor theme in 1932, but it gathered force during his presidency, eventually becoming the frame of his reelection effort—and, later still, the heart of the argument he used to mobilize the nation for World War II.

456 Roosevelt, “Commonwealth Club Address.”

458 Franklin Roosevelt, “Annual Message to Congress,” January 6, 1937, available at http://www.presidency.ucsb.edu/ws/?pid=15336.

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As Roosevelt began his first term, however, the only war he envisioned was a war against the Depression. He believed that a united country would enlist for the battle, and too much emphasis on democracy risked upsetting the more affluent troops. Democracy assumed a new centrality in his rhetoric as the sense of crisis faded, opposition from the business community surged, an expanding labor movement grew more confident in its powers, and the next presidential campaign began in earnest. Roosevelt’s first inaugural contained one reference to democracy; his second had eleven. By then, his dream of a united people had given way to the humbler but more achievable goal of building the largest possible electoral coalition, and he had exchanged tributes to national consensus for denunciations of “economic royalists.”459 Conjuring up a usable past for the New

Deal, he depicted Hoover’s presidency as the final days of an “industrial dictatorship” ruled by a corporate aristocracy that had seized power during the Gilded Age.460

Roosevelt’s account split American history into three stages: first youthful democratic exuberance, then industrial maturity joined to political repression, and finally a New Deal synthesis that used democratic authority to bring industrial titans to heel.

Roosevelt was an unreliable historian, not least for his own administration, which had sought the backing of economic royalists in the past, and would continue to do so in the future. But his narrative suggested the ideals that motivated New Dealers when their hopes were at their grandest. As Roosevelt put it following his landslide reelection, their goal was never just economic recovery: “Government in a democratic Nation does not exist solely, or even primarily, for that purpose. It is not enough that the wheels turn.

459 Franklin Roosevelt, “Acceptance Speech for the Renomination for the Presidency, Philadelphia, Pa.,” July 27, 1936, available at http://www.presidency.ucsb.edu/ws/?pid=15314.

460 Roosevelt, “Renomination.”

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They must carry us in the direction of a greater satisfaction in life for the average man.”461

That standard was exacting but vague. Easy to dismiss as pandering—which it was, partly—it also marked a substantive commitment shared by much his administration. As one member of that group later recalled, among the thousands of officials who served in Washington during the 1930s, the core of “the New Dealers numbered probably no more than 200 or 300 people.”462 Though hailing from a variety of backgrounds, a disproportionate number of that group consisted of lawyers and economists. Roosevelt had sketched the contours of a democratic political economy. Now this group had to decide what that actually meant.

DID ECONOMISTS DESERVE SUCH PROMINENCE? Felix Frankfurter was among the skeptical. A professor at and Roosevelt’s friend since their time serving in Washington together during World War I, Frankfurter used his personal connections, intellectual energy, and institutional savvy to make himself, as the most astute historian of the New Dealers has observed, “something like a patron saint to liberals in Washington.”463 A bevvy of Roosevelt’s new hires would owe their selection to Frankfurter. In the summer of 1932, with the election looming, it seemed unlikely that any of them would be economists—or, as Frankfurter called them, “the damned

461 Roosevelt, “Annual Message.”

462 Lauchlin Currie, “Discussion,” American Economic Review 62.1/2 (March 1972), 139.

463 Alan Brinkley, End of Reform, 50.

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economists.”464 Before their chastening in the Depression, he fumed in a letter, economists had carried themselves with “an awful swagger and done a lot of talking about ‘the new economic era’ and what statistics prove, and in too many instances they have managed to produce a strange coincidence between money-making and

‘science.’”465

One of the exceptions Frankfurter admitted to this rule was the man he was writing to. was an intimate of Frankfurter—“You have no idea how often I have longed for talk with you during these days,” Frankfurter had written, immediately before launching into his denunciation—and a longtime professor of economics at the

University of Chicago.466 Viner objected that Frankfurter was tarring all economists with errors committed by a handful, but that protest did little to calm his friend. After naming

Irving Fisher as one pernicious voice, Frankfurter set his sights on to an even bigger target, lamenting “the mischievous influence” wielded by Wesley Mitchell and his supporters.467 “Think of the volume on economic trends published on the very eve of the

October crash,” he marveled, before attributing responsibility for that debacle to “the drugging of minds through all these so-called cooperative efforts and organized research.”468 Frankfurter did not oppose economics as such, but he was furious that after

464 Felix Frankfurter to Jacob Viner, May 28, 1932, Box 11, Folder 1, Jacob Viner Papers, John Seeley Mudd Manuscript Library, Princeton University (hereafter Viner Papers).

465 Frankfurter to Viner, May 28, 1932, Viner Papers.

466 Frankfurter to Viner, May 28, 1932, Viner Papers.

467 Felix Frankfurter to Jacob Viner, June 8, 1932, Box 11, Folder 1, Viner Papers.

468 Frankfurter to Viner, June 8, 1932, Viner Papers.

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“all the outpour[ing] of money for economic investigation during the last two decades” the country lacked a figure “even remotely comparable to Keynes in guts and insight.”469

Passing over what he could have perceived as a slight, Viner insisted that

Frankfurter’s ire was misplaced. “The great American authorities on economics,” Viner wrote, “are the men who have made, or inherited, or stolen a million dollars.”470

Economists in the United States had pressed the case with the public for half a century, but so far “practically no attention has been paid to them.”471 Viner overstated his argument, but he expressed a common sentiment among his colleagues. Many continued to feel just as neglected under Roosevelt. But for a portion of the discipline—not all, but a larger number than ever before—FDR’s administration offered an extraordinary opportunity to shape policy.

Belying the New Deal’s reputation for ruthless pragmatism, academics who served in the administration often recalled it as a golden age for the politically minded intellectual. Columbia Law School professor and Roosevelt counselor Adolf Berle used almost exactly that language when he reminisced about a “golden period of being able to state a case with a fair hope that if it stood up it would be adopted.”472 Mordecai Ezekiel, the economist who moved so easily from Hoover’s government to Roosevelt’s, captured a similar feeling when he described the New Deal as a breakthrough for the “concept of

469 Frankfurter to Viner, June 8, 1932, Viner Papers. Among the American economists Frankfurter approved of was , whose research Frankfurter used to provide economic grounding for his jurisprudence. Wolman was also a staffer at the NBER and author of two chapters in Recent Economic Changes. On Frankfurter and Wolman, see Fraser, Labor Will Rule, 163.

470 Jacob Viner to Felix Frankfurter, June 14, 1932, Box 11, Folder 1, Viner Papers.

471 Jacob Viner to Felix Frankfurter, June 14, 1932, Box 11, Folder 1, Viner Papers.

472 Adolf Berle, interview by James Sargent, 1969, Columbia University Oral History Collection, Columbia University, New York, New York.

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applying intelligence to government affairs” that brought about “a merger of the theoreticians from the outside with career people from the inside.”473

Hard numbers backed up these sepia-toned recollections. While employment opportunities for academic economists were generally bleak during the Depression, the federal government proved an eager customer. Pushing on an open door, at its 1934 meeting the American Economics Association urged its members to sign up for government work.474 Two years later, one exuberant presenter at the AEA’s annual conference reported that “opportunities for economists and statisticians in the federal government are more extensive at the present moment than ever before in our history,” with their number doubling in the last two years alone.475 At the same gathering, Isador

Lubin, head of the Bureau of Labor statistics, attributed the proliferation of economists to a “radical” extension of the government’s authority over a daunting array of subjects, including “monetary policy, domestic and international, international trade, labor relations, trade practices, agricultural policy, and transportation.”476

Economists’ presence in the federal bureaucracy expanded with the scope of their obligations. Attempting to answer just one question within a single department required the investigator to navigate a daunting array of institutions. Using a study at the Bureau of Labor Statistics on the effect increased work hours would have on unemployment as an example, Lubin outlined a path that would cross “the office of the Commissioner

473 Ezekiel, Oral History, 136-7.

474 Yarrow, Measuring America, 30.

475 Leonard White, “New Opportunities for Economists and Statisticians in Federal Employment,” American Economic Review 27.1 (March 1937), 215.

476 Isador Lubin, “Government Employment as a Professional Career in Economics,” American Economic Review 27.1 (March 1937), 217. Lubin had gained experience in this field during the Great War, when he served under Mitchell at the War Industries Board. Stapleford, “Market Visions,” 428.

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himself, but also the resources of the Chief Economist, his economic assistants, members of the Chief Statistician's staff, the research staff of the Division of Employment

Statistics, as well as several junior statisticians.”477 The solution to this problem, according to familiar bureaucratic logic, was obvious: hire more economists, the only people equipped with the skills to find their way through the labyrinth they helped create.

While still not, for the most part, charged with determining policy, economists had become essential to implementing it.

The growth of economists’ influence in the government had begun well before

Roosevelt arrived in Washington, as the careers of many New Dealers revealed. Consider

Mordecai Ezekiel. After majoring in agronomy at the University of Maryland, Ezekiel parlayed a gift for statistics into a post at the Department of Agriculture, a hub for economists during his time there in the 1920s. A PhD in economics from the recently established Brookings Institution, which had created a graduate program designed for government workers looking to advance their careers, rounded out his academic training.

Still based in the Department of Agriculture at the start of Roosevelt’s tenure, Ezekiel eventually became one of the New Deal’s most energetic advocates for using deficit spending to invigorate a faltering recovery.478

Like other New Dealers, however, Ezekiel turned toward fiscal policy only after rival approaches had run aground. For all the heterogeneity of Roosevelt’s administration, during its first term the major approaches to combatting the Depression fell into two broad camps. Each deemed Hoover a failure, but after that diverged considerably—a point that did not stop Roosevelt from drawing upon both. Rejecting

477 Lubin, “Government Employment,” 218.

478 Ezekiel, Oral History.

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Hoover’s preoccupation with business cycles, they offered distinct evaluations of the

Depression’s causes and advice on what to do next. For one group, the downturn was an essentially monetary phenomenon; the solution, therefore, was to “reflate” the price level by increasing the money supply. Their rivals agreed that the problem lay with prices, but they were concerned not with the overall price level but with the balance of prices within different sectors. The uneven rise of corporations left some industries exposed to market forces while protecting the beneficiaries of bigness from supply and demand, introducing a fundamental imbalance to the system: while farmers were whipsawed by price fluctuations outside their control, corporate behemoths could opt to keep prices (and profits) high by cutting back on production. Advocates of this “administered-prices” thesis were preoccupied with restoring equilibrium, which they believed could only be attained by measures that boosted the purchasing power of consumers while restraining the excesses of industry and agriculture. Capable of seemingly infinite complications, the dispute between the two camps turned on whether the Depression had come about because of “too little money” or “too much goods.”479

The phrase was Fisher’s, and he was an unwavering proponent of (a term he also coined).480 Fisher met with Roosevelt occasionally and wrote to him much more frequently. Though he criticized much of the New Deal, Fisher considered Roosevelt “the first great statesman to recognize the importance of this monetary problem”—an achievement he rewarded by dedicating a 1934 history of the stable money movement to

479 Irving Fisher, “The Debt-Deflation Theory of Great Depression,” Econometrica 1.4 (October 1933), 340.

480 Joseph Dorfman, The Economic Mind in American Civilization, 1918-1933, vols. 4 and 5 (New York: Viking Press, 1959,” 685.

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the president, who he claimed embodied the cause.481 In private, Fisher bragged about his sway over the administration, telling one correspondent that on monetary questions he had “made more effort than is generally known to guide President Roosevelt.”482 This

“effort” included writing 100 letters to the president, who responded 25 times.483 When concerned inquirers asked what he thought of the president’s conduct—as the poet Ezra

Pound did in the fall of 1933—Fisher offered reassurance, in Pound’s case writing that

Roosevelt was “quite clear-headed on the subject of reflation.”484

Pound was more eager to solicit Fisher’s opinion than the typical member of the

Roosevelt administration. Even before Roosevelt’s inauguration, Tugwell noted in his diary that “Fisher has tried to see me a number of time” and congratulated himself on having so far “managed to avoid him.”485 Later, he remembered Fisher as “something of a nuisance,” who “was certain that he knew all the answers.”486 After seeing Fisher’s latest piece of advice in 1934, a New Dealer commented on the “generally low estimate of Fisher’s judgment” and warned against cultivating “any indication to the public that

Fisher has any influence with the Administration.”487 That remark makes sense of a later

481 Irving Fisher, “Is a Managed Currency Workable?”, Box 25, Folder 396, Series 3, Fisher Papers. The dedication appears in Irving Fisher, Stable Money: A History of the Movement (New York: Adelphi, 1934), v.

482 Irving Fisher to Jouett Shose, Box 10, Folder 144, Series I, Fisher Papers.

483 Robert Dimand, “‘Perhaps I’m a Don Quixote but I’m Trying to Be a Paul Revere’: Irving Fisher as a Public Intellectual,” History of Political Economy 45.1 (2013), 21.

484 Quoted in Tim Redman, Ezra Pound and Italian Fascism (Cambridge: Cambridge University Press, 1991), 159.

485 Michael Namorato, ed., The Diary of Rexford Tugwell: The New Deal, 1932-1935 (Westport: Greenwood Press, 1992), 59-60.

486 Namorato, Rexford Tugwell, 300.

487 “Re: Professor Fisher’s Letter,” May 23, 1934, Box 10, Folder 14, Viner Papers.

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recollection from Viner—who, unlike Fisher, was granted a formal place in the New

Deal, where he was charged with putting together a “Freshman Brain Trust” of economists at Treasury.488 Viner recalled that during a 1933 visit to Washington, a brief reference to Fisher in front of future Treasury Secretary Henry Morgenthau prompted

Morgenthau to snap, “I’ve got nothing to do with Fisher and he has nothing to do with me.”489

Fisher’s views, however, received a friendlier hearing. Even Morgenthau agreed with Fisher, to a point, inviting him along with two other economists to tea at Roosevelt’s

Hyde Park estate in the summer of 1933, where they urged the president to drive up the price of gold, arguing that it would provide a much needed reflationary jolt. Roosevelt, under pressure from a vocal faction in Congress backing inflationary measures, had already announced an indefinite embargo on gold exports and torpedoed an international conference designed to restore the gold standard with a telegram asserting that defending

“[t]he sound internal economic system of a nation” outweighed “the old fetishes of so- called international bankers.”490 Roosevelt did not rule out eventually returning to the gold standard, but the message made his priorities clear. By the end of 1933, Roosevelt had the resources to manage the nation’s currency, and he used that ability to push a bill through Congress devaluing the dollar by almost 60 percent.491

488 On the Freshman Brain Trust, see Rodger Sandilands, The Life and Political Economy of Lauchlin Currie: New Dealer, Presidential Adviser, and Development Economist (Durham: Duke University Press, 1990), 56-57.

489 Jacob Viner, interview by Wendell Link, 1953, Columbia University Oral History Collection, Columbia University, New York, New York.

490 Franklin Roosevelt, “Wireless to the London Conference,” July 3, 1933, available at http://www.presidency.ucsb.edu/ws/?pid=14679.

491 Meltzer, Federal Reserve, vol. 1, 458.

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This was a remarkable display of governmental power, but in the eyes of Fisher it was more like an immunization against further state intervention—a small portion of a disease that inoculated against a full-blown outbreak. As he explained it, “I am not a socialist; almost the opposite.”492 (A change from more measured comments decades earlier, when Fisher had insisted that he shared many of socialism’s ends but differed on how they could be achieved.) In the words of the Columbia economist and brain-truster

Rexford Tugwell, Fisher was part of a “curious collection of reactionaries who regarded inflation as an alternative to planning and social management.”493 A purely monetary solution to the Depression held out the possibility of economic recovery without social transformation. Like an idealized version of the judicial system, it offered a program where the state instituted rules and then withdrew from the scene.

As Keynes had already observed in the New Republic, however, economic debates in this period scrambled conventional ideological alignments. Few issues proved more destabilizing than currency reform. Although most economists opposed FDR’s stance on gold, Tugwell could just as easily have included the University of Chicago’s Henry

Simons in his collection of reactionaries who favored robust state action on the currency

(though such a categorization would have distorted Simons’s more complex position).494

That minority also included Lauchlin Currie and , two then-obscure

492 Fisher, “Is a Managed Currency Workable?”

493 R.G. Tugwell, “Review: The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal,” Journal of Politics 191 (February 1957), 141.

494 Angus Burgin, The Great Persuasion: Reinventing Free Markets Since the Depression (Cambridge: Harvard University Press, 2012), 55-87 explores Simon’s thought and the background against which it developed.

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figures who later occupied key government positions under Roosevelt, while navigating the border between the mainstream and radical left.495

But Currie and White did not think that monetary policy alone could produce a recovery. That put them in the company of another ideologically disparate group.

Encompassing respected business leaders and socialists alike, members of this faction believed modern industry had rendered the laws of the market obsolete. That conviction had existed since the Gilded Age among both robber barons and radicals, but it had abated in the 1920s, until the Depression renewed its urgency. Defenders of this position—superficially Marxist but more often inspired by Veblen—considered the monetary diagnosis a shallow evaluation that missed the deeper, structural causes behind the Depression. As Tugwell put it, by rejecting the monetary “panacea,” he and his allies were compelled to rely upon “the harder—but, as they believed, the indispensable— necessity for managing price by forthright means.”496 From their point of view, printing more dollars was equivalent to pumping gas into a broken engine.

This argument provided the rationale for two pillars of the early New Deal: the

National Recovery Administration (NRA) and Agricultural Adjustment Administration

(AAA). (Though even here the break with the past was not absolute: business cycle theory had lost the spotlight, but New Dealers institutionalized the split it had established between agricultural and industrial spheres.) If markets could no longer be trusted to establish prices, then government planners would have to assume roles previously left to private actors. How much responsibility the state should take up and what place would

495 David Laidler and Roger Sandilands, “An Early Harvard Memorandum on Anti-Depression Policies: An Introductory Note,” History of Political Economy 34.3 (Fall 2002), 515-532.

496 Tugwell, “Review,” 143.

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remain for business provoked irreconcilable disputes, but acknowledging that markets had failed supplied a popular starting point.

The consensus was broad enough to include Wesley Mitchell. Although Mitchell was welcomed into the Roosevelt administration’s National Planning Board, the

Depression had tarnished his reputation. At the Carnegie Corporation, it was held that the

NBER had “disgraced itself” by failing to predict the downturn.497 The NBER survived the decade, but only after making it through a budget crunch and placating the doubts of newly skeptical funders. As for Mitchell himself, while diagnoses of the slump multiplied, he said he had “grown gray in trying to achieve an understanding of the situation” and found himself unable to even “outline a specific policy which would remedy the enormous difficulties from which we suffer.”498 Despite endorsing planning, he believed, “All that the most competent economic planners can really accomplish at the moment is to frame a tentative plan for making a plan.”499 As he had for decades,

Mitchell pleaded for more—more research, more statistics, more time.

Yet Mitchell, too, had his radical moments. At the same meeting where he confessed himself unable to account for the Depression, he reported having found hope in the Soviet Union, which he judged” the most interesting experiment in the world now, perhaps in human history.”500 He admitted the endeavor was “rash” but still believed the

497 Ellis Hawley, “Economic Inquiry and the State in New Era America: Antistatist Corporatism and Positive Statism in Uneasy Coexistence,” in The State and Economic Knowledge: The American and British Experiences, eds. Mary Furner and Barry Supple (Cambridge: Cambridge University Press, 1990), 318.

498 Wesley Mitchell, “Recent Social Changes,” March 1, 1933, Box 26, Series 9, Mitchell Papers.

499 Wesley Mitchell, “The University and Economic Change,” November 17, 1932, Box 15, Series 7, Mitchell Papers.

500 Mitchell, “Social Changes.”

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Soviet Union had become a laboratory carrying out experiments of profound relevance for the United States.

Mitchell, though, left it to others to decide what the United States could borrow from the Soviets. After two years as one of Roosevelt’s planners, he resigned so that he could devote himself to the NBER. He objected to parts of the New Deal, but Mitchell did not renounce the ideals of Recent Social Trends. If anything, he was more ambitious than the New Dealers: their planning was fragmentary, not the coherent system he envisioned. Despite this criticism, Mitchell retained warm relations with his former colleagues, writing to one in 1937, “My moral support is always yours for whatever it may be worth."501 With his time in government at an end, Mitchell threw himself back into his academic work—above all, a gargantuan study of business cycles, conducted with assistance from a team of assistants at the NBER, that rapidly ballooned to thousands of pages.502

On one point, however, Mitchell was certain: the New Deal’s greatest faults were its internal contradictions. Advocates of departing from the gold standard wanted the government to expand production via inflation, while price hikes by the NRA and AAA drove production downward. Whatever rationale particular restrictions on production might have, taken as a whole they pushed national income downward, when expansion was needed.503 Mitchell’s critique was shared by many of his colleagues. Fisher called

501 Wesley Mitchell to Charles Merriam, October 29, 1937, Box 11, Series 3, Mitchell Papers.

502 For a portrait of Mitchell and the NBER in this period, see , Days Gone By: A Memoir for my Family, 82-83, available at https://economics.stanford.edu/files/uploads/AbramovitzM_All.pdf.

503 Wesley Mitchell, “Hitchcock Lecture, no. 9,” September 24, 1934, Box 15, Series 7, Mitchell Papers.

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FDR’s agenda “a strange mixture.”504 In Walter Lippmann’s harsher language, it was a

“destructive contradiction” that produced “an economy of bedlam.”505

The difficulty of carrying out these programs magnified the challenge of holding together irreconcilable theories. By the close of Roosevelt’s first term, both sides had to explain why their predictions had not come to pass. Economic historians today view

Roosevelt’s monetary policy more favorably than they do his experiments with planning, but the messiness of the gold purchasing program—famously dismissed by Keynes as “a gold standard on the booze”—contributed to a general sense that monetary measures by themselves were inadequate.506 The NRA suffered a more spectacular downfall: ruled unconstitutional by the Supreme Court in 1935, even many of its early supporters considered its demise a mercy killing. The troubled agency had its defenders, including the president, but hopes that the state could transcend class conflict through rational administration quickly proved beyond its powers. Although planners did not give up, political, economic, and legal obstacles forced a revaluation of their tactics.

From now on, they would face a more skeptical audience—government officials who questioned the feasibility of comprehensive planning; economists whose attention had turned to other programs; and business leaders whose bitter experiences with the

NRA led them to conclude that the federal government, at least under Roosevelt, was not a reliable partner. Space had opened up for another way of interpreting the Depression,

504 Quoted in Gary Best, Peddling Panaceas: Popular Economists in the New Deal Era (New Brunswick: Transaction Publishers, 2005), 31.

505 Quoted in Crauford Goodwin, Walter Lippmann: Public Economist (Cambridge: Harvard University Press, 2014), 152.

506 John Maynard Keynes, “Our Recovery Plan Assayed,” New York Times, December 31, 1933, 115.

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and of curing it. Here, again, economists would have their say—but they would speak with new words, and old words given new meanings.

WHAT HERBERT HOOVER WANTED, he said, was “an umpire.”507 Since Roosevelt had taken office, he complained to Wesley Mitchell in the last weeks of 1934, previously solid terms had become slippery. Planning was one of them, but Hoover listed thirteen others—including liberalism, capitalism, socialism, “economy of abundance,” and

“economy of plenty”—before adding that he could think of “a dozen more.”

Laissez-faire was one of them. For decades, Americans had declared belief in unfettered markets a dusty relic of the nineteenth century. In 1907, Irving Fisher devoted an article to exploring the question “Why Has the Doctrine of Laissez-Faire Been

Abandoned?”508 One year Woodrow Wilson observed that “No one now advocates the old laissez-faire.”509 Hoover made his repudiation of the ideal explicit in American

Individualism, where he noted, “we have long since abandoned the laissez-faire of the

18th Century.”510 Even before he took up the presidency, commentators praised him for defying stale dogmas: a review of the recommendations made by one of the economic conference’s he spearheaded, for example, described the suggested policies as “a bold challenge to laissez-faire.”511

507 Herbert Hoover to Wesley Mitchell, December 17, 1934, Box 10, Series 3, Mitchell Papers.

508 Irving Fisher, “Why Has the Doctrine of Laissez-Faire Been Abandoned?,” Science 25.627 (January 4, 1907), 18-27.

509 Quoted in Martin Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916 (Cambridge: Cambridge University Press, 1988), 406.

510 Herbert Hoover, American Individualism, 10. 511Otto Mallery, “Review: Business Cycles and Unemployment,” Annals of the American Academy of Political and Social Science, 111 (January 1924), 378.

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With remarkable speed, this onetime pioneer of a new economic order was transformed into the embodiment of orthodoxy. In 1932, Rexford Tugwell looked forward to a planning regime that would “finally” break the grip of laissez-faire.512

Reflecting on the New Deal, Berle expressed a popular view among his former colleagues when he described the notion that “the federal government had to assume responsibility for the economic condition of the country” as a “revolutionary and dangerous” rejection of the adherence to “laissez-faire economics” that prevailed before

Roosevelt’s election.513 Roosevelt accepted this interpretation. Cautioned by one adviser in the spring of 1933 that he was “taking an enormous step away from the philosophy of equalitarianism and laissez-faire,” he responded, “If that philosophy hadn’t proved to be bankrupt, Herbert Hoover would be sitting here right now.”514

Even opponents of the new administration picked up this revised history. In a critical survey of Roosevelt’s policies co-authored by a group of Harvard economists in

1934, one contributor observed that laissez-faire had “been the dominant American ideal until the New Deal came along.”515 Laissez-faire had died many deaths before

Roosevelt’s election to the presidency, but those earlier reforms—the work of generations—now seemed insignificant. The cause Hoover dedicated his political career to had become a footnote in someone else’s grand narrative. No wonder he spluttered.

512 R.G. Tugwell, “The Principle of Planning and the Institution of Laissez-Faire,” American Economic Review 22.1 (March 1932), 76.

513 Berle, Oral History.

514 Quoted in Schlesinger, Coming of the New Deal, 98.

515 Overton Taylor, “Economics versus Politics” in The Economics of the Recovery Program, eds. Douglass Brown, et al. (New York: Whittlesey House, 1934), 175.

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Yet the sense of lexical instability was not confined to Hoover. Some of the objections were long standing, like continued public uncertainty over the meaning of inflation. Two New Dealers complained that the word had taken on so many definitions that it was often easier to avoid using it altogether. In contemporary parlance, they observed, inflation could refer to “(1) anything bad, (2) too much money, (3) more money, (4) rising prices of commodities, (5) rising prices of securities.”516 But the radical uncertainty introduced by the Depression added a new element to the routine complaints, covering the future in a fog. In that ambiguity, some found hope. As Tugwell put it, a new order was coming, “something else” that, as yet, “has no name.”517

Within this broader struggle for conceptual and linguistic stability, references to the economy became increasingly common. Mentioned only in passing as recently as in the 1929 report on Recent Economic Changes, by decade’s end it became a familiar part of the lexicon. It was still more likely to appear in academic journals than in political debate, but economists did not outpace the general public by much. The phrase “economy as a whole” appeared in the American Economic Review for the first time in 1930.518

Authors in the journal used the phrase occasionally for the rest of the decade, but not with the frequency that soon became the norm: it occurred twice as many times in the first two years of the 1940s than in the entirety of the 1930s.519

516 Caroline Ware and , The Modern Economy in Action (New York: Harcourt Brace, 1936), 109.

517 Tugwell, “Principle of Planning.”

518 Frank W. Taussig, Frederick C. Mills, F. B. Garver, Frank H. Knight, R. W. Souter, Lewis L. Lorwin and Mordecai Ezekiel, “The Theory of Economic Dynamics as Related to Industrial Instability,” American Economic Review 20.1 (March 1930), 31.

519A search in JSTOR turns up seventeen results for the 1930s and thirty two for 1940-1941.

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Even then, discussing “the economy” could spark terminological disputes. The

Rockefeller Foundation even proposed a conference dedicated to exploring one aspect of the controversy. Seeking the attention of the most prominent economists in the United

States and Europe, it called for a meeting that would determine if a “consensus” existed on whether the nations of the world possessed enough “organic unity” to “warran[t] the conclusion that there is such a thing as a 'world economy'” or whether there was “nothing more than a physical aggregate of unrelated and disjointed forces.”520 Back in the United

States, that first reference to the “economy as a whole” in the American Economic

Review prompted a sharp reply from the University of Chicago economist .

The phrase had appeared in a talk by Frederick Mills, a NBER economist, who reproached economists for failing to “secur[e] a comprehensive account of economic change in an economy as a whole.”521 Knight retorted by describing as “more than questionable” the belief that economic statistics premised on the assumption that “human acts and interests … can be cut apart from the living complex of individuals in society and interpreted and manipulated in isolation”—a popular objection at a time when invocations of a larger social totality that encompassed economic life were still common among economists.522 Some tried to split the difference between the concepts by employing “economic society,” where either economy or society could just as readily have served: for instance, Tugwell’s 1934 work Our Economic Society and its Problems.

520 "DRAFT AGENDA for Conference called by the Rockefeller Foundation to Consider the Desirability and Feasibility of Encouraging Coordination of Fundamental Economic Research Upon Problems of Economic Change,” Box 13, Series 3, Mitchell Papers.

521 Mills, “Economic Dynamics,” 33.

522 Knight, “Economic Dynamics,” 36.

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Meanwhile, earlier definitions of economy as style of governance or collection of institutions—definitions alive in the Rockefeller conference proposal—continued to shape usage of the term. When Roosevelt signed the “Economy Act” in 1933, he approved a bill that cut government spending in order to move toward a balanced budget—that is, to economize federal expenditure—not to govern the economy as a whole. That usage was connected to his inaugural address’s insistence that relationships with international trading partners must for the moment be “secondary to the establishment of a sound national economy”—that is, a fiscally sound collection of policies for governing a nation. Playing on a similar sense of that phrase, the economist

(and socialist) Lewis Lorwin juxtaposed “national economy” with “individualism.”523 He then lamented the readiness with which the business community allowed “group interests to dominate its practical proposals in interpreting what is national economy.”524 Business leaders might have rejected that accusation, but they relied on the same understanding of

“national economy” in a Chamber of Commerce report announcing that “We have left the period of extreme individualism and are living a period in which national economy must be recognized as the controlling factor.”525 For both socialist and industrialist, national economy was a way of thinking about the world, not an object within it.

The term gained ground, and not only among economists. Just a few years after

Hoover complained to Mitchell about the grafting of new-fangled meanings onto words, the sociologist Robert Lynd wrote with advice on where to direct the NBER’s energies.

523 Lewis Lorwin, “Discussion,” American Economic Review 22.1 (March 1932), 93.

524 Lorwin, “Discussion,” 93.

525 Quoted in R.G. Tugwell, “The Principle of Planning and the Institution of Laissez Faire,” American Economic Review 22.1 (March 1932), 83, fn. 15.

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(Advice that came from a place of respect: Lynd was a former student of Mitchell’s, and he was also deeply influenced by Mitchell’s icons Dewey and Veblen.)526 “Of course we want to know how our economy works,” he noted, but that required metrics “outside the economy.”527 Lynd worried that “by working so completely on describing how things work in our economy, with its (the economy's) postulates as to what things are important,” the NBER “tends to draw the teeth of new workers who might otherwise be inclined to ask other kinds of questions that are no less realistic and important.”528 In

Lynd’s telling, the economy could not establish the criteria by which it should be evaluated; but he did accept it as a member in good standing of the larger social world.

SO DID WALTER LIPPMANN, an erstwhile socialist who had remade himself into one of liberalism’s most prominent defenders, and one of the New Deal’s most prominent skeptics.529 Holding forth in a syndicated column published in over a hundred newspapers, Lippmann reached an audience of millions, and he used that platform to explore the nascent politics of the economy. He was well aware that much of what fell

526 Sarah Igo, The Averaged American: Surveys, Citizens, and the Making of a Mass Public (Cambridge: Harvard University Press, 2007), 32.

527 Robert Lynd to Wesley Mitchell, May 8, 1939, Box 11, Series 3, Mitchell Papers.

528 Lynd to Mitchell, May 8, 1939.

529 On Lippmann’s life, see Barry Riccio, Walter Lippmann: Odyssey of a Liberal (New Brunswick: Transaction Publishers, 1994) and Ronald Steel, Walter Lippmann and the American Century (Boston: Little-Brown/Atlantic Monthly Press, 1980). Crauford Goodwin’s Walter Lippmann: Public Economist offers a rich survey of Lippmann’s abundant reflections on economics, although more remains to be done on connecting Lippmann’s promotion of Keynesianism and its intellectual descendants with his influence over the early development of neoliberal thought, on which see Serge Audier, Le Colloque Lippmann: Aux origines du néo-libéralisme (Lormont: Le Bord de l’Eau, 2008); Ben Jackson, “At the Origins of Neo-liberalism: The Free Economy and the Strong State, 1930-1947,” Historical Journal 53.1 (2010), 129-151; and Burgin, Great Persuasion, 55-86.

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under this category “would have been meaningless” a generation earlier.530 But a “new imperative”—the title of a book he devoted to the subject, published in 1935—had emerged in recent decades, an “imperative” as significant for a modern state as its more familiar duties of enforcing the law at home and protecting the nation from assaults by foreign powers.531 In fact, it had become “the central task of government,” even though it was still not universally accepted as such.532 What was this obligation that demanded the state “assume a responsibility which it has never yet attempted to discharge before the era in which we are now living”?533 Summarizing it was simple enough: “making its people economically secure.”534

The scale of “this very great new duty” was large enough in Lippmann’s eyes to unite Hoover and Roosevelt, turning a gap their partisan’s described as a yawning chasm into a far less imposing divide.535 The two men, Lippmann believed, shared more than was commonly recognized; they were “much nearer to each other than either is, let us say, to Calvin Coolidge or to .”536 1929, not 1933, was the pivotal year in Lippmann’s history. Hoover and Roosevelt both stood on the other side of a fundamental break, joined by their common acceptance of “a radically new conception of

530 Walter Lippmann, The Method of Freedom (New York: Macmillan, 1934), viii.

531 Walter Lippmann, The New Imperative (New York: Macmillan, 1935).

532 Lippmann, Method of Freedom, 36.

533 Lippmann, Method of Freedom, 35.

534 Lippmann, Method of Freedom, 36.

535 Lippmann, New Imperative, 36.

536 Lippmann, New Imperative, 12.

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the functions of government.”537 Driven by his conviction that the government could manage the business cycle, Hoover had embarked on an “utterly unprecedented” campaign of economic management that Roosevelt later took up in his own fashion.538

Repeating a common binary, Lippmann split the New Deal into two halves: reform and recovery. Whatever the merits of Roosevelt’s reforms—the extension of , the grand public works projects, and kindred initiatives—they all had lengthy genealogies. “[T]here is little if anything in the New Deal reforms,” he wrote, “which was not implicit in the New Nationalism or Theodore Roosevelt or the New Freedom of

Woodrow Wilson.”539 But the recovery policies meant to respond to the Depression reached back only to Hoover. These were the “new and radical” elements of Roosevelt’s program that marked the government’s “assumption of responsibility for the operation of the whole national economy.”540

Time and again, Lippmann insisted on the revolutionary character of this turn toward the economy. He could have made the point by looking at his own work.

Lippmann released his first book in 1913, just a few years after graduating from Harvard, and he followed it up with a sequel one year later. Both volumes—A Preface to Politics and Drift and Mastery—contain just a handful of references to economy, all of which borrow from older senses of the term: a passing allusion to the transition “from the old mercantilist economy to the capitalistic economics of the nineteenth century,”541 for

537 Lippmann, New Imperative, 13.

538 Lippmann, New Imperative, 12.

539 Lippmann, New Imperative, 34.

540 Lippmann, New Imperative, 34.

541 Walter Lippmann, A Preface to Politics (New York: Mitchell Kennerley, 1914), 87.

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example, or a brief mention of “the economy of trusts” that had developed in the United

States.542

By the 1930s, Lippmann’s writing was replete with economy talk. From

Lippmann’s perspective, there was an impeccable justification for this addition to his vocabulary. It reflected “the fundamental assumption of the whole period since 1929”— namely, “that we have a national economy and not a mere aggregation of individual enterprises.”543 He used “national economy” by itself here, but elsewhere he regularly attached (often with italics) the phrase “as a whole,” an emphasis that revealed the novelty of the concept.544 The basic assumptions of government had changed, and his language had to keep up.

Lippmann offered a suitably grand history to explain the birth of what he, quoting

Edmund Burke, called “a new species of government.”545 Two major factors propelled his analysis: an economy that had “become infinitely complex” and a democracy that had

“become increasingly conscious of its power.”546 Parroting the administered-prices thesis, he argued that corporations had replaced the workings of supply and demand with the decisions of a managerial elite. Meanwhile, democratic movements had grown more confident in making demands on the state, which meant “fatalistic acceptance” of economic downturns encouraged by business cycle theory had become a political impossibility. These intertwined developments—in Lippmann’s terms, both aspects of

542 Lippmann, Preface to Politics, 126.

543 Lippmann, New Imperative, 28-29.

544 For instance, Lippmann, Method of Freedom, 30, 46, 48.

545 Lippmann, Method of Freedom, 28.

546 Lippmann, Method of Freedom, 34.

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the waning of “individualism” and the birth of “mass behavior”—had created “a new view of the state and of the economic order.”547

It was a novel political economy, and it confronted a problem unknown to earlier generations: “the social order has now become so intricate that any serious breakdown in its economy will unloose forces that may destroy it.”548 Protecting the economy had become a matter of existential importance for the state. This obligation had been thrust upon government officials, with profound consequences for politics: for the first time,

“the state is now compelled to look upon the economy as a national establishment for which it is responsible.”549 The challenge was to craft an art of government suitable to this new duty, managing the economy.

Not everyone recognized the legitimacy of this enterprise. Anxieties that forced themselves on politicians in Washington proved easier to shrug off in corporate boardrooms. “The articulate belief of the industrial and financial leaders of America,”

Lippmann maintained, was that the state had “no function to perform in governing the national economy as a whole.”550 For Lippmann, this blindness was doubly ironic: it revealed a failure of the elite to act its own self-interest, and it showed that corporate leaders did not understand the world they helped make.

Laissez-faire was the label typically attached to the positions defended by this group, but Lippmann warned against uncritically accepting the term. American history contained no prelapsarian moment free from the contamination of government influence.

547 Lippmann, Method of Freedom, 34.

548 Lippmann, Method of Freedom, 48.

549 Lippmann, Method of Freedom, 28.

550 Lippmann, New Imperative, 42-43.

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“The new thing is not the amount, or the pervasiveness, or the rigor of government action,” Lippmann wrote, “but its purpose.”551 Merging this interpretation of laissez-faire with his larger account of recent political history, Lippmann explained that the government had refrained from interfering “only” with respect to its “new and unprecedented responsibility” to oversee “the operation of the economy as a whole.”552

The reconceptualization of laissez-faire was inseparable from the history of the economy: only by judging American history against standards established after 1929 could it be seen as laissez-faire.

Nor was the injection of the economy into politics a distinctly American phenomenon. Soviet , Lippmann noted, had just recently been transformed by the exaltation of a planned economy as its ideal. A notion that Lippmann saw, at most,

“faint indications of” in Karl Marx, and even the early Lenin, had become “the governing principle of the socialist order” with remarkable speed.553 Soviet socialists had developed their politics of the economy; now the United States would have to create a program of its own.

But Lippmann did not believe Americans were fated to pursue the same path as the

Soviets. Rejecting an ideological mapping defined by communism on one side and fascism on the other, he portrayed the United States, along with supporting players like the United Kingdom and Sweden, as pioneers of a distinct method of governing the economy. Both the Soviet Union and , he argued, had adopted a policy of

“Directed Economy, or Absolute Collectivism”—one phrase putting the accent on the

551 Lippmann, Method of Freedom, 27-28.

552 Lippmann, Method of Freedom, 27-28.

553 Lippmann, Method of Freedom, 39.

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economics of the system, the other on its politics.554 By contrast, the United States was developing a system of its own, a system he named “Compensated Economy, or Free

Collectivism.”555 Collectivism, Lippmann explained, was his term for any regime where the state assumed “responsibility for the operation of the national economy as a whole.”556 But “Compensated Economy” would preserve a measure of freedom impossible under “Directed Economy.” It was, to use another of Lippmann’s key terms, a liberal collectivism that adapted the values of the creed to the demands of the present.

“[I]f we are to have economic liberty,” he declared, “we must accept the ancient truth that liberty is not the natural state of man, but the achievement of an organized society.”557

Freedom was the product of particular ways of structuring collective life, not an ahistorical constant. Immersed in time, liberalism could evolve or die. “Compensated

Economy” was Lippmann’s name for the attempt to create a new kind of freedom that could survive, even flourish, in a collectivist age.

It was also a specific set of policies. Though he acknowledged that a full program would have to be international in scope, Lippmann focused on the domestic aspects of his vision. As indicated by the label, compensation was Lippmann’s guiding principle. The

“vital defect” of the contemporary order, he believed, was “that the multitude of individual decisions is not sufficiently enlightened to keep the economy as a whole in working order.”558 An outside body endowed by the state with the power to correct the

554 Lippmann, Method of Freedom, 38.

555 Lippmann, Method of Freedom, 38.

556 Lippmann, Method of Freedom, 38.

557 Lippmann, New Imperative, 48.

558 Lippmann, Method of Freedom, 48.

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disorders of collective behavior could save individualism from itself. Central banking had developed before the government had taken on responsibility for governing the economy, but it provided Lippmann with the best example of his program in action. When enough banks acted in concert—whether cutting back on credit, or offering too much of it—they created problems that no single private institution could solve. By offsetting these trends, central banks offered the stability promised by advocates of socializing finance without full public ownership.

A longtime follower of Keynes, Lippmann believed the principle applied by central banks could be expanded to the economy as a whole: management of the money supply, flexible public works spending, tax rates that curbed booms and cushioned slumps, and even countercyclical public utilities that charged more on the upswing and cut prices in downturns.559 He admitted that instituting all of this could raise “immense difficulties,” but he insisted they could be overcome—and that the incentives for doing so were great.560 “In the practice of statesmanship,” he declared, “the compensatory method is, I believe, an epoch-making invention.”561 It would provide the cornerstone for a modern liberalism coupling an economics that secured prosperity to a politics that nurtured liberty.

Modern liberalism—Lippmann was emphatic on that point. Although the doctrinaire proponent of laissez-faire might see directed economy and compensated economy as interchangeable rationales for the leviathan state, Lippmann portrayed his

559 Ronald Steel, Walter Lippmann and the American Century (New Brunswick: Transaction Publishers, 1999) 304-309 and Goodwin, Public Economist, 45-51.

560 Lippmann, Method of Freedom, 53.

561 Lippmann, Method of Freedom, 59.

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approach as the chief alternative to being “swallowed by an imperious state socialism.”562

Pure laissez-faire was a utopian dream, but compensated economy could provide a real measure of freedom—a state that presented itself not as “master” but as “a gigantic public corporation which stands ready to throw its weight into the scales” in the name of economic stability.563 Even here, Lippmann gave himself some room to maneuver.

Conceding that “all social orders are a mixture of many theoretically inconsistent principles,” he noted that in practice compensated economy would probably require a hefty dose of “directed” commands.564 But these would be exceptions to a rule bent decidedly in the favor of Lippmann’s preferred form of liberty.

How democratic that system would be raised another challenge. “Representative government, as it has developed under laissez-faire in most countries,” Lippmann bluntly acknowledged, “is incompatible with a state which accepts responsibility for the economy as a whole.”565 Total democracy was as much a delusion as total laissez-faire.

Countercyclical policies by their nature set themselves against the temper of the moment, chastening exuberant spirits during prosperous times and bleeding red ink in downturns.

Like capitalism, democracy had to be “reconstructed” so that it could survive.566

To be just, a powerful state would have to be a less democratic state. Governments beholden to fickle public opinion could not “be trusted to administer policies that required independence and foresight,” which was the essence of compensated

562 Lippmann, New Imperative, 50.

563 Lippmann, Method of Freedom, 57.

564 Lippmann, Method of Freedom, 61.

565 Lippmann, Method of Freedom, 111.

566 Lippmann, Method of Freedom, 78.

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economy.567 Again citing the experience of central banking as a model, Lippmann argued that the agencies charged with executing compensatory policies must be protected from the popular will. Independence from democratic accountability was, paradoxically, the best safeguard against a dictatorship, either of the left or the right. He depicted this vision as a path between proletarianism and plutocracy, calling it “frankly and unashamedly middle class” in its attempt to ensure the general prosperity upon which modern democracies had come to depend.568

Lippmann also harbored more transcendent ideals. Laissez-faire was a paltry faith in the modern world—a dogma that asked the heirs “of those who dared to undertake great enterprises and to settle a continent” to accept the vicissitudes of the business cycle, leaving them “to sit and wait, like Chinese coolies in a famine.”569 The temptations of socialism and communism; the mediocrity of public life; even the dire condition of a university system where hyper-specialization made it more difficult than ever to see a coherent whole—all of this could be traced to one basic deficiency: “it is disreputable to hold and to declare a positive and coherent conception of the function of the state in a modern economy.”570 This was an almost spiritual vision of what mastering the economy could accomplish.

Not even Lippmann granted the economy total primacy. His major work of the decade, after all, was called The Good Society (a tribute to his former teacher Graham

Wallas’s 1914 work The Great Society). There he insisted on the need for a more

567 Lippmann, Method of Freedom, 79.

568 Lippmann, Method of Freedom, 99.

569 Lippmann, New Imperative, 46.

570 Lippmann, New Imperative, 47.

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comprehensive perspective than even his ruminations on the economy provided, calling for a “syntax of society as a whole” that could make sense of the era, and its glut of statistics.571

The importance of this larger social context also continued to elicit support from economists. That predilection was on display in the 1934 presidential address to the

American Economic Association, where Harvard’s Abbott Payson Usher invoked

“society” seventeen times without ever mentioning “the economy.” Those references to society included numerous instances where a later generation would expect to see the word economy, like a description of the gold standard as “intimately bound into the early liberal concept of a self-regulated society” or an assertion that policymakers must seek to

“reconcile the achievement of individual ends with the welfare of society.”572 Usher was in his fifties when he delivered this address, and he relied on a way of thinking about the world that had existed throughout his adult life—a conceptual framework with society at its center.

While usage of the economy became more frequent, it still had a powerful connection to earlier definitions. The economy was more likely to appear as the product of a specific historical and intellectual process than as a free-floating abstraction—still a town economy, or a national economy, or a world economy, rather than the economy.

This institutionally thick understanding of the concept was essential to one of the most remarkable documents of the New Deal, a weighty tome published in 1939 under the revealing title The Structure of the American Economy.

571 Walter Lippmann, The Good Society (Boston: Little, Brown & Co., 1937), 33.

572 Abbot Payson Usher, “A Liberal Theory of Constructive Statecraft,” American Economic Review, 24.1 (March 1934), 7, 8.

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THE FIRST ROUND OF WHAT WAS MEANT to become a longer investigation, The

Structure of the American Economy was produced under the auspices of the National

Resources Committee. It was a kind of sequel to Recent Social Trends, the study that had given birth to the organization that eventually became the NRC. In its early years, the group had focused on studies in keeping with the varied enthusiasms expressed in Recent

Social Trends, examining subjects ranging from land use to population. That legacy was still evident in the analytic sweep, empirical bent, and political ambition expressed in The

Structure of the American Economy. In that sense, the report was also a characteristic expression of an intellectual project shared by the more scholarly New Dealers. From their perspective, as Isador Lubin explained it, while “artificial barriers” within the university had fractured academic research, the exigencies of policymaking forced economists in government to adopt a more totalizing approach.573 The Structure of the

American Economy captured that synthesizing impulse, while changing the concept meant to unify the analysis from society to economy.

That shift owed much to the leadership provided by the volume’s editor, the economist Gardiner Means. Co-author with fellow New Dealer Adolf Berle of The

Modern Corporation and —an influential study of the corporation’s rise whose statistical findings earned Means a PhD in economics from Harvard—Means won additional recognition in 1935 after the publication of Industrial Prices and their Relative

Inflexibility. Prepared under the auspices of the Department of Agriculture, the report offered a powerful defense of the administered-prices thesis, just a few months before the demise of the NRA. Means was at the zenith of his influence, and he used the newfound

573 Lubin, “Government Employment,” 224.

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prominence to win a post as a director of research at the Industrial Committee of the

NRC—an attractive position for an ambitious policymaker eager to think up the next steps for New Dealers recovering from the Supreme Court’s latest blow.574

A driven man, in 1936 Means co-authored with his wife, the historian and consumer activist Caroline Ware, a combination of economic history and policy manifesto titled The Modern Economy in Action, which provided a more accessible version of the arguments in Industrial Prices and their Relative Inflexibility. The book was rife with economy talk, and the authors recognized the recent origins of their language. Discussing the history of economic planning in the United States, they noted that when the Constitution detailed “the government’s power with respect to the economy” the framers “used the broadest word—‘commerce’—which was known to the pre-machine economy in which they lived.”575 They also grasped the novelty of orienting policy toward the economy. Discussing tariffs, they wrote that while “The government has always been concerned with international trade . . . it has used the controls for particularistic or political purposes rather than to meet the needs of the economy as a whole.”576

Ware and Means grounded this turn toward the economy in a larger historical narrative centered on the declining significance of markets and the rise of corporations large enough to shape—and in some cases dictate—prices. Remnants of “the old economy” endured. There, prices reflected the needs of markets and functioned in a way

574 On Means, see and Steven Medema, Gardiner C. Means: Institutionalist and Post-Keynesian (Armonk: M.E. Sharpe, Inc. 1990) and Rosenof, New Deal Economics.

575 Ware and Means, Modern Economy, 227.

576 Ware and Means, Modern Economy, 225.

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Adam Smith would have recognized. But their importance had diminished in “the new economy” where prices followed the dictates of corporate boardrooms. The analysis reached back to Veblen, at least, but the stresses of the Depression and the concerns of the New Deal had pushed a new question into the foreground: “Can a modern economy be made to function within the framework of American democracy?”577 Published the same year Roosevelt won his thumping reelection, The Modern Economy in Action supplied an agenda tailor-made for liberals searching for a way out of the impasse that followed the abolition of the NRA and the marginalization of monetary policy.

With The Structure of the American Economy, Means used the powers of the NRC to fill in the details of a vision he and his wife had already sketched. At his most ambitious, Means hoped not to dictate policy, but to provide reliable information on the range of options available to policymakers and, ultimately, to the nation as a whole.578

Although the NRC lacked direct influence over policy, it offered Means access to a network of statistical researchers that had grown to an unprecedented size. The acknowledgments of the report alone offered a tour of this new apparatus, thanking multiple government departments along with the NBER and a social science group at

Harvard.579 And that left out the NRC, which by this time boasted an impressive staff of its own.

An introductory message from Secretary of the Interior Harold Ickes set out the report’s unique contribution, describing it as “the first major attempt to show the inter-

577 Ware and Means, Modern Economy 77.

578 Stapleford, “Market Visions,” 431 is especially insightful on this point.

579 National Resources Committee, The Structure of the American Economy, Part I: Basic Characteristics (Washington, D.C.: U.S. Government Printing Office, 1939), iv.

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relations of the economic forces which determine the use of our national resources” (the last phrase supplying a connection to the ostensible purpose of a “National Resource

Committee” housed within the Department of the Interior).580 The preface made the document’s goals even more explicit: “bringing all the different aspect of the national economy into a single frame of reference.”581 A body previously associated with detailed plans for land use and other related subjects had scaled its ambitions upward and reoriented its focus. The result had some resemblance to the program Mitchell had endorsed in Social Trends, but the departures were just as striking. That point was evident to contemporaries, one of whom described Means’s analysis as having “much in common with Wesley C. Mitchell,” but also possessing “a more comprehensive view of the functioning of our modern economy.”582

Appropriately enough, the report began by defining its central concept. “The

American economy,” it declared, “is the organized activity through which the 130 million people in this country obtain their daily living,” an object made out of the “countless tasks required by modern living” and “combined in a huge and highly complex producing organization.”583 As the title suggested, Means’s definition of the economy emphasized its structural character. An economy was not a given; it took “organizing influences” to

“weld the millions of separate individuals engaged in production into what is essentially a

580 Structure, iii.

581 Structure, v.

582 Allan Gruchy, “The Economics of the National Resources Committee,” American Economic Review 29.1 (March 1939), 65.

583 Structure, 1.

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single national economy.”584 (The report was explicit that farmers were included in those millions of individuals making up the economy, a break from the more restricted scope of business cycle theory.) Out of these innumerable relationships, something greater than its individual components emerged.

This dense thicket was more complicated than any one person could understand, but Means drew upon an impressive array of statistics to suggest its contours. The text was laden with charts, graphs, and maps. Some of these were familiar, like the representations of total employment or population. Others were more daring, like a table estimating the effects of a more egalitarian income distribution on consumption

(spending on items ranging from tobacco to reading would tick upward, but the transportation industry would take a hit). One striking map illustrated the “population weighted by purchasing power”—that is, to reflect the income distribution, with richer

Americans taking up more space.585

584 Structure, 96.

585 Structure, 8.

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The largest visual display, however, was reserved for a pullout illustrating the

“interlocking directorates” that tied together 250 of the nation’s largest corporations.586

586 Structure, 158-159.

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That was just one piece of evidence the report drew upon to bolster its claim that outside of agriculture and a few other sectors market prices had given way to prices administered by corporations. Means and his coauthors were not composing a theoretical brief against markets. Instead, they rested their case on empirical grounds. Corporations had done their part to turn the market into an obsolete category of analysis, but they were just one of many forces—including labor unions, powerful financial institutions, and the federal government itself—breaking the laws of supply and demand.

Means’s economic analysis was shadowed by a political concern. With fascism and communism on the march, he warned, “other means will undoubtedly be sought if a democratic solution is not worked out” to the problem of prosperity. “The time for finding such a solution is not unlimited,” he added, with an ominous tone that marked a

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noteworthy departure from the optimism Roosevelt had so recently expressed on the stump.587

That was not the only respect in which the report was out of step with other elements of the New Deal. Designed to launch an ongoing project—the book’s full title was The Structure of the American Economy: Part I: Basic Characteristics—Mean’s volume never received a proper sequel. But the impulse to subject the economy to rigorous empirical inquiry extended far beyond Washington. A new word had been coined to describe a burgeoning subfield within economics that best expressed this desire.

This group would eventually wield a prominence in the discipline that far exceed its small size, but for now they were comparatively minor figures, saddled with a name that seemed designed to repel outsiders: econometrics.

WHAT WAS ECONOMETRICS? The Norwegian economist Ragnar Frisch took up that question in an appropriate forum: the first issue of Econometrica, the journal of the aptly named .588 Frisch defined the society’s ideal as a combination of

“the theoretical-quantitative and the empirical-quantitative approach to economic problems,” joined to “rigorous thinking similar to that which has come to dominate in the

587 Structure, 3.

588 Carl Christ, “The Founding of the Econometric Society and Econometrica,” Econometrica 51.1 (January 1983), 3-6 describes the early days of the Econometrics Society. For the broader development of econometrics, see Roy Epstein, A History of Econometrics (Amsterdam: North-Holland, 1987); Mary Morgan, A History of Econometric Ideas (New York: Cambridge University Press, 1991); Duo Qin, The Formation of Econometrics: A Historical Perspective (Oxford: Oxford University Press, 1997); Thomas Stapleford, “The Divergent Paths of Early Econometrics in the United States & Britain” (paper presented at the annual meeting for the History of Economics Society, East Lansing, Michigan, June 27, 2015).

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natural sciences.”589 Econometrics was not just a new kind of economic statistics, or economic theory, or mathematics, but a “unification” of them all.590

According to Frisch, econometrics had emerged in response to the demands of its moment. “Statistical information,” he declared, “is currently accumulating at an unprecedented rate.” Adding a plaintive note to what had become a familiar comment, he insisted, “If we are not to get lost in the overwhelming, bewildering mass of statistical data that are now becoming available, we need the guidance and help of a powerful theoretical framework.”591 Muddling through was no longer enough. There was too much to interpret, and without a more robust framework synthesis would be impossible.

Economists trying to make sense of this deluge of information turned in mounting numbers to a novel approach. Equations designed to simplify, and by simplifying illuminate, economic life had been a part of economic inquiry for over a century. Yet, as the subject’s premier historian has observed, “It was in the 1930s that economists really

‘discovered’ the idea of models.”592 Fisher had anticipated the trend in his dissertation, with its mathematical rigor and sketch of a “mechanism” designed to act as “the physical analogue of the ideal economic market.”593 This “mechanism” illustrated the relationships that bound this market together, but Fisher also wanted it to serve “as an

589 Ragnar Frisch, “Editor’s Note,” Econometrica 1.1 (January 1933), 1.

590 Frisch, “Editor’s Note,” 2.

591 Frisch, “Editor’s Note,” 2.

592 Mary Morgan, The World in the Model: How Economists Work and Think (Cambridge: Cambridge University Press, 2012), 10.

593 Fisher, Mathematical 44.

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instrument of investigation.”594 The doubled purpose was crucial. Fisher’s equations and devices were more than just another way of expressing verbal insights; they were meant to manufacture truths of their own.

Mathematics was the preferred mode of representation, but by the 1930s illustrations also had become familiar parts of the economist’s toolkit. They proved especially popular for illustrating the course of money as it cycled through what economists called “the wheel of wealth.”595 The NBER’s Malcolm Rorty depicted the “round flow of money income and expenditures” in 1922596:

594 Fisher, Mathematical Investigations, 44.

595 Don Patinkin, “In Search of the ‘Wheel of Wealth’: On the Origins of Frank Knight’s Circular- Flow Diagram,” American Economic Review 63.5 (December 1973), 1037-1046.

596 Rorty, Some Problems, 63.

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That same year William Foster, who with his co-author Waddill Catchings pioneered and popularized theories of in the United States, offered a related take on

“the circuit flow of money”597:

597 William Foster, “The Circuit Flow of Money,” American Economic Review 12.3 (September 1922), 463.

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A decade later, this approach was even more popular. A New Dealer sketched this diagram of the “National Balance Sheet” in 1933598:

598 Steven Attewell, “What Is a Policy Imagination,” Lawyers, Guns & Money, July 27, 2014 available at http://www.lawyersgunsmoneyblog.com/2014/07/policy-imagination.

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The next year, a report from the Brookings Institution supplied a diagram of the country’s

“current flow of funds”599:

599 Harold Moulton, The Formation of Capital (The Brookings Institutions: Washington, D.C., 1935), 18.

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and supplemented it with “a bird’s-eye-view” of “the variety of institutions or organizations involved in the complex processes of the modern economic system”600:

600 Moulton, Formation of Capital, 22.

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Meanwhile, Frisch had developed an image of his own. He called it a “Tableau

Economique,” a reference to the work of Francois Quesnay, whose work had undergone a revival at the turn of the twentieth century.601 But Quesnay’s tableau was notoriously difficult to interpret, and it was shaped by the assumptions of an agricultural age. Frisch’s

“graphical illustration” of “the macro-dynamic system” took a different approach602:

601 Ragnar Frisch, “Propagation Problems and Impulse Problems in Dynamic Economics,” in Economic Essays in Honour of Gustav Cassel (Frank Cass and Company Limited: London, 1933), 173. On the Quesnay revival, see Tooze, Statistics and the German State, 117-118 and Gehrke and Kurz, “Karl Marx on Physiocracy.”

602 Frisch, “Propagation Problems,” 173.

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Different assumptions were embedded within each of these examples, and they tracked different objects. But they also shared important characteristics: closed systems, they imposed coherence within their boundaries by excluding whatever fell outside them.

They simplified the world, but that was the point. Only by diving below the endless variety of superficial phenomena could economists catch sight of the underlying trends.

The success of the Econometric Society indicated the growing popularity of that mission. Fisher, one of the society’s founders, had initially been skeptical that it would attract enough members to justify its existence. He spoke from experience: in 1912, he had led—with support from Mitchell and a handful of others—an unsuccessful campaign to form a similar organization. A generation later, Fisher had more company. 173 volunteers signed up as charter members of the society, and Econometrica soon became one of the major economics journals. The first issue’s masthead included some of the field’s most prominent names—Keynes, Schumpeter, and Mitchell among them. Over the

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next decade, it published contributions from every spot on the ideological map, drawing along the way from both established names and rising stars.603

The most important member of the society, however, was not an economist.

Alfred Cowles III was the heir to a family fortune—his grandfather had founded the

Chicago Tribune—and he fancied himself a financial expert. The head of an investment consulting firm, his academic curiosity had been sparked in 1929 by the crash on Wall

Street. Stock market forecasting had become a thriving field in the 1920s, and the spectacular failure of its supposed luminaries prompted Cowles to investigate the science behind predicting the economic future. Cowles’s inquiry led him to Fisher, who also happened to be a friend of his father and uncle, both Yale alums. To Fisher’s delight,

Cowles offered sizable funding—$12,000 annually—to a group that had until then operated with a much stingier budget. With more money came a more ambitious agenda.

Econometrica was one result; another was the Cowles Commission for Research in

Economics. Launched in Colorado Springs in the fall of 1932, the Commission was meant to provide a home for econometric scholarship. (Especially when that scholarship interested its namesake: “the first major project of the Cowles Commission,” their court historian later noted, was “the construction of indexes of stock prices, earnings, and dividends in the United States.”604) Cowles’s support also gave econometrics new prominence. “The attempt to analyze economics by higher mathematics has brought a

603 Christ, “Founding,” 3-4. Authors published in Econometrica included Irving Fisher, Frank Knight, Friedrich Hayek, , , Michał Kalecki, , , Paul Samuelson, and John Richard Hicks, whose influential presentation of Keynes’s General Theory appeared as “Mr. Keynes and the ‘Classics’; A Suggested Interpretation,” Econometrica 5.2 (April 1937), 147-159.

604 Carl Christ, “History of the Cowles Commission, 1932-1952,” in Economic Theory and Measurement: A Twenty Year Research Report (Chicago: Cowles Commission for Research in Economics, 1952), 10. On the Cowles Commission, also see Philip Mirowski, Machine Dreams: Economics Becomes a Cyborg Science (Cambridge: Cambridge University Press, 2002), 207-228, 234-308.

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new word, econometrics, into the language,” reported a Wall Street Journal article publicizing the launch of Cowles’s venture.605

Cowles received important early support from a potential rival: Wesley Mitchell, who in 1937 told the Rockefeller Foundation, “No other organization known to me is doing work of exactly the type on which they focus their attention.”606 Cowles made sure to distinguish his concerns from the NBER’s in his own letter to the Rockefeller

Foundation. Noting that Mitchell had “from the beginning been a member of the advisory council of the Cowles Commission,” he insisted there would be no “overlapping or duplication in the activities of the two organizations."607

The contours of the Cowles program became clearer with the hiring of its first research director in September 1934. Though trained as a mathematician, Charles Roos had been concerned with economics from the outset of his career. He arrived in Colorado

Springs from Washington D.C., where he had overseen the research division of the NRA.

Disillusioned by his time in government, Roos used his position at Cowles to elaborate an indictment of the NRA that he had begun while still in Washington. Roos’s volume on the NRA was one of three books the commission published during his tenure. Although it eschewed the complex mathematics Cowles would come to be associated with, the book reflected the institution’s preoccupations. “No country had spent more in collecting statistics than the United States,” he wrote, “and yet with it all, definite answers were

605 “Econometrics,” Wall Street Journal, May 16, 1932, 1.

606 Wesley Mitchell to Sydnor Walker, October 11, 1937, Box 46, Series 10, Mitchell Papers.

607 Alfred Cowles to Joseph Willits, October 16, 1937, Box 46, Series 10, Mitchell Papers.

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available to comparatively few questions.”608 This deficiency was more than an irritating obstacle. “As long as such large gaps in statistical information exist,” Roos argued,

“economic planning, even of a mild ‘fixing’ type, must remain impracticable.”609 It was a paradox: economic statistics proliferated at dizzying rates, hence the need for econometrics, but there was still not enough to make economic planning feasible.

Even the best statistics, however, could not overcome the failings of the political system. Roos tempered his critique with occasional nods to the good intentions of New

Dealers, but those were outweighed by his blistering appraisals of the New Deal’s constitutive elements, including “disappointingly costly”610 public works projects and planners with “no appreciation whatever of the implications of their proposals.”611 He reserved his most vituperative rhetoric for unions that demanded too much for their members, writing that their “entirely selfish aims” made them “anti-social, a hindrance to re-employment and a menace to economic and social well-being.”612 Despite the vigor of

Roos’s denunciations, Cowles remained a stopping point for Roosevelt’s economists, including Lubin and Ezekiel, both of whom participated in its conferences.

By the time Roos left in 1937, however, Cowles had not yet found its place.

While Econometrica thrived, after Roos’s departure Cowles went without a research director for two years. Part of the problem was the difficulty of luring qualified candidates to Colorado Springs, a hurdle the commission did away with in 1939 by

608 Charles Roos, NRA Economic Planning (Cowles Commission for Research in Economics: Bloomington, 1937), 63.

609 Roos, NRA Economic Planning, 467.

610 Roos, NRA Economic Planning, 473.

611 Roos, NRA Economic Planning, 453.

612 Roos, NRA Economic Planning, 453.

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relocating to the University of Chicago. (The move also enabled Cowles to avoid paying

Colorado’s newly institute state income tax.613) This would be the home of the commission’s greatest intellectual achievements—achievements that would be substantial, but still lay in the future. Those looking for the foremost site of econometric research into the United States would have had to cast their gaze all the way across the

Atlantic, to Geneva, home to the League of Nations, where a member of the Econometric

Society was leading the first attempt to create an econometric model of the American business cycle.

THE GOAL WAS UNUSUAL ENOUGH that it did not yet have a name. It was not until the Dutch economist , creator of the pioneering League model, borrowed a term from physics that “model” entered the economist’s lexicon. As Tinbergen explained,

“By increasing or decreasing the number of phenomena, a more refined or a rougher picture or ‘model’ of reality may be obtained.”614 Even when introducing the word,

Tinbergen distanced himself from it, flanking it with quotation marks that isolated the unfamiliar language.615 But the term made its way into reviews as well, which commented without fail on Tinbergen’s belief, in the words of one journal, that it was

“possible to construct a mathematical model of the trade cycle which is sufficiently simple to be tested statistically and a sufficiently good approximation to reality to be

613 Epstein, Econometrics, 61.

614 Jan Tinbergen, Statistical Testing of Business-Cycle Theories: Business Cycles in the United States, 1919-1932 (Geneva: League of Nations, Economic Intelligence Service, 1939), 15.

615 So did reviewers—for instance, Milton Friedman’s reference to “Tinbergen’s ‘model’ for the United States” in “Review: Business Cycles in the United States of America, 1919-1932,” American Economic Review 30.3 (September 1940), 658.

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useful.”616 Equations based on statistical relationships would turn a morass of data into a more tractable object that could be used to both analyze what Tinbergen called “the structure of the economic community” and predict the consequences of policy changes.617

Tinbergen’s path toward this destination had begun with a doctorate in physics.

Though a skilled mathematician, he was also a committed socialist, and he found himself increasingly attracted to economics. A stint researching business cycles for the Dutch

Central Bureau of Statistics led him to build what was then called a “macrodynamic” model of the country’s business cycle, the first of its kind—not just for the Netherlands, but for anywhere. He was then brought onto the League of Nations, under whose auspices he published two volumes under the title, Statistical Testing of Business-Cycle

Theories.618 The second of these volumes included his model of the business cycle in the

United States. Despite the novelty of the device, Tinbergen insisted that his “ultimate objective” was “the same as of any system of business cycle research.”619 The pioneers of econometric modeling—above all Tinbergen and Frisch—wanted to link economic theory with empirical data, a project that Mitchell could just as easily have signed onto.

While the econometricians plunged into theorizing, however, Mitchell continued to focus on statistical inquiries.

616 E. Rothbarth, “Review: Business Cycles in the United States of America, 1919-32,” Economic Journal 51.202/3 (June-September 1941), 293.

617 Jan Tinbergen, “Annual Survey: Suggestions on Quantitative Business Cycle Theory,” Econometrica 3.3 (July 1935), 242. Morgan, Econometric Ideas, 101-130 examines Tinbergen’s intellectual contributions, while Patricia Clavin, Securing the World Economy: The Reinvention of the League of Nations, 1920-1946 (Oxford: Oxford University Press, 2013), 206-211 explains its relationship to the League.

618 Jan Tinbergen, “My Life Philosophy,” American Economist 28.2 (Fall 1984), 5-8 and Jan Tinbergen, interview by Jan Magnus and Mary Morgan, “The ET Interview: Professor J. Tinbergen,” Econometric Theory 3 (1987), 117-142 provide background on Tinbergen’s life.

619 Jan Tinbergen, “Econometric Business Cycle Research,” Review of Economic Studies 7.2 (February 1940), 73.

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The contrast was evident in the older man’s correspondence with Tinbergen.

Perhaps sensing an ally, Tinbergen had sent Mitchell a copy of his League of Nations work, noting that it was “quite different” from Mitchell’s own endeavors.620 That was evident to Mitchell. “While you are ready to test numerous explanations of business cycles,” he wrote to Tinbergen, “I am still trying to find out more definitely what is to be explained.”621 That aspiration had consumed Mitchell for decades, and his interest showed no sign of abating, while evidence of progress accumulated at a painfully slow rate. Tinbergen moved at a faster clip. The League asked him to devise a model for the

United States that could determine the merits of rival business cycle theories. He completed the project after a few years of work, and was back in the Netherlands by

1939. Turning statistics devised for other purposes to his own ends, Tinbergen had given this data new meaning.

Tinbergen’s intellectual and political ambitions formed two halves of a cohesive whole. As Frisch later noted, an econometricians concerned with the “practical application of his science” looked “to economic planning at the national level.”622 This seemed a natural move to Frisch, who believed that economic planning should be “one of the pillars of a living democracy.”623 Models advanced this goal in three ways: they clarified the sources of economic fluctuations in the past, provided a way of predicting those fluctuations in the future, and suggested what policies would calm the cycle. These were also the goals of earlier business cycle theorists, but models promised to replace the

620 Jan Tinbergen to Wesley Mitchell, June 28, 1938, Box 13, Series 3, Mitchell Papers.

621 Wesley Mitchell to Jan Tinbergen, November 1, 1938, Box 13, Series 3, Mitchell Papers.

622 Ragnar Frisch, “From Utopian Theory to Practical Applications: The Case of Econometrics,” 71.6 American Economic Review (December 1981), 10.

623 Frisch, “The Case of Econometrics,” 30.

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endless quest for better data with the appealing simplicity of an equation (for those who understood the mathematics).

Models also furnished straightforward criteria for adjudicating between competing interpretations. They did so, in part, by ruling out so many of the contenders.

A successful model, Tinbergen argued, had to pass a few basic tests. The number of relationships, for example, must match the number of variables needing explanation.

Judged by these standards, “very few, if any, ‘literary’ theories” passed.624 Tinbergen proposed to test all of these hypotheses with a model composed of almost fifty equations and see what survived.

The appeal of this exercise for a mathematically oriented economist was obvious, but the attraction for League officials requires more explanation. According to the director of the League’s department on economic research, Tinbergen’s approach fit the nature of his challenge. The business cycle was composed of “various forces acting and reacting on each other and constituting in the aggregate a sort of vital organism.”625

Deciphering the workings of that organism required “an elaborate system of mathematical analysis” of the kind Tinbergen supplied.626 What emerged from this process drew upon familiar descriptions of society as an organic whole to justify a new mathematical imagining of that cohesive body.

The League, however, was more interested in practical results than philosophical innovations. Deploying economic statistics helped address this concern, but, as Mitchell’s

624 Tinbergen, Business Cycles in the United States, 19.

625 Alexander Loveday, Preface to Statistical Testing of Business-Cycle Theories: Business Cycles in the United States, 1919-1932 by Jan Tinbergen (League of Nations, Economic Intelligence Service: Geneva, 1939), 6.

626 Loveday, “Preface,” Statistical Testing, 6.

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career demonstrated, statistics by themselves did not supply policy recommendations.

Tinbergen relied on mathematics to cut through the empirical muddle. Regressions allowed him to establish relationships among his variables, a combination of data and theory essential to what he called the “purpose” of his work—“the explanation of real events.”627 His chief goal was accounting for the Depression’s origins in the United

States, but along the way he stopped to note other discoveries his model had made: that open-market operations could influence long-term interest rates, for instance, or that rigid wages had not contributed much to the stubborn persistence of the downturn. He dismissed arguments that put the bulk of the blame for the depression on monetary policy, or excess investment, or agriculture. Like many other business cycle theorists, he traced the roots of the downturn to the preceding boom, but he held out the possibility that countercyclical fiscal policy or changes in “the economic structure of society”628 (for instance, “a less unequal distribution of incomes”629) could mitigate the cycle’s fluctuations.

Tinbergen’s findings supported Keynesian positions, but Keynes himself viewed the entire project with skepticism.630 In a review that became famous among economists,

Keynes fired a barrage of attacks at Tinbergen, ranging from the defects of his regression

627 Tinbergen, Business Cycles in the United States, 123.

628 Tinbergen, Business Cycles in the United States, 137.

629 Tinbergen, Business Cycles in the United States, 169.

630 In addition to Morgan, see Don Patinkin, “Keynes and Econometrics: On the Interaction Between the Macroeconomic Revolutions of the Interwar Period,” Econometrica 44.6 (Novermber 1976), 1091-1123 and Kevin Hoover, “Man and Machine in Macroeconomics” (lecture, XIV Colloque de l’Association pour l’étude de la pensée économique, l’Université de Nice-Sophia Antipolis, June 7-9, 2012). Like Tinbergen, Ragnar Frisch also found support for countercyclical policies in his research.

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analysis to the “frightful inadequacy of most of the statistics.”631 The few token compliments Keynes included did little to cushion this assault, which depicted Tinbergen as besotted with mathematics and detached from reality. Calling the book “a nightmare to live with” and the whole endeavor “a singularly unpromising project,” he concluded by predicting that Tinbergen’s response to his criticism “will be to engage another ten computers and drown his sorrows in arithmetic. ”632 This was a caricature of Tinbergen, and of his book, but it found a receptive audience among the many economists who opposed what they saw as an attempt to turn their discipline into a branch of mathematics.

Keynes’s review, however, focused only on the first volume of Tinbergen’s study, a general exposition of his methodology. Tinbergen’s model of the United States appeared in a second volume that provoked fewer debates than its predecessor. But the reception was not uniformly positive, and an especially harsh appraisal issued from the young Milton Friedman. Though still more favorable than Keynes, Friedman criticized

Tinbergen’s use of statistics, citing Mitchell in support, and concluding that, while

Tinbergen’s report had supplied a useful provocation to theorists, its “methods . . . do not and cannot provide an empirically tested explanation of business cycle movements.”633

Friedman’s skepticism reflected a disposition he had inherited from his teachers at both the University of Chicago and Columbia—he split his time as graduate student between the two institutions—and would remain with him after his return to Chicago as a

631 John Maynard Keynes, “Official Papers,” Economic Journal 49.195 (September 1939), 567.

632 Keynes, “Official Papers,” 568.

633 Friedman, “Review: Business Cycles in the United States of America, 1919-1932,” American Economic Review 30.3 (September 1940), 660.

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professor in 1946, where he clashed regularly with his new neighbors at the Cowles

Commission. His most contentious encounters occurred with the Dutch economist

Tjalling Koopmans, who became director of Cowles soon after Friedman’s arrival.

Koopmans, in one of the inevitable coincidences produced by small networks, was a protégé of Tinbergen’s.

BUT TINBERGEN’S WAS JUST ONE of many efforts to invigorate empirical economics with a dose of theory, and to use this synthesis to grasp the dynamics of the economy as a whole. Back in the United States, one of the most notable efforts was developed by a Harvard economist who arrived in Cambridge after a most improbable journey.

The son of an economics professor, Wassily Leontief was born in in

1905, twenty-six years before he took up his post at Harvard.634 His family soon left for

Russia, and at fifteen Leontief enrolled in his local university—formerly

Imperial University, renamed Petrograd State University after the revolution—where he threw himself into studying his father’s profession. “I read systematically,” he recalled,

“practically all the economists from the beginning of the seventh century.”635 Though

Leontief opposed the Bolsheviks, he developed an admiration for Marx, whom he

634 Christian DeBresson, “Some Highlights in the Life of Wassily Leontief—an interview with Estelle and Wassily Leontief,” in Wassily Leontief and Input-Output Economics, eds. Erik Dietzenbacher and Michael Lahr (Cambridge: Cambridge University Press, 2004), 136. For more, also see Duncan Foley, “An Interview with Wassily Leontief,” Macroeconomic Dynamics 2.1 (March 1998), 116-140. D.L. Clark, “Planning and the Real Origins of Input-Output Analysis,” Journal of Contemporary Asia 14.4 (January 1984), 408-429 provides further background.

635 DeBresson, “Some Highlights,” 136.

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considered “possibly the greatest classical economist.”636 He also had the good fortune to be studying at a time of comparatively open debate in the USSR, where economic policy seemed like it would determine the fate of the Bolshevik experiment, and economists had an intellectual freedom that would seem fantastic under Stalin.

By 1925, Leontief had a master’s degree, and a diagnosis for a tumor that allowed him to travel to Berlin for medical attention. The tumor was benign, but he stayed in

Germany, and received his doctoral degree in 1928, after studying under the sociologist

Werner Sombart and the economist-cum-statistician (also originally from Russia, and famous among economists for his critique of Marx’s theory of value).

Leontief’s work bore the impress of these mentors for the rest of his career. He was, by the standards of his time, a mathematically sophisticated economist, but he viewed his technical studies as part of a larger social theory. This perspective came through in his dissertation, which he later described as an attempt “to provide an empirical framework for the study of interdependence of individual cells in the economy.”637 His practical skills were valuable enough to win him a job in 1929 as an advisor to China’s Ministry of Railroads, a year-long stint followed shortly after by his departure for the United States. (Though not before a return to Europe, where he worked alongside another Russian economist, Jacob Marschak, who later headed the Cowles

Commission.) Upon reaching the United States, he was met by a fellow émigré named

Simon Kuznets, who took him immediately to the NBER.

636 DeBresson, “Some Highlights,” 136.

637 DeBresson, “Some Highlights,” 138.

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His tenure at the NBER was brief, and Leontief soon moved to Harvard. Facility with mathematics distinguished him from most of the economics faculty, and earned him lifelong gratitude from some of the department’s most promising graduate students, chief among them Paul Samuelson, who claimed that “No other course I ever took so profoundly set me on the way of my life.”638 Politics also separated Leontief from his colleagues. A supporter of economic planning, Leontief viewed even Keynes as too willing to trim his theoretical ambitions for the sake of political plausibility.

By the time he joined Harvard’s faculty, Leontief had found a goal he considered worthy of his talents. Since Léon Walras, economists had sought a general equilibrium theory that uncovered the dense web of interconnected processes that determined prices.

Leontief shared that aspiration, but he also wanted something that could be verified empirically and serve a practical purpose. Although more theoretically daring than the typical NBER researcher—Leontief would remember himself as a “very subversive” influence at the Bureau—he did not accept mathematical purity as an end in itself.

Input-output table provided him with the means to resolve that tension. As the name indicates, an input-output table represents the relationship between a set of inputs and the eventual outputs. Leontief used them to construct a matrix where the rows illustrated the destination of the items produced by a given industry, while the columns showed the purchases made by that industry. This, for example, appeared in Leontief’s first article on the subject 639:

638 Paul Samuelson, “A Portrait of the Master as a Young Man,” in Wassily Leontief and Input- Output Economics, eds. Erik Dietzenbacher and Michael Lahr (Cambridge: Cambridge University Press, 2004), 6.

639 Wassily Leontief, “Quantitative Input and Output Relations in the Economic Systems of the United States,” Review of Economics and Statistics 18.3 (August 1936), 106.

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So, according to this table, the sum of industry A’s revenue is the product of purchases made by industries B, C, D, and E, all of which are displayed in the fist row. The first column, meanwhile, reveals industry A’s total expenditures. In theory, a comprehensive enough table would reveal the consequences for the entire economy of changing one output.

Like Frisch, Leontief acknowledged a kinship between his work and Quesnay’s.

In the 1936 article that unveiled the results of his project, Leontief called it “a Tableau

Economique of the United States for the year 1919.”640 Marx had also drawn on the

Physiocrats, and there had been a vogue for the technique in the Soviet Union during

Leontief’s time there.641 Leontief’s interest in the subject had been reinforced during his years in Germany, where he found encouragement for his efforts to turn what had been an

640 Leontief, “Quantitative Input and Output Relations,” 105.

641 Leontief elaborated his views on input-output economics in Input-Output Economics (New York: Oxford University Press, 1966). Karen Plenske, “Leontief’s ‘Magnificent Machine’ and Other Contributions to ,” in Wassily Leontief and Input-Output Economics, eds. Erik Dietzenbacher and Michael Lahr (Cambridge: Cambridge University Press, 2004), 9-29 provides an independent perspective.

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intellectual speculation into a tool for policymaking.642 He attributed that shift to the explosion of economic statistics in recent decades, which provided him with the data that could, with some assistance from algebra, verify the relationships he recorded. “It is hard, now, to revive the excitement created by these first developments,” recalled one of

Leontief’s contemporaries. “The time-honored theory was lifted suddenly out of the textbooks and treatises and placed in the arena of applied economic analysis.”643 It was an empirical move that had important theoretical consequences. As Leontief pursued his work, the previously marginal subject of intermediate goods—an output for one sector that became an input for another—took on a new centrality. It was yet another example of the links that bound economic actors together, the countless threads tied to seemingly isolated agents.

Both the empirical and theoretical aspects of his work received attention in

Leontief’s descriptions of his project. In his words—forceful, if not elegant—he hoped to

“suppl[y]an empirical background for the study of the interdependence between the different parts of our national economy on the basis of the theory of general economic equilibrium.”644 He drew from government source and trade publications, along with frequent borrowing from the NBER, whose studies on national income had been an inspiration. Though it was still impossible to build a comprehensive table with the available data, Leontief’s totalizing ambition was evident. In his table, he wrote, “The economic activity of the whole country is visualized as if it were covered by one huge

642 Tooze, Statistics and the German State, 200-202.

643 Robert Dorfman, “Wassily Leontief’s Contribution to Economics,” Swedish Journal of Economics 75.4 (December 1973), 437.

644 Leontief, “Quantitative Input,” 116.

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accounting system.”645 After a long discussion of the statistics undergirding this project, he drew the curtain on the final result646:

This was an imposing display, and, for economists, its potential was tantalizing.

Academics were Leontief’s natural audience, but policymakers with the requisite background also recognized its possible value.647 Gardiner Means struck up a correspondence with Leontief, who sent him tables for 1919 and 1929 to assist with his research on The Structure of the American Economy. Means viewed Leontief’s exclusion of exchanges that took place outside the market as an important defect, but he recognized

645 Leontief, “Quantitative Input,” 106.

646 Leontief, “Quantitative Input,” 125-126.

647 Collected in the Gardiner Means file in Box 1, Papers of Wassily Leontief, Harvard University Archives.

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a kindred spirit.648 In 1939, government officials requested that Leontief draw up an input-output table for them, but he declined the offer, citing inadequate statistics.

Washington persisted, and, after Leontief relented, a team from the Bureau of Labor

Statistics headed north and set up shop at Harvard. A man who had travelled across the world in search of safe harbor—from the USSR to Germany to China to the United

States—could now wait for others to come to him.649

Leontief had profited from trends that were remaking economics, and whose influence on politics was already beginning to be felt. The birth of econometrics and

Leontief’s input-output tables shared more than a common origin in the 1930s. Responses to their time, each tried to make sense of a crisis that what was more and more frequently traced to “the economy.” These innovations fed off each other too: more statistics supplied grist for more elaborate theories that attracted the notice of policymakers who then became even more likely to support greater funding for statistics, kicking off the cycle all over again.

WHILE THE IMPULSE TO STUDY the economy was growing, particular ways of conducting that investigation could fall out of favor. Gardiner Means learned that lesson before he had finished The Structure of the American Economy. Means had started research in 1936, when the recovery was booming. By 1937, however, a recession was underway, and pressure mounted on Means to shift from broad-ranging inquiries toward

648 Frederic Lee, “From Multi-Industry Planning to Keynesian Planning: Gardiner Means, the American Keynesians, and National Economic Planning at the National Resources Committee,” Journal of Policy History 1.02 (April 1990), 209, fn. 4.

649 Across the Atlantic, Nazi officials were also following Leontief’s work: Tooze, Statistics and the German State, 202.

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specific proposals for countering the slump. Like Mitchell before him, Means struggled with providing concrete policy recommendations and took refuge in calls for more study.

“If a democratic solution is to be worked out, it will be the product of many minds working through a period of years,” he wrote in a draft of the conclusion. “It will require continuing analysis by the technicians of the different phases of the problem and a more detailed delineation of the characteristics of the national economy.”650

Those lines, like the rest of Means’s conclusion, would not be published.651 The reason why would become evident in 1940, when The Structure of the American

Economy: Part II: Toward Full Use of Resources appeared. Meetings of the officials tasked with producing the document included both longtime planners and members of a group that had recently been dubbed “Keynesian.” The label was not entirely apt. Some of Washington’s so-called Keynesians had only a passing familiarity with the work of their supposed master, and even those well versed in his work had often followed their own paths to similar conclusions. But whatever the origins of their beliefs, the shared perspective was what mattered. Advocating policies that bore a distinct resemblance to the program outlined by Lippmann a few years earlier, they regarded Means’s program as a sideshow.

The change from the prior book was obvious at a glance. Coming in at under fifty pages, the sequel was a trifle compared to its hefty predecessor. Instead of providing a coherent summary of research, it was a symposium where Means’s voice was one among

650 Gardiner Means, “Conclusion,” likely May 1939, Box 1733, Folder 705.1, Central Office Records, Records of the National Resources Planning Board, National Archives.

651 On the bureaucratic wrangling behind this decision, see Thomas Stapleford, “The Constraints of Knowledge: The Demise of Structural Economic Planning in the Late New Deal” (paper presented at the annual meeting for the History of Economics Society, Notre Dame, Indiana, June 19, 2011).

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five. Some common principles linked the disparate group, chief among them acceptance that “the organized way of producing , which is called the national economy” was an object worth analyzing, especially when it was so obviously failing to perform at its full capacity.652 The continued importance of finding a democratic way of addressing that problem also received a uniform endorsement.

After that, it was a free for all. Means used his chapter to reiterate his support for sweeping reform. Full employment was his central objective, and it could only be met with a comprehensive approach—that is, an approach operating at the scale of the economy. The economy, according to this interpretation, was an object that only needed to be accounted for when the government faced a certain kind of question. “Most problems of efficiency and balance,” he wrote, “can be worked out on a piece-meal basis.”653 But full employment was a different, larger obstacle—“necessarily one which involves the working of the national economy as a single whole.”654 As for his interpretation of the economy, Means was an optimist. He saw a country teeming with consumers hungry for more, with ample resources to satisfy these unmet demands.

Restrictions imposed by “social organization” that he had diagnosed in the first part of

The Structure of the American Economy prevented the system from reaching its full potential, but he remained confident that the appropriate reforms could usher in a new era of abundance.

652 National Resources Planning Board, The Structure of the American Economy: Part II: Toward Full Use of Resources (Washington, D.C.: Government Printing Office, 1940), 1.

653 Structure of the American Economy: Part II, 5.

654 Structure of the American Economy: Part II, 5.

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All the participants in this forum agreed with Means that economic theory should guide political practice, but the similarities ended soon after. One author chided him for neglecting the social, calling for a “report on The Structure and Use of Resources of

Social Behavior” before discussion continued.655 Mordecai Ezekiel shared the desire for ambitious reforms, but believed that Means had only developed part of what would have to be an even bolder agenda. The most biting assessment came from Alvin Hansen, a

Harvard economist and leading authority among Washington’s Keynesians. Hansen was a student of business cycle theory, and from his perspective both pillars of early New

Deal economics—the reformist vision behind the NRA that Means sought to revive, and the faith in a managed money supply that had driven Fisher and the other reflationists— shared a common misperception. They focused on prices, in one case the relation of prices among industries, in the other the total price level. What really mattered, Hansen believed, was the rate of investment, which was necessarily bound up with a host of concerns that had little to do with prices as such. While consumer demand was unlimited, in theory at least, that did not ensure prosperity. Means had overlooked the complicated relationship between and investments, a relationship best managed not by the reforms he favored but through savvy monetary and—here was the pivotal change— fiscal policies. Even if prices among industries had been thrown out of balance, forcing them down in an attempt to restore equilibrium only depressed national income, the opposite of what expansionary policy required.

By 1940, Hansen’s argument had won out. In private reflections other New

Dealers shrugged off part one of The Structure of the American Economy as—in the words of Harold Smith, director of the Bureau of the Budget—“a very tedious

655 Structure of the American Economy: Part II, 19.

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performance.”656 Means resigned, and, following his departure, the NRPB became a stronghold for advocates of fiscal policy. It was a curious turn for a body that had begun its life in 1933 fired by visions of social transformation. Since then, the goals had changed, subtly but decisively, from governing society to managing the economy. In the arc of a committee so obscure that it could not even hold onto a name for more than a few years at a time, a much larger history revealed itself. A new obligation had been added to the sovereign’s traditional list of responsibilities, a duty as important in its own right as enforcing the rule of law or defending against attacks from abroad. A healthy economy had become a prerequisite for successful governance. It was a new goal that two presidential administrations, one Republican and one Democratic, had tried to achieve with policies that drew on a jumble of past experiences, from managing the money supply to winning a World War.

By the close of the 1930s, a distinct politics of the economy had begun to take shape, and it did so around fiscal policy. There was nothing foreordained about that result. The economy was a capacious object, and proponents of conflicting agendas had retrofitted their programs to accommodate this new addition. Fisher, Mitchell, Tugwell,

Lippmann, Means, Leontief, Tinbergen had all in their own ways had contributed to this recentering of politics. So had the perceived failures of the early New Deal, the demands of electoral mobilization, the twinned ascents of fascism and communism, and, looming over it all, the unfolding crisis of the Depression.

Back in Washington, Keynesians proved the most skilled navigators of the altered landscape. The first wave of research on the economy had been characterized by its diversity. This was uncharted territory, and nobody yet know what instruments would

656 Brinkley, End of Reform, 355, fn 70.

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prove most useful for navigation. Keynesians brought clarity and precision to this muddle, supplying politically attractive proposals with sterling academic rationales to challenges perceived as exigent. Their victory did not rule out other approaches, at least not yet, but it would have momentous consequences, and it began with their mastery of a subject that in the popular imagination exemplified tedium—accounting, specifically national income accounting. And that, in turn, grew out of the effort to answer a seemingly simple question. How great, exactly, was the Depression?

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Chapter 4: The Birth of Fiscal Policy

“INCREDIBLE AS IT SOUNDS, THE NEW DEAL DOES not have any program, good bad or indifferent.”657 So declared Walter Lippmann in the spring of 1938, when it was clear even inside the White House that the administration was in crisis. Some of the injuries were self-inflicted. After his landslide reelection in 1936, Roosevelt had backed two major initiatives: an expansion of the Supreme Court designed to fill out the bench with sympathetic New Dealers, and a reorganization of the executive branch that would increase the president’s ability to act without congressional approval. Both failed, dealing stinging blows to the White House and revealing the contours of an anti-Roosevelt congressional majority.658

Worse yet, in October 1937 the stock market collapsed. While evidence accumulated that economic weakness extended beyond Wall Street, New Dealers worried that the country was about to enter another depression without having fully recovered from the last one. They were not alone in this concern, and Roosevelt’s opponents treated the slump as proof of the administration’s failure.659

In Washington, the crisis was as much political and intellectual as economic.

Prosperity had allowed New Dealers to paper over internal differences that had widened

657 Quoted in Goodwin, Public Economist, 164.

658 On the recession, see François Velde, “The Recession of 1937—A Cautionary Tale,” Federal Reserve Bank of Chicago Economic Perspectives 33.4 (November 2009), 16-37.

659 James T. Patterson, "A Conservative Coalition Forms in Congress, 1933–1939," Journal of American History 52.4 (March 1966), 757–772 tracks the emergence of this resistance. Ira Katznelson, Kim Geiger and Daniel Kryder, "Limiting Liberalism: The Southern Veto in Congress, 1933-1950," Political Science Quarterly 108.2 (Summer, 1993), 283–306 highlights the importance of Southern opposition within Roosevelt’s own party, while Julian Zelizer, “The Forgotten Legacy of the New Deal: Fiscal Conservatism and the Roosevelt Administration, 1933-1938,” Presidential Studies Quarterly 30.2 (June 2000), 332-359 emphasizes the opposition reformers faced within the administration.

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as the sense of emergency prevalent during the worst of the Depression faded. Recovery had also obscured intellectual exhaustion settling across both of the camps that dominated economic policymaking in the first term, the reflationists and proponents of the administered-prices thesis. The 1937 downturn exposed all this, sparking debates that were even more contentious than in the administration’s early days, before the New

Deal’s mixed track record equipped both sides with weapons for internecine battles.660

Amid the confusion, advocates of a strategy that had attracted little notice in

Roosevelt’s first term received increasing attention. Fiscal policy, they argued, both explained the recent slump and supplied tools that could bring it to an end. This view was especially popular with young New Deal economists—people like Isador Lubin, head of the Bureau of Labor Statistics; or Leon Henderson, an alumnus of the NRA and, in 1936, economic counselor to the Democratic National Committee; or Lauchlin Currie, an unassuming Harvard PhD and Federal Reserve official who would soon become the

White House’s first official economic adviser.661

As it happened, Lubin, Henderson, and Currie arrived together at the White House for an appointment with Roosevelt on November 8, 1937, just a few weeks after the stock market crash. They came bearing a memo drafted by Currie and signed by all three.

“Graphs, charts and other data spread before the President revealed the state of industry and employment,” reported a front-page article detailing the meeting in the next day’s

660 On the intellectual stalemate, see Hawley, The New Deal and the Problem of Monopoly, 402-3, May, New Deal to New Economics, and Brinkley, End of Reform.

661 There is no extended study of Henderson’s life, but on Lubin and Currie see Lewis Lansky, “Isador Lubin: The Ideas and Careers of a New Deal Labor Economist,” (PhD diss, Case Western University, 1976) and Roger Sandilands, The Life and Political Economy of Lauchlin Currie: New Dealer, Presidential Adviser, and Development Economist (Durham: Duke University Press, 1990). provides an insightful analysis of fiscal policy’s rise in The Fiscal Revolution in America: Policy in Pursuit of Reality (Washington DC: AEI Press, 1996).

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New York Times.662 , one of FDR’s most valued advisers, had encouraged the meeting, convinced the president would benefit if he could “talk to the boys who actually write the heads of department’s memos and get some first hand dope on what is after all a highly technical matter.”663 That technical spirit made its way into Roosevelt’s rhetoric a week later, when he announced in a fireside chat on unemployment that “we need more facts.”664

New Dealers also needed a theory that could explain how the country had reached this parlous state. The downturn had dealt a powerful blow to business cycle theory, with its faith that, however painful, contractions would eventually give way to booms. Currie’s memo proceeded from an alternative set of assumptions, offering both diagnosis and cure for the disease. That theory was eventually labeled Keynesian, and Keynes did have the good luck to publish his major theorization of fiscal policy—The General Theory of

Employment, Interest, and Money—shortly before the 1937 recession.665

The work earned Keynes notoriety in the United States. One booklet released by a business-friendly group in 1938 declared that policies “associated with the name of John

Maynard Keynes have undoubtedly exercised a power more despotic in governmental

662 Turner Catledge, “Roosevelt Hears Advisers on Ways to Spur Business,” New York Times, November 9, 1937, 1.

663 Quoted in Byrd Jones, “Lauchlin Currie and the Causes of the 1937 Recession,” History of Political Economy 12.3 (Fall 1980), 308.

664 Franklin Roosevelt, “On the Unemployment Census,” November 14, 1937, available at http://docs.fdrlibrary.marist.edu/111437.html.

665 John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Hacrourt, Brace & World, Inc., 1936). On The General Theory and its ramifications, see Peter Clarke, The Keynesian Revolution in the Making, 1924–1936 (Oxford: Clarendon Press, 1988); Peter Hall, ed., The Political Power of Economic Ideas: Keynesianism Across Nations (Princeton: Princeton University Press, 1989); Bradley Bateman, “Keynes and Keynesianism,” in The Cambridge Companion to Keynes, eds. Roger Backhouse and Bradley Bateman (Cambridge: Cambridge University Press, 2006), 271–90; and Michel De Vroey, A History of Macroeconomics: From Keynes to Lucas and Beyond (Cambridge: Cambridge University Press, 2016), 3-49.

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policies and pervasive in popular thinking than any other product of scholastic speculation.”666 But endorsements of fiscal policy existed well before Keynes’s summa, and Keynes himself had supported increased expenditures prior to elaborating their rationale. Nor was the General Theory designed to convert a general audience to the cause. Although Keynes was a gifted prose stylist, The General Theory is a notoriously dense work, and even trained economists—including his colleagues at Cambridge— struggled to grasp its meaning. Among those who felt they understood the book, it provoked as many dissents as endorsements. Currie, in fact, was among the dissenters.

By 1936, Roosevelt was already familiar with, and skeptical of, Keynes. After a

1934 meeting arranged by Felix Frankfurter, an enthusiastic supporter of Keynes,

Roosevelt grumbled about the “rigamarole of figures” the Cambridge don left behind, adding that he “must be a mathematician rather than a political economist.”667 Three years later, the president’s statistics-filled meeting with Currie, Lubin, and Henderson left a very different impression. Seemingly neutral data that were in reality freighted with theoretical presumptions made policies that could otherwise seem controversial, even preposterous, appear eminently logical. This was the program later termed “Keynesian,” and it provided the foundation of the first politics centered on the economy in American history. And it began with a subject that had fascinated economists, and bored most others, for a generation: national income accounting.

666 The Economic Doctrines of John Maynard Keynes: A Series of Papers Presented at a Symposium Conducted by the National Industrial Conference Board (New York: Industrial Conference Board, 1938), v.

667 Quoted in Schlesinger, Politics of Upheaval, 406.

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IGNORED BY EVEN THE MOST FINE-GRAINED histories of the New Deal, national income accounting might seem like a purely technical exercise.668 But in the 1930s the effort inspired a government program that combined technical precision with philosophical ambition. In 1932, Americans still did not have reliable estimates of the national income’s trajectory since 1929. That it had fallen was obvious, but the extent of the decline was a mystery. Following a campaign by Wisconsin Senator and progressive

Republican Robert La Follette—who acted at the prompting of his then-advisor, Isador

Lubin—the Senate requested that the Commerce Department produce official estimates of national income from 1929 to 1931. This was not the first time the government had produced such a measure—the Federal Trade Commission had investigated the subject in

1926—but the issue assumed new urgency in the Depression.669 The shift to Commerce was also significant: the department Hoover had done so much to build up during the

1920s would now chart the catastrophe that destroyed his presidency.

Officials at Commerce soon found themselves overwhelmed, but they knew where they could look for help. Estimates of national income and output proliferated in the

668 Kuznets does not, for example, appear once Arthur Schlesinger, Jr.’s classic history of the New Deal. He has, however, begun to receive more attention recently. See Robel Fogel, Enid Fogel, Mark Guglielmo, and Nathaniel Grotte, Simon Kuznets and the Empirical Tradition in Economics (Chicago: University of Chicago Press, 2012); Dirk Philipsen, Little Big Number: How GDP Came to Rule the World and What to Do About It (Princeton: Princeton University Press, 2015), 65-116; and Hirschman, 77-88. On national income accounting more generally, see John Kendrick, “The Historical Development of National- Income Accounts,” History of Political Economy 2.2 (Fall 1970), 284-315; Carol Carson, “The History of the United States Income and Product Accounts: The Development of an Analytical Tool” (PhD diss, George Washington University, 1971); and Rosemary Marcuss and Richard Kane, “U.S. National Income and Product Statistics: Born of the Great Depression and World War II,” Survey of Current Business 87.2 (February 2007), 32-46. John Maynard Keynes summarized his thoughts in “The Concept of National Income: A Supplementary Note,” Economic Journal 50.197 (March 1940), 60-65, while recalled the influence of the statistic in “The : Arrival and Impact,” in Reflections of America: Commemoration of the Statistical Abstract Centennial, ed. Norman Cousins (Washington DC: Bureau of the Census, 1980), 75-80. Tomo Suzuki takes a broader perspective in “The Epistemology of Macroeconomic Reality: The Keynesian Revolution From an Accounting Point of View,” Accounting, Organizations and Society 28.5 (July 2003), 471-517.

669 Federal Trade Commission, National Wealth and Income: A Report by the Federal Trade Commission (Washington: Government Printing Office, 1926).

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1930s: there was a major study from the Brookings Institution, a national survey of productive capacity organized by a private group of engineers, and within the government research quickly expanded beyond Commerce. Yet the NBER remained the field’s acknowledged leader, and one of their longtime affiliates—Willard Thorp, author of a 1926 study for the Bureau—had moved to the section of Commerce charged with measuring national income. When Commerce proved unable to handle the job by itself, the NBER was eager to assist.

That eagerness derived in part from a sense within the NBER that Commerce had granted them a fresh start in a subject where they had begun to slip behind. Edwin Gay expressed the views of his colleagues within the Bureau in 1932 when he remarked that their work had become “wooden in presentation” and “less dependable” empirically.670

Aware that competition was growing, they planned to reassert their authority by recruiting Mitchell to supervise the project and bulking up the research team with “two or three women assistants.”671 (Both inside and outside the Bureau, women were often trusted with statistical computation, while theoretical inquiry remained a male preserve.)

Before Mitchell took up the reins, however, a preliminary inquiry would be led by one of the NBER’s brightest, and most unlikely, stars.

Born in the just over thirty years earlier, Simon Kuznets was already a decade into his career as a statistician by the time he took over the NBER’s work on national income. He lived through the Bolshevik Revolution, and by the time he was twenty-one was running a section in the Ukrainian Bureau of Labor Statistics.

670 Edwin Gay to E.E. Day, March 18, 1932, Box 368, Folder 4353, Series 200.S, Rockefeller Foundation Archives, Rockefeller Archive Center (hereafter NBER Papers).

671 Gay to Day, March 18, 1932, NBER Papers.

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Kuznets left that post in 1922 when he emigrated to the United States. One year later, he had received a bachelor’s degree from Columbia University; three years after that, under

Mitchell’s supervision, he rounded out his training with a doctorate in economics.

Mitchell recruited his student to work for the NBER, a relationship Kuznets maintained after the University of Pennsylvania hired him in 1930. Kuznets was still in the early stages of a career that would see him author thirty-one books, more than two hundred papers, and, like Mitchell before him, assume the presidency of both the American

Economic Association and American Statistical Association. Unlike his mentor, Kuznets lived long enough to add one more glittering bauble to his resume: a , which he won in 1971, the third year the award was offered. (In its first year, the prize was shared by Ragnar Frisch and Jan Tinbergen.)

Those accomplishments lay ahead when Kuznets studied under Mitchell, but the worldview that framed his later research was already apparent in his master’s thesis, a searching appraisal of Joseph Schumpeter’s economics. Chastising Schumpeter for indulging in armchair speculation, Kuznets wrote that “There is no reason on earth to accept Dr. Schumpeter’s scheme” as anything but “an unproven suggestion that might be fitted into the facts if they permit it.”672 Kuznets did not repudiate theory as such.

Following Mitchell, he insisted that economic theorizing must be tested against empirical criteria.

Kuznets produced his own empirical contributions at a steady rate. A doctoral dissertation measuring the effects of shifts in the business cycle on retail and wholesale trade appeared in 1926, bristling with charts and graphs designed to answer questions like

672 Simon Kuznets, Dr. Schumpeter’s System of Economics, Presented and Analyzed (Master’s Thesis, Columbia University, 1924), 59.

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“How then did the sales in department stores move as compared to sales in groceries?”673

He coupled these appraisals with broader reflections on the dynamics of what he called, like Mitchell, money economy. That same balance appeared in a 1933 volume produced under the auspices of the NBER that considered the effects of seasonal fluctuations on industrial and commercial activity. Detailed breakdowns of food production—ice cream, unsurprisingly, peaked in the summer674 —shared space with broader claims about the unparalleled coherence of modern economic life, the prospects of a “technical revolution” of the “inorganic” that could end seasonal fluctuations, and the possibilities of economic planning.675

Despite his youth, then, Kuznets was a logical candidate for the NBER to suggest as leader for Commerce’s national income study, a position he took up in the winter of

1932. The team of researchers was small, never more than nine at Commerce, along with a few part-time workers at the NBER. Early on, Kuznets only had to visit Washington once a month. But his intellectual influence was decisive from the outset, and as the project continued his trips to the capital became more frequent. Kuznets wrote most of the final report, and near the end worked at such a feverish pace that one Commerce official worried he had “endangered his health through devotion to the study.”676

Although the prospect of using what Kuznets described as “the great resources and commanding powers of a government organization” had lured Kuznets to the job, he

673 Simon Kuznets, Cyclical Fluctuations: Retail and Wholesale Trade United Sates, 1919-1925 (New York: Adelphi Company, 1926), 6.

674 Kuznets, Cyclical Fluctuations, 206.

675 Kuznets, Cyclical Fluctuations, 362.

676 Robert Martin to E.A. Tupper, January 22, 1934, Box 1, Simon Kuznets Papers, Harvard University Archives (hereafter Kuznets papers).

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relied on the NBER to verify Commerce’s findings and polish the final results.677 That check, Kuznets believed, was invaluable. While he believed “the basic work” of gathering data could be left to public agencies, “the pioneering step . . . cannot be comfortably entrusted to governmental agencies.”678 National income estimates were too important, and dangerous, for the state to monopolize. The tension was profound:

Kuznets’s work was valued because of its relevance for policymakers, but he feared that relevance would prove its undoing.

THIS ANXIETY REVEALED SOMETHING IMPORTANT about Kuznets. Though remembered today for his empirical achievements, even his most technical work presents itself as an exercise in social theory. His report for Commerce began with a section titled

“Uses and Abuses of National Income Measurements,” one of many reflections on the subject that he produced over his career.679 A common theme ran through all of these writings: while he recognized the hunger for statistical precision among policymakers, businessmen, and the general public, Kuznets warned that expectations of perfection were self-defeating. As he explained in one of these exegeses, Kuznets believed that

“there is no hard and fast line by which economic activity can be distinguished from social and individual life in general.”680 What was considered “economic” by one group of people at one moment could just as easily be written out of that category by another

677 Simon Kuznets to Joseph Willits, September 25, 1939, Box 1, Kuznets papers.

678 Kuznets to Willits, September 25, 1939, Box 1, Kuznets Papers.

679 Simon Kuznets, National Income, 1929-1932 (Washington: U.S. Government Printing Office, 1934), 5.

680 Kuznets made this observation in a 1933 entry on national income for the Encyclopedia of the Social Sciences, later reprinted as “National Income” in Readings in the Theory of Income Distribution, ed. by a Committee of the American Economic Association (Philadelphia: Blakiston Company, 1946), 10.

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group at another moment. The instability of the economic had one significant consequence: “The welfare of a nation,” Kuznets argued, “can scarcely be inferred from a measurement of national income.”681

Just defining the national income was challenging enough. After offering the value of the economic goods produced in a nation as one definition, he noted that each of those terms—“net value,” “economic goods,” “produced,” and “nation”—provoked debate. For Kuznets, the omission of domestic labor of the kind performed by homemakers was an object of particular concern.682 Barring an unforeseen improvement in the quality of data, national income could only be a complete record of the general welfare “if the family disappeared entirely as a producer of goods.”683

His worries also had a moralizing aspect. “For those not intimately acquainted with this type of work,” he warned, “it is difficult to realize the degree to which estimates of national income have been and must be affected by implicit or explicit value judgments.”684 Should, for example, statisticians include “the compensation of robbers, murderers, drug peddlers, and smugglers” in their calculations of the common good?685

Economic metrics did not exist in pristine form, untainted by theoretical judgments.

681 Kuznets, National Income, 1929-1932, 7.

682 Simon Kuznets, National Income and its Composition, Vol. 1 (New York: National Bureau of Economic Research, 1941), 3. For a thoughtful exploration of this problem, see Hirschman, Inventing the Economy, 138-157.

683 Kuznets, National Income, Vol. 1, 11.

684 Kuznets, National Income, Vol. 1, 5.

685 Kuznets, National Income, Vol. 1, 4.

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Researchers who pretended otherwise merely revealed their “unconscious acceptance of one social philosophy” over another.686

One common metric made it especially easy to conceal the philosophical underpinnings of empirical conclusions. “It is the market,” Kuznets wrote, “that reveals the ties binding the separate units in the economic system and segregates economic goods from others.”687 But the market proved a deceptive guide. Perhaps the technocrats were correct and some kind of energy unit might supply a better measure; if Marx was right, it would take an exchange system based on labor. Kuznets did not endorse these proposals, but he outlined several objections of his own. In addition to the problems already mentioned, there was the question of how to judge the value of government spending and private philanthropy. Then there was the old puzzle of reckoning income inequality.

“Economic welfare cannot be adequately measured,” Kuznets maintained, “unless the personal distribution of income is known.”688 Taken together, the limitations were considerable enough for Kuznets to issue a stark verdict: “market prices,” he insisted, “do not accurately measure how well goods and services satisfy the needs of the body social.”689 The last phrase—“body social”—was resonant. Economic, social, private, public—these were categories researchers had to shatter, boundaries they had to trespass.

And what about the political? Neither “the body social” nor the marketplace could explain why calculations of income had to be national. Though Kuznets admitted there was no a priori rationale for limiting surveys to specific nations, he believed history

686 Kuznets, National Income, Vol. 1, 5.

687 Kuznets, National Income, Vol. 1, 7.

688 Kuznets, National Income, Vol. 1, 6.

689 Kuznets, National Income, Vol. 1, 24.

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supplied a powerful defense. “Income totals are for national units,” he wrote, “because so much of our economic and social activity and of our thinking runs in these terms.”690

States had established themselves as guardians of national prosperity, extending their sovereignty from the political to the economic, and justifying the national boundaries of income estimates. Kuznets recognized that even this argument faced opposition from

“those who conceive of individuals as the active and ultimate units” of economic life and therefore rejected “the idea of the economic system as an organic whole.”691 He shared some of these concerns himself. “A national total,” he warned, “facilitates the ascription of independent significance to that vague entity called the national economy,” obscuring

“millions of individuals and firms, and scores of industries, economic groups, and regions whose efforts add up to the national income total.”692

Then there was the continued problem of inadequate data. To this general complaint, Kuznets introduced an important qualification. Lackluster statistics were not evenly distributed, and one group regularly produced the highest quality records: large corporations, which used sophisticated accounting practices and operated under more stringent government regulations than unincorporated firms.693 He did not add that national income accounting itself had a kinship with the corporation. Seeing the nation through a monetary lens, describing it with a technical vocabulary that borrowed from the language of corporate accounting—the two methods were not identical, but they had a family resemblance. For Kuznets, the dependence of economic data upon specific

690 Kuznets, National Income, Vol. 1, 52.

691 Kuznets, “National Income,” 33.

692 Kuznets, National Income, 1929-1932, xxvi.

693 Kuznets, National Income, Vol. 1, 130.

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organizational types like the corporation revealed a larger truth: there were no universal economic statistics, only particular concepts bound up with the societies that created them.

Despite all the objections, Kuznets retained his faith in the value of national income estimates. He wanted to make statistics better by illuminating their underlying assumptions and ensuring they reflected the judgments of the larger society. Dispensing with pretensions to unbiased views from nowhere allowed researchers to stake a more contingent but ultimately more stable claim on the public’s attention.

The 1934 release of the Commerce Department’s report on national income further strengthened this position. Kuznets was widely praised for the effort, celebrated as the most thorough study of its kind ever produced in the United States. Though it did not receive the breathless coverage that accompanied the publication of Recent Social

Trends, the first edition sold briskly, and an excited Thorp told Kuznets that Commerce was “flooded with inquiries from various people wishing to have copies of the report.”694

The findings were grim—“Our Income fell 40% in Four Years” reported the New York

Times, in a small story buried inside the paper—but that was all the more reason for the government to support continued research.

Still, Kuznets was not satisfied. Back at the NBER following his stint at

Commerce, in 1936 Kuznets organized a series of meetings he hoped would establish a consensus among students of national income accounting. Called the Conference on

Research in Income and Wealth, it drew participants from six of the major economics departments in the United States (among them Chicago, Columbia, Harvard, and

Kuznets’s University of Pennsylvania) along with representatives from numerous

694 Willard Thorp to Simon Kuznets, January 26, 1934, Box 1, Kuznets papers.

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branches of the government (including the Federal Reserve and the National Resources

Committee). Kuznets chaired the group’s executive committee, and he recruited his research assistant at the NBER, a young Milton Friedman, to serve as its secretary.695

Also at the first meeting of the Conference was Robert Nathan, chief of staff in a new section at Commerce devoted to studying national income, and another Kuznets protégé. When Nathan was later asked to name the greatest influence on his intellectual development, he replied that there was “no question” it was Kuznets.696 After studying with Kuznets while a graduate student at Wharton, Nathan had left academia, over his professor’s objections, only to find himself working with his former teacher at the

Commerce Department. Benefitting from Washington’s increasing fascination with the national income, Nathan was drawn into conversations with some of the capital’s most influential figures. That included leaders of other departments, such as Henry Wallace at

Agriculture and Frances Perkins at Labor, and the network of young New Dealers scattered across the bureaucracy that fancy themselves the real agents of change. Buoyed by these connections, Nathan presided over a sizable expansion of his fiefdom. The national income section at Commerce became its own division, charged with issuing annual reports, quarterly estimates, and breakdowns of income by region, among other

695 For background, see Carol Carson, “The Conference on Research in Income and Wealth: The Early Years,” in Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, eds. Ernst Berndt and Jack Triplett (Chicago: University of Chicago Press, 1991), 3-8.

696 Robert Nathan, interview by Niel Johnson, June 22, 1989, Truman Library Oral History Collection, Truman Library, available at https://www.trumanlibrary.org/oralhist/nathanrr.htm.

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statistics.697 What had begun with Kuznets as a response to economic crisis under Nathan became a routine administrative responsibility.

To Franklin Roosevelt, however, national income was more than just a tool for governance. It was a political weapon—a marker of the depths to which the country had sunk under Hoover and of the progress that had been made under his watch. In the last month of his 1936 campaign, Roosevelt walked an audience in Pittsburg through national income’s recent history, trumpeting its recovery under his watch and justifying recent deficits as a consequence of its low levels. 698 The subject, however, was still obscure enough that, before he launched into his speech, he had to pause and explain what the measurement reflected.

This esoteric quality ensured that national income remained a minor part of the president’s rhetoric.699 While accepting the presidential nomination at the Democratic

Convention, Roosevelt eschewed statistics in favor of condemnations of “economic tyranny” and exhortations to wage “a war for the survival of democracy.”700 Following a resounding victory at the polls, Roosevelt left national income out of his second inaugural address. Though he celebrated the return of prosperity, the most resonant statistics in that speech were his measurements of poverty, the “one-third of a nation ill-housed, ill-clad,

697 On Nathan’s life, see Joseph Thorndike, Jr., “Bob Nathan,” Life, April 13, 1942, 47-50; Arnold Katz, “A Tribute to Robert Nathan,” Survey of Current Business 82.2 (February 2002), 8; and Maurice Atkin, Life’s Voyage: Dedicated to Making a Difference (Marco Island: Keller Publishing, 2005), 48-49.

698 Franklin Roosevelt, “Address at Forbes Field, Pitssburg, Pa.” October 1, 1936, available at http://www.presidency.ucsb.edu/ws/?pid=15149.

699 Minor, but still present. Daniel Hirschman counts at least nine total references in Roosevelt’s 1936 campaign speeches. See Hirschman, “Inventing the Economy,” 81.

700 Franklin Roosevelt, “Acceptance Speech for the Renomination for the Presidency, Philadelphia, Pa.,” June 27, 1936, available at http://www.presidency.ucsb.edu/ws/index.php?pid=15314.

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ill-nourished.”701 Roosevelt tempered this gloom by reassuring his audience that New

Dealers had discovered “a way to master economic epidemics” by uniting the forces of science and democracy. Even better, they had demonstrated “that in the long run economic morality pays.”702 His administration had fulfilled the promise he made four years earlier, the promise of a democratic economics. This was the vision that stirred

Roosevelt—the grand historical accomplishments already achieved, and the triumphs sure to come. Measurements of national income had their place, but that place was, for the most part, in the pages of reports from the Commerce Department.

WASHINGTON’S BUREAUCRACY COULD INCUBATE theories of its own. The memo Currie, Henderson, and Lubin brought to the in 1937 was a quintessential example of this process. Titled “Causes of the Recession,” it attributed much of the downturn to cutbacks in government spending that Roosevelt had supported in a failed attempt to balance the budget. The document, largely Currie’s work, proposed a new interpretation of recent economic history, depicting increased government expenditures as the greatest contribution to the economic recovery between 1934 to

1936.703 Not a fundamental reinvention of the social order, as proposed by planners; not a recalibration of the money supply, like Fisher and his allies called for—no, what mattered most was that the government had supported “national buying power.”704

701 Franklin Roosevelt, “Inaugural Address,” January 20, 1937, available at http://www.presidency.ucsb.edu/ws/index.php?pid=15349/.

702 Roosevelt, “Inaugural.”

703 Lauchlin Currie, “Causes of the Recession,” Box 73, Folder 8, Marriner S. Eccles Papers, J. Willard Marriott Library, Special Collections Department, University of Utah (hereafter Eccles Papers).

704 Currie, “Causes of the Recession,” 35.

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Currie still accorded significant importance to what Means called the structure of the American economy (although his memo did not refer to the economy as such). He even included a favorable reference to the administered-price thesis that Means did so much to promote. Among New Dealers more generally, support for compensatory fiscal policy coexisted with what one called the “prevailing notion that analysis in terms of money somehow did not go ‘deep’ enough.”705 But Currie did not attribute the recent slump primarily to these deeper forces. Nor did he believe, as some proposed, that recovery would come about by reviving the NRA. Monetary policy also escaped blame in his assessment, a convenient judgment coming from an influential member of the Federal

Reserve.

What figured most conspicuously in Currie’s analysis was the promise of a fiscal policy that compensated for swings in business activity. “Pump priming”—using government spending to jumpstart a recovery—was part of the early New Deal policy repertoire, though its advocates had to overcome considerable skepticism about the wisdom of departing from balanced budgets. After 1937 both the sanctity of balanced budgets and the feasibility of withdrawing government support came under challenge.

The recession threatened many cherished beliefs, one the its most prominent casualties being the faith, supported by business cycle theory, that downturns were self-correcting.

Sustained, compensatory fiscal policy roused little enthusiasm in Roosevelt’s first term, but the threat of protracted unemployment enhanced its popularity after 1937.

Some fiscal policy supporters already called themselves Keynesians, but Currie had a more complicated relationship with that label. He had encountered Keynes’s

705 Alan Sweezy, “The Keynesians and Government Policy, 1933-1939,” American Economic Review 62.1/2 (March 1972), 117.

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writings more than a decade earlier, while studying for his undergraduate degree at the

London School of Economics. He was impressed by Keynes’s 1930 work, A Treatise on

Money, but more critical of the General Theory. He later remarked that he had supported

“Keynesian” policies “long before The General Theory, and was a bit skeptical of the usefulness of the new treatment.”706 At the time, he chided Jacob Viner for having

“pulled your punches a bit” in a review of The General Theory.707 In a 1938 discussion of the book, he complained, “all too often we find that familiar things are being described in unfamiliar language, that concepts cannot be given statistical meaning, and that precision and definiteness are being purchased at the expense of reality.”

Currie was more generous in a 1936 memo for the Federal Reserve Board, where he judged it “the most important work in the field of monetary and general economic theory that Keynes has so far done” and predicted it would “unquestionably dominate discussion and exert a profound influence on the writings of other economists for a considerable time to come.”708 But there was little sign of that influence in “Causes of the

Recession,” which deployed few Keynesian tools while leaning heavily on statistics produced in Washington.

The New Dealers’ pace was frenetic, but the core of the bureaucracy was small, and the number of Keynesians—regardless of whether they considered themselves followers of Keynes—even smaller. But this small group was well positioned, and its members built a tightly bound network. “It would have been celebrated as a conspiracy

706 Lauchlin Currie to Alan Sweezy, , 1971, Box 9B, Lauchlin Currie Papers, Rare Book, Manuscript, and Special Collections Library, Duke University (hereafter Currie Papers).

707 Lauchlin Currie to Jacob Viner, April 22, 1937, Box 7, Viner Papers.

708 Lauchlin Currie, “The General Theory of Employment, Interest, and Money by J.M. Keynes,” October 20, 1936, Box 9B, Currie Papers.

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had the frequency of their meetings been known,” John Kenneth Galbraith later claimed.709

Galbraith was an anomaly, having arrived in Washington after spending a year at

Cambridge, where he participated in a vibrant discussion of what Keynes had called his

“theory of output as a whole”.710 Elsewhere in the General Theory, Keynes expressed the same goal using the vocabulary of economic statistics. “Our present object,” he wrote, “is to discover what determines at any time the national income of a given economic system and (which is almost the same) the amount of its employment.”711 Whatever the other differences between Cambridge Keynesians and their American counterparts, these ambitions fired both groups. In Washington, conversations about policy spread far beyond the office, with discussions taking place over private lunches and meetings after hours. For these shock troops of the fiscal turn, the New Deal was a way of life, and the line separating work from leisure vanished.

Ideological divisions became similarly fuzzy. Historians have portrayed the ascent of Washington’s Keynesians as a defeat for ambitious reform projects, but that analysis misses the fluidity of the moment. As one of the most insightful recent histories of the

New Deal has observed, “leftists were closer to power in New Deal-era Washington than anyone not on the far right has recognized.”712 The economist described the period as rife with “inconsistencies” that—he added ruefully, in a nod to the Cold War’s

709 John Kenneth Galbraith, Economics in Perspective: A Critical History (Boston: Houghton Mifflin Company, 1987), 241.

710 John Maynard Keynes, General Theory, vi. James Tobin described the phrase as “strikingly apt,” though he attributed it to . William Breit and Barry Hirsch, eds., Lives of the Laureates: Twenty-three Nobel Economists (Cambridge: MIT Press, 2009), 97.

711 John Maynard Keynes, General Theory, 247.

712 Storrs, Second Red Scare, 176.

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Red Scare—were “straightened out later on, by the other side.”713 Sweezy embodied these paradoxes. Though a Marxist, he produced a study for the National Resources

Committee and contributed to a volume defending the New Deal that Roosevelt allegedly recommended to his son.714

Near the center of this group, and as ideologically polyvalent as any of its members, sat Lauchlin Currie—“simultaneously one of the most anonymous and most influential figures of the late New Deal,” in one historian’s astute judgment.715

Combining academic connections with bureaucratic acumen, Currie was ideally suited to run what Galbraith called “an informal casting office” for Washington’s Keynesians.716

Galbraith, who owed his own job in the administration to a recommendation from Currie, had personal experience with the benefits of this patronage system.717

Currie’s time as liaison between New Dealers and the nation’s economics department was a late stage in a longer journey that would have been inconceivable only a few decades earlier. “It is perhaps not much of a science,” Currie later wrote of economics.718 Whatever its scientific merits, a plausible claim to mastery of the subject had become a valuable skill for an aspiring policymaker. Nobody benefitted more from that shift than Currie. Following his winding path to the White House reveals both the

713 Quoted in Storrs, Second Red Scare, 157.

714 Michael Lebowitz, “Paul M. Sweezy,” Political Economy in the Twentieth Century, ed. Maxine Berg (New York: Rowman and Littlefield Publishers, 1990), 131–61 discusses Sweezy’s life and work.

715 Brinkley, End of Reform, 95.

716 John Kenneth Galbraith, “How Keynes Came to America,” in Economics, Peace and Laughter, ed. Andrea Williams (Boston: Houghton Mifflin, 1971), 54.

717 Lauchlin Currie to Marriner Eccles, September 30, 1936, Box 9B, Currie Papers.

718 Quoted in Sandilands, Lauchlin Currie, 16.

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mechanics of influence in Roosevelt’s Washington and the shape of the new politics of the economy that was coming into being.

MONEY: AS IT HAD BEEN for Wesley Mitchell and Irving Fisher, money was the central preoccupation of Currie’s economics. After a peripatetic childhood—mostly spent in his native Canada, but with brief stays in Massachusetts and California—Currie arrived at Harvard in 1925, just shy of his twenty-third birthday. He had recently graduated from the LSE, then the site of an ideological civil war within the faculty.719

While its economists tended to lean to the right, the political science department provided a home for some of Britain’s most respected socialist intellectuals, including Harold

Laski and R.H. Tawney. Students picked up on this intellectual energy, and debates spilled out of the classroom and into their lives with an energy similar to what Currie encountered in Washington a decade later.

But not at Harvard, whose political scene was dreary in comparison, and whose economics department lagged behind the LSE’s (along with several American rivals).

There were bright lights, however, including the monetary theorist Allyn Young, known among economists for his attempt to chart a path between the real bills doctrine and the quantity theory of money.720 In 1927, Currie wrote in his diary that he “revered Young above all other men in the world.”721 An engaged political figure, Young had served as a delegate at Versailles in the aftermath of the Great War. That same year, Young traded

719 On the LSE in this periods, see A.W. Coats, “The Distinctive LSE Ethos in the Interwar Years,” Atlantic Economic Journal 10.1 (March 1982), 18–30.

720 On Young, see Perry Mehrling, The Money Interest and the Public Interest: American Monetary Thought, 1920-1970 (Cambridge: Harvard University Press, 1997), 13-81 and Charles Blitch, Allyn Young: The Peripatetic Economist (New York: St. Martin’s, 1995).

721 Sandilands, Lauchlin Currie, 19.

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his post at Harvard for a chair at the LSE, reversing Currie’s earlier migration. Currie finished his dissertation under the supervision of John Williams, another specialist in monetary theory who blended academic inquiry with political activity. (Williams was later chosen as Vice President of the New York branch of the Federal Reserve.) But

Currie remained a disciple of Young’s, even after the latter’s death in 1929 during an outbreak of influenza. Demonstrating his continued fealty, Currie dedicating the book that emerged from his dissertation to his former mentor.722

The work was called The Supply and Control of Money in the United States, and it established the reputation that brought Currie to Washington. Blending rigorous empirical research with a sophisticated grasp of economic theory, it portrayed the Great

Depression as an essentially monetary phenomenon brought about by a bungling Federal

Reserve. Anticipating by several decades a thesis popularized by Milton Friedman,

Currie’s argument rested on his interpretation of the quantity theory of money and his detailed statistical analysis.723 The book was one of many fusillades Currie launched against the Federal Reserve, and Currie later claimed, with reason, that his campaign

722 Lauchlin Currie, The Supply and Control of Money in the United States (Cambridge: Harvard University Press, 1934), iii.

723 For the debate over this connection, see David Laidler, “Hawtrey, Harvard, and the Origins of the Chicago Tradition,” Journal of Political Economy 101.6 (December 1993), 1068-1103 and George Tavlas, “Chicago, Harvard, and the Doctrinal Foundations of Monetary Economics,” Journal of Political Economy 105.1 (February 1997), 153-177. It was reprised in David Laidler and Roger Sandilands, “An Early Harvard Memorandum on Anti-depression Policies: An Introductory Note,” History of Political Economy 34.3 (Fall 2002), 515-532; James Ahiakpor, “On the Similarities Between the 1932 Harvard Memorandum and the Chicago Antidepression Recommendations,” History of Political Economy 42.3 (Fall 2010), 547-571; and David Laidler and Roger Sandilands, “Harvard, the Chicago Tradition, and the Quantity Theory: A Reply to James Ahiakpor” History of Political Economy 42.3 (Fall 2010), 573-592. Building on Laidler and Sandilands, Michele Alacevich, Pier Francesco Asso, and Sebastiano Nerozzi, “Harvard Meets the Crisis: U.S. Fiscal Policy in the 1930s and the Political Economy of Lauchlin B. Currie, Jacob Viner, John H. Williams and Harry D. White,” (working paper, Dipartimento di Scienze Economiche, Università degli Studi di Firenze, Firenze, Italia, December 2010) offers the most comprehensive analysis of the connections between Chicago and Harvard.

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made him “the most outspoken academic critic of Federal Reserve policy” of the period.724

Currie also stood out because for his support for the New Deal. Along with five of his colleagues at Harvard, he signed a 1934 letter supporting Roosevelt that the administration released to the New York Times.725 The letter received a chilly reception at

Harvard, where a number of professors in the department had contributed to a volume denouncing the New Deal that same year.726 Currie had also supported aggressive government action earlier, most notably in an unpublished 1933 paper, co-authored with two other Harvard affiliates, that called for aggressive open-market operations by the

Federal Reserve and substantial deficit spending.727

Some of the paper’s suggestions echoed proposals already endorsed by twenty- four economists in 1932.728 Produced after a conference at the University of Chicago, the recommendations were outlined in a manifesto that bore the signatures of twelve Chicago economists and twelve outsiders, including Irving Fisher and John Williams. (One of the other signers, Alvin Hansen, became important in Currie’s later career.) The similarities between the two positions almost certainly occurred to Jacob Viner, another endorser of the Chicago manifesto, who turned to Currie when he was asked by Treasury Secretary

724 Sandilands, Lauchlin Currie, 32.

725 “Six Harvard Men Back Gold Policy,” New York Times, February 25, 1935, 75.

726 Douglass Brown et al., Economics of the Recovery Program (New York: Whittlesey House, 1934).

727 David Laidler and Roger Sandilands, eds., “Memorandum Prepared by L.B. Currie, P.T. Ellsworth, and H.D. White (Cambridge, Mass., January 1932),” History of Political Economy 34.3 (Fall 2002), 533-553.

728 “Economists Send Hoover Plan to Combat Depression,” , February 1, 1932, 1. On Viner and Currie’s relationship, see Sebastiano Nerozzi, “Jacob Viner and the Chicago Monetary Tradition,” History of Political Economy 41.3 (Fall 2009), 575-604.

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Henry Morgenthau to put together a “Freshman Brain Trust.” Currie had an impressive academic background in a field relevant to policy, plus he was young and loosely attached to his current post. Certain that a tenure-track position at Harvard was not in the offing, Currie jumped at the opportunity and moved to Washington.

After only a few months at Treasury, Currie was lured away by a surprising proposal. Roosevelt had selected Marriner Eccles, another staffer at Treasury, to head the

Federal Reserve Board. A successful banker from Salt Lake City, Eccles was a bold defender of his beliefs and a savvy bureaucratic infighter.729 But he had never attended college and lacked formal training in economics. Currie shared his views on policy, and he provided technical justifications for opinions Eccles reached by a more intuitive means, including opposition to the real bills doctrine and support for centralizing the Fed.

Currie agreed to serve as Eccles’s assistant, where he formulated an ambitious agenda for boosting the bank’s power and consolidating authority in Washington, rejecting the earlier decentralized system dominated by New York. The full program did not survive the legislative grinder, but much of it remained intact. After its passage in 1935, the

United States was for the first time in undeniable possession of a central bank, with

Eccles at the helm and Currie serving as assistant director of research, a title that considerably understated his influence.

Eccles and Currie, however, believed that in a depression even the newly empowered Federal Reserve was as useful as a gun without bullets. They viewed monetary policy as a powerful tool for curtailing booms, not sparking recoveries. The

729 For Eccles’s perspective on his own life, see Beckoning Frontiers: Public and Personal Recollections, ed. Sidney Hyman (New York: Alfred A. Knopf, 1951). Sidney Hyman, Marriner S. Eccles: Private Entrepreneur and Public Servant (Stanford: Stanford University School of Business, 1976) supplies a fuller evaluation.

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leaders of the body charged with managing the nation’s monetary policy were convinced that fiscal policy was incomparably more significant. Policy remained largely static under their watch; if anything, Eccles leaned toward restriction in 1937, before the downturn was evident, when he feared that inflation might surge. The Fed also confronted a potential threat from Treasury, flush with cash that it could use to conduct open-market operations of its own.730

Currie had to navigate more personal obstacles, too. His broadsides against the status quo had not won him many allies at the Fed, and defenders of the institution as it existed before the 1935 overhaul bridled at what they regarded as his arrogance. Shortly after moving to his new job, Currie told Eccles, “I think I am a better monetary theorist than anyone on the staff.”731 His coworkers might have noticed.

Clashes were especially fierce with , director of research at the Fed. Technically, Currie was Goldenweiser’s deputy, but that relationship was complicated by Currie’s associations with Eccles. That structural tension was exacerbated by fundamental disputes over policy. A longtime stalwart at the bank, and friend of

Wesley Mitchell’s, Goldenweiser embodied the positions Currie had denounced.732

But Currie found other ways to exercise power. Establishing a research unit of his own, Currie set a team to work producing statistics that could guide decision making under his preferred policy regime. The most important of these statistics was an indicator he originally referred to as the “pump-priming deficit”; later he opted for the lengthier

730 Meltzer, A History of the Federal Reserve, vol. 1, 415-577 explores the Fed’s retreat under Roosevelt.

731 Quoted in Sandilands, Currie, 69.

732 May, New Deal to New Economics, 46.

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“net contribution of the federal government to national buying power,” or “net contribution.” Even more directly linked to the demands of policymakers than Kuznets’s national income accounts, the net contribution provided a way of evaluating the total influence of government spending. In 1937, it was most effective at highlighting the restrictive effects of taxes imposed to fund the new Social Security program.733

Personal connections bolstered Currie’s influence. Through Leon Henderson,

Currie moved into what he called “the whole inner New Deal group,” a position that allowed him to build links between Washington policymakers and kindred spirits in the academy.734 Though Harvard could not compete with the LSE’s political dynamism, a healthy number of Currie’s former students eventually found their way to important positions in Washington: Walter Salant, Emile Despres, and Richard Goodwin were among the young Keynesians Currie helped place in Washington, along with many others who never spent time in his classroom. He also benefitted from the rapid ascent of Harry

Dexter White, who had been a graduate student at Harvard with Currie, beating him out for the prize awarded to the best dissertation in their year. Like Currie, White came to the

Treasury in 1934 as part of Viner’s “Freshman Brain Trust,” but he stayed in the department after Currie left, and became a close adviser to Secretary Morgenthau.735

Currie unveiled the results of all these labors—statistics generated, networks built, policies devised—in 1939 when he testified before a congressional committee that

733 Vanoil, History of National Accounting, 22-23; Barber, Designs Within Disorder, 109.

734 Sandilands, Currie, 81.

735 On White, see Rauchway, Money Makers, 101-103 and David Rees, Harry Dexter White: A Study in Paradox (New York: Coward, McCann and Geoghegan, 1973).

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aroused what seemed in retrospect a bizarre level of enthusiasm.736 Comprising White

House officials and representatives from both the House and the Senate, the Temporary

National Economic Committee, or TNEC, had launched the previous December. It was a response to the 1937 recession, but supporters hoped that it would chart a way forward amidst a policy morass. As the Nation explained, the committee had “undertaken the difficult task of teaching the nation the lessons to be learned” from the tumultuous economic history of the last generation.737 In practice, the results were less edifying.

Meant to establish consensus, the TNEC instead revealed the depth of disagreement. But it also provided a forum where fiscal policy’s evangelists could preach their cause, and they did not intend to miss their chance to shape the debate over the future of what

Roosevelt called, in a letter to the committee, “the structure of democratic economy.”738

Currie was introduced to the TNEC as an expert of a particular kind: not a theorist, but “a fact factory.”739 Relying on statistics his team at the Federal Reserve had produced—along with other key sources, including Kuznets’s work at Commerce—he provided the empirical foundation for a turn toward fiscal policy. He prefaced this flurry of data with “a brief description of the conception of the way our economy works which underlies the choice of charts and figures.”740 According to Currie, that conception of the economy began with national income. Relying on a familiar trope, he compared the

736 Brinkley, End of Reform, 123-136.

737 Kenneth Crawford, “From Pump-Priming to Pumping,” New Republic, May 27, 1939, 606.

738 Verbatim Record of the Proceedings of the Temporary National Economic Committee, vol. 3 (Washington: Bureau of National Affairs, 1940), 348.

739 Verbatim Record, vol. 3, 348.

740 Verbatim Record, vol. 3, 348

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national income to a “stream” that captured the flow of goods and services.741 With that image in mind, he explained, “we can take the next step and consider the factors that tend to keep the stream going uninterruptedly, and the factors that tend to obstruct and divert the stream.”742 National income was the standard against which policies should be judged, and the context—sometimes explicit, sometimes not—for narrower statistical inquiries.

Managing the stream’s flow was the challenge the government now faced. Currie had recruited another expert—a “star witness,” he later said—to explain how to pursue that goal.743 Codes of bureaucratic conduct restricted Currie’s room for maneuver. He could present statistics and still plausibly claim neutrality, but making policy recommendations in public could have undermined his position. Academics, though, had an outsider’s freedom to provoke. The ideal candidate would support aggressive deficit spending, but the role demanded more than that. He—because the ideal candidate also had to be a man—would possess enough distance from the administration to present himself as an independent observer, along with impeccable academic credentials to lend authority to his claims. These were stringent requirements, but Currie found a perfect match.

ALVIN HANSEN ARRIVED AT HARVARD in 1937, just a few years after Currie’s departure and shortly before the collapse of Roosevelt’s recovery. His position—a newly endowed “Chair of Political Economy”—was another laurel in a career that had already

741 Verbatim Record, vol. 3, 348.

742 Verbatim Record, vol. 3, 348.

743 Lauchlin Currie, “Discussion,” American Economic Review 62.1/2 (March 1972), 141.

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won him approval from economists around the globe.744

Though a good year for Hansen, 1937 was a strange time for his discipline. While economists ascended the ranks in Washington, their colleagues in the academy struggled with doubt. “We cannot combat old heresies with the same whole-hearted confidence as our predecessors,” the Columbia economist said during a presidential address at the American Economic Association a few years earlier.745 Quantitative studies abounded, but they had not settled theoretical debates. A “mood of doubtful potency” had settled across the profession just as “we entered the gravest crisis of economic policy which this country has faced since the slavery question.”746 In the 1920s, economists had portrayed this confusion as a sign of intellectual vitality. But the Depression changed the stakes of their project, and in that state of emergency hesitation became, as Clark suggested, impotence.

In retrospect, economists would describe these years as their discipline’s dark ages. The period seemed lost between tides—too far away from the parade of discoveries that stretched from Adam Smith to Alfred Marshall to share that earlier sense of intellectual adventure, and not yet settled into the patterns that defined the field after

World War II. That periodization, conveniently, made the achievements of the generation coming of age in this moment all the grander, achievements later described as constituting the birth of macroeconomics.

744 William Barber, “The Career of Alvin H. Hansen in the 1920s and 1930s: A Study of Intellectual Transformation,” History of Political Economy 19.2 (Summer 1987), 191-205 and Mehrling, Money Interest, 85-156.

745 J.M. Clark, “Past Accomplishments and Present Prospects of American Economics,” American Economic Review 26.1 (March 1936), 8.

746 Clark, “Past Accomplishments,” 8.

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Except for the occasional nod to earlier work on business cycles and the quantity theory of money, the pioneers of the turn toward theorizing the economy as a whole depicted their work as almost coming from nowhere. “There was really no macroeconomics in the modern sense then,” one of them observed.747 Another added that the term itself “had then not yet been coined, which is significant of the fact that there was nothing to apply it to.”748 Students who went on to become economists marveled at the subject’s absence from their education. James Tobin, one of his generation’s premier

Keynesians, recalled that during his time as an undergraduate at Harvard in the 1930s, the faculty “simply didn’t pay much attention to any brand of what we now call macroeconomics.”749 An alumnus of the LSE “suspect[ed] the faculty of deliberately hiding from us such important and relevant books as…Kuznets’s work,” adding that “the very concept of national income and product was never even mentioned in any of the lectures.”750 They puzzled over their elders’ failure to grasp arguments that would later appear in introductory textbooks. Why, for example, did Irving Fisher, who in hindsight seemed to have had all the relevant pieces, not put together a coherent macroeconomics?

That Fisher might have not considered fluctuations of national income a subject worth exploring only raised more questions.

747 “Evsey David Domar (Domashevisky) (b. 1914),” in The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, ed. David Colander and Harry Landreth (Cheltenham: Edward Elgar Publishing Limited, 1996), 181.

748 Walter Salant, “Alvin Hansen and the Fiscal Policy Seminar,” Quarterly Journal of Economics 90.1 (February 1976), 15.

749 James Tobin, “A Revolution Remembered,” Challenge 31.4 (July/August 1998), 36.

750 “Richard A. Musgrave (b. 1910),” in The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, ed. David Colander and Harry Landreth (Cheltenham: Edward Elgar Publishing Limited, 1996), 207.

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Keynesians looking for a usable past found a more satisfying response by following the trajectory of Hansen’s career. A self-styled “farmer boy” from “the underprivileged class,”751 Hansen went on to become, in Tobin’s words, “the principal intellectual leader of the Keynesian conquest.”752 Born in South Dakota, he stayed close to home for his early life, enrolling at a small nearby college, where he majored in

English. He toyed with the idea of doing graduate work in sociology, but eventually settled on economics, which he studied as a graduate student at the University of

Wisconsin under Richard Ely and John Commons. His move to economics was revealing not because it signaled a momentous change but because of how easy it was for Hansen to make. When Hansen began his graduate career in 1913, the boundaries between sociology and economics were still porous enough that he could slip past them with ease.

Both were social sciences that, especially in Wisconsin, promised to marry academic rigor and reforming zeal.

A seminar run by Commons provided Hansen with a tangible manifestation of this ideal. Commons was at the time deep into researching a book on the history of

American labor. The scholarship complemented his political activism. A member of the

U.S. Commission on Industrial Relations—a congressional committee that ran from 1913 to 1915 and produced an eleven-volume report on the country’s working conditions—

Commons also supplied the text for a Wisconsin bill that made the state the first in the nation to establish worker’s compensation. Commons’s seminar at Wisconsin reflected the interests of its instructor, and the students produced research he later incorporated in

751 Alvin Hansen, interview by Peter Corning, 1965, Columbia University Oral History Collection, Columbia University, 4.

752 James Tobin, “Hansen and Public Policy,” Quarterly Journal of Economics 90.1 (February 1976), 32.

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his labor history. It also provided Hansen with a model he would turn to later in his career: a seminar that formed a community around a shared project blending academic work and political activism.753

At Wisconsin, Hansen became a student of business cycle theory, a subject he credited Willford King, another Wisconsin product, with having inspired him to take up.754 Business cycles and labor remained Hansen’s fixations in the 1920s, but he viewed them from an unusually cosmopolitan perspective. Well-versed in the economic literature of continental Europe, he was as familiar with Karl Marx and less remembered figures like Arthur Spiethoff as he was with Veblen and Mitchell (though was also a major early influence). Like Currie, Hansen began his career a student of monetary theory. Over time he became absorbed with the economic consequences of technological progress, eventually concluding that scientific and industrial advances drove the business cycle, confining money to a secondary role.

Hansen applied this eclectic approach to the international scene in a major study published in 1932 as Economic Stabilization in an Unbalanced World. There, he insisted that his contemporaries tended to overstate the importance of economic stability (despite the conspicuous position of “Economic Stabilization” in his title). Most of the instability that did exist, he claimed, was the product of “wrong governmental policies and other unfortunate forms of social control.”755 Hansen embedded this analysis in a much larger

753 Hansen describes his experience in Commons’s seminar in Hansen, Columbia University Oral History Collection, 5-6. On Commons, see Richard Gonce, “The Development of John Commons’ System of Thought” (PhD diss., University of Wisconsin, 1967).

754 Alvin Hansen, Business Cycle Theory: Its Development and Present Status (Boston: Ginn and Company, 1927), v.

755 Alvin Hansen, Economic Stabilization in an Uncertain World (New Yorl: Harcourt, Brace and Company, 1932), vii.

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historical narrative. “There was a time,” he wrote, “when ‘capitalism’ and ‘socialism’ presented a clean-cut antithesis, when they seemed poles apart. Such is no longer the case.”756 The systems had moved closer, with Stalin’s Five Year Plan pushing the USSR to place as much emphasis on efficiency as any of its capitalist rivals. (As for Stalin,

Hansen judged him “one of the greatest personalities of the past decade” and his Five

Year Plan “a constructive program.”757) Among the supposedly capitalist powers, even corporate executives increasingly accepted that “that some sort of planned economy is the way out.”758 This was not fully realized socialism, yet, but it was “a close cousin.”759 He even raised the prospect of an American capitalism made “into a huge coordinated system of gigantic trusts . . . and operating under a centralized national council of leading financiers and executives” doing battle with “a geared-up communism operating at full capacity”—a contest that in his estimation would be less a clash of mighty opposites than a family squabble.760

According to Hansen, the (somewhat) capitalist nations were now grappling with the consequences of their more ordered world. “Social control tends to put society in a strait-jacket,” he wrote. “This might not be so bad in a static world,” he continued, “but it is very painful in a dynamic one.”761 The paradox was that attempts to govern society fostered greater economic uncertainty. When combined with his belief that business

756 Hansen, Economic Stabilization, 324.

757 Hansen, Economic Stabilization, 118.

758 Hansen, Economic Stabilization, 361.

759 Hansen, Economic Stabilization, 324.

760 Hansen, Economic Stabilization, 362

761 Hansen, Economic Stabilization, 315

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fluctuations largely reflected technological shifts, this left Hansen skeptical of countercyclical policy. To make matters still more difficult, there was the perennial challenge of addressing problems that were often fundamentally international with the tools available to national governments. Hansen’s outlook was not entirely bleak.

Rejecting the gold standard might open up more room for maneuvering, at least temporarily, although it would raise problems of its own. Purely domestic measures could help, too. Here, the Federal Reserve’s continued experimentation with open market operations—“one of the most vital problems immediately confronting the whole world,” he wrote—gave him some hope.762 But the fundamental economic logic of the business cycle endured. Government policy could relieve but not abolish the “birth pangs” required to bring forth a new world.763

As the Depression unfolded, Hansen expanded the scope of his analysis, in the process undermining his earlier assumptions. He began to show greater concern for maintaining economic stability, but for reasons he described as more political than economic. This shift coincided with increased attention to the difficulties of economic management in a democracy—specifically, to the problem raised by voters and political leaders who “demonstrated a lack of capacity in self-control.”764 Displaying his characteristic sensitivity to paradox—a critic might have called it fetishization—Hansen argued that the challenges of compelling intemperate electorates to accept the restraints that sound economic policymaking required had become more acute in recent years because of advances within economics. Improvements in the production and

762 Hansen, Economic Stabilization, 379.

763 Hansen, Economic Stabilization, 368.

764 Hansen, Economic Stabilization, 381.

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dissemination of economic statistics had introduced “a new and perhaps ominous fact in our national life.”765 “In former times,” he reminisced,

we were more or less disposed to take things as they came. Indeed we had virtually no information on where we were from time to time in the trade cycle. Now all this has changed. Every newspaper carries charts and indices showing the progress of the recovery or of the recession, as the case may be. Almost everyone is more or less closely watching the development from day to day and from week to week. Reading the business cycle chart has become, so to speak, a national game, yet a desperately serious one, for on the turn of the cycle depend our jobs, our fortunes, and even, perchance, the survival of our established institutions.766

The character of public life—of democracy itself—had been transformed. That tension was particularly evident to monetary policymakers. Though Hansen remained skeptical about the causal impact of money on the business cycle as a matter of theory, he believed that in practice “the institution of money is of overshadowing importance.”767 The price system provided the means through which democracies preserved freedom of choice in the economic sphere. Deploying a strained analogy, he wrote that “the money mechanism is called upon to drive the economic car upon the kind of a highway that modern democracies are constructing”—in contrast to totalitarian regimes, which could rely on more direct measures.768

The shadow of totalitarianism hangs over these later writings. In the early years of the Depression, Hansen had warned against overstating the importance of economic stability. By 1936, he had changed his mind—a shift that, again, owed itself to the greater importance he attributed to politics. Radical economic uncertainty now threatened to

765 Hansen, Economic Stabilization, 268.

766 Hansen, Economic Stabilization, 268.

767 Hansen, Economic Stabilization, 225.

768 Hansen, Economic Stabilization, 224.

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bring about radical dictatorships.769 Hansen did not believe the agent of revolution would be a working class endowed with consciousness of its powers, ready to topple an archaic regime by force; instead, it would be a revolution by default, where the evident failure of one order made its replacement inevitable. Seen from this vantage point, economic downturns became more than painful but necessary phases of the business cycle. As a question of economic theory, Hansen still saw merit in the argument; but the politics of the 1930s had made economic instability an existential threat.

“WE ARE LIVING IN DANGEROUS TIMES,” Hansen warned his audience at the

TNEC.770 That danger required economists to offer their counsel with humility, but it also made their advice, flawed though it may be, indispensable. Statistical evidence offered a way of sidestepping the tension in his argument, providing a seemingly neutral foundation for controversial policy recommendations. Kuznets’s work—“monumental,”

Hansen called it—was a favorite point of reference, providing graphic illustration of the narrative he unspooled in front of the committee.771 Literally graphic: three of the four visual aids Hansen introduced in his opening session were taken from Kuznets. But

Hansen stressed the limitations of his approach. “One cannot emphasize too strongly,” he stated at the outset, “that we are dealing with material which is not subject to unequivocal mathematical demonstration.”772 The larger analytic framework was,

769 Hansen, Economic Stabilization, 219.

770 Verbatim Record, vol. 3, 338.

771 Verbatim Record, vol. 3, 339.

772 Verbatim Record, vol. 3, 338.

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necessarily, even shakier. “We are caught,” he warned, “in the midst of powerful forces in the evolution of our economy which we but dimly understand.”773

Hansen believed, however, that he had recently moved much closer to understanding those forces. Around the time he began his tenure at Harvard, he had become an enthusiastic advocate for a compensatory fiscal policy. This shift is still sometimes described as a Keynesian conversion. Certainly, his straightforward opposition to Keynes had diminished. A few years earlier, he had reprimanded a colleague for “follow[ing] too much along the Keynes line,” which he viewed “as definitely wrong.”774 That hostility was in keeping with his conviction that economic instability was a painful but necessary feature of a modern economy. After encountering

The General Theory, Hansen still remained skeptical, writing at the end of a lengthy review that it “was more a symptom of economic trends than a foundation stone upon which a science can be built.”775

When Hansen included this review in a 1938 collection of previously published essays, he cut that concluding sentence. By 1936, he had already moved closer to Keynes.

Or, to be more precise, he had followed with care one of the “trends” essential to

Keynes’s own evolution. Hansen believed mounting government debt had turned the state into a mediator between the suppliers of capital—that is, savers—and prospective sources

773 Verbatim Record, vol. 3, 341.

774 Alvin Hansen to JM Clark, August 8 1934, Box 7, Alvin H. Hansen Papers, Harvard University Archives (hereafter Hansen Papers).

775 Alvin Hansen, “Mr. Keynes on Underemployment Equilibrium,” Journal of Political Economy 44.5 (October 1936), 686.

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of investment. “The government,” he asserted, “is becoming an investment banker.”776

When he wrote this in 1936, Hansen was still not persuaded about fiscal policy’s ability to reverse the course of a business cycle, but he had a history that encouraged him to recognize its potential significance.

Hansen also believed that following the release of The General Theory Keynes had moved closer to him. In a lecture to the Eugenics Society—a group Keynes served as director of between 1937 and 1944—the British economist had dwelled on the potentially dire economic consequences of a stagnant or contracting population.777 Keynes depicted himself as reversing a consensus that had existed since the turn of the nineteenth century, when Thomas Malthus claimed that population growth tended to outpace agricultural production. From the Malthusian perspective, expanding populations led to famine and painful regressions to the mean, while stationary populations made possible a general rise in standards of living. Keynes recognized that a static population could have benefits, but only if the state guarded against its dangers. Growing populations offered greater opportunities for investment, providing an outlet for capital and preventing unemployment. Eliminating that safety valve would force cutbacks in employment, unless the government compensated by creating a more favorable investment environment. As Keynes put it, there was a choice between devils—the Malthusian devil of population, and the contemporary devil of unemployment.

That analysis resonated with Hansen, who in his TNEC testimony quoted another

British economist—J.R. Hicks, a former Cambridge colleague of Keynes’s—speculating

776 Alvin Hansen, Full Recovery or Stagnation (New York: W.W. Norton and Company, 1938), 318.

777 John Maynard Keynes, “Some Economic Consequences of a Declining Population,” Eugenics Review 29.1 (1937), 13-17.

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“that perhaps the whole industrial revolution of the last 200 years has been nothing else but a large secular boom largely induced by the unparalleled rise in population.”778 A little later, he referred to the possibility of a falling population as “by far the most revolutionary event in modern times.”779 Expanding populations appealed to investors looking to ensure healthy rates of return. A static or declining population offered fewer options, choking off prospective investment and reducing employment in the present— conditions that resembled the world Keynes had analyzed in his recent work. Rereading

The General Theory, Hansen concluded that he had failed to grasp Keynes’s breakthrough, and that a more generous interpretation was in order.

Hansen did not simply absorb Keynes’s thought, nor did he take his journey toward a broadly Keynesian position alone. Although a cascade of reviews followed hard on The General Theory’s publication, Keynes attracted few American disciples at first. In this early stage, sympathetic engagement with Keynes—the work of elaborating, revising, adapting—among professional economists in the United States was to a large degree confined to a single classroom. Called the Fiscal Policy Seminar, the course was run by Hansen and John Williams. Replicating at a national level the ambitions of the

Commons seminar Hansen attended as a graduate student, the course was, effectively, a research center disguised as a class. Swaddled in nostalgia by former students, the seminar became an almost mythic totem in subsequent accounts. “One felt that it was the most important thing currently happening in the country,” Galbraith wrote, “and this

778 Verbatim Record, vol. 3, 341.

779 Alvin Hansen, Fiscal Policy and Business Cycles (New York: W.W. Norton and Company, 1941), 409-410.

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could have been the case.”780 Galbraith wildly exaggerated, but the hyperbole testified to the enthusiasm Hansen kindled.

The seminar would go on for decades, but the template was set early.

Participants—including undergraduates like Tobin, graduate students, other (typically young) professors like Wassily Leontief, and New Dealers visiting from Washington— presented research and wrestled with the implications of the 1937 recession. In the 1939 academic year alone, regular participants included economists from the Federal Reserve, the Bureau of Agricultural Economics, the Treasury Department, the National Labor

Relations Board, and the Social Security Board.781 A list of fifty-six subjects from one year had among its items “Government spending as a check to (a) a minor recession, (b) a major depression,” “Causes and implications of the decline in the role of central bank policy,” issues of particular relevance to the United States like “federal aid to states” and mainstays of Keynesian debate like the (the amount that overall spending rises in responses to an increase in government expenditures).782

Two-hour meetings on Monday confined to academic discussion were followed by sessions on Friday where an outsider spoke. In the first three years of the seminar, visitors included a litany of Washington Keynesians, among them Marriner Eccles, Leon

Henderson, and Isador Lubin. The seminar, however, brought in a more eclectic cast than this roster suggests. Lauchlin Currie visited twice, but so did his nemesis at the Fed,

Emmanuel Goldenweiser. Also in attendance were Jacob Viner, , and

Gardiner Means, who discussed The Structure of the American Economy. Debate after the

780 Galbraith, “How Keynes Came to America,” 50.

781 “Topics in Fiscal Policy,” Box 1, Hansen Papers.

782 “Topics in Fiscal Policy,” Box 1, Hansen Papers.

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seminar continued until late in the evening, imbuing Cambridge with the energy of

Roosevelt’s Washington.783

Hansen drove the meeting, with Williams offering an intellectually skeptical but personally sympathetic vantage point on the proceedings. (Williams called Hansen “the closest friend I have ever had.”784) More a site of collective inquiry than of hierarchical instruction, both teachers appeared to students as “mother hens” presiding over a shared conversation, though it was not clear if Hansen, eyes closed underneath his trademark green eyeshade, was always paying attention.785 In his own recollections, Hansen named the first year of the seminar as his favorite, referring to it as a period when “we were all students trying to find our way about.”786 Stamped in memories, too, was the size of the proceedings: a room teeming with students, overflow spilling outside. This was the audience where Hansen tested ideas that later appeared in his writing, and in the writing of those who passed through the course, rising stars like Walter and William Salant,

Emile Despres, Alan Sweezy, Richard Gilbert, and Paul Samuelson, all of whom went on become significant Washington Keynesians. The legacy would ramify for decades, when former students went on to posts in the Federal Reserve, Treasury, the State Department, and the Council of Economic Advisers—one alumnus became its chairman—along with academia and the business world.

783 Records of the seminar are collected at “Harvard Economics. Hansen and Williams Fiscal Seminar 1937-1944,” Economics in the Rear-View Mirror, available at http://www.irwincollier.com/harvard-economics-hansen-and-williams-fiscal-seminar-1937-1944/.

784 John Williams, “Tribute,” Quarterly Journal of Economics, 90.1 (February 1976), 8.

785 Salant, “Fiscal Policy Seminar,” 21.

786 Salant, “Fiscal Policy Seminar,” 22.

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Guidance from Keynes himself reached the seminar via participants who had spent time in Cambridge, one of whom prevailed upon his peers to read The General

Theory immediately after its release. They defended Keynes on specific claims and illuminated the larger project, including one of its most compelling theoretical interventions—namely, Keynes’s shift from an economics focused on changes in price levels to one concerned with swings of employment and output. Here, again, national income received considerable attention. That was clear even before the course began, when one of Williams’s colleagues urged him “to give a good deal of attention to the seminar on Fiscal Policy or as I should prefer to call it Government and the National

Income.”787 Economists had not needed Keynes’s license to address national income. But

Keynes had supplied a conceptual framework that, when combined with the statistics governments were now generating in abundance, suggested the outlines of a potent new analytic.

A SLENDER VOLUME WITH THE REVEALING TITLE An Economic Program for

American Democracy provided one of the earliest suggestions of the discussion taking place in the Fiscal Policy Seminar.788 Published in the autumn of 1938, it briefly became a bestseller in Washington, where it was seen as one of the first serious attempts to reckon with the intellectual consequences of the 1937 recession. Seven authors, all economists at either Harvard or Tufts, were listed, but the preface noted that a handful of government officials who preferred to remain anonymous had also contributed.

787 EB Wilson to John Williams, May 12, 1937, Box 2, John Henry Williams Papers, Harvard University Archives, (hereafter Williams Papers).

788 Richard Gilbert et al., An Economic Program for American Democracy (The Vanguard Press: New York, 1938).

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While insisting that the New Deal had achieved “a striking degree of success,”789 the book described the 1937 downturn as “a major catastrophe.”790 The most recent crisis, however, could only be understood if it were placed against a longer historical trajectory.

Relying on a familiar New Deal periodization, it split American history in two: before and after 1929. That was the year when the consequences of two monumental shifts—the closing of the frontier, and a reduction in population growth—became apparent. An age of easy expansion had come to a halt, and if the steady rise in national output that had defined earlier American history were to continue, then the nature of growth would have to change. They backed up this abstract commitment with proposals designed to bolster consumption: old-age benefits, federal aid for education and healthcare, workmen’s compensation, unemployment relief, and “[d]ecent minimum wages and maximum hours.”791 Fiscal policy had a place, but as one instrument in a larger repertoire. The authors sounded more radical notes too—for instance, writing that if commercial banks sought to undermine the credit of a deficit-spending government “the public would clearly be justified in assuming control of the entire banking system.”792 Continuities with earlier reform movements were evident too—in condemnations of monopoly as a major impediment to recovery, in denunciations of corporations that pursued profit at the expense of the larger social good, and in vigorous support for labor.

But the authors emphasized the novelty of their vision, above all when it came to the unfamiliar subject of the economy. Neither citizens nor governments, they claimed,

789 Gilbert et al., Economic Program, viii.

790 Gilbert et al., Economic Program, iv.

791 Gilbert et al., Economic Program, 53.

792 Gilbert et al., Economic Program, 65.

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had yet grasped the particular challenges of managing an economy. “Few people are accustomed to thinking in terms of the economy as a whole,” they wrote, “much less in terms of the economy as an expanding organism.”793 Pointing to the recent experience of

“governments which refused to accept the responsibility for the proper functioning of their national economies,” the authors traced the rise of dictatorships to failures of economic administration.794 Small wonder the book’s first chapter, setting out the context for everything to come, was titled “The Crisis of the American Economy.” Weaving together the book’s central themes, it depicted the economic crisis as a threat to democracy itself.

What path led away from this crisis? With the economy staked as the terrain on which they would wage their battle, the authors nominated a single measurement as both a target for policy and arbiter of their success. “Here in America,” they declared, “we can save our free democratic institutions only by using them to expand our national income.”795 The economy was the object, and national income the tool for measuring their progress. Pairing a general goal with a numerical value, they asserted, “The government must assume responsibility for maintaining the national income,” and claimed their proposals would boost that income by $4 to $5 billion dollars.796 Mobilizing both the idea and the statistics of the economy for their agenda, they chained the destiny of the United States to its national income, then maintained that only “conscious social

793 Gilbert et al., Economic Program, 63.

794 Gilbert et al., Economic Program, 88.

795 Gilbert et al., Economic Program, 88.

796 Gilbert et al., Economic Program, 40.

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endeavor” organized by the state would guarantee its continued escalation—and thereby preserve American democracy.797

ALL THIS SEEMED LIKE OLD NEWS TO HANSEN, who grumbled that the major ideas in the book had come out of his work. He had a chance to sketch his own interpretation in December of 1938, a month after the release of An Economic Program.

Delivering the presidential address of the American Economic Association, he observed that at this year’s meeting attention had focused on “a single, though broadly inclusive, subject”—“The Changing American Economy.”798 Hansen’s speech followed this pattern. Titled “Economic Progress and Declining Population Growth,” it is today remembered for its evocation of a coming “mature economy,” or what Hansen elsewhere called a “nonexpansionist economy.”799

For Hansen, the mature economy was both a technical concept—an economy where the ratio of capital formation to national income ratcheted downward and population growth dwindled—and the most recent stage in a longer history. Having lost confidence in the ability of cycles to correct themselves, Hansen feared the advent of

“secular stagnation—sick recoveries which die in their infancy and depressions which

797 Gilbert et al., Economic Program, 90.

798 Alvin Hansen, “Economic Progress and Declining Population Growth,” American Economic Review 29.1 (March 1939), 1.

799 Hansen, Fiscal Policy, 310. has done the most to revive interest wit h Hansen. See, for example, Lawrence Summers, “Reflections on Secular Stagnation,” (lecture, Julius- Rabinowitz Center, Princeton University, February 19, 2015), available at http://larrysummers.com/2015/02/25/reflections-on-secular-stagnation/. For more, see Roger Backhouse and Mauro Boianovsky, “Secular Stagnation: The History of a Macroeconomic Heresy,” (lecture, Meetings of the European Society for the History of Economic Thought, , May 14, 2015).

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feed on themselves.”800 Predicting “a structural change no less basic and profound” than the Industrial Revolution, Hansen proclaimed that “We are passing, so to speak, over a divide which separates the great era of growth and expansion of the nineteenth century from an era which no man, unwilling to embark on pure conjecture, can as yet characterize with clarity or precision.”801 With that display of epistemic humility completed, Hansen embarked on his own round of conjectures.

Hansen’s view of the future was heavily influenced by his earlier intellectual formation. He retained the historical orientation and concern with institutions broadly defined—technology, resources, population, territory—that had characterized his scholarship from the beginning. The attention to the political economy of democracy that had become more pronounced since the onset of the Depression also endured. Adding his name to the roster of theorists who pronounced the death of laissez faire, he asserted that the twinned forces of corporate monopoly and union organization had obliterated the

“impersonal and non-political” economic order.802 “It remains to be seen,” he warned,

“whether political democracy can in the end survive the disappearance of the automatic price system.”803

For all the continuities with his earlier work, this was not the Hansen his colleagues thought they knew. The mature economy was one example of his changed perspective, but he matched that gloomy prediction with a new source of optimism.

Formerly dubious about the merits of fiscal policy, he had become a qualified convert.

800 Hansen, “Economic Progress,” 4.

801 Hansen, “Economic Progress,” 1.

802 Hansen, “Economic Progress,” 13.

803 Hansen, “Economic Progress,” 13.

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The recalibration of his position came near the end of his address, when Hansen broached the subject of national income and government spending. Walking his audience through recent economic history, he traced the fall of “our national income” from its 1929 peak of about $80 billion to its Depression nadir at around half that amount. Americans had weathered that decline, but Hansen considered it a lucky break, maintaining “ that we cannot afford to let our income fall materially below $65,000,000,000, or say

$60,000,000,000” without risking consequences “too serious to contemplate.”804 He now believed shrewd fiscal policy could avert that catastrophe. Again, he attached a number to this commitment. Though government spending could not ensure perpetual growth, it could keep national income around $70 billion—luckily enough, a total well above crisis levels.

This was, clearly, a discussion of national income filtered through a distinctive political vision. Hansen believed that the efficacy of deficit spending tapered off at the

$70 billion mark not because of a timeless economic law but because of the structure of the American economy, and polity. The “danger point,” he argued, was

“reached sooner in a democratic country than in a totalitarian state.”805 Within democracies, the “precise point” turned on “the degree of discipline and self-restraint which the various economic groups have achieved or can achieve under democratic institutions.”806 The range of possible reactions to a uniform captured the challenge of economic governance, and paved the way for a conclusion that returned to

804 Hansen, “Economic Progress,” 14.

805 Hansen, “Economic Progress,” 14.

806 Hansen, “Economic Progress,” 14.

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one of Hansen’s favorite themes: “There are no easy answers to the problems that confront us.”807

Yet Hansen’s search continued. Though his 1938 lecture has attracted renewed attention during our own , it is typically discussed without reference to

Hansen’s other writings, except perhaps a glancing nod to his reversal on deficit spending. But Hansen’s intellectual evolution continued after 1938, and his first major reckoning did not appear until 1941, with the publication of his next major work, Fiscal

Policy and Business Cycles. One of the most significant forgotten texts of the twentieth century, Fiscal Policy and Business Cycles was widely recognized following its release as the fullest defense yet offered of the latest turn in New Deal economics. It was a personal document, one that captured Hansen’s transformation over the 1930s, along with how much he kept from his earlier theorizing. But students in the Fiscal Policy Seminar, many of whom were thanked in the acknowledgments for their contributions, also treated it as a summary of their collective enterprise, and a more rigorous development of

“Keynesianism” than anything offered by Keynes himself. Neglected even by historians, it demands a reappraisal today.

A CHANGE WAS EVIDENT from the title alone. Pairing fiscal policy with business cycles, it highlighted a historic shift that Hansen dwelled on at length. In his AEA address, Hansen described had business cycles as “the problem of the nineteenth century.”808 Now he elaborated that thesis. Business cycles, he contended, were products of a “unique era of extensive growth” fueled by an expanding population, the acquisition

807 Hansen, “Economic Progress,” 14.

808 Hansen, “Economic Progress,” 4.

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of new territories, and rapid technological advance.809 The mature economy of the twentieth century presented a different set of obstacles. While the Depression could be partly explained as the latest cyclical downturn, it also marked a more fundamental departure. The waning of extensive growth had taken the “atomistic order” of nineteenth century economic life down with it.810

The rise of full employment as a policy ideal, and the declining significance of the business cycle as such, were both consequences of this transition. In contemporary conditions, failing to achieve full employment threatened economic ruin and political chaos. Faced with this dire prospect, only two options remained: “democratic planning and totalitarian regimentation.”811 Fiscal policy became for Hansen a quintessential example of democratic planning in action—a government policy that respected individual autonomy while promoting the full employment of existing resources. It was also the twentieth century’s solution to the problem of growth, a sequel to earlier methods— territorial expansion, a burgeoning population—no longer available in a mature economy.

Hansen’s intervention in economic theory was also a foray in the history of economic thought. Though Hansen defined the nineteenth century as the age of the business cycle, he claimed—echoing a generally accepted belief among economists—that awareness of the business cycles as such had not emerged until the twentieth century.

Here, the pivotal event was the 1913 publication of Wesley Mitchell’s Business Cycles.

“Rarely, indeed, has the central thesis of any book become so much an accepted part of

809 Hansen, Fiscal Policy, 42.

810 Hansen, Fiscal Policy, 47.

811 Hansen, Fiscal Policy, 47.

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the thinking of an entire society,” Hansen observed.812 Mitchell’s work also constituted a theoretical innovation of the highest order—“The first really revolutionary change in economic thought” since the eighteenth century, in Hansen’s evaluation.813 By reckoning with economic instability, business cycle theorists overturned the fantasy of seamless economic adjustment, where prices maintained an exquisite balance of supply and demand. Set against this background, students of fiscal policy became the followers of a tradition started with research into the business cycle, and Hansen’s latest opus turned into a bid to alter “the thinking of an entire society” as Mitchell had before him.814

While Hansen insinuated that he would be happy to become his generation’s

Mitchell, there was little in the book that suggested a unique affiliation with Keynes. The first explicit reference to Keynes does not occur until more than halfway through the book. He is a more frequent character in the second half, but for the most part only mentioned in passing. Overall, Keynes received about as many citations as the much less celebrated Arthur Spiethoff, and fewer than Kuznets. Though Hansen used concepts developed by Keynes in The General Theory, he treated them as tools that could be used, and modified, as he saw fit.

Direct citations, of course, are a poor metric of influence, and one of the book’s most revealing dialogues was almost subterranean. From the first page, Fiscal Policy and

Business Cycles joined its positive program to an extended critique of Marx. Hansen kept the debate implicit, but the argument is there. Tying the Depression to the outbreak of

World War II—well underway, albeit without American troops, when the book appeared

812 Hansen, Fiscal Policy, 67.

813 Hansen, Fiscal Policy, 407.

814 Hansen, Fiscal Policy, 67.

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in 1941—Hansen traced “the failure to achieve a world order in the political sphere” to

“the facts of economic frustration.”815 But this was an economic interpretation that rejected a Marxist narrative centered on the development of capitalism, and that as a consequence reached very different conclusions about the prospects of reform.

The contrast expressed itself most vividly in Hansen’s discussion of fiscal policy’s origins, here depicted as the result on an ongoing “ of income.”816

“While avowed socialists had their eyes fixed on the goal of of the ,” Hansen wrote, they missed an alternative history unfolding “more by accident than by design”—namely, the invention of compensatory fiscal policy.817 An ensemble of factors had to come together at just the right time for this option to present itself: a steady escalation of government expenditures that began around the turn of the twentieth century; the experience of World War I, which revealed the enormous social changes that progressive taxation could effect; and a Great Depression that spurred the government to pour vast sums into unemployment relief, which turned out to have benefits for the economy that even advocates of these programs had underestimated.

Blindness to this history could be attributed in part to the difficulty of seeing the problem from the appropriate perspective. “The fiscal policies of the state cannot be conceived in terms of the collections of private enterprise,” Hansen argued, but only from their consequences for “the economy as a whole.”818 Hansen’s vision of the future encouraged him to revisit, and rewrite, the history of economic thought. Like Keynes in

815 Hansen, Fiscal Policy, vii.

816 Hansen, Fiscal Policy, 401.

817 Hansen, Fiscal Policy, 116.

818 Hansen, Fiscal Policy, 141.

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his lecture on population, Hansen knew he was challenging traditional optimism about the possibilities of what prior economists had called the stationary state. Part of Hansen’s revision was terminological: “mature economy,” he asserted, was a better name for the phenomenon than “stationary state”—another marker of how far economic thought and policy had come since the nineteenth century.819

But Hansen’s push to change the vocabulary was tied to a deeper critique. “The earlier economists looked forward to the stationary state,” he wrote, foreseeing a period that “would not have to carry the burden incident to continuous expansion” and “could enjoy in the present the full productive power of the society.”820 Hansen viewed this argument with skepticism. Business cycle theorists had first troubled the optimism of their predecessors by pointing out the frictions that would hinder the transition to a post- expansionary society. For his own part, Hansen considered the likelihood of arriving at the stationary state “improbable.”821 Territorial expansion might have come to a close, and the population would probably fall, but technological innovation, helped along by appropriate fiscal policy, could provide for continued growth. And that was a good thing, because, given continued productivity increases, even a static national income “would wreck the economic order.”822 Nineteenth-century growth rates might be unattainable, but

Americans had a right to expect more than stagnation for the remainder of the century— around two-percent growth annually, Hansen estimated.

819 Hansen, Fiscal Policy, 310.

820 Hansen, Fiscal Policy, 352.

821 Hansen, Fiscal Policy, 407.

822 Hansen, Fiscal Policy, 173.

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The shift Hansen tracked was also reflected in less dramatic changes. Consider, for example, the relevance of national income. For Hansen, it could serve as an unproblematic marker of economic performance. But he recognized this had not always been the case. Debates about the stationary state had erupted in the 1880s, prompted not by reports of a plateau in national income but by weakness in measurements of the industry that, Hansen noted, at the time served as “the central barometer of prosperity and economic activity, of which everyone was more or less consciously aware”: railroads.823

Hansen recognized the logic of this decision. Railroads were the major investment of the period, and the dynamics of investment were central to his economic theory.

Historians tend to link the rise of fiscal policy with a politics centered on consumerism, while economists often depict Keynesianism as focused upon investment.824 Grasping

Hansen’s argument clarifies this seeming contradiction. According to Hansen, although consumption was crucial to overall economic performance, it was also stable: people spent and saved in a generally fixed ratio. The durability of this relationship—known among economists as the consumption function—is what gave swings in the rate of investment such influence over the business cycle. Investment was the source of volatility in what could otherwise be a placid economic scene, which is why having the government step in when businesses had withdrawn could prove such a steadying force.

823 Hansen, Fiscal Policy, 39, FN 12.

824 Meg Jacobs surveys the literature on consumerism in “State of the Field: The Politics of Consumption,” Reviews in American History 39.3 (September 2011), 561-573. For more, see William Leach, Land of Desire: Merchants, Power, and the Rise of a New American Culture (New York: Pantheon Books, 1993); Lizabeth Cohen, “The New Deal State and the Making of Citizen Consumers,” in Getting and Spending: European and American Societies in the Twentieth century, ed. Susan Strasser, Charles McGovern, and Matthias Judt (Washington D.C.: German Historical Institute, 1998), 111-125; Meg Jacobs, Pocketbook Politics: Economic Citizenship in Twentieth-Century America (Princeton: Princeton University Press 2007); and, for a longer view, Frank Trentmann, Empire of Things: How We Became a World of Consumers, from the Fifteenth Century to the Twenty-First (New York: Harper, 2016).

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When opportunities for investment flourished, this instability went hand in hand with growth; when they receded, dependence on investment led to stagnation, or depression.

This provided the background for the emergence of fiscal policy, an instrument that worked on both consumption and investment, thereby simultaneously promoting economic and social stability. Although nineteenth-century sources of extensive investment were no longer available, the stimulus to consumption provided by government spending could take their place. Consumption would rise, thanks to a push from the public coffers, and investment would follow. A theory of investment justified a politics devoted to bolstering consumption.825

But Hansen wanted more than just a compensatory fiscal policy regime. He called his preferred system “the dual consumption economy” and traced the conditions for its appearance to a socialization of both production and income that had begun at the close of the nineteenth century then accelerated in recent decades.826 The corporation’s rise was evidence enough of the former, and he found support for the latter in everything from public housing to social security. While socialists had frequently responded to this trend by calling for further socialization of the means of production, Hansen favored socialization of consumption. Bringing more investment under the purview of the state could promote stability, he granted, but socialization of consumption was more conducive to full employment. A dual consumption economy would mix elements of public and private control—hence the “dual”—while boosting overall consumption levels, thereby cutting back on investment and easing the transition to economic maturity.

825 Keynes clarified this relationship in “A Self-Adjusting Economic System,” New Republic, February 20, 1935, 35-37.

826 Hansen, Fiscal Policy, 406

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This was not the stationary state produced by the automatic workings of the price system that earlier economists had predicted, but Hansen believed it was as close to that ideal as a modern society would come.

More in line with Keynes than anything Hansen published before his move to

Harvard, Fiscal Policy and Business Cycles was nevertheless far from a recapitulation of

The General Theory. For Keynes, the crucial problem was moving from an equilibrium characterized by high unemployment to an equilibrium of low unemployment. This was a more static understanding of the issue, a matter of bumping from one level to another.

Hansen, as he had been from the start of his career, was concerned with the trajectories of change. A historical narrative framed his analysis, and continued to set him apart from

Keynes.

It also separated him from the views that dominated the early New Deal.

Dismissing the experience of the NRA with a shrug, he devoted a few paragraphs to the limitations of economic management via the manipulation of prices before moving on to the questions he considered truly significant. Hansen had no time for utopian rhapsodies, and he characterized his program of securing full employment through government spending as “essentially a conservative proposal.”827 He supported this interpretation by noting that, unlike rival programs, fiscal policy did not “necessarily” require a redistribution of income—a description that was, in part, a defense against critics who dismissed his program as concealed communism.828 Despite Hansen’s assurances, however, the debate over the politics of fiscal policy had only just begun.

827 Hansen, Fiscal Policy, 181.

828 Hansen, Fiscal Policy, 181.

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ONE OF THE MOST STRIKING IRONIES in Hansen’s long career is that his appearance before the TNEC, which became a set piece in economists’ later histories of their profession’s ascent, was barely noticed at the time. It had a few publicists, including

Walter Lippmann, who insisted that “irreconcilable controversy would give way to constructive debate among men be they economists, Republican businessmen, or New

Dealers, who have studied and digested the Hansen and Currie testimony.”829 But even the sympathetic New Republic noted that most reporters had ignored his effort.830

By contrast, Fiscal Policy and Business Cycles, forgotten today, was at the time treated as a milestone. A lengthy review in the New York Times deemed it “the best exposition of the compensated economy idea that has yet been produced.”831 The New

Republic, finally able to give Hansen the attention his supporters though he deserved, called it “the necessary economics manual” for a coming planned society, and listed it alongside works from Bertrand Russell, Arthur Koestler, and Reinhold Niebhur as one of the year’s hundred notable books.832 In the Nation, Paul Sweezy—co-author of An

Economic Program for American Democracy, and at the time an instructor at Harvard looking for ways to bridge the divide between the left wing of his university’s economics department and —praised Hansen for having done more to rescue “bourgeois political economy” from its long-standing “devotion to superficial apologetics and

829 Quoted in Goodwin, Walter Lippmann, 162-3.

830 Richard Lee Strout, “Hansen of Harvard,” New Republic, December 26, 1941, 606.

831 Elliott Bell, “Business Cycles and the Problem of Full Employment,” New York Times, July 27, 1941, 43.

832 “100 Notable Books of 1941,” New Republic, December 8, 1941, 773.

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elegant irrelevancies” than any other American.833 (Though Sweezy did not think

Hansen’s theory capable of entirely transcending its bourgeois limitations, such as blindness to “the real nature of the capitalist system itself,” ruled by an elite that “seeks its own self-expansion and cares not a hang for a smoothly working economy or for the consumption of the masses if they stand in the way.”834)

Academic journals also depicted the book as a major accomplishment. Simon

Kuznets reviewed it twice, shuttling in characteristic fashion between technical criticism and the reflections on the broadest questions raised by Hansen. (A footnote thanked

Milton Friedman for assisting him with one of those technical objections.835 Meanwhile, in private, Kuznets’s colleagues at the NBER complained that Hansen “deal[t] with critical issues in a slippery way."836) Though Kuznets expressed doubt about the imminence of secular stagnation, he seconded the call for “more active participation by public authorities in economic affairs,” a trend which he regarded, in any case, as

“inevitable.”837 The question was not whether the state would become more powerful but how it would use these new powers. Blending the empirical and the ideological, he urged the formation “of a fiscal philosophy, system of accounting, and an arsenal of procedures” tailored to the age.838 He concluded by turning to “a wider view” that, he acknowledged, “might lead us far outside the realms of traditional economic discipline”

833 Paul Sweezy, “The Crisis of Intelligence,” Nation, September 27, 1941, 284.

834 Sweezy, “Crisis,” 285.

835 Simon Kuznets, “Review: Fiscal Policy and Business Cycles,” Review of Economics and Statistics 24.1 (February 1942), 34, FN2.

836 Arthur Burns to Wesley Mitchell, April 2, 1942, Box 46, Series 10, Mitchell Papers.

837 Kuznets, “Review,” 32.

838 Simon Kuznets, “Review: Fiscal Policy and Business Cycles,” Annals of the American Academy of Political and Social Science 217 (September 1941), 215.

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but was nonetheless essential.839 Citing Germany under Hitler and Britain before

Churchill as cautionary examples, he warned that economists must consider the pernicious ends a newly empowered state might serve.

Kuznets’s forebodings were amplified in the most sustained, and most critical, of the book’s reviews. The University of Chicago economist Henry Simons—like Kuznets, another of Friedman’s mentors—was known among economists for supporting what he termed “a positive program for laissez-faire” that set him at odds with the vision catching fire in Cambridge and Washington.840 Simons began his lengthy essay with a tribute, calling Hansen’s book “the academic apology par excellence for the inner New Deal” and predicting that it would “become the economic bible for that . . . recklessly collectivist” band of intellectuals he opposed.841 After perceptively designating the book “a strange amalgam of Keynes, Schumpter, and Spiethoff,” he castigated Hansen for his continued belief in business cycles—like Fisher, Simons was a doubter—and for dismissing the value of monetary policy. From Simons’s perspective, Hansen’s proposals were just another kind of monetary policy, and Hansen the perpetrator of a linguistic trick that restricted the definition of monetary policy to actions undertaken by central banks.

Simons favored a broader definition—here, again, sharing much with Fisher—that encompassed a more robust agenda. For Simons, this was more than quibbling over terminology. Hansen’s sleight of hand disguised the real debate between advocates of

839 Kuznets, “Review,” 36.

840 Henry Simons, A Positive Program for Laissez Faire: Some Proposals for a Liberal Economic Policy (Chicago: University of Chicago Press, 1938).

841 Henry Simons, “Hansen on Fiscal Policy,” Journal of Political Economy 50.2 (April 1942), 162.

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increased government deficits and those, like Fisher and Simons, who still believed that increasing the money supply was sufficient.

Simons recognized that arguments over economics were inevitably political.

Failing to acknowledge this was yet another weakness, he argued, of Hansen’s text. He chastised supporters of fiscal policy for obscuring this point by using the supposed necessity of public investments to avoid secular stagnation to avoid what should be political debates about the merits of government ownership. He foresaw a system with

“no clearly defined socialized sector but only promiscuous intrusion of governmental enterprise all over the place,” a condition that “should be even more distressing to good socialists than to old-fashioned liberals” like himself.842 Then there was the question of how much leeway policymakers should have—a question Simons believed was especially important to ask in a democracy. “Only with rules of policy,” he argued, “can government by intelligent discussion prevail” and democracy be protected against the threat posed by corrupt special interests and self-interested politicians.843 The country needed a “a real monetary religion” that would provide the foundation for a “monetary constitution grounded in expert and popular approval and binding upon” the state.844

Discretionary policymaking was, from this vantage point, inherently undemocratic—the smiling face of an elite claiming to act for a public not capable of governing itself.

Confined to the pages of a scholarly journal, Simons’s argument gained little traction even within the academy, but it would eventually find a more receptive audience.

842 Simons, “Hansen,” 178.

843 Simons, “Hansen,” 179. Simons elaborated on this theme in “Rules Versus Authorities in Monetary Policy,” Journal of Political Economy 44.1 (February 1936), 1-30.

844 Simons, “Hansen,” 183.

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A better marker of where the profession was heading at the time came not from any of the reviews but in one of the book’s most striking chapters in Hansen’s book. On the surface, there was little in it to attract attention. Technically, it was not even a chapter, just an appendix with the unpromising title “A Statistical Analysis of the Consumption

Function.”845 Composed in a more mathematically demanding style than the rest of the text, it was presented in a smaller font that made it literally more difficult to read. The appendix was not even written by Hansen, but by his protégé, Paul Samuelson, at the time a Harvard graduate student.846

Despite all the warning signs, the section revealed much about what economics was becoming. The consumption function was the name given Keynes’s attempt to establish a mathematical relationship between consumption and income, and it was one of the crucial weapons in the Keynesian arsenal. Samuelson’s rigorous analysis of the consumption function, which relied heavily on Kuznets’s statistical research, offered tentative support for Keynes’s conclusions. But the steps taken to reach that endorsement indicated how much room for adaptation remained. It also pointed to a much larger transformation within economics that would have profound consequences for the battle to define Keynesianism—a battle that would soon be won by advocates of an approach that

Keynes’s students in Cambridge termed “bastard Keynesianism.”847

845 Paul Samuelson, “Appendix: A Statistical Analysis of the Consumption Function,” in Alvin Hansen, Fiscal Policy and Business Cycles (New York: W.W. Norton and Company, 1941), 250-260.

846 Roger Backhouse’s forthcoming intellectual biography of Paul Samuelson will be definite, but until then see , “Paul Anthony Samuelson,” in John Eatwell, Murray Milgate, and Peter Newman, eds., The New Palgrave: A Dictionary of Economics, vol. 4 (New York: Stockton Press, 1987). 234-241 and , Grand Pursuit: The Story of Economic Genius (New York: Simon & Schuster, 2011), 409-435.

847 Joan Robinson developed this indictment in “The Age of Growth,” Challenge 19.2 (May/June 1976), 4-9.

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Samuelson became his generation’s most effective proponent of this bastardized—or, as he saw it, modernized—Keynesianism. But he was explicit about his debt to Hansen: “my own early reputation,” he wrote, “received much too much credit for merely analyzing mathematically what was essentially Hansen’s own system.”848 A new kind of economics was emerging, and Samuelson would become a key broker between policymakers in Washington and practitioners of the more mathematically sophisticated work that would become the field’s cutting edge. At the close of the 1930s, however, a different set of concerns and a different kind of expert were setting the tempo of the debate.

WELL INTO ITS SECOND TERM, the New Deal had not yet developed a “socio- economic” policy.849 This was the conclusion of a telegram sent to Warm Springs,

Georgia, Roosevelt’s favorite retreat from the White House. Its author, Beardsley Ruml, was a familiar figure among New Dealers.850 Even before Roosevelt’s 1933 inauguration,

Rexford Tugwell had called Ruml one of the country’s “chief social inventors.”851 A majordomo of the social sciences in the 1920s, when he was an important figure in the

Rockefeller philanthropic empire, in 1935 Ruml had taken the position opened by

Mitchell’s departure from the National Resources Committee. It was a fitting move, since it was on Ruml’s suggestion that Tugwell had urged Roosevelt in 1933 to consider the recommendations for a planning board made by Hoover’s Committee on Recent Social

848 Paul Samuelson, “Alvin Hansen as a Creative Economic Theorist,” Quarterly Journal of Economics 90.1 (February 1976), 30.

849 Quoted in May, New Deal, 131.

850 Roosevelt, “Inaugural.”

851 Namorato, ed., The Diary of Rexford Tugwell, 69.

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Trends.852 By that point, Ruml was on his way to becoming, as the New Yorker later dubbed him, “The National Idea Man.”853

Although Ruml earned his doctorate in psychology, his portfolio had expanded since graduate school, and he had made himself a kind of all-purpose advisor on domestic policy.854 Willing to serve either party, he was a registered Republican who regularly pulled the lever for Democrats. As for his other tastes, according to a 1943 profile in Life,

Ruml favored “bull sessions, Bach and bright blue pants but no exercise.”855 (The magazine had difficulty moving past Ruml’s physique: a picture of the portly Ruml resting on a couch ran above the caption “Ruml pursues his favorite exercise of sitting still.”856) In 1938, Ruml was not yet such a well-known figure, but he had his characteristic enthusiasm for ideas. At the time, no project occupied more of his attention than making a “socio-economic” policy for the New Deal.

Ruml contrasted his “socio-economic” agenda with a “socio-financial” approach that would offer unemployment relief while keeping spending and taxation steady. These policies compelled government officials to accept the limitations imposed by the

“financial necessities” of the existing system, and led to “economic strain and deficiency in production and on the financial side, no corresponding increase in confidence.”857 His

852 Namorato, ed., The Diary of Rexford Tugwell, 69.

853 Alva Johnston, “The National Idea Man–II,” New Yorker, February 17, 1945, 26-34.

854 Johnston, “Idea Man,” 30.

855 Michael Drury, “Ruml,” Life Magazine, April 12, 1943, 35.

856 Drury, “Ruml,” 38.

857 Quoted in May, New Deal, 132.

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method—“economic” rather than “financial”—sought to expand productive capacity by using deficit spending to strengthen purchasing power.

Along with the other members of the NRC, Ruml had been working on this program for more than a year. In June 1937, Roosevelt had announced the launching of a

NRC study exploring ways the government could lift national income, though he refused to name a target.858 Begun at a time of economic optimism, the project took on greater urgency as recognition of the latest downturn spread. One week after meeting with

Currie, Henderson, and Lubin in November 1937, Roosevelt called a special session of

Congress, where he said the recent decline in national income was “a matter of definite concern.” In his State of the Union address two months later, Roosevelt shifted from expressing alarm to setting a target, declaring that “our objective is to raise it to ninety or one hundred billion dollars.”859 The “ninety or one hundred billion dollars” lacked the precision economists preferred, but even that broad suggestion marked a profound departure from his position just a few months earlier.

How to achieve this goal was still unclear, and that was what brought Roosevelt and a team of advisers to Warm Springs in the spring of 1938. In the flurry of documents generated during this period, a memorandum drafted by Ruml with assistance from

Henderson and a WPA deputy named Aubrey Williams exerted a special influence. One of the crispest rationales yet produced for compensatory fiscal policy, it revealed how far

New Dealers had travelled since 1933. A conviction that fundamental structural changes demanding a comprehensive response from the government had carried over from the

858 “Roosevelt Visions Buying Power Rise to Abolish Relief,” New York Times, June 16, 1937, 1.

859 Franklin Roosevelt, “Message to Congress Recommending Legislation,” November 5, 1937, http://www.presidency.ucsb.edu/ws/?pid=15496.

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early days of the administration; so had a belief that properly designed policies would benefit the nation as a whole, not just particular classes. But the authors emphasized the novelty of their ambitions, writing that the full program had only come together “within recent weeks,” and that if implemented it would “have a profound effect on current public policy.”860 Gone was the aspiration of remaking society outright; in its place was the hope—just as significant in its own way, but different in character—of creating an expanding economy.

It started with mathematics. Drawing on studies from the National Resources

Committee, Ruml and Henderson’s memo set out “the arithmetic of the present crisis.”861

Achieving “reasonable full employment” required a national income of $88 billion, well above the current $68 billion.862 Estimating that it would take at least $7 billion of additional spending or investment to make up that difference, and assuming that private enterprise could generate at most $4 billion, that left $3 billion of government support as a “minimum.”863 (Ruml and Henderson would have preferred $6 billion, but they concluded that under realistic conditions “3 can be attained only with difficulty and 6 is out of the question.”864) The numbers were daunting, but they were dwarfed by a still greater figure: $200 billion, the amount the report estimated the United States had lost because of unused productive capacity since 1929. It was a bracing total, one that had the, presumably intentional, effect of making $3 billion seem paltry by comparison.

860 Beardsley Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Beardsley Ruml Papers. Regenstein Library, University of Chicago (hereafter Ruml papers).

861 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26,Ruml Papers.

862 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26,Ruml Papers.

863 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26,Ruml Papers.

864 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26,Ruml Papers.

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But the memo was more than an intellectual exercise. (An editor at Life might have commented that this was the only kind of exercise Ruml enjoyed.) Using the standard New Deal periodization, Ruml and Henderson depicted government spending as the solution to a problem created by the closing of the frontier. “If the tangible national domain has been exhausted and we are not agreeable for foreign conquest,” Ruml and

Henderson argued, “the intangible national domain will provide a rich field for exploration by a new type of explorer.”865

That was not the only aspect of their program tailored to the American frame.

“National intervention to stimulate consumption,” they claimed, was “the democratic method” of economic governance. Policymakers looking to bolster purchasing power could stimulate either consumption or production. Ruml and Henderson termed the second approach “planned economy,” and associated it with “the totalitarian state” favored by both Stalin and Hitler (and, in a less menacing comparison, Alexander

Hamilton).866 Boosting consumption was democratic because it preserved competition, placing the desires of “the whole culture expressing itself through actions of individual consumers” over “the judgment or caprice of a few.”867 This was a nod to the anti- monopoly tradition whose advocates had clashed fiercely with the social planners of the early New Deal. Competition was a fact of contemporary life, not some obsolete nineteenth-century ideal. There was, however, a caveat: “competition in a time of advancing purchasing power,” they wrote, “is a far different thing from competition at a

865 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

866 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

867 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

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time when purchasing power is declining.”868 (A point Hansen also made in his critique of the administered-prices thesis.) Recession fostered combination, while expansion provided the ideal environment for a vigorous marketplace. Lifting national income would do more than maximize production and employment: it would fortify an economic system in danger of breaking down.

Not that the order of things prior to the Depression could be maintained in every respect. Ruml and Henderson insisted that the 1937 downturn had deep causes—“much more fundamental,” they wrote, “than is generally recognized.”869 They were vague about what precisely those factors were, although they named a tendency toward overproduction encouraged by technological improvements. Whatever the cause, they were emphatic in their portrayal of deficit spending as a response to basic transformations in American life. As Currie phrased it, in a memo of his own, “we face chronic stagnation unless the Government, through its actions, provides a continuing outlet for saving or canalizes a portion of potential savings back into consumption.”870 This was structural reform, but of a very different kind than what anyone in the Brain Trust had envisioned in

1933.

Seen from this vantage point, the history of the New Deal took on a different shape. Consider Social Security. Meant to provide stability for the elderly, the program at first collected more in taxes than it disbursed, making it a frequent object of complaint from the deficit spenders. Hansen, who turned down an offer to serve as head economist

868 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

869 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

870 Quoted in Roger Sanidlands, ed., “Lauchlin Currie’s Memoirs: Chapter III: The New Deal,” Journal of Economic Studies 31.3/4 (May 2004), 220.

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of the Social Security Board, was intimately familiar with the problem; so was Currie, who credited “long discussions” with Roosevelt on reforming Social Security’s financing with the president’s eventual support for deficit spending. 871 Then there was the New

Deal itself. As one of Hansen’s reviewers noted in a discussion of Fiscal Policy and

Business Cycles, judged by its overall deficits, the New Deal’s vaunted recovery program looked “pitiably small.”872

But there was more to a socio-economic policy than recovery, and Ruml and

Henderson insisted that much of the New Deal should be saved. Here, again, national income provided the lens through which they viewed the world. “[E]ven with a national income of from eighty to ninety billion dollars,” they wrote, “millions of people will fail through automatic processes to receive a share adequate to maintain a decent standard of living.”873 Roosevelt had earlier suggested the contrary, saying in a 1937 press conference that a sufficiently robust national income could mean the end of other welfare programs—“even relief of unemployables,” the New York Times reported, “for with the added income, some one [sic] in the family will take care of the needy.”874 That was not the program Ruml and Henderson, or Currie and Hansen, supported. For this group, fiscal policy was not an alternative to the New Deal; it was the means through which its greatest achievements could be protected.

871 Currie, “Discussion,” 141.

872 , “Review: Fiscal Policy and Business Cycles,” Economic Journal, 53.209 (April 1943), 111.

873 Ruml, “Warm Springs Memorandum,” April 1, 1938, Box 6, Folder 26, Ruml Papers.

874 “Roosevelt Visions,” New York Times, 12.

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TWO WEEKS AFTER RUML AND HENDERSON dashed off their memo, Roosevelt carried their message to a national audience. In an address to Congress, he proposed $3 billion in new expenditures, lifting passages from the Warm Springs memo with minimal revisions. Millions more heard an expanded version of his argument that night, when

Roosevelt made it the subject of a fireside chat. It was one of the longest radio addresses he had ever delivered, and one of the most remarkable. The president who in 1935 complained after reading a collection of articles from academic economists that “it is almost impossible to figure out what they mean,” now refashioned himself as an evangelist for a breakaway faction within the discipline.875 Using colloquial language,

Roosevelt translated economists’ debates—“jargon; absolute jargon,” he had called it— into the stuff of everyday life, and he relied on the unprecedented reach a president enjoyed in an age of radio to make these arguments into, literally, household words.876

National income was the outstanding feature in his tour of the economic landscape. Roosevelt was painstaking in his explanation, telling his listeners that national income was “not the Government's income”—a common definition in earlier decades—

“but the total of the income of all the individual citizens and families of the United

States.”877 After summarizing the statistic’s fluctuations since 1929, he declared that “all the energies of government and business must be directed to increasing the national

875 Franklin Roosevelt, “Press Conference, #193-B,” April 8, 1935, available at http://www.fdrlibrary.marist.edu/_resources/images/pc/pc0019.pdf.

876 Franklin Roosevelt, “Press Conference, #193-B,” April 8, 1935, available at http://www.fdrlibrary.marist.edu/_resources/images/pc/pc0019.pdf.

877 Franklin Roosevelt, “Fireside Chat,” April 14, 1938, http://www.presidency.ucsb.edu/ws/?pid=15628.

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income.”878 Only a rising national income, he continued, would boost employment and provide “a feeling of security to all people in all walks of life.”879 Echoing arguments from his economists, Roosevelt portrayed deficit spending as a successor to the donations of land the government had made in nineteenth century, making the expansion of national income a sequel to the geographical expansion of an earlier era. And, again following the counsel of his economic advisers, he traced the recession to weakness in consumer demand.

But Roosevelt still insisted that his ultimate objective was more than simply economic. Insufficient purchasing power had caused the recession, and from this

Roosevelt concluded that “it is up to us to create an economic upturn.”880 The campaign to raise national income provided another way for the public to act together—that is, democratically. This allowed Roosevelt to portray his latest turn as an extension of the

New Deal’s most important project. “Your Government,” he announced, “seeking to protect democracy, must prove that Government is stronger than the forces of business depression.”881 A national income target pursued via deficit spending was a new variation, but, according to Roosevelt, the ultimate goal had remained constant.

The speech drew praise from unexpected quarters. Even Irving Fisher, still a tireless advocate of monetary policy, had kind words for the president’s “magnificent message,” complete with “proposals big enough to meet the present emergency.”882 But

878 Roosevelt, “Fireside,” April 14, 1938.

879 Roosevelt, “Fireside,” April 14, 1938.

880 Roosevelt, “Fireside,” April 14, 1938.

881 Roosevelt, “Fireside,” April 14, 1938.

882 Irving Fisher to Franklin Roosevelt, April 15, 1938, Box 12, Folder 185, Fisher papers.

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New Dealers were more concerned with the views of the general public. Growing attention to national income, encouraged by the administration’s setting of an explicit target, brought the topic into the spotlight. Specialists in national income were dragged along too: in January 1938, Simon Kuznets received his first mention in the New York

Times, which attributed its coverage of his latest monograph to the “interest recently focused by President Roosevelt on the need of an annual income of

$100,000,000,000.”883 That April, just a few days before Roosevelt’s fireside chat, the newspaper published an article that attempted to demystify the confusing subject, running under the headline “National Income: Just What Is It?”884 Returning to the question in

January 1939, it published a story pegged to the Commerce Department’s forthcoming release of “undoubtedly the most monumental and complexly constructed single figure that comes out of any government accounting mill in an year—the figure on the annual national income of the American economy.”885 Again, the paper drew attention to the issue’s political relevance, noting that White House officials believed hitting their national income target would prove “the solution or at least the great amelioration of the country’s biggest problems.”886

Increasingly sophisticated statistics justified this confidence, at least in the eyes of

Washington’s Keynesians, who were often in charge of producing those measurements.

The Commerce Department study of the national income reported on by the Times, for example, was co-authored by Richard Gilbert, a former student of Hansen’s at Harvard

883 “Analyzes U.S. Income,” New York Times, January 16, 1938, 57.

884 Luther Huston, “National Income: Just What Is It?,” New York Times, April 10, 1938, 62.

885 Frederick Barkley, “Our National Income Traced,” New York Times, January 1, 1939, 57.

886 Barkley, “Our National Income,” 57.

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and a driving force behind the publication of An Economic Program for American

Democracy. At Commerce, Gilbert drew on statistics generated by the government over the last decade, with special reliance on Currie’s work, to make the case for compensatory fiscal policy. 887

For those with the requisite training, the change from the use of national income statistics earlier in the New Deal was extraordinary. When earlier government agencies had used national income measurements, they had relied on them chiefly to explain trends within specific industries. By the end of the decade, they had become an essential tool for predicting the behavior of the economy as a whole, exposing the relationship between national income and employment, or that year’s expected tax returns. The New

Deal’s economists were aware, too, of being part of a global trend. In 1939, the same year

Gilbert’s report appeared, the League of Nation’s released national-income estimates for twenty-six countries.888

1939 was also the year Roosevelt asserted “that down in their hearts the American public—industry, agriculture, finance—want this Congress to do whatever needs to be done to raise our national income to eighty billion dollars a year.”889 (A first step on the road to $90 billion.) Tying his presidency’s fate to a number would have seemed a curious strategy in 1933, but in Roosevelt’s telling it became the latest step in the New

887 Gilbert’s colleague Robert Nathan described him as “one of the most creative minds of the last half century.” Katie Louchheim, The Making of the New Deal: The Insiders Speak (Cambridge: Harvard University Press, 1983), 280. Of Gilbert’s role in making An Economic Program for American Democracy, Paul Samuelson, who declined to participate, remarked, “Dick Gilbert was endlessly persuasive. His first dupe was himself.” Paul Samuelson to James Tobin, April 27, 1995, Box 73, Paul Samuelson Papers, David M. Rubenstein Rare Book and Manuscript Library, Duke University (hereafter Samuelson Papers).

888 League of Nations, World Economic Survey: Eighth Year, 1938/39 (Geneva: League of Nations, 1939).

889 Franklin Roosevelt, “Annual Message to Congress,” January 4, 1939, http://www.presidency.ucsb.edu/ws/?pid=15684.

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Deal’s triumphant march. Reflecting on his administration’s record, his State of the

Union address returned to the central theme of his first campaign for the White House.

“Above all,” he said, “we have made the American people conscious of their interrelationship and their interdependence.”890 That shift in national consciousness had occurred in tandem with a reinvention of politics. “The tools of government which we had in 1933 are outmoded,” and the demands of the crisis had forced them “to forge new tools for a new role of government operating in a democracy.”891 Government by national income accounting was just another item in the repertoire.

Dwelling on this latest addition to the New Deal, Roosevelt contrasted two approaches to the subject. One believed “that because our national income this year is only sixty billion dollars, ours is only a sixty billion dollar country.”892 The other held

“that this Nation ought not to be and need not be only a sixty billion dollar nation . . . that it can become an eighty billion dollar nation in the near future” with assistance from the government.893 Support for deficit spending became, implicitly, a test of faith in the

United States. Did Americans believe their country was strong enough to become an eighty billion dollar nation? Or would they settle for a measly sixty billion dollars of what the speech referred to, patriotically, as “citizen income”?894 Returning to the emphasis on national cohesion that pervaded the early New Deal, Roosevelt insisted that

890 Roosevelt, “Annual Message to Congress,” January 4, 1939.

891 Roosevelt, “Annual Message to Congress,” January 4, 1939.

892 Roosevelt, “Annual Message to Congress,” January 4, 1939.

893 Roosevelt, “Annual Message to Congress,” January 4, 1939.

894 Roosevelt, “Annual Message to Congress,” January 4, 1939.

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no group could rise by itself. “Our capacity is limited,” he said, “only by our ability to work together.”895

Roosevelt’s call for unity came from a position of weakness. Democrats had suffered major losses in the 1938 elections, and within the party southerners who once supported the New Deal had grown restive. The administration’s major fiscal policy measure—the Works Financing Bill, whose $3 billion price tag Washington’s deficit spenders considered an absolute minimum—died in Congress. The defeat stunned New

Dealers, but even before this setback, Currie had been complaining about confusion in the White House. “I wanted a spending program,” he grumbled, “but not one that was hastily improvised and that is relatively inflexible”—that is, not the one that actually existed.896 The messiness of legislation posed potentially insurmountable obstacles to his vision. Balanced-budget orthodoxy was a persistent irritant, but even in the best conditions it was unclear whether Congress could move quickly enough when immediate action was required.

Yet beginning in 1939 Currie could issue his protests from inside the White

House, where he was brought on as a presidential assistant. The first economist to occupy such a role, Currie was also part of a larger movement. That same year, a Fiscal Division staffed by his supporters was set up in the Bureau of the Budget. At the Commerce

Department, where Robert Nathan was a staunch ally, Richard Gilbert assumed leadership of a newly created Division of Industrial Economics.897 And, in a move that

895 Roosevelt, “Annual Message to Congress,” January 4, 1939.

896 Lauchlin Currie to Jacob Viner, June 13, 1938, Box 7, Viner Papers.

897 Robert Collins, The Business Response to Keynes (New York: Columbia University Press, 1981), 12-13.

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symbolized the transition, Alvin Hansen was brought onto the NRPB, the former stronghold of Means’s attempt to revive the spirit of the early New Deal. Indicating the fluidity of the time, Currie later claimed that he and Means enjoyed “close working relationships.”898 It was in Means’s interest to make peace with Currie’s troops. By 1939, they had outposts across the government—at Commerce and the Bureau of the Budget, but also the Federal Reserve, Treasury, Agriculture, Labor, the SEC, and, thanks to

Currie, at the president’s side.

Though stymied by the political constraints of 1939, this group had advanced a great distance in a short period of time. Roosevelt was right: they had developed a powerful set of tools—new statistics, new theories, new institutions, new policies. Along the way, a new concept had broken into political discourse. When Hoover’s team of experts had completed their magisterial survey of American life six years earlier, it had treated the coming of comprehensive social planning as all but inevitable. Mastering

“society” remained the horizon of their ambition, as it had been for generations of reformers.

Even among those who still cherished that goal, another concern had recently intruded. That group included George Soule, a New Republic editor and chairman of the

NBER. In 1932, Soule had caught the spirit among reformers with a book whose thrust was evident from the title alone: A Planned Society.899 He brought a different subject to the foreground in 1939 as part of a New Republic series titled “After the New Deal.”

Relying on both the concepts and the analysis that had swept up Washington’s liberals since 1937, Soule ended his article by declaring, “In an expanding economy every

898 Currie, “Discussion,” 141.

899 George Soule, A Planned Society (New York: Macmillan Company, 1932).

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problem may be solved, in a contracting one all become unsolvable.”900 That much, at least, was obvious.

900 George Soule, “After the New Deal III: Suggestions for the Next Step,” New Republic, June 7, 1939, 125.

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Chapter 5: The Enemy Within

SEVEN DECADES HAD PASSED SINCE Wesley Mitchell and Irving Fisher had called upon economists to help chart a path through a global order remade by the Great War, and, yet again, the world seemed on the brink of transformation. It was the summer of

1991. The Soviet Union was imploding, self-styled advocates of the market were on the march, and pundits were decreeing the end of history.

Looking at it all, Jude Wanniski verged on despair. A journalist who had made his reputation advocating supply-side economics during his tenure at the Wall Street Journal in the 1970s, Wanniski returned to the pages of his former employer in the summer of

1991 to lament the sorry state of capitalism. Recession had spread across much of the globe, including the United States, Canada, Sweden, and Australia. Matters looked even worse, he observed, in “the Third World countries of Asia, Africa and Latin America,” weighed down by “poverty, unemployment, inflation and debt.”901 These were grave problems, but Wanniski knew who was to blame. “All this misery befell the nations of the world,” he wrote, “because they acted according to the advice of the economics profession.”902 Not all economists were culpable, he made clear, only one prominent section of their discipline. Resurrecting a phrase from the high Cold War, the title of his article labeled macroeconomics “The Enemy Within.”

Supply-siders had tangled with the economics profession before. The movement encountered withering scorn from economists on both the left and right during its early

901 Jude Wanniski, “Macroeconomics: The Enemy Within,” Wall Street Journal, June 27, 1991, A14.

902 Wanniski, “Macroeconomics,” A14.

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days.903 Specialists in economic forecasting had been a persistent irritant to Ronald

Reagan’s administration, which regularly fielded questions from a skeptical press corps about the gap between optimistic White House projections and the gloomier estimates offered by the three private firms that dominated the industry—Chase Econometrics,

Data Resources International (DRI), and Wharton Econometric Forecasting Associates

(WEFA). The standing of forecasters had risen still further during George H.W. Bush’s presidency, when modelers could be found throughout the government, from the

Commerce Department to the Federal Reserve.904

To the frustration of supply-siders like Wanniski, the most prestigious econometricians provided seemingly scientific evidence against the claims of would-be tax cutters. Keynesian economics had been out of fashion among academics for decades, but the models that guided decision-making at both governments and corporations remained essentially Keynesian. Top-down affairs built out of macroeconomic statistics, they generated predictions reliably hostile to supply-sider assumptions. “A tax rate can’t be reduced unless the computers predict positive revenue effects,” Wanniski explained, which meant that “the macro computers actually control policy.”905 Nor was their influence confined to the United States. Models of national economies were a standard

903 Robert Lucas, for example, has remarked that in the 1980s he “absorbed the attitude of contempt for this phrase”—supply-side economics—“that was then standard in the economics establishment.” Robert Lucas, “The Death of Keynesian Economics,” in Collected Papers on Monetary Theory, ed. Max Gillman (Cambridge: Harvard University Press, 2012), xxi.

904 On the use of modeling in the government, see Kenneth Kraemer et al., Datawars: The Politics of Modeling in Federal Policymaking (New York: Columbia University Press, 1987). Mary Morgan examination of modeling’s place in economics The World in the Model: How Economists Work and Think (Cambridge: Cambridge University Press, 2012) is indispensable.

905 Wanniski, “Macroeconomics,” A14.

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element of policymaking across the globe, and they were crucial to the work done by the

International Monetary Fund and the .

For Wanniski, econometric forecasting was a disease. In proper epidemiological fashion, he identified a patient zero. had received his doctorate from

MIT in 1944, almost half a century before Wanniski singled him out for condemnation.906

Klein was the first economics PhD in the university’s history, and the first student of a young Paul Samuelson, who later remarked, only partly in jest, “after Klein’s Ph.D., it was diminishing returns all the way.”907

Though he ranged widely, Klein was best known for his pioneering research on large-scale econometric models. Systems built out of hundreds of equations based on massive amounts of data, these models were mathematical elaborations of fundamentally

Keynesian principles. Klein had published his first scholarly article while still a graduate student, and during his long career he went on to write hundreds more. After being hired away from Oxford in 1958, he took up a post at the University of Pennsylvania, where he remained for the rest of his career. His furious productivity was rewarded by a profession that showered him with virtually every laurel it could bestow, including a stint as president of the American Economic Association and a Nobel Prize.908 He even earned

906 The economist Olav Bjerkholt has provides the most thorough discussion of Klein’s life in “Lawrence R. Klein 1920–2013: Notes on the early years,” Journal of Policy Modeling 36 (2014) 767-784. Eric Fuch’s dissertation “Economics as a ‘Tooled’ Discipline: Lawrence R. Klein and the Dissemination of Macroeconometrics, 1930-1955” (PhD diss., Université de Paris 1 Panthéon-Sorbonne, forthcoming) promises to shed new light on Klein’s early career.

907 Paul Samuelson to Lawrence Klein, January 31, 2006, Box 45, “Klein, Lawrence, 1994-2006,” Samuelson Papers.

908 Technically, there is no “Nobel Prize in Economics,” only the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.” For a discussion of forthcoming research on the origins of the prize, see Philip Mirowski, “Why is there a Nobel Prize in Economics?,” Institute for New Economic Thinking, August 17, 2011, available at http://ineteconomics.org/video/30-ways-be-economist/philip-

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some notoriety in 1976, thanks to his position as chief economic adviser to Jimmy

Carter’s presidential campaign.

Klein was, quite literally, an academic entrepreneur. He was the founder of the

WEFA, the first of the major econometric forecasting firms. This made him the broker of a union between academic economists and the corporate world, a marriage that yielded hundreds of millions of dollars in annual revenue from customers whose combined valuation totaled billions more. Clients paid hefty sums for the advice of these economists, and their public pronouncements were covered attentively by journalists.

Forecasters discovered that they could influence the economy they claimed to be observing, an effect vividly displayed in the so-called “Klein shock” of 1977. Klein had been called to testify before Congress, and during the questioning he offered his thoughts on the possible consequence of a Japanese currency revaluation—thoughts that led to a surge in the value of the yen once his testimony became public.909

mirowski-why-there-nobel-memorial-prize-economics. Despite Mirowski’s well-taken cautions, I follow the convention and refer to the economics prize as a Nobel.

909 William Robbins, “‘Father’ of Econometric Models,” New York Times, October 16, 1980, D1. This instance of the performativity of economics fits well in an established literature that began with Michel Callon, ed. The Laws of Markets (Oxford: Blackwell, 1998). The term originates with J.L. Austin, How To Do Things With Words (Oxford: Clarendon Press, 1962) and was introduced to a new generation with Judith Butler, Gender Trouble: Feminism and the Subversion of Identity (New York: Routledge, 1990). Donald Mackenzie, perhaps taking performativity more seriously than Callon himself did, has further developed the concept. See Donald Mackenzie, Fabian Muniesa, and Lucia Siu, ed., Do Economists Make Markets?: On the Performativity of Economics (Princeton: Princeton University Press, 2007) and Donald Mackenzie, An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge: MIT Press, 2008). For more recent discussion, see Judith Butler, “Performative Agency,” Journal of Cultural Economy, 3.2 (2010), 147-161 and Michel Callon, “Performativity, Misfires and Politics,” Journal of Cultural Economy, 3.2 (2010), 163-169. It should be noted that Butler’s current interpretation of performativity distances her from Gender Trouble, which she now sees as providing inadequate purchase for critique, and that Callon’s more recent work substitutes “economization” for performativity as a description of his project, on which see Koray Çalışkan and Michel Callon, “Economization, Part 1: Shifting Attention from the Economy Towards Processes of Economization,” Economy and Society, 38.3 (2009), 369-368 and its sequel, the appropriately named “Economization, Part 2: A Research Programme for the Study of Markets,” Economy and Society, 39.1 (2010), 1-32.

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In almost every respect, Klein seemed the embodiment of the economic establishment. But his early career broke from the template. As Wanniski observed in his editorial, Klein’s early econometric work had taken place while he was “a young

American still in his Marxist phase.”910 Wanniski actually undersold Klein’s radicalism.

From 1945 to 1947, Klein was not just a Marxist; he was a member of the Communist

Party, making him a rather different example of “the enemy within.”

Later in his life Klein, downplayed his involvement with the Party, depicting it as a juvenile misadventure that had little connection to his subsequent career. That portrait understated the importance of Marxism in his academic work during the 1940s, but it was true that by the 1950s Klein had shed his youthful radicalism. Yet the commitments that had led him to Marx were not so easy to discard, and they would find a surprisingly receptive audience over his lifetime.

Consider the models that incensed Wanniski. Fifteen years after he bemoaned their longevity, Waninski’s evaluation of the continued influence of Keynesian models within government was seconded by Gregory Mankiw, a Harvard professor who had recently stepped down as chair of the Council of Economic Advisers under George W.

Bush. “The sad truth,” Mankiw observed, “is that the macroeconomic research of the past three decades has had only minor impact on the practical analysis of monetary or fiscal policy.”911 Beginning in the 1970s, a gulf had opened up between what academic economists valued and what economists working in government demanded. Mankiw embodied the new generation of academic economics, and he had just left an

910 Wanniski, “Macroeconomics,” A14.

911 N. Gregory Mankiw, “The Macroeconomist as Scientist and Engineer,” Journal of Economic Perspectives 20.4 (Fall 2006), 42.

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administration headed by a man who styled himself the heir to , but even he was forced to employ models that he called “direct descendants” of the work Klein pioneered.912

The history that comes into view when seen from Klein’s vantage point does not fit into the narratives that scholars typically rely on to interpret the recent past. Across the humanities and social sciences, the period is frequently interpreted as a neoliberal era. In the aftermath of World War II, so the argument goes, a generation of leaders chastened by the Great Depression and cowed by vigorous labor movements forged a political economy that united economic growth with a potent welfare (and warfare) state. Then in the 1970s something went wrong. The marriage of rising economic prosperity and social that had underwritten the postwar order crumbled. From the ashes of a splintered consensus, neoliberalism emerged. Suddenly the language of the market was on everyone’s lips, and deregulation, financialization, skyrocketing economic inequality, and a neologism called globalization carried the day. Franklin Roosevelt and General

Motors stand on one side of this yawning chasm, Ronald Reagan and on the other.913

Economists play a crucial role in this drama, which turns bespectacled professors into vanguard of a neoliberal revolution. The trajectory of the discipline, however, is often conflated with the history of one institution: the University of Chicago, which,

912 Mankiw, “Scientist and Engineer,” 42.

913 Wendy Brown offers a valuable survey of current scholarship on neoliberalism, along with her own important interventions, in Undoing the Demos: Neoliberalism’s Stealth Revolution (Cambridge: Zone Books/MIT Press, 2015). Also see Michael Foucault, Birth of Biopolitics: Lectures at the Collège de France, 1978-1979 (Basingstroke: Palgrave Macmillan, 2008); David Harvey, A Brief History of Neoliberalism (New York: Oxford University Press, 2007); and Mark Soderstrom and Jason Stahl, eds., “Genealogies of Neoliberalism,” spec. issue of Radical History Review 2012.112 (Winter 2012). Daniel Yergin and Joseph Stanislaw provide a more optimistic perspective in The Commanding Heights: The Battle for the World Economy (New York: Simon & Schuster, 1998).

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along with Wall Street, receives pride of place in discussions of neoliberalism’s rise. In this telling, the development of economics since the 1950s becomes a play in two acts. In the first, Milton Friedman leads a charge against Keynesian macroeconomics, receiving support from ideological sympathizers who make the case for the efficiency of markets at the microeconomic level. While that battle played out in the public sphere, act two shifts attention back to the academy. There, advocates of what came to be known as theory use sophisticated mathematics to replace Keynesian models built out of bulky economic aggregates with systems based on the decisions of a single, far-sighted . Models built on this assumption provided, in the language of the discipline, micro foundations for macro theorizing. Although controversial at first, the methodological turn propounded by supporters of rational expectations soon became the lingua franca of academic economics, a common vocabulary that even younger advocates of Keynesian policies had to attain fluency in if they wanted to defend their opinions—and their status—within the profession. This was another revolution housed at the University of Chicago, although the key figure was not Friedman but his former student Robert Lucas (B.A University of Chicago, 1959; PhD University of Chicago,

1964).

The shift can be described as a tale of textbooks: where students of introductory economics in the decades following World War II began their course by reading about the behavior of the economy as a whole, by the 1990s supply and demand had become the first order of business.914 Yet students who moved beyond that introductory class

914 On the University of Chicago, see Robert Van Horn, Philip Mirowski, and Thomas Stapleford, eds., Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program (Cambridge: Cambridge University Press, 2011); Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression (Cambridge: Harvard University Press, 2012);

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learned a different lesson, one to which historians have paid much less attention. Courses in macroeconomics remained a staple of the economics major and a frequent stopping point even for undergraduates who did not intend on taking further classes in the subject.

In these textbooks, students were informed that standard Keynesians arguments continued to offer the best explanation for the behavior of the economy in the short-run.

Undergraduate lecture halls, corporate boardrooms, and the offices of government staffers all provided shelter for the Keynesian ghost in a supposedly neoliberal machine.

This was not an age of fracture, but a period where a grand totality called “the economy” loomed larger than ever. The stubborn persistence of ungainly macroeconomic models was a practical consequence of the perceived need to govern the economy, but a much wider horizon comes into sight when seen from this perspective: a history defined not by a conservative movement trouncing the baffled leaders of a stagnant New Deal order, but by feverish experimentation across the ideological spectrum; a history where rhetorical tributes to the wisdom of markets coexisted with visions of economic management that rivaled the most ambitious efforts of Keynesians at their zenith; a history of practices that ramified across the globe, from Washington to Beijing; a history, in short, filled with figures like Lawrence Klein.

and Daniel Stedman Jones, Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics (Princeton: Princeton University Press, 2012). Philip Mirowski and Dieter Plehwe, eds., The Road From Mont Pèlerin: The Making of the Neoliberal Thought Collective (Cambridge: Harvard University Press, 2009) and Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (New York: Verso, 2013) reflect on the broader relationship between economists and neoliberalism, while Daniel Rodgers, Age of Fracture (Cambridge: Harvard University Press, 2011) links this story to a larger shift in the social imaginary.

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A practitioner of what his colleague James Tobin called “practical macroeconomics,” Klein was a competent but conventional economic theorist.915 In the realm of economic knowledge, however, Klein’s efforts were groundbreaking. As a study prepared for the Nobel committee when he was being considered for the prize observed,

Klein had “no great book, no outstanding single work which would by itself probably justify a seat in the hall of fame,” but “his practical influence has been enormous.”916 He established a template for research used by economists around the globe. It helped that many of the people conducting that research were Klein’s former students. “His model- building activities,” the Nobel memorandum explained, “were essentially changing laboratories to which came students and government officials from all over the world to study applied econometrics.”917 This was Klein’s version of the “Chicago Boys,” who studied under Friedman and his colleagues before going on to shape policy in Augusto

Pinochet’s Chile.918

The comparison with Chicago merits further consideration. Bold ideological commitments and remarkable success in the academy have made the university’s economics department an appealing target for scholarly inquiry. Like a flashy magician’s assistant, it has distracted from the more subdued activity taking place on the other side of the stage. The same shift toward rational expectations that made Chicago so influential

915 David Colander, James Tobin, and Robert Shiller, “Conversations with James Tobin and Robert J. Shiller on the ‘Yale Tradition’ in Macroeconomics,” in Paul Samuelson and William Barnett, eds., Inside the Economist’s Mind (Oxford: Blackwell Publishing, 2007), 403.

916 R.J. Ball, “On Lawrence R. Klein’s Contributions to Economics,” Scandinavian Journal of Economics 83.1 (1981), 92.

917 Ball, “Lawrence R. Klein,” 92.

918 On the Chicago Boys, see Juan Gabriel Valdés, Pinochet's Economists: The Chicago School of Economics in Chile (Cambridge: Cambridge University Press, 1995).

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with academics curtailed its influence over Tobin’s “practical macroeconomics.” That was no accident. “As an advice-giving profession,” Lucas remarked in 1981, “we are in way over our heads.”919 His students received the message. Speaking to an interviewer, one of them quoted from a talk Lucas had given on his first day: “We here at Chicago believe that what we do matters and is more important than events in Washington.”920

Even Milton Friedman’s reputation did not survive the transition unscathed. When a group of Chicago graduate students was asked by the same interviewer what they thought of the department’s most celebrated figure, one responded, “I think he is old.”921 Disdain for Washington would not damage an academic career, but it was anathema to would-be policymakers coming out of other economics departments.

During the waning decades of the twentieth century, those policymakers were more in demand than ever. “The ineluctable fact about any society,” the social theorist

Daniel Bell commented in 1976, “is that there is no escape from economics”—which meant that there was no escape from economists.922 It was a keen insight. To understand its full implications, we can start by following the path of an economist who built his career upon it

919 Robert Lucas, Jr., “Rules, Discretion, and the Role of the Economic Adviser,” in Rational Expectations and Economic Policy, ed. Stanley Fischer (Chicago: University of Chicago Press, 1980), 209.

920 Klamer and Colander, Making, 129.

921 Klamer and Colander, Making, 162.

922 Daniel Bell, The Cultural Contradictions of Capitalism: Twentieth Anniversary Edition (New York: Basic Books, 1996), 254.

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“I WAS INTERESTED IN SOCIALISM, and I thought the Communist Party was a vehicle towards socialism.”923 That was the simplest version of the story Klein told the

House Un-American Activities Committee in the spring of 1954. Unsurprisingly, the

Committee wanted more.

Klein began his account a decade earlier. During his time at MIT, he underwent an intellectual awakening. “I worked very hard when I went to school as an undergraduate,” he said, which left no time for “political activities.”924 The radicalism that swept up other students in the 1930s reached Klein with a delay, hitting him only when he arrived at graduate school. He compensated for this tardiness by immersing himself in the socialist political scene, which included volunteering to teach at various adult education centers. After completing his doctorate at MIT in 1944, Klein moved to

Chicago to take up a post at the Cowles Commission, where he was recruited to build a model of the American economy. He maintained his interest in adult education, which, in

Klein’s telling, prompted an acquaintance to ask him to teach a course on Marxist economics for one of the Party’s local chapters, provided that he first become a

Communist. He agreed and, though he never taught the class, remained in the Party for almost two more years, where his service to the movement consisted mostly of attending a handful of “thoroughly uninteresting and dull” meetings.925 A skeptical interrogator could have pressed Klein on the details of his story, but the committee was satisfied with

923 House of Representatives Committee on Un-American Activities, Investigation of Communist Activities in the State of Michigan—Part I (Washington, D.C.: United States Government Printing Office, 1954), 5000. The account below also draws on Lawrence Klein, Federal Bureau of Investigation File, Department of Justice, Washington, D.C.

924 House of Representatives Committee on Un-American Activities, Investigation, 5001.

925 House of Representatives Committee on Un-American Activities, Investigation, 5000.

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his repentance. The acting chairman described him as one of the many naïve intellectuals that Communist had “made fools of.”926 Klein accepted the judgment without complaint.

He had not always been so contrite. Shortly after joining the CP in 1945, he wrote to Paul Samuelson asking for a way to get in touch with a mutual acquaintance because,

Klein explained, “I have his three volumes of Marx’s ‘Capital’, which I have been reading from time to time and would like to send them to him now.”927 He was, gently, provoking the liberal Samuelson. (Just five years older than Klein, Samuelson was by this stage of their relationship more an intellectual older brother than a parent.) A few months earlier, again while corresponding with Samuelson, he dismissed Chicago’s Henry

Simons for being concerned with the threat of a “revolution of the bondholders and not the revolution of the unemployed.”928 Though he abandoned Communism, Klein did not renounce the beliefs that led him to the movement. “I am still sticking by my point,” he told Samuelson at the close of 1948, “that planning is superior to competition.”929

Klein did not limit his defense of planning to private conversations. Though he might have been a lackadaisical Communist, he was an energetic scholar, and his published writings from this period bear the mark of his politics. That includes his most famous work, The Keynesian Revolution, the book that grew out of his doctoral dissertation and helped popularize the phrase that gave it a title. Writing in 1947, he predicted that a “catastrophic depression” would arrive sometime in the 1950s, if not

926 House of Representatives Committee on Un-American Activities, Investigation, 5001.

927 Lawrence Klein to Paul Samuelson, November 2, 1945, Box 45, “Klein, Lawrence, 1994- 2006,” Samuelson Papers.

928 Lawrence Klein to Paul Samuelson, April 9, 1945, Box 45, “Klein, Lawrence, 1994-2006,” Samuelson Papers.

929 Lawrence Klein to Paul Samuelson, December 10, 1948, Box 45, “Klein, Lawrence, 1994- 2006,” Samuelson Papers.

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earlier.930 He also contended that socialism could abolish unemployment, a fact that was obvious to him but remained a mystery to “Keynes, glorifier of bourgeois life.”931 “If we let nature take its course,” he warned, “the economic law of motion of capitalism will take us down the same road that Germany followed so recently.”932 He borrowed the phrase “economic law of motion” from Marx and the diagnosis of capitalism as fascism in embryo from Marxist writings of the interwar years.

Unlike conventional Marxists, however, Klein believed there was a chance that capitalism could be reformed. Properly implemented, Keynesian policies could shield the economy from the downturns that brought about high unemployment and led the way to fascism. But he was far from enthusiastic about Keynesianism’s prospects in the United

States. “It is inevitable,” he wrote, “that the Congressional debating techniques will be much too slow and cumbersome to provide the flexibility needed for fiscal policy in a full-employment program.”933 Only a robust economic planning agency brimming with public works programs could guard against depression, and it would still need assistance from a price-control board to curb inflation. Keynesianism was economically rational, he conceded, but that did not mean it was politically viable.

The problem, in Klein’s view, was that Keynesians had detached their economic analysis from a social theory. Or, rather, most Keynesians—including Samuelson and his mentor Alvin Hansen—had done so. Klein did, however, draw attention to another

930 Lawrence Klein, The Keynesian Revolution (New York: The Macmillan Company, 1947),169.

931 Klein, The Keynesian Revolution, 78.

932 Klein, The Keynesian Revolution, 167.

933 Klein, The Keynesian Revolution, 180.

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option, “much less known but nonetheless correct.”934 These were the Marxist

Keynesians. Klein offered this description of their view, which also happened to be his own:

The Marxists do not oppose the Keynesian program. In fact, they will be vigorous supporters of full-employment legislation. But they are not satisfied with full-employment legislation as a permanent solution. They consider it to be in the interest of the common man and therefore support it, but the only smooth-working long-run solution for them is socialism. In a socialist economy there is less of a problem in overcoming the activities of special-interest groups. In such a system there is central planning which coordinates the activities of each individual economic unit with the movement of the system as a whole.935

Here, Klein mapped his distinction between Keynesian economics and a more comprehensive Marxist social theory onto another division over policy. Keynesians attempted to maximize the production of resources within a given economic and social order; they offered no guidance as to how those resources should be allocated in a planning regime willing to upset the status quo. “We may accept the Keynesian theory as a step toward the formulation of the comprehensive doctrines for which we are now groping,” he conceded.936 He did not need to say that there was a long journey ahead.

From his perch at the Cowles Commission, it was easy for Klein to be optimistic.

The group had become an unlikely hub for a transnational assortment of mathematically oriented, politically left economists. They had lofty aspirations for the postwar era, and for their own place in it. Klein had never left the United States, but despite his provincial

934 Klein, The Keynesian Revolution, 184.

935 Klein, The Keynesian Revolution, 186.

936 Klein, The Keynesian Revolution, 186.

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background, he fit in well at his new home.“[W]e imagined that we had the well-being of the economy right in the palms of our hands,” he recalled many years later.937

Klein was cagy on the politics of this enterprise. In 1947, he published a lengthy attempt to translate what he called “Marx’s literary explanations” into “a determinate system of equations.” That same year, he also finished an article casting econometric models as purely technical devices.938 “[I]f fully developed and properly used,” he insisted, they “should lead all investigators to the same conclusions, independent of their personal whim.”939 Most promising, he noted, were new advances in the realm of economic forecasting, which, after the , had become a governmental obligation.940

Even before the Employment Act was signed into law, forecasting’s increased popularity gave Klein an early, and frustrating, experience with political engagement. He owed the opportunity to the Committee for Economic Development (CED). Launched in

1942, the CED was dedicated to domesticating Keynesianism for the American businessmen.941 The organization was well-funded, eminently respectable, quite influential, and surprisingly close to Cowles. (That was literally true: they were located near each other in Chicago. One of the CED’s founders, Theodore Yntema, had also

937 Lawrence R. Klein, “Lawrence R. Klein,” in Lives of the Laureates: Ten Nobel Economists, Second Edition, ed. William Breit and Roger Spencer (Cambridge: MIT Press, 1990), 24.

938 Lawrence Klein, “Theories of and Employment,” Journal of Political Economy 55.2 (April 1947), 120.

939 Lawrence Klein, “The Use of Econometric Models as a Guide to Economic Policy,” Econometrica 15.2 (April 1947), 111.

940 On which see Stephen Kemp Bailey, Congress Makes a Law: The Story Behind the Employment Act of 1946 (New York: Columbia University Press, 1950) and Timothy Mitchell, “Economentality: How the Future Entered Government,” Critical Inquiry 40.4 (2014), 479-507.

941 Robert Collins details the history of the CED’s formation in The Business Response to Keynes (New York: Columbia University Press, 1981).

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served as research director at Cowles for several years.) In 1945, news of Klein’s work on a macroeconometric model of the United States reached CED. Seeing practical value in this piece of academic research, they asked Klein to use his model to project the consequences of different policies in the coming postwar demobilization. Klein was wary about subjecting his fledgling model to such a demanding test—especially since, given the prevailing consensus about the likelihood of a severe downturn, the forecast it reached would likely be grim.942 But the offer was too attractive to reject, and so, reluctantly, he agreed.

Then came a surprise. “We simply could not find pessimistic projections for the postwar economy,” he later remembered.943 Defying those who prophesied a second depression, including a substantial number of Marxists, Klein’s model predicted an easy transition to peacetime. The news delighted his clients at the CED, who arranged a trip to

Washington for Klein, where he met with economists at the Federal Reserve, Department of Commerce, and the Bureau of the Budget. They greeted the news with skepticism, putting a quick end to this phase of Klein’s career as policy adviser.

At Cowles, the dismissal was not viewed as a total loss. “[T]he Washington experts,” one Cowlesmen observed to a colleague in Norway, “are very interested in adopting more sophisticated methods.”944 But the “experts” had competition from the sizable portion of the bureaucracy who questioned the reliability of policymaking through mathematics. By dismissing Klein’s forecast and arguing for the likelihood of a slump,

942 Lawrence Klein, “Econometric Contributions of the Cowles Commission, 1944-47: A Retrospective View,” Banca Nazionale del Lavoro Quarterly Review 3.3 (1991), 114.

943 Klein, “Cowles Commission,” 114.

944 Quoted in Bjerkholt, “Lawrence R. Klein,” 9.

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government economists had damaged their standing in Washington. In the future, the team at Cowles hoped, their suggestions would fall on more attentive ears.

They would do so, however, without Klein’s participation. In 1947, he started an econometrician’s wanderjahr that eventually took him across much of Europe.

Unprecedented opportunities were opening up for the small number of economists with his skills; Klein intended to take advantage of them. He left Chicago behind—and allowed his membership in the Communist Party to lapse.

CANADA WAS THE FIRST STOP ON KLEIN’S TOUR. The government had requested that he serve as a consultant to a team of economists working on the first econometric model of the nation, a job that, with Klein’s help, was completed in a few months. After that, Klein left for Oslo, where he joined a research group overseen by

Ragnar Frisch, founding father of econometrics. Though no longer a Communist, Klein remained an ardent defender of planning, giving three lectures on the subject while in

Norway and writing an article outlining “The Case for Planning.” Trips to England,

France, and followed, but most important was his time in the Netherlands, where he worked under Jan Tinbergen at the government’s Central Planning Bureau. It was a valuable experience for Klein, whose work at Cowles had been inspired by

Tinbergen’s earlier model for the League of Nations. (“What this country needs,” he was told while being recruited, “is a new Tinbergen model.”945) By the end of his tour,

Klein—a native of Omaha who, by his own admission, had not thought much about the

945 Lawrence Klein and Robert Mariano, “The ET Interview: Professor L.R. Klein,” Econometric Theory 3.3 (1987), 412.

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outside world until graduate school—had started to build a network of connections that would soon encircle the planet.

However worthwhile the journey, Klein knew it would be temporary. Europe had a strong econometric tradition, but the future was in the United States. An offer from the

NBER brought Klein back to New York at the close of 1948. The NBER was never going to be a congenial a home for Klein. By the time Klein arrived. the Bureau was in the midst of a feud with Cowles, and he always had the air of an interloper. Arthur Burns, the

NBER’s research director, explained that they had brought on an expert in models “not because any member of our group has much faith in them but because we wish to check our judgment and give this approach an opportunity to prove its merits.”946 For his part,

Klein observed that at the NBER he was “tolerated but not enthusiastically monitored.”947

Klein soon moved to the University of Michigan, then home to a department eager to make itself into a bastion for the new style of economics he represented.

Klein’s mathematical orientation marked the most obvious shift from older modes of economics, but one of his most important departures was as much conceptual as it was methodological. Though Klein dismissed the politics of Keynesianism, he was an intellectual child of its signal theoretical innovation—namely, the conviction that the economy could only be understood in its totality. “The central problem of Keynesian economics is concerned with the operation of the system as a whole,” Klein wrote, drawing a sharp distinction with earlier generations of economists “concerned with the

946 Quoted in Malcolm Rutherford, The Institutionalist Movement in American Economics, 1918- 1947: Science and Social Control (Cambridge: Cambridge University Press, 2011), 277.

947 Quoted in Rutherford, Institutionalist Movement, 277.

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behavior of individual and business firms.”948 Keynesians had created a comprehensive theory of the economy, an innovation Klein believed had no real predecessors in the history of economic thought. Even the most obvious candidate, general equilibrium theory, was based on atomistic premises. “A mathematical representation of this system,” Klein argued, would produce “an incomprehensible maze.”949 Viewing the problem with the eyes of an econometrician, Klein celebrated the useful simplicity of an approach that constructed a theory of the economy out of aggregates.

Like all revolutionaries, the Keynesians encountered resistance. “The Keynesian theory,” he noted, “has been severely attacked by some economists because it is couched in terms of aggregate concepts . . . [that] get away from the more fundamental economic concepts of the individual.”950 For Klein, however, the intensity of the opposition served as a measure of Keynesianism’s achievements.

So did a revealing adjustment to the discipline’s vocabulary. Beginning in the

1950s, “Business Cycle” courses were relabeled “Macroeconomics,” a terminological shift that reflected major intellectual changes. As one economist who lived through this transition observed in 1981, over the preceding three decades macroeconometric modeling of the variety Klein practiced had “largely eliminated” what “used to be called

‘business cycle research,’” just as “macromodel building has pretty much wiped out a

948 Klein, The Keynesian Revolution, 56.

949 Klein, The Keynesian Revolution, 57.

950 Klein, The Keynesian Revolution, 56-7.

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branch of economic theory that used to be called business cycle theory.”951 The birth of a new way of imagining collective life was evident in Klein’s own early work. A 1947 comparison of Marx and Keynes, for example, noted that while both relied on aggregations, “The macrounits of the Marxian system are not only producers and consumers but also workers and capitalists.”952 “Producers and consumers” fit into a theory of the economy, but “workers and capitalists” pushed beyond it, to a world of class conflict more familiar to discussions of society—the larger context Klein reprimanded Keynesians for neglecting. “There is an infinite difference,” he wrote, between the Marxist claim that “Constant capital plus variable capital plus surplus value is equal to the value of total output” and the Keynesian belief that “Consumption, which depends upon income, plus investment, which is an autonomous variable, is equal to the value of national income.”953 Concepts like “national income” and “total output” did not exist in isolation; they belonged to different conceptual worlds, one filled with economies, the other with societies.

Devising models of the economy forced Klein to work out the implications of this division with painful exactitude. What deserved a place in the model? What could be left out? “Eventually,” he wrote in 1950, “we may hope to develop a complete social theory which leaves in the exogenous category only such variables as weather, earthquakes, and other ‘acts of God.’”954 It was a plausible aspiration, he argued, since Marxists had

951 Robert Gordon, “Discussion,” in The Brookings Model: Perspective and Recent Developments, Gary Fromm and Lawrence Klein, eds. (Amsterdam: North Holland Publishing Company, 1975), 31-32.

952 Klein, “Effective Demand,” 118.

953 Klein, The Keynesian Revolution, 131.

954 Lawrence Klein, Economic Fluctuations in the United States, 1921-1941 (New York: John Wiley, 1950), 2.

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already created such a theory. But dialectical scope came at the cost of empirical precision, and that was a fatal weakness in an econometric model. “It is, of course, not satisfactory to separate sociology and politics from economics,” he admitted, “but our purpose in pioneering will be served best if we make assumption which simplify our model as much as possible.”955 That meant limiting variables to “economic forces in a narrow sense,” i.e. the customary Keynesian aggregates. 956

The product of all this selective exclusion was a system of twenty-two equations dubbed the Klein-Goldberger model. (Arthur Goldberger was a graduate student at

Michigan while Klein was a professor there. “I was a clerk on the model,” he said, but

Klein “was generous enough to put my name on it.”957) Despite the banal name, Klein-

Goldberger marked a pivotal moment in the history of economics. Picking up where he had left off at Cowles, Klein built what he described as “an up-to-date econometric model of the United States which others could apply to practical economic problems.”958 He cited Tinbergen as an inspiration, but the final result bore his signature, and it set a template that modelers followed for decades.

In 1953, Klein and Goldberger used their model to produce retroactive forecasts for 1951 and 1952, an exercise that had academic interest but little general appeal. More striking were their predictions for the next three years, especially their conclusion that demobilizing from the Korean War would not lead to the extreme downturn that was

955 Klein, Economic Fluctuations, 2.

956 Klein, Economic Fluctuations in the United States, 1921-1941, 2.

957 Arthur Goldberger and Nicholas Kiefer, “The ET Interview: Arthur S. Goldberger,” Econometric Theory 5 (1989), 135.

958 L.R. Klein and A.S. Goldberger, An Econometric Model of the United States, 1929-1952 (Amsterdam: North Holland Publishing Company, 1955), vii.

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widely anticipated at the time. A debate in the pages of the Manchester Guardian with the British economist , who believed a painful slump was imminent, allowed

Klein and Goldberger to go public with their opinion. When the recession failed to materialize, Klein and Goldberger claimed victory. The vindication came at an opportune moment for Klein, who had been forced out of his post at Michigan after the revelation of his onetime membership in the Communist Party and was about to take up a position in

Oxford.

Klein-Goldberger did not fare as well in 1955, when it missed an economic upturn. That was just one reason the modelers faced skepticism from many economists.

By that point, however, a modeling boom was underway that drowned out the doubters.

In January 1954, the New York Times breathlessly reported on a meeting of more than one thousand “top business executives and representatives of foreign and United States

Governments” brought together by “The method that has aroused world-wide interest called ‘model-building.’”959 A few years later, two economists using an IBM 650, the first mass-produced computer, ran the Klein-Goldberger model through a variety of simulations and concluded that it displayed a “remarkable quantitative correspondence with reality.”960 Meanwhile, econometric modeling became an increasingly popular feature of academic training in economics. For many, it proved, in the words of one Klein student, “an exhilarating experience.”961 Reflecting on his time as an undergraduate in the early 1960s, another future economist recalled being “incredibly excited” when he

959 Will Lissner, “Economists Check Upon Barometers,” New York Times, January 25, 1954, 26.

960 Irma Adelman and Frank Adelman, “The Dynamic Properties of the Klein-Goldberger Model,” Econometrica 27.4 (1959), 621.

961 Ronald Bodkin, Lawrence Klein, Kanta Marwah, “Macroeconometric Modeling of South-East Asia: The Case of India,” in A History of Macroeconometric Model-Building, eds. Ronald Bodkin, Lawrence Klein, Kanta Marwah (Brookfield: Edward Elgar, 1991), 361.

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discovered econometric models: “it meant you could control the economy,” he said, “and it was obvious that was extremely important.”962

A constellation of forces had come together to make the embrace of modeling possible. Rapid improvements in economic statistics, especially national income accounts, provided econometricians with material to work with; mathematical techniques used by Tinbergen in one generation and developed by figures like Klein in the next made the data tractable; a rising generation of economists, led by Klein’s mentor Paul

Samuelson, provided intellectual and political support, along with a larger theoretical framework for their efforts; the increased production and declining cost of computers turned formerly laborious calculations into much simpler operations; and the forecasts themselves coincided with events closely enough to lend them credibility. Institutional, technical, theoretical, and material factors, plus a good amount of luck, all pushed modeling foreword, turning it into the intellectual underpinning of the Keynesianism’s golden age. This was, to be sure, an elite trend, but that made it no less significant, especially when the elites smitten with modeling’s promise had access to hefty sums of cash.

Governments provided modelers with their most important early patrons. They received little support under Dwight Eisenhower, whose Council of Economic Advisers was chaired first by model skeptic Arthur Burns and then by Burn’s ally Raymond

Saulnier, but the Kennedy and Johnson administrations were reliable backers. Though

Klein did not serve under either, he moved in the same Keynesian milieu as Kennedy and

Johnson’s economists—a clan with Samuelson as its unofficial chieftain—and passing

962 and Stanley Fischer, “An Interview with Stanley Fischer,” in Paul Samuelson and William Barnett, Inside the Economist’s Mind (Oxford: Blackwell Publishing, 2007), 264.

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along the results of his forecast was a matter of sending a letter to a friend. The

Department of Commerce established a more formal relationship when they picked up a model of the economy Klein had put aside. Klein was also a favorite at the Treasury

Department’s “Econometric Forecasting Unit,” which requested his assistance with a project examining the impact of changes in tax policy on the economy.963

Model-building’s popularity reached far beyond the United States. Where modeling spread Klein was rarely far behind. The Canadian government continued to rely on its model, and, with his help, Israel, Mexico, and Japan soon had models of their own.

In Japan, for example, Klein co-authored the nation’s first model and helped launch an econometric journal produced jointly out of Osaka and Philadelphia. He also began consulting for the Committee on Trade and Development (UNCTAD), which was then assembling their own models of “less developed countries.”964 Through his students, Klein extended his influence even farther. About half of the graduate students in the economics department at Penn during Klein’s time there came from outside the United States, and constructing models of their native countries became a routine dissertation subject for his students. The completed models could then follow the newly minted PhDs after their graduations—back to a job working for the government at home, or to the UN, or to a private forecasting agency.

The most ambitious model-building effort, however, was taking place in the

United States. Begun in 1960 under the auspices of the Social Science Research Council,

963 G.M. Brannon, “The Problem of Investment Tax Incentives: A Survey of What We Know About Their Effects,” Box 18, “US Treasury Study 1967-69,” Lawrence Klein Papers, David M. Rubenstein Rare Book and Manuscript Library, Duke University (hereafter Klein Papers).

964 Klein, “Lawrence R. Klein,” 35,

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it later shifted to the Brookings Institution.965 (Funding was also supplied by the

Rockefeller Foundation, the Ford Foundation, and the National Science Foundation, but the final result was known as the Brookings Model.) Klein took a leading role in the project, which drew on the work of more than thirty economists, along with mathematicians, statisticians, and—a new arrival—computer scientists. The enterprise operated under a modified version of pot-luck-dinner rules: different economists were charged with producing equations that captured different parts of the economy, all of which were then stitched together to produce the final result. Combining the influences of

Tinbergen’s demand-side approach with Wassily Leontief’s input-output system, it sought to account for both total national income and the contributions of different industries. The model’s supporters hoped that it would become the definitive representation of the American economy. Weighing in at more than three-hundred equations, it was certainly the largest. But that size also made it difficult to operate and to update, which ensured that it would never live up to the hopes of its creators. Just a few years after debuting to much fanfare, the Brookings Model was quietly abandoned.

Yet the model had a more significant legacy that its speedy demise suggests. For the economists who helped create it, the Brookings Model illustrated the potential of collaborative efforts they had previously not considered possible. As a model, Brookings failed; as a template for how to build other models, it was a triumph. At the zenith of

American Keynesianism, economists were starting to glimpse new vistas on the horizon.

Governing national economies was a challenging task, but a manageable one. What would come next?

965 On this model, see James Dusenberry, Gary Fromm, Lawrence Klein, and Edwin Kuh, eds., The Brookings Quarterly Econometric Model of the United States (Chicago: Rand McNally & Company, 1965).

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Klein was ideally positioned to help answer that question. His stay in Oxford had been a short one. Frustrated by the comparative immaturity of econometrics in the UK, he had been eager to return to the United States. His opportunity came in 1958, thanks to an offer from the University of Pennsylvania. There was more than a little irony that a university housing one of the world’s leading business schools would toss a lifeline to the former Communist, but Klein had long since tempered his radicalism. “[T]hose war and post-war years were rather trying ones,” Samuelson wrote on his former student’s behalf,

“and I believe that the subsequent years have given Klein a maturity of judgment.”966

And Klein’s academic reputation was formidable enough to compensate for the potential backlash. After receiving what he later called “assurances from the university administration that I would have full ,” he returned to the United

States.967

Perhaps it was inevitable, given his surroundings, that Klein would grow more interested in the workings of business. But any potential curiosity received further stimulus from the zeal corporations displayed for econometrics—more specifically, in the opportunity they saw to make a profit. Companies were hiring economists in unprecedented numbers, and some of those companies had tasked their economists with building models of the national economy that could help them plan their budgets. A style of governing the present by calculating the future that had emerged within governments now migrated outside them. Klein watched this trend unfold from his distinctive position

966 Paul Samuelson to Charles Odegaard, February 8, 1955, Box 45, “Klein, Lawrence, 1994- 2006,” Samuelson Papers.

967 Lawrence Klein, interview by Richard Jolly, January 4, 2002, United Nations Intellectual History Project, Columbia University, New York, New York.

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at the juncture of the academy, the corporate sector, and the world of policymaking. Then he had an idea.

WHARTON ECONOMETRIC FORECASTING ASSOCIATES may have been the first company founded in order to support graduate students. Klein’s ambitions were growing, but so were the costs of his research. Building econometric models was a labor-intensive process, and much of that labor was carried out by graduate students. The network of foundations that bankrolled projects like the Brookings Model could not be trusted to exhibit such generosity indefinitely. In 1963, while Klein wrestled with this dilemma, an economist from General Electric requested that he help them build a proprietary model of the American economy; soon after, a former student who had become an economist at

Standard Oil of New Jersey presented him with the same proposal; and then, after that, an economist from IBM asked if he would advise the company on how to improve its already existing model.

Klein saw that these were all variations of the same problem. Why not consolidate these efforts and put them under the supervision of academics trained to navigate the terrain these companies were hurrying to enter? Grants from the Rockefeller Foundation and the National Science Foundation had recently allowed Wharton to fund a research institute that included an “Econometric Forecasting Unit” (EFU) and could provide the necessary manpower. Klein made his pitch to a handful of business economists, and he soon had five clients on his roster: GE, IBM, Standard Oil of New Jersey—the three who had given him the idea—along with the John Deere Company and Bethlehem Steel. For just five thousand dollars a year, a team of researchers at Wharton would provide these

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firms with quarterly forecasts of the economy. Profits would be used to fund graduate students, and, with that, Klein’s problem was solved.968

But the forecasters had not anticipated the demand their project would unleash.

As word spread among corporations, their client list grew. Then news of the venture reached Business Week, which offered to publish some of their findings. Klein agreed, and interest exploded. Six years after their quiet start, the EFU had more than sixty customers, including AT&T, Dow Chemical, Boeing, Chrysler Motors, Aetna, Bank of

America, and Goldman Sachs.969 Meetings that had once consisted of fewer than ten people ballooned to more than fifty. The requirements of running what had become a sizable business—mailing letters, making phone calls, managing a budget—strained the capacities of academics who had expected a smalltime affair. So they decided to incorporate, and in 1969 Wharton Econometric Forecasting Associates was born.

The WEFA was a nonprofit firm, but it was a creature of corporations from the start. Each quarter, following the release of the latest figures on the Gross National

Product, staffers met with economists sent by their customers to discuss the results arrived at by the company’s two models (one short term, the other long). By 1975, more than 150 subscribers—including companies in Mexico, Canada, Europe, and Japan, along with public agencies and international organizations—consulted the WEFA’s models.970

Findings tailored to specific industries—oil, steel, lumber, and many more— complemented their more general conclusions. Meanwhile, the wheels of their funding

968 Lawrence Klein, “A Biographical Note on Wharton-EFU; EFA, Inc.,” Box 18, “Wharton EFA, 1970,” and Lawrence Klein, “Background Notes: The History and Structure of Wharton Econometric Forecasting Associates, Inc. (WEFA),” 1975, “1975, M,” Klein papers.

969 “Full Members,” 1969, Box 19, “Econometric Unit Membership List,” Klein Papers.

970 Klein, “Background Notes,” 1975.

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machine continued to turn: money poured into academic research, which was then used to revise the WEFA’s models, which then allowed them to advertise their latest innovations to clients, which generated new funds for research, which started the cycle over again.

With business thriving, discussion at the WEFA turned to when, not if, they would become a for-profit corporation. And the econometricians owed all of this to models that were unapologetically Keynesian.

Economic forecasting was not a new industry. It had flourished in the 1920s, before a collective failure to predict the Great Depression popped the bubble.971

Mounting esteem for economists in the aftermath of World War II revived the industry.

(In 1953, a young Alan Greenspan started his own firm while studying for a doctorate in economics at Columbia.972) But econometricians introduced something new. For corporate leaders with an academic bent, the scientific promise of modeling turned a guessing game into a legitimate endeavor. When combined with an impressive track record of predictions in the 1960s, this credibility wiped away whatever stains had continued to blot forecasting’s reputation.

The WEFA’s successes were startling enough to lure other contenders into the ring. By the 1970s, the firm had two main competitors. Following a stint in Lyndon

Johnson’s CEA, the Harvard economist Otto Eckstein founded Data Resources

International. To Eckstein, the shift in careers was an easy choice. “At the moment, any sizable corporation that isn’t doing this sort of forecasting is apologetic about it,” he

971 Walter Friedman, Fortune Tellers: The Story of America’s First Economic Forecasters (Princeton: Princeton University Press, 2014).

972 Alan Greenspan, Age of Turbulence: Adventures in a New World (New York: Penguin, 2008), 45.

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crowed in 1972.973 Chase Econometrics followed soon after, growing from under ten clients in 1971 to more than a hundred one year later.974 Neither firm shared the WEFA’s academic ambitions, and both were more aggressive in their pursuit of profit. The prospect of higher rates of return was the entire point of Chase’s existence—the company was headed by Michael Evans, formerly of the University of Pennsylvania, where he had helped Klein launch the WEFA. The money was certainly better: Evans charged up to

$20,000 a year for his services. Rewards like that were substantial enough to draw competitors, like General Electric, which described its “Mapcast” model as a more accessible alternative to the big three.

Through recession and expansion, the econometricians thrived. At the end of

1977, an article in the Wall Street Journal observed that “hunger for glimpses of the year ahead has grown positively insatiable.”975 Forecasts now came at a monthly clip, not quarterly, and clients were pushing for weekly updates. By 1979, not even that was fast enough. “Within 24 hours of a national or local event, our customers are using our model to study the consequences," Klein reported with pride.976

Competitive pressure had increased, but so had profits. In 1976, Eckstein reported, annual revenue at DRI had risen by 40%, to $24 million.977 Two years later, that

973 Lindley Clark, Jr., “Figuring the Future,” Wall Street Journal, August 23, 1972, 1.

974 Clark, Jr., “Figuring the Future,” A10.

975 Alfred Malabre, Jr., “The 78 Scene: Analysts Find Ways To Improve Forecasts Of Economy’s Course,” Wall Street Journal, December 30, 1977, 1.

976 Harry Anderson, Phyllis Malmaud, Connie Leslie, “The Bonanza in Econometrics,” Newsweek, July 30, 1979, 60.

977 Malabre, Jr., “78 Scene,” 15.

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number had climbed to over $30 million, which supported a staff of 600.978 In 1979, the company’s fundamentals looked strong enough to justify the behemoth publisher

McGraw Hill acquiring it for $103 million (about $340 million in 2015 dollars). Not everything worked—an “Econometric Gaming Kit” released by Macmillan never found its audience—but that failure was a lonely exception to the rule.979

In a competitive market, the WEFA occupied a distinct, and lucrative, position. Its grounding in the academy made the firm into the thinking CEO’s forecasters. Klein’s brainchild mixed scholarly research with business savvy more effectively than any of its rivals. “What we do is half magic, half science,” one executive admitted.980 It was an attractive pairing. By 1973, the company had more than 100 clients; by 1977, over 200.

What was most striking about the forecasting boom was that it occurred despite the modelers’ repeated failures. The vaunted Brookings Model had stumbled out of the gate. It predicted a downturn in 1968, a year when growth continued and inflation climbed upward. Almost every forecaster missed the 1974 recession, at the time the deepest slump since the Great Depression.981 The recession they had not foreseen turned out to be good for business. In the words of a headhunter who placed economists in corporate jobs—a career path that could not have existed a short time earlier—“this is the first recession we’ve seen when the demand for economists has been countercyclical.”982

DRI’s Eckstein had an explanation for the trend. “The essential problem of the time is

978 Anderson, Malmaud, Leslie, “Bonanza,” 60.

979 Lawrence Klein to Harry Cloudman, September 26, 1972, Box 16, “Macmillan,” Klein Papers.

980 Lindley Clark, Jr., “Model-Building Game,” Wall Street Journal, August 2, 1977, 42.

981 Clark, “Figuring the Future,” 10.

982 Lindley Clark, Jr., “Profitable Prophecy,” Wall Street Journal, August 21, 1974, 17.

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economic,” he said in 1979, “and you really cannot cope with today's economic problems using the traditional methods of theoretical analysis.”983 The remark echoed, probably unknowingly, Daniel Bell’s observation of few years earlier. What for Bell was a question of social theory was for Eckstein a chance to earn a profit. (And quite a sizable one: Eckstein made $20 million from DRI’s sale.) For Klein, it was an academic opportunity. In 1976, he drafted a proposal for a Wharton course on “Econometrics for use in corporate planning.”984

Corporate leaders were not the only figures seeking guidance on the economic future. National governments had provided econometricians with their first supporters, and they remained staunch backers in the 1970s. The WEFA counted numerous public agencies as subscribers to its model and conducted special investigations for organizations like the Department of Defense and the Department of Labor.985 By the

1970s, enthusiasm for modeling had spread to states and localities. Private econometricians followed, adding state and regional forecasts to their list of services.

Chase modeled each of the fifty states, while the WEFA created more elaborate versions for Pennsylvania and helped make Philadelphia one of the first three cities with model of its own. (Detroit and Wilkes-Barre, Pennsylvania, were the other early adopters.)

The entry of private firms into local forecasting set up conflicts with state governments, which had begun issuing their own econometric projections, turning municipal governance into a contest over economic futures. In 1981, for example, the

983 Anderson, Malmaud, Leslie, “Bonanza,” 60.

984 Lawrence Klein, “Applied Econometrics,” March 1976, Box 20, “WEFA–Miscellaneous Correspondence,” Klein Papers.

985 Klein, “Background Notes.”

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Republican chairman of the New York State Senate’s Finance Committee enlisted the

WEFA’s help in a parochial skirmish with the state’s Democratic governor. As the New

York Times explained, in battles over state finances, “the Governor, citing the authority of a computer model of the state economy developed by his budget office, generally carries the day.”986 But independent projections from the WEFA would allow Republicans to

“even up the debate.”987 That announcement came shortly after the WEFA unveiled a model of New York City three years in the making. Consisting of about 1,500 equations, it offered grim tidings: in the year ahead, the WEFA predicted, New York would lose just under 100,000 jobs. In fact, the city added about 36,000, but the company’s credibility was sturdy enough to weather another missed call.988

Then there was the world outside the United States. Klein had been casting his eyes abroad since the 1960s, when DuPont asked him to create econometric models of

Argentina, Mexico, and Brazil.989 He agreed, on the condition that his team at Wharton would be able to use the models for continued research. Out of this arrangement came

Wharton’s Departamento de Investigaciones Econometricos de México. “From a base of a few private-sector supporters in Monterrey and Mexico City,” Klein bragged in 1990,

“this has evolved into a self-sustaining system with some 150 supporters—U.S.

986 Albin Krebs and Robert Thomas “Notes on People: In This Corner, the Governor’s Computer,” New York Times, January 15, 1981, B8.

987 Krebs and Thomas, “Notes on People.”

988 “Assembling of Forecast A Most Elaborate Task,” New York Times, January 21, 1980, 23; Sam Robert, “Metro Matters: New York City on the Rocks? Don’t Bet on It,” New York Times, September 24, 1990, available at http://www.nytimes.com/1990/09/24/nyregion/metro-matters-new-york-city-on-the- rocks-don-t-bet-on-it.html.

989 Lawrence Klein, “Econometric Models of Development: A Proposal for Studies of Mexico, Argentina and India,” Box 15, “Du Pont,” Klein Papers.

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companies, Mexican government agencies, international organizations, and others.”990

The diversity of Klein’s graduate students—i.e. his pool of potential researchers— encouraged this broadening of geographical horizons. Close relationships with UNCTAD and the IMF opened the WEFA to an international audience. So did more formal arrangements: Japan’s central bank, for example, sent economists to the company on a semiannual basis to receive training in the WEFA’s methods.991

One challenge proved a special source of fascination for the company. Socialist countries had been swept up by the same wave of interest with econometrics that dragged along businesses in the United States. A 1970 conference of econometricians in Russia marked the onset of a serious effort to build a relationship between model-builders on both sides of the iron curtain.992 Klein travelled to the USSR, struck up a correspondence with the eminent Soviet economist , and met with officials in

Budapest to review the details of Hungarian planning. Funding from the United States government allowed the WEFA to build a model of the USSR’s economy.993 A

“Centrally Planned Economies Project” followed, buoyed by the participation of economists from Hungary, Poland, and Czechoslovakia, and by Klein’s own travels in the region, where he helped foster nascent model-building projects.994 The theoretical challenge of applying Keynesian methods to socialist countries allowed him to explore

990 Klein, “Lawrence R. Klein,” 34.

991 Klein, “Background Notes.”

992 Lawrence Klein to Gerhart Bruckman, March 24, 1970, Box 18, “Wharton EFA, 1970”; Lawrence Klein, “A Proposal for East-West Econometric Conference,” Box 20, Folder 4, Klein Papers.

993 Klein and Mariano, “ET Interview,” 435.

994 “WEFA Centrally Planned Economies Project,” Box 20, “WEFA–Miscellaneous Correspondence–March 1976,” Klein Papers.

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terrain he had surveyed from a more abstract perspective in The Keynesian Revolution.

He might also have taken emotional satisfaction in revisiting questions that had preoccupied him thirty years earlier, minus the existential drama of the early Cold War.

From a modest beginning, the WEFA had grown into a multi-million dollar enterprise with a global clientele. Along the way, it helped invent a booming industry.

But the company’s success encouraged Klein to reach for an even loftier goal. National models were proliferating, and so were models pitched to industries, states, and cities.

Yet one target remained, the grandest that Klein could imagine: the world economy.

TO ITS ARCHITECTS, THE FIRST MODEL of the world economy seemed a logical extension of the attempt to depict a national economy. Like the WEFA, the impetus for developing a global model came, in part, from the Brookings Model. Klein was the motivating force behind the project, and initial support for the idea came from the same

SSRC committee behind the Brookings Model. As Klein explained it, their goal was to accomplish “internationally what we had done in the Brookings model project on a sector basis.”995 Breaking down the world economy into discrete components and then connecting them back together would allow economists, finally, to trace the relationship between national and global, just as national models provided necessary context for understanding economic fluctuations in states and cities. National and global were complementary frames, not clashing alternatives.

Project LINK was the name of the endeavor. It started in the 1960s with the humbler goal of tracking the consequences of shifts in the dollar’s exchange rate at a time when a postwar dollar shortage was giving way to a global dollar surplus. A team of

995 Klein and Mariano, “ET Interview,” 435.

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econometricians from the United States, Europe, and Japan soon came together with the goal of devising a joint model of their economies to examine the consequences of swinging exchange rates. They would rely on the same principles that guided the

Brookings project, using teams of researchers separated by vast distances and divided according to specialty. After realizing the IMF would be more likely to fund a project with larger ambitions, they extended the scope of their proposal to include developing countries; then conversations at the UN encouraged them to add socialist countries.

Suddenly, a model once limited to the world’s richest nations had taken on a global cast.996

In recognition of Klein’s leadership, the University of Pennsylvania became the headquarters for the early stages of Project LINK. But the program never could have advanced beyond infancy without support from a global network. Funding for research centers also went to Stanford, the University of Toronto, the Free University of Brussels,

Bonn University in , Kyoto University, and the London Graduate School of Business Studies. Additional support came from, among other organizations, the IMF,

UNCTAD, the Bank of Canada, and the Bank of Japan.997 LINK was meant, in part, to turn this scattered band of researchers into an international community.

LINK’s directors also hoped to inspire programs in countries that had not yet developed models of their own. A favorite example was , where economists at the

University of Bologna created a model after receiving a boost from LINK. In countries without obvious institutional backers, they scrambled to find other candidates. Just a few weeks after Project LINK’s first meeting, in September 1969, Klein wrote to an

996 Klein, “Lawrence R. Klein,” 37; Klein and Mariano, “ET Interview,” 435-6.

997 Lawrence Klein, “Project LINK year end report,” Box 20, Folder 5, Klein Papers.

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economist in France pleading that they were “desperately in need of French participation” and promising financial assistance.998 The site of their first meeting illustrated the global character of the enterprise: the town of Hakone, located in the mountains west of

Tokyo.999

Despite that cosmopolitan gesture, LINK’s “Coordinating Center” remained in

Philadelphia, where it was run out of the University’s Econometric Forecasting Unit, which doubled as the WEFA’s academic counterpart. The academic program matured at a healthy pace, and in 1970 a report maintained that “the project has become fully operative as a living system.”1000 By 1972, it had grown to include twelve national models, with the whole system totaling almost 1200 equations.1001 That same year, however, Klein grumbled to the head of LINK’s European division about “a real budget squeeze” that was holding back research outside the United States.1002 Other practical difficulties slowed their advance. Economists relying on different programs left the system’s computer “nearly exhausted.”1003 Conveying significant amounts of information across the world presented its own obstacles. Regional groups met regularly, and the entire team came together at least once a year, but communicating between these sessions

998 Lawrence Klein to , September 26, 1969, Box 20, “Link France,” Klein Papers.

999 Klein, “Project LINK year end report,” Klein Papers.

1000 “Project LINK Application for NSF Renewal,” Box 20, Folder 3, Klein Papers.

1001 Lawrence Klein, “A Decade of Research for Project LINK,” June 1979, Box 30, “A Decade of Research for Project LINK,” Klein Papers.

1002 Lawrence Klein to R.J. Ball, June 15, 1972, Box 21, Folder 11, Klein Papers.

1003 Alain Van Peeterssen, “Toward linkage of econometric models: some results of the ‘LINK’ Project,” September 1970, Box 20, Folder 3, Klein Papers.

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proved difficult. As Klein later admitted, their first solution—“big boxes of cards”—was also “very clumsy.”1004

For LINK’s proponents, the intellectual payoff more than justified the toil. At their most grandiose, they believed LINK could change the economist’s geographical imaginary. “Not only are we able to prepare a whole set of world forecasts,” Klein declared, “we can also think about the world as a whole in macro magnitudes such as world GDP, world trade volume, world inflation, world unemployment, world capital formation, etc.” “This,” he concluded, “provides the economist with a global view.”1005

But this “global view” was seen through a Keynesian lens. For all of LINK’s innovations, it was a clear descendant of the Brookings Model and, before that, Klein-Goldberger. It was a system built out of the usual Keynesian aggregates, with national income accounting as its ultimate point of reference. Klein recognized the potential dangers of his venture. “There is a basic question,” he observed, “whether conditions exist that make the

Keynesian analysis pertinent to the developing countries.”1006 But after noting those anxieties, he moved ahead with the effort anyway.

More damaging than concerns about the portability of Keynesianism were the difficulties of predicting the behavior of a global economy undergoing a wrenching transformation. LINK was born in the era of Bretton Woods, a system that collapsed almost as soon as the model began operation. That inaugurated a decade where LINK’s economists scrambled to keep a moving target in their sights. Continued efforts to forge a

1004 Klein and Mariano, “ET Interview,” 439.

1005 L.R. Klein, “Carrying Forward the Tinbergen Initiative in Macroeconometrics,” Review of Social Economy 46.3 (December 1988), 239.

1006 Jere Behrman and L.R. Klein, “Econometric Growth Models for the Developing Economy,” Box 15, “DuPont,” Klein Papers.

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post-Bretton-Woods international economic order, a recession that spread across much of the world, and repeated shocks to oil prices were just some of the surprises that kept forecasters revising their models. Catching his breath amid the confusion, Klein remarked in 1975 that work on LINK was now “largely a question of the models catching up with unfolding reality.”1007 The difficulty of that project was reflected in LINK’s failure to anticipate the conjunction of sagging growth and rising inflation rates that baffled policymakers and bedeviled Keynesians.

Despite all these setbacks, LINK’s institutional advance continued. Reflecting on a decade’s progress, Klein announced in 1979 that “the LINK system has expanded in virtually every dimension,” resulting in a model of more than 5000 equations that was

“global in scope and virtually complete in geographic coverage.”1008 The number of robust national models had increased, and so had the more ad hoc efforts needed to fill in the gaps for other countries. Greater scope imposed more financial demands, but anxieties on that front had receded. More than twenty funders—ranging from the

Bundesbank to the State Department, along with early supporters like the UN— bankrolled the operation. Some of LINK’s financial backers, including the IMF and the

Federal Reserve, had also begun developing global models of their own. LINK’s operators, meanwhile, allowed the WEFA to market some of their work for commercial purposes. That transaction was facilitated by Klein, who remained the project’s chief organizer.

1007 Keith Johnson and Lawrence Klein, “Error Analysis of the LINK Model,” October 1975, Box 31, “Error Analysis of the LINK Model,” Klein Papers.

1008 “Decade of Research,” June 1979, Klein Papers.

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Confidence in the powers of Keynesian analysis had diminished, but no viable alternative to the models that had become an indispensable component of policymaking had yet emerged. That institutional foothold allowed Keynesians to undertake a major effort at intellectual renovation. In histories of this period, it can often seem as if

Keynesians ran aground by refusing to adapt to changing circumstances while their rivals—whether monetarists, rational expectations theorists, or supply-siders—charged ahead. But Keynesians did not merely stare with incomprehension as events unfolded.

Klein’s attempt to convert a theory designed for national economies into a tool for making sense of global economic interdependence became an important part of a larger effort to adapt Keynesianism for a new world. And his work was far from over.

THE DURABILITY OF LARGE-SCALE MODELS WAS all the more surprising given the extent of the criticism they received. Having catch them by surprise cast doubt on econometricians in the general public. But the more serious intellectual challenge came from within the academy. While monetarism gained ground with policymakers in the 1970s, among economists rational expectations theory presented the more serious alternative to Keynesianism. But rational expectations did not begin by targeting Keynesianism as a whole. It arose, instead, out of an attack on one specific feature of that larger edifice. As Robert Lucas and his frequent collaborator Thomas

Sargent explained it, despite the baroque mathematics required to support their argument, their central thesis was simple: “modern macroeconomic models are of no value in guiding policy.”1009

1009 Robert Lucas, Jr. and Thomas Sargent, “After Keynesian Macroeconomics,” Federal Reserve Bank of Minneapolis Quarterly Review 3.2 (Spring 1979), 2.

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Modeling had been a fundamental part of economics for Lucas and Sargent from their time as graduate students. As Lucas put it, Samuelson’s Foundations of Economic

Analysis “was just a bible for my generation of economists.”1010 At the start of his career,

Lucas considered himself a Keynesian, and for him that entailed both methodological and political commitments. “[W]hen I think of Keynesian economics or at least the

Keynesian economics I signed on for,” he recalled, “it was part of this econometric model-building tradition.”1011 He did not care for Keynes’s General Theory, which he considered a morass of inconsistent verbiage; but he did like The Keynesian Revolution, which he read in his first graduate course on macroeconomics (“a pretty nice little book,” he later commented).1012 Econometrics had transformed Keynes’s “disconnected, qualitative ‘talk’ about economic activity” into a coherent theory grounded upon statistical relationships that could direct economic policy.1013 When Lucas turned against that tradition, it was because he believed that a better alternative had arrived, not because he renounced modeling as such.

Rational expectations theorists issued fervent denunciations of Keynesian theory, but they adopted a more cautious stance when describing their own efforts. “I don’t see economics as pushing that deeply in some respects,” he claimed. “We’re programming

1010 Snowdon, Vane, and Lucas, “Lucas,” 146.

1011 Robert Lucas, Jr., “Keynote Address to the 2003 HOPE Conference: My Keynesian Education,” History of Political Economy 36.1 (2004), 22.

1012 Lucas, “Keynote,” 15.

1013 Lucas and Sargent, “After Keynesian Macroeconomics,” 50.

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robot imitations of people, and there are real limits on what you can get out of that.”1014

Professions of humility had a political edge that could fit with conservative denigrations of liberal hubris. Unlike their Keynesian antagonists, however, proponents of rational expectations expressed an ambivalent relationship with the political implications of their work. Macroeconomists took a wrong turn, Lucas argued, when they started asking themselves “What would I do if I were on the Council [of Economic Advisers]?”1015

Sargent seconded Lucas’s dismissal of any partisan motivation, claiming that the bulk of rational expectations theorists were “liberal Democrats.”1016 Returning to the founding claim of the movement, he insisted, “These are technical issues about staring at models.”1017

Though reluctant to tarnish the scientific status of his economics by yoking it to political debates, Lucas proved an insightful analyst of the political shifts that made the rise of rational expectations possible. Writing in 1980, he summarized the state of economic theory with two words: “total chaos.”1018 For more than thirty years, Keynesian economics had provided a “middle ground” between “socialism” and “laissez faire.”1019

Lucas acknowledged that Keynesianism had its critics on the right, but he was just as attentive to the restraints it imposed on the left: “how bad off could we be,” he asked, “in

1014 Arjo Klamer and Robert Lucas, “Robert E. Lucas, Jr.,” in Conversations with Economists: New Classical Economists and Their Opponents Speak Out on the Current Controversy in Macroeconomics, Arjo Klamer, (Totowa, N.J.: Rowman and Allenheld, 1983), 49.

1015 Klamer and Lucas, “Lucas,” 52.

1016 Arjo Klamer and Thomas Sargent, “Thomas J. Sargent,” in Conversations with Economists: New Classical Economists and Their Opponents Speak Out on the Current Controversy in Macroeconomics, Arjo Klamer, (Totowa, N.J.: Rowman and Allenheld, 1983), 80.

1017 Klamer and Sargent, “Sargent,” 80.

1018 Lucas, “The Death of Keynesian Economics,” 502.

1019 Lucas, “The Death of Keynesian Economics,” 502.

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a country where Paul Samuelson is viewed as a leftist?”1020 What followed the breakdown of this compromise was not a period of liberal retreat and conservative advance; instead, debate had exploded, and in the resulting turmoil economists were being pulled in every direction at once.

The cacophony made for exciting times in economic theory, but, Lucas warned, it had more troubling implications for economic practice. “The collapse of the center means the end of consensus economics,” he wrote, predicting that debate would revert to the pre-Keynesian contest between “laissez faire” and “socialist/fascist detailed interventions.” He cited legislation put forward by congressional Republicans Jack Kemp and William Roth that would have instituted massive tax cuts as evidence for a resurgent laissez faire. As for the “socialist/fascist” position, Lucas found confirmation of his thesis in the career of the Humphrey-Hawkins Act.

Humphrey-Hawkins was the disappointing outcome of a campaign that had begun with grand ambitions.1021 Part of a broader revival of enthusiasm for planning, its congressional history commenced with a bill cosponsored in 1975 by Hubert Humphrey, the Democratic Party’s nominee for president seven years earlier, and the long-serving

Republican Senator . The starting point for the legislation, as an aide to

Humphrey explained, was the conviction that “Macroeconomics has not borne the fruits we expected.”1022 Resurrecting an expansive vision of planning meant repudiating the belief that fiscal and monetary policy alone provided sufficient tools to manage an

1020 Lucas, “The Death of Keynesian Economics,” 502.

1021 On the career of Humphrey-Javits and Humphrey-Hawkins see Judith Stein, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies (New Haven: Yale University Press, 2011), 120-122, 190-192 and Jefferson Cowie, Stayin’ Alive: The 1970s and the Last Days of the Working Class (New York: The New Press, 2010), 261-312.

1022 Quoted in Stein, Pivotal Decade, 119.

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economy. The movement behind this program was broad enough to make for unlikely partnerships. A conference on “Economic Planning in a Free Society” included Paul

Sweezy, as devoted to Marxism as he had been when Klein lionized him in The

Keynesian Revolution; but it also had the chief economist at General Motors and Leon

Keyserling, architect of growth liberalism under Harry Truman.1023

Opposition from Gerald Ford stymied the bill, but it was revived in modified form during Jimmy Carter’s administration, when it was also rebranded Humphrey-Hawkins.

Yet the version that ultimately passed was a feeble thing when compared to the original.

Though it dedicated the government to ensuring unemployment and inflation rates no greater than 4 percent, it lacked enforcement mechanisms to give those obligations teeth.

Klein was skeptical about Humphrey-Hawkins, which he regarded as “naïve,” but he aligned himself with those who wanted, in his words, to move “beyond Keynesian macroeconomics.”1024 “We are searching,” he said, “for a theory of economic policy that is appropriate for the 1970’s and 80’s in much the same way that Keynesian economics was a product of the times in the 1920’s and 30’s.”1025 Unlike the early Keynesians, however, Klein did not think an intellectual revolution would be needed to respond to the challenges of the moment. He called for supplements to the existing framework—

“natural extensions of its original base”—not a total break from the past.1026

1023 Stein, Pivotal Decade, 121.

1024 “Interview with Lawrence Klein, University of Penn, early adviser to President Carter. Interviewer: Carl Biven, School of Economics, Georgia Institute of Technology. Washington, D.C., June 26, 1991,” Box 28, “1992, B,” Klein Papers; Lawrence Klein, “Evolution of Keynesian Economics,” undated, Box 30, “Evolution of Keynesian Economics,” Klein Papers.

1025 Lawrence Klein, “Mr. Klein’s Model Economy,” New York Times, October 19, 1980, F19.

1026 Klein, “Evolution of Keynesian Economics.”

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Characteristically, he believed that solving the crisis of Keynesianism would begin with better econometric models. He admitted that even the best of the mainstream models had profound limitations, but he was convinced they remained the best available guides to policy. Replacing them with systems built upon the assumption of perfectly rational actors would mean swapping models that tried to capture the messy realities of economic life with a fantasy that placed the consistency of its mathematics above loyalty to empirics. Dismissing rational expectations as “a contrived argument to show that macroeconomic policy is futile,” Klein urged the creation of elaborate models that would cover everything from the price of food to population demographics.1027 He gave special attention to one subject. “Energy in a very convenient inexpensive form,” he wrote, “was accepted as a fact of life during the development of the Keynesian Revolution.”1028 That premise could no longer be taken for granted, and it offered one of the most pressing justifications for overhauling Keynesianism.

Klein gave his version of this reformed Keynesianism a surprising name: supply- side economics. According to Klein, structural problems—above all, waning productivity growth—had arisen that macroeconomic adjustments alone could not address. These were problems of supply, not demand. Starting with the Brookings Model, econometricians had tried to extend the challenge of modeling by adding input-output tables to their systems. In Klein’s words, this approached fused the traditions of Leontief and Keynes. But this was just one aspect of a program dedicated to

1027 Lawrence Klein, Econometric Models as Guides for Decision-Making (New York: Free Press, 1981), 38.

1028 Klein, “Evolution of Keynesian Economics.”

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achieving what he called “the empirical implementation of the Walrasian system.”1029 His summary of the genealogy behind this ambition doubled as a Whiggish outline of the history of macroeconomics as seen by Klein.

Essentially Tinbergen implemented the Keynesian system and Leontief implemented a part of the Walrasian system. By putting the two together, with due allowance to Kuznets for making the data bases of final demand and national income available, a complete synthesis of supply and demand in the economy as a whole can be put together.1030

Tinbergen, Keynes, Leontief, Walras, and Kuznets: Klein had assembled an eclectic canon, but in his eyes their work fit together into a coherent whole. Now their successors were tasked with converting that theoretical project into models revealing the interplay of and aggregate supply.

Yoking this intellectual agenda to a practical diagnosis of the ills afflicting the

American economy of the 1970s, he called his program supply-side economics because it extended the repertoire of available policies beyond Keynesian demand management.

Klein lumped a daunting range of problems under the category of supply: “development of new, greater energy supplies, protection of the environment, controlling the exhaustion of resources, enhancing agricultural supplies, balancing population development, and others of like nature.”1031 All of these issues, he elsewhere noted, “deal[t] with situations of particular groups, particular processes, particular markets” that fell outside the grasp of fiscal and monetary policies targeted at the manipulation of economic aggregates.1032

1029 Lawrence Klein, “The Supply Side,” American Economic Review 68.1 (March 1978), 4.

1030 Klein, “The Supply Side,” 4.

1031 Lawrence Klein, “Keynes and Leontief: Merging the Models,” Challenges 21.1 (March/April 1978), 6.

1032 Klein, “Evolution of Keynesian Economics.”

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What the times demanded, Klein believed, was a new style of economics capable of managing the economy as a whole when macroeconomics—the system of thought that had emerged for precisely that purpose—could no longer accomplish the task by itself.

The latest trend, of course, had more than a casual resemblance to earlier vogues. When asked by a professional journal whether his brand of supply-side economics was just another name for “national economic planning,” Klein replied, “you and I know what it means. But if we use any explosive language then we won’t get anywhere.”1033 He had learned to play a more cautious game.

For Klein, all this was an intellectual challenge; for policymakers, it was a political imperative. Commentators from every perspective treated the need for intelligent management of the economy as a fundamental element of effective governance. Writing in 1974, the Marxist social theorist Claus Offe portrayed this obligation as a responsibility that states had brought upon themselves. Encouraged by the assurances of their economic advisers, politicians had claimed that the state could keep inflation restrained and employment high.1034 After taking the credit for accomplishing those goals during boom times, they could not shirk blame during slumps. Examining the question from a very different perspective a few years later, Robert Lucas arrived at a similar conclusion. According to Lucas, the roots of the contemporary dilemma reached back to the Great Depression. A half century after its onset, the Depression remained “the central political fact governing discussions of economic policy,” and, as a consequence, “the

1033 Klein, “Keynes and Leontief,” 65.

1034 Claus Offe, “Structural Problems of the ,” in German Political Studies, Vol. 1, ed. K. von Beyme (London: Sage, 1974), 31-54. Gretta Krippner extends Offe’s argument in Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge: Harvard University Press, 2011).

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view that the economy needs to be managed on a year in, year out basis is almost universal.”1035

Klein did not articulate the problem with the same clarity, but he did not have to.

He had already devoted his career to mastering the politics of the economy. That expertise might have blinded him to a history more distant observers like Offe and Lucas could see, but it came with advantages of its own. Klein had helped turn his commitment to modeling into part of what it meant to govern an economy, and, through the WEFA, he had also made it a not insignificant part of that economy. His greatest opportunity to use his theories to shape practice, though, arrived in 1975, when he met a long-shot candidate for president named Jimmy Carter.

“WHO IS JIMMY CARTER?”1036 That, Klein remembered, was his reaction upon being asked by the dean of the Wharton School if he would advise the Georgia governor on economic policy. Given Carter’s obscurity outside his home state, Klein’s initial uncertainty was understandable. Meeting Carter dispelled this confusion, and Klein signed on as his economic adviser.

For a second-tier Democratic presidential candidate like Carter, Klein had an attractive combination of characteristics. He was respected by other economists, both in the academy and outside it. By 1975, he had even become something of a public figure.

Klein did not seek the limelight, but his role at the WEFA had turned him into a valuable source for reporters who needed an expert to quote on the state of the economy. That reputation led PBS to choose him as one of their chief commentators in a three-hour

1035 Lucas, “Death of Keynesian Economics,” 501.

1036 Klein interview, United Nations Intellectual History Project.

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special it aired that January to complement Gerald Ford’s State of the Union Address. As the New York Times observed, the report, which preempted regularly scheduled programming like “Feelin’ Good” and “Theater in America,” called upon Klein to

“predict by means of a computer the effect on the economy of President Ford’s proposed new policies.”1037

Despite his increased public standing, Klein was still not quite a member of the elite circle of policy-minded economists. He had consulted governments, including the

Ford administration, and participated in a committee of economists supporting Eugene

McCarthy in 1968, but he had not served in a major office like the Council of Economic

Advisers. From Carter’s perspective, that made Klein an even better choice. If Klein had been too celebrated, he would have been out of the campaign’s reach.

That Carter needed an economic adviser was never in doubt. “The economy is the issue of 1976,” a key member of the Democratic National Committee noted early in the campaign season, expressing the of the time.1038 What issues covered by the broad ambit of “the economy” would bubble to the surface remained unclear: “big government, high unemployment, inflation, New York City’s financial collapse, deficit spending and tax reform are all possibilities,” the New York Times observed.1039 Economists had a privileged ability to advise on these subjects, which made them an indispensable element of a modern campaign. “[N]o Presidential candidate,” the

1037 Les Brown, “3-Hour Special on the Economy Tonight,” New York Times, January 15, 1975, 55.

1038 Soma Golden, “Candidates in Search of Economic Wisdom,” New York Times, December 28, 1975, 109.

1039 Golden, “Candidates,” 109.

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paper of record concluded, “would brave the race in the post-Keynesian 1970’s without one or more economic advisers.”1040

The logic at work here paralleled the explanations for the continued rise of econometric consulting in the same period. The faith that had lifted economists to positions of influence during the postwar boom, the faith that economists had mastered the workings of the economy—that was gone. But government agencies and major corporations had come to depend on the knowledge economists had claimed they could provide. Lacking any suitable replacements, their managers felt compelled to seek out the advice of their humbled economic experts. The economy might now seem more like a fickle god than an object of technical control, but understanding it had become a necessity, and economists were still better positioned than anyone else to offer guidance.

Institutional exigencies outweighed intellectual failings.

Carter was also drawn to Klein for more personal reasons. During his time as governor, Carter had brought on an economist from Georgia State University to serve in the newly created post of “economic adviser to the governor.”1041 In 1974, Carter encouraged that adviser to research the uses the state government might have for a model of Georgia’s economy that was being built in conjunction with the WEFA. (Carter’s fascination with modeling continued in his presidency. A few months after taking office, he told an aid, “Find out for me how many different econometric models we are using for international analysis and whether the CIA needs one.”1042) After meeting Klein, the

1040 Golden, “Candidates,” 112.

1041 W. Carl Biven, Jimmy Carter’s Economy: Policy in an Age of Limits (Chapel Hill: University of North Carolina Press, 2002), 53.

1042 Biven, Jimmy Carter’s Economy, 54.

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former nuclear engineer discovered that he shared an intellectual temperament with the econometrician. Carter was “bewitched,” one economist recalled: “every time he wanted to know what this or that policy would do, Larry would give him a batch of computer printouts with precise answers.”1043 Such precision could be comforting, even though both men knew the margin of error was substantial.

Klein’s work extended well beyond forecasting. As head of a task force charged with designing the candidate’s economic agenda, Klein was part of a larger research team run by Carter’s aides. By the time Carter secured the nomination, this “political think tank,” in the words of , had become “one of the most ambitious such operations ever assembled in a presidential campaign.”1044 They had pliable material to work with. When asked by a reporter early in the campaign whether he was a Keynesian or a monetarist, Carter responded, “I don’t know.”1045

Klein recruited an ideologically diverse group of counselors, but the final result mirrored his own views. His influence was most visible in the campaign’s chief statement on economic policy, a position paper released in the run-up to an important primary in

Pennsylvania. Much of the document elaborated positions that any Democrat running for the presidency in 1976 could have endorsed. Though adamant on the need to restrain inflation, it labeled unemployment the nation’s chief economic challenge. But the statement was not just campaign boilerplate. It supported “coordinated government planning” on a litany of issues familiar to Klein’s readers: “structural unemployment,

1043 Robbins, “Father,” 90.

1044 Laurence Stern, “An Issues Factory,” Washington Post, August 12, 1976, A1.

1045 House Administration Committee, The Presidential Campaign 1976, Vol. 1, Part 1 (Washington, D.C.: United States Government Printing Office, 1978), 162.

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inflation, environmental deterioration, exaggeration of economic inequalities, natural resource limitations, and obstructions to the operation of the system,” with that last nod to the virtues of the market constituting the only significant addition to

Klein’s standard litany.1046 To help implement this program, the paper called for a redesigned CEA empowered to “deal with long-range problems of individual sectors fitted into a [sic] overall economic plan for the economy as a whole, as well as to deal with considerations of supply, distribution, and performance in individual industries.”1047

This was the CEA reborn as a tool for executing Klein’s version of supply-side economics.

There was even a gesture toward one of Klein’s most cherished goals. “Problems of inflation, unemployment, scarcity of resources, and economic stabilization,” it argued,

“cannot be accomplished without a coordinated effort with the rest of the world.”1048

Here was the vision of globalized economic policy behind Project LINK. In the plodding language of a campaign manifesto written by committee, an outline of what Klein elsewhere called a “New New Economics” had come together.1049

Reviews were tepid. “Carter Offers Broad Economic Program Lacking in Details but Emphasizing Jobs,” ran one representative headline.1050 The candidate himself appeared only vaguely attached to his program. While discussing the paper with reporters, he deferred repeatedly to his economic advisers, afterwards telling one, “You

1046House Administration Committee, The Presidential Campaign 1976, Vol. 1, Part 1, 147.

1047 House Administration Committee, The Presidential Campaign 1976, Vol. 1, Part 1, 147.

1048 House Administration Committee, The Presidential Campaign 1976, Vol. 1, Part 1, 147.

1049 Klein, “Mr. Klein’s Model Economy,” F19.

1050 Albert Hunt, “Carter Offers Broad Economic Program Lacking in Details but Emphasizing Jobs,” Wall Street Journal, April 26, 1976, 3.

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can see how much I need your help on these questions.”1051 Compared to what his major rivals for the nomination were offering, Carter’s platform seemed cautious. That was one of its goals, to project an air of moderation and reassure voters that Carter would be a prudent manager of the national fisc. Whatever the policy merits, it was enough to help him win a decisive victory in Pennsylvania, and, eventually, the presidential nomination.

Klein himself burst into the headlines only once during the campaign, and for an entirely predictable reason. In October, with just a few weeks to go before the election, the state chairman of the Republican Party declared, “I don’t want a man as

President whose chief economic adviser is openly a former member of the Communist

Party of this country. Lawrence Klein is such a person.”1052 What might have been a scandalous revelation a decade earlier quickly fizzled. Most journalists seemed to feel that discussing the subject was in poor taste. Those who brought it up, including People magazine in a short profile of Klein published that August, soon moved on to other subjects. They did so with Klein’s encouragement. “It was an act of youthfulness 30 years ago,” he told People. “I just don’t think of those problems now.”1053 In October, a terse comment from Klein was enough to put an end to the story. With that problem disposed of, he could return to his major public event that week: a public debate with his counterpart in the Ford administration, and fellow economic forecaster, Alan Greenspan.

Greenspan was chair of Ford’s Council of Economic Advisers, and whether Klein would take up that position in a Carter administration remained an open question. During

1051 Hunt, “Carter,” 3.

1052 James Sterba, “Mondale and Dole to Debate Tonight,” New York Times, October 15, 1976, 37.

1053 Lenora Berson, “Economics Prof. Lawrence Klein has a Bright New Pupil—Jimmy Carter,” August 16, 1976, available at http://www.people.com/people/archive/article/0,,20066780,00.html.

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the campaign, he dismissed the question. “I am just a school teacher,” he said to one interviewer, “and I intend to stay right here.”1054 Klein echoed those comments later in his life, always denying that he ever wanted the job. In the aftermath of Carter’s victory, however, matters did not seem so clear. Even when rejecting the notion that he might serve on the CEA, Klein had hinted to journalists that he might be willing to serve in another capacity. Days before the election, he identified a need for an adviser “who can put all the marbles together” on international economic policy, a position for which he just happened to have the ideal résumé.1055 During the transition to Carter’s administration, rumors that he was up for the CEA post regularly appeared in the press, and Carter’s team floated Klein’s name along with fifteen others on a list of potential economic advisers.1056 As late as December 20, Newsweek was reporting that Klein had

“temporarily removed himself from competition to pursue his research, but changed his mind last week and remained a possibility.”1057

Behind the scenes, on the day that Klein’s former membership in the Communist

Party caused a brief stir in the national press, Samuelson wrote a defense of his former student to one of Carter’s closest advisers. “On the basis of detailed knowledge of Klein’s economic writings and lecturing over the last 33 years,” he declared, “I believe that I am in an authoritative position to testify to his political moderation, ideological sagacity, and

1054 Hobart Rowen, Carter’s Team of Economic Advisers, Washington Post, July 25, 1976, K4.

1055 Richard Levine, “Carter Faces Serious World Economic Ills, With Slowdown in Recovery Heading List,” Wall Street Journal, November 8, 1976, 2.

1056 Helen Dewar, “Carter Lists 16 Candidates for Top Economic Posts,” Washington Post, December 1, 1976, A7.

1057 David Alpern, Eleanor Clift, James Doyle, “Arts of Cabinet Making,” Newsweek, December 20, 1976, 22.

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general good character as an American citizen.”1058 Describing the mature Klein as the follower of “a middle-of-the-road viewpoint,” Samuelson did his best to clear a path for an eventual nomination, asserting that there was “nothing in his record of the last 30 years that would other than commend him to Committees of Congress and to the

President representing either major political party.”1059 But Samuelson’s validation could not erase concerns about what Republicans would do with Klein’s record—concerns that a source later told the New York Times led Klein, who “wanted to avoid any digging into past left-wing connections,” to withdraw his name from consideration for the CEA post only after the election.1060

Instead, the office went to Charles Schulze, director of the Bureau of the Budget under Lyndon Johnson and a prominent figure at the Brookings Institution.1061 Unlike

Klein, Schultze was a quintessential Washington economist who made up for a lack of glittering academic qualifications with a record in government and a network of supporters inside the beltway. Klein still talked with Carter occasionally, sometimes over the phone and sometimes in person.1062 He was close enough to the administration that, in the summer of 1979, when Carter was selecting participants for a summit at Camp David preceding his famous televised address on a national “crisis of confidence,” Klein was one of two economists chosen. He also had other, more indirect encounters with the

1058 Paul Samuelson to Stuart Eizenstat, October 15, 1976, Box 45, “Klein, Lawrence, 1994-2006,” Samuelson Papers.

1059 Samuelson to Eizenstat, October 15, 1976, Samuelson Papers.

1060 Robbins, “Father,” D1.

1061 On Schultze’s role in the Carter administration, see Biven, Jimmy Carter’s Economy, 46-49.

1062Records of these meetings are available at http://www.jimmycarterlibrary.gov.

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president: in 1977, for example, simulations run through the WEFA’s model concluded that the administration’s economic agenda was hopelessly unrealistic.1063

Except for these sporadic interventions, Klein watched from the sidelines as

Carter’s presidency unfolded, and unraveled. He watched as the administration pursued an internationalized Keynesianism premised on the conviction, known as “locomotive theory,” that a coordinated stimulus program in the United States, Germany, and Japan could drive an international economic boom.1064 He watched as the difficulties of coordinating domestic policies across national governments and the fallout from another oil crisis led Carter to discard that agenda. He watched as Carter told the nation that “our economic cup no longer overflows,” condemned rising inflation rates, and announced that “fiscal restraint has become a matter of simple public duty.”1065 And he watched Paul

Volcker take over as Chairman of the Federal Reserve and begin an aggressive campaign to break the back of inflation.

Although Volcker had majored in economics as an undergraduate at Princeton, he did not have a doctorate in the subject (the last Fed chairman, so far, without that credential).1066 But he had studied economics as a graduate student at Harvard’s Littauer

School of Public Policy, where he took a class on Money and Banking taught by Alvin

Hansen. Years later, one book from the course remained lodged in his memory:

1063 Lindley Clark, Jr., “Impossible Goals,” Wall Street Journal, December 13, 1977, 26.

1064 Sargent, Superpower Transformed, 240-242.

1065 Jimmy Carter, “Boston, Massachusetts Remarks at Dedication Ceremonies for the John F. Kennedy Library,” October 20, 1979, available at http://www.presidency.ucsb.edu/ws/?pid=31566.

1066 After dropping out of Columbia’s program, Greenspan resumed his doctoral work at and received a PhD in 1977.

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Lawrence Klein’s The Keynesian Revolution, which, Volcker said, provoked in him a

“visceral suspicion that the world was a lot fuzzier” than Klein let on.1067

Despite the disappointments, Klein remained, in his words, a “friendly critic” of the administration.1068 Often, “friendly” outweighed “critic.” “Rarely has a government been so severely criticized when most performance statistics of the economy have been quite good,” he wrote in the spring of 1978.1069 Two years later he offered Carter more direct flattery, asserting that “the President has had a way of outguessing the experts on the economy.”1070 Only after Reagan’s election did he offer a sustained, public criticism of the man he had helped put into office. “In the end,” he concluded, “it was excessive reliance on conventional policies of aggregate demand management and a failure to take up the challenges on the supply side that led to the dismal performance of the Carter

Administration.”1071 Thanks to this failure—part political, part intellectual, part institutional—advocates of a very different version of supply-side economics were about to move into the executive branch.

Klein held back on publishing this evaluation until after he had one last meeting with Carter in the White House. In October, he had won the Nobel Prize in economics, and he was then invited to participate in a ceremony honoring nine Americans who had received the award. “Long after the work of statesmen has been forgotten,” Carter said,

1067 Perry Mehrling and , “An Interview with Paul A. Volcker,” in Paul Samuelson and William Barnett, Inside the Economist’s Mind (Oxford: Blackwell Publishing, 2007), 168.

1068 “Nobel in Economics Is Won by L.R. Klein Of Wharton for Math-Based Forecasting,” Wall Street Journal, October 16, 1980, 4.

1069 Lawrence Klein, “Economic Policy of the Carter Administration,” April 1978, Box 31, “Economic Policy of the Carter Administration,” Klein Papers.

1070 Lawrence Klein, “The Road to a Balanced Budget,” , April 1, 1980, F3.

1071 Lawrence Klein, “Why Did Carter Economics Fail?,” Los Angeles Times, December 30, 1980, E4.

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“the work of these men will be remembered.”1072 Two months later, Ronald Reagan became President of the United States.

REAGAN’S INAUGURATION SIGNALED THE BEGINNING of a chastening period for econometricians, but discontent had been rising for some time. The academic charge against Keynesian modelers gathered momentum as the 1970s advanced. Later in the decade, it received unexpected support from supply-siders. While the two groups shared a common enemy they had distinct visions for the future. Supply-siders did not want to do away with bulky macro models; they wanted to revise them to produce results that demonstrated the wonders of tax cuts. While journalists proselytized in the public sphere and activists at the grass-roots mobilized to pass ballots initiatives, in Washington supply-siders turned econometrics into another front in their campaign to transform policy.

Paul Craig Roberts was the movement’s point man in this battle of the models. An economist with a doctorate from the University of Virginia, Roberts became economic counsel to two of the leading supporters of tax cuts in Congress, Representative Jack

Kemp and Senator Orrin Hatch. Soon, a push was underway to question the legitimacy of projections issued by the forecasters the government relied upon, chiefly the WEFA, the

DRI, and Chase Econometrics. Government economists were hauled before congressional committees and asked to justify their predictions. , director of the Congressional Budget Office, provided supply-siders with a valuable weapon when a memo she had written calling skeptics of models “an extreme right-wing claque who

1072 Mary Battiata, “Science, Smiles and Nobel Gestures,” November 20, 1980, F3.

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should not be given an audience” made its way to Hatch.1073 For Hatch, the stakes of the conflict were clear. “Republicans would be more effective,” he argued, “if they ceased supporting faulty econometric models that serve as ramps for Democratic spending programs.”1074 Others were not so sure. A staffer on the Senate Budget Committee questioned Hatch’s fixation “on this tangent, which few people know or care about outside the economics profession.”1075

Roberts was doing his best to persuade the public, or at least politically engaged conservatives, that they neglected econometrics at their peril. Taking his crusade to the major organs of the rightwing press, he portrayed the ostensibly technocratic models as instruments of a political agenda. “[O]nce such models are accepted,” he told readers of

National Review, “their emphasis on demand sets the limits to the debate, regardless of the political persuasion of the participants.”1076 The claim to have transcended politics was what made these models so politically effective. “The fight,” he later observed,

“went on so long and so hard because more was at stake than economic reputations. The real issue was political power.”1077 Roberts’s condemnations highlighted a paradox inherent to the politics of neutral expertise: technical mastery can be an intimidating force if its authority is recognized, but undermining that legitimacy can push the experts into a political contest they are not prepared to fight, turning what had been the source of their strength into a major vulnerability.

1073 “Mrs. Rivlin Rejects Supply-Side View,” New York Times, April 14, 1980, D1.

1074 Quoted in , The Supply-Side Revolution: An Insider’s Account of Policymaking in Washington (Cambridge: Harvard University Press, 1984), 51-2.

1075 Paul Craig Roberts, “Econometrics and Politics,” National Review, May 13, 1977, 549.

1076 Quoted in Roberts, Supply-Side, 54.

1077 Roberts, Supply-Side, 53.

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Undermining the credibility of their opponents accomplished only half the job.

Supply-siders needed models of their own, and they lacked a figure with the expertise to build them. A solution to this problem came from the modelers themselves. Here, again, the denial of an explicit political agenda worked in the supply-siders’ favor. Conventional econometric modelers could not afford to sacrifice their reputation for impartiality, which provided them an incentive to reach out to critics. There was a more mercenary rationale at work, too. As proponents of tax cuts gained sway over the decisions made by congressional committees and government bureaus, critics turned into clients—clients that the managers of for-profit econometrics companies wanted to keep happy. Well before Reagan’s election and the Republican takeover of the Senate in 1980, the Senate

Finance Committee selected Chase Econometrics—the firm managed by Michael Evans,

Klein’s former colleague at Penn and a co-founder of the WEFA—to build its first supply-side model. “A new element has been injected into the ongoing economics debate,” Klein told the Wall Street Journal in 1981.1078 He was less diplomatic in other venues, where he denounced the “national pre-occupation” with tax cuts.1079 But Klein’s opposition did not stop the WEFA from touting the revision of its models along lines friendlier to supply-siders.

Klein soon concluded that matters were even worse than he had feared. Officials in the Reagan administration dismissed Keynesian models as, in the words of David

Stockman, new director of the Office of Management and Budget, “cynical and

1078 Robert Merry and Kenneth Bacon, “Supply-Side Economics and How It Grew From a Theory to a Presidential Program,” Wall Street Journal, February 19, 1981, 48.

1079 Klein, “Evolution of Keynesian Economics.”

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destructive.”1080 Treasury Secretary told the Senate Budget Committee that the standard models were relics of the past.1081 Based on historical patterns that prevailed before the tumult of the 1970s, they could not offer reliable guidance in the decade ahead. Reagan was even blunter, referring to a CBO projection as “phony.”1082 He would remain a skeptic throughout his time in office. “Those projections, frankly, I pay no attention to them,” he told a press conference in 1985.1083 That skepticism was convenient for an administration whose optimistic forecasts exceeded even the brightest predictions coming from outside the White House.

Predictably, Klein was outraged. Writing in the Los Angeles Times, he asked and answered his own rhetorical question: “Should we accept an economic program without an accompanying forecast that is believable? I say, decidedly not!”1084 While far from infallible, the econometric models used at firms like the WEFA remained the best option in an imperfect catalogue. In their place, Reagan’s team substituted “highly subjective policy formation, without precedent, without track record, without economic scientific credibility.”1085 At the WEFA, however, other senior staff adopted a more restrained approach. “It’s not so much an argument about results, it’s an argument about timing,” one of them told the Wall Street Journal, adding that the surge in growth predicted by the

1080 Kenneth Bacon, “Forecasting Flap: Who Is Right?,” Wall Street Journal, March 23, 1981, 1.

1081 Richard Reeves, President Reagan: The Triumph of Imagination (New York: Simon & Schuster, 2006), 12.

1082 Bacon, “Forecasting Flap,” 1.

1083 “The President’s News Conference,” January 9, 1985, available at http://www.presidency.ucsb.edu/ws/?pid=38344.

1084 Lawrence Klein, “Reaganites: Good at Forecasting,” Los Angeles Times, May 12, 1981, E3.

1085 Klein, “Reaganites,” E3.

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administration “could happen. We just think the probability is low.”1086 Like other private forecasters, staffers at the WEFA were reluctant to offend one of their most important customers.

For econometricians who sought to turn their expertise into profits, matters were about to get much worse. Forecasters had missed the downturn that helped usher Reagan into the White House, and they were surprised by the boom that arrived in time for his reelection campaign. Failing to anticipate the recovery was especially damning because, unlike the 1980 recession, which could be written off as the product of supply shocks, the upturn in growth was spurred by tax cuts and spending increases, textbook instances of fiscal stimulus. The Reagan administration twisted the knife by reducing expenditures on forecasting and directing the funding that remained to companies friendlier to supply- siders. By 1982, those cutbacks had forced the WEFA to shrink its workforce by about 15 percent.1087 That was one example of a general malaise: profits dwindled at DRI, while

Chase Econometrics and the WEFA fell into the red. Rueful forecasters blamed their gloomy situation on themselves. “For two decades, we let businesses, the media and the public think that models were perfect crystal balls,” said one DRI executive, “maybe now we’re paying the price.”1088 Here was one last toll exacted by claiming scientific accuracy: having raised themselves up to such lofty heights, econometricians had much farther to fall.

1086 Bacon, “Forecasting Flap,” 1.

1087 , “This Slump Even Hurts Economists,” Wall Street Journal, May 4, 1982, May 4, 1982, 37.

1088 Laurie McGinley, “Clouded Vision: Forecasters Overhaul ‘Models’ of Economy In Wake of 1982 Errors,” Wall Street Journal, February 17, 1983, 1.

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Their most urgent financial troubles, however, had more material roots.

Forecasting had given the field its glamor, but projections had never been that profitable.

The major source of revenue, even for prestigious modelers like Chase and DRI, came from renting out time on their computers so clients could run their own projections. As the WEFA’s chief economist noted, customers “spen[t] hundreds of thousands of dollars per year to hook on to these mainframes, just to plot the consumer price index.”1089 By the 1980s, the spread of personal computers allowed companies to perform those operations by themselves. Improvements in computer technology had made the industry possible, but continued advances now threatened its existence. Forecasters who wanted to survive had to offer more tempting services to their clients. The shift toward specialized projections tailored to individual firms and updated with metronomic frequency accelerated. Macroeconomic models alone could no longer earn healthy profits.

Yet the WEFA, the firm most closely associated with those holdouts from the golden age of Keynesianism, was uniquely well positioned to survive in the lean years.

Time-sharing from its computers accounted for only around 10% of its revenue.1090 This had slowed their growth during the boom—DRI dwarfed the WEFA in size, and even

Chase was larger—but it cushioned them during the crash. For customers who still believed in the value of large-scale models, the WEFA had the biggest of them all. Their model of the American economy included some 1,600 equations, twice as large as DRI’s,

1089 , “Big Forecasters Failed to Predict Own Misfortune,” Los Angeles Times, March 3, 1985, E7.

1090 Hiltzik, “Big Forecasters,” E1.

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and more than five times the size of Chase’s; and that model was still turning a profit, even in the bleak year of 1982.1091

Profits were increasingly important because in 1980 the publishing company Ziff-

Davis purchased eighty percent of the WEFA from the University of Pennsylvania. While maintaining Klein as chairman, the deal turned the firm into a profit-seeking enterprise at the brink of an industry-wide contraction. The WEFA continued to bleed red ink, and the company soon found itself in a corporate version of hot potato. Ownership passed from

Ziff-Davis to a company owned by the French government; then a merger with Chase

Econometrics; then an acquisition by Bain Capital, which sold it to an information technology company; then in 2001 another merger, this time with DRI, that produced a new firm called Global Insight. The surviving remnant of this winnowing process, Global

Insight boasted about $70 million in annual revenue, five hundred employees, and thirty offices scattered around the world.1092

Despite the dwindling profits and frantic shuffling of ownership, the WEFA retained the power to shake markets. If anything, thanks to an expansion of its international coverage, its influence rose. A critical report on the finances of the

Philippine government, for example, prompted an irate response from the nation’s chief central banker on the day of its release.1093 Even more dramatic was the company’s revelation that Bulgaria’s chief export in 1982 had been weapons sold to countries— and terrorist groups—in the developing world, a finding the WEFA based on a previously

1091 Hertzberg, “Slump,” 53.

1092 Jon Hilsenrath, “McGraw-Hill, Thomson Units Merge to Form Separate Entity,” May 7, 2001, B12.

1093 Eduardo Lachica, “ May Be Forced to Stretch Out Payments to Banks, Wharton Study Says,” November 1, 1982, 34; Eileen Alt Powell, “Philippines Central Banker Disputes Forecast That Nation Will Need to Reschedule Its Debt,” November 2, 1982, 34.

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unpublished report from the Bulgarian government.1094 Though companies outside the

United States constituted a progressively larger portion of its client base, the WEFA also nurtured its domestic market. In 1984, the firm predicted a narrow win for Reagan in the coming election based on its economic forecasts.1095 Their margin was closer than the landslide that followed, but it was still an effective publicity stunt. Even better was the company’s accurate projection of that year’s GNP. Meanwhile Klein, who stayed on as chairman of a “scientific advisory board,” continued to benefit from the publicity his association with the WEFA supplied. Like the company as a whole, his attention was drawn more and more outside the borders of the United States.

On that front, the steady expansion of Project LINK compensated for setbacks at the WEFA. (The former also helped support the latter by providing it with technology that it could employ in its models.) In 1988, the LINK system totaled about 20,000 equations and included eighty national models. Day-to-day management fell increasingly to the United Nations, which took over full responsibility in 1989. By that point, LINK had over seventy branches around the world. Some one hundred economists from these research centers came together at annual meetings held in the UN. Those gatherings attracted a growing number of socialists, including representatives from Poland,

Hungary, and China. Though about half the national models had been developed at LINK headquarters, the group also stimulated local efforts. Spain was one case. Leaders of that undertaking named their forecasting center after its inspiration: El Instituto de Predicción

1094 “Weapons Exports Aid Bulgaria’s Earnings,” Washington Post, August 10, 1984, A20.

1095 “Mondale-Hart, Reagan-Bush Ticket Running Neck and Neck in New Poll,” Washington Post, May 3, 1984, A3.

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Económica “Lawrence R. Klein.”1096 As for that group’s namesake, Klein remained deeply involved with LINK, leading investigations into the dynamics of the world economy that he hoped would lay the foundation for another attempt to globalize

Keynesianism.1097

That ambition remained a distant hope, but closer to home modelers had better luck with a more modest goal. Backlash against the deficits accumulated during Reagan’s first term put an end to the forward march of supply-side economics, and despite repeated efforts rational expectations had yet to generate models that appealed to policymakers.

After more than a decade of polemics, models derived from Keynesian premises remained the only plausible candidate to fill this vacuum, and so they resumed the place in government that would soon prompt Wanniski’s fulminations about “the enemy within.”

THE ENEMY IN QUESTION began the 1980s worried about the decade ahead. Klein believed sluggish growth, higher inflation, and greater unemployment appeared the most likely outcome, not just in the United States but across the industrialized world. He identified the twinned threats of costly energy and a rising price level as

“overwhelmingly” the major issues of the time. “An actual shortage of energy or its high price makes former growth rates seemingly unattainable,” he argued.1098 There were two

1096 The organization still exists: https://www.uam.es/otroscentros/klein/.

1097 See, for example, L.R. Klein, R. Simes, and P. Voisin, “Coordinated Monetary Policy and the World Economy,” Prevision et Analyse Economicque, 2 (1981), 75-105; and L.R. Klein, A. Bollino, S. Fardoust, “Industrial Policy in the World Economy Medium Term Simulations with the LINK System, 1982-1990,” Journal of Policy Modeling 4.2 (1982), 175-189.

1098 Lawrence Klein, “Economic Prospects for the 1980s,” Box 31, “Economic Prospects for the 1980s,” Klein Papers

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options, neither of them encouraging. An outright shortage of oil—which, despite the catchall reference to “energy,” was Klein’s real concern—meant that the growth rates that prevailed in the 1950s and 1960s could no longer be reached. Even with enough oil to sustain those growth rates, its high price ensured greater inflation, along with untenable trade deficits for oil importers like the United States.

While other economists, according to the Wall Street Journal, had grown “almost euphoric” with anticipation for a Reagan administration that placed “economic efficiency over social objectives,” Klein warned about the dangers presented by this “new breed of politician.”1099 Slashing tax rates and government spending offered little hope of reversing the slide into stagnation. Klein looked instead, as he had under Carter, to the international economic order. “The best way to deal with the economic issues of the

80’s,” he maintained, was “to develop an approach through policy coordination among the leading economic powers.”1100 Advocates for planning were on the defensive, but synchronized monetary and fiscal policies remained at least a possibility, even under conservative governments. In that prospect, Klein found some hope.

Beginning in 1979, the Los Angeles Times gave Klein a platform to share his views. The paper had started a weekly feature it called the “Times Board of Economists,” which promised “analysis of important issues” from a rotating cast of dismal scientists.1101 Klein appeared regularly, authoring dozens of op-eds in the eight years he held the post. The columns bristled with statistics, but the prose was clunky, and he

1099 Christopher Conte, “Looking Ahead: Analysts Are Confident of Economic Health as the Decade Proceeds,” September 14, 1981, 1; Klein, “Economic Prospects for the 1980s.”

1100 Klein, “Economic Prospects for the 1980s.”

1101 “Times Board of Economists,” Los Angeles Times, September 4, 1979, E3.

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lacked the flair for the dramatic that successful popularizers bring to their work. One typical piece—a consideration of the relationship between exchange rates and interest rates—built to this sedate conclusion: “It is more correct in terms of economic science to say that the relationship could go either way, [sic] than to try to be falsely definitive and unambiguous. It all depends.”1102 A valid point, but it is still easy to see why the columns did not propel him into a career as a public intellectual.

Klein was not always so even-tempered. He took an early and vigorous stance against increased dependence on the Federal Reserve, writing in the fall of 1979 that

“monetary policy alone cannot do the enormous job of bring[ing] the American economy into a range of good performance.”1103 Regular updates on the WEFA’s forecasts provided ammunition for his fusillades against the Reagan administration. In September

1982, he alerted readers that conditions had become so dire that “economic depression with chaos in financial markets” had become a real possibility.1104 Perhaps not coincidentally, that column appeared in the week’s preceding that year’s congressional elections. By election day, Klein’s attitude had brightened, and he claimed that a recovery was underway.1105

During the boom, Klein’s criticisms increasingly focused on the mushrooming budget deficit. In 1983, he reported himself “amazed in contemplating today’s

1102 Lawrence Klein, “Dollar and Interest Rates: A Link?,” Los Angeles Times, March 27, 1984, E3.

1103 Lawrence Klein, “Monetary Policy Needs Supplements,” Los Angeles Times, November 27, 1979, E4.

1104 Lawrence Klein, “Unthinkable Is, Indeed, Possible,” Los Angeles Times, September 28, 1982, E3.

1105 Lawrence Klein, “Soon, Upswing Will Be Apparent,” Los Angeles Times, November 9, 1982, E3.

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astronomical figures.”1106 One year later, with the expansion proceeding apace—though, he emphasized, it was “very much an average recovery”—he called for restraint in fiscal policy, a blow he wanted softened by a more expansive monetary policy.1107 Revealing how far he had come from his revolutionary youth, Klein turned almost lyrical when paying tribute to the merits of fiscal rectitude. “There is,” he claimed, “something aesthetically pleasing about a well-balanced policy.”1108 Next he demonstrated how much distance had opened up between his current position and the confident Keynesianism of the 1960s. “A smooth, gradual adjustment or accommodation to the deficits could be an outcome,” he acknowledged, “but the economy is not always that kind to us.”1109 Seen from this chastened perspective, caution became one of the policymaker’s paramount virtues, and even more robust strands of Keynesianism ran the danger of utopianism.

Yet Klein reserved his most aggressive criticism for apostles of the market. “It is not on a sound basis of observation that economists are asserting that the market should be relied upon,” he insisted, but on “subjective belief in the power of the market mechanism.”1110 Anticipating a trend that would gather force in a few years, when

Democrats began to search for their party’s version of supply-side economics, he called

1106 Lawrence Klein, “Reagan Must Back Off on Defense,” Los Angeles Times, February 1, 1983, E3.

1107 Lawrence Klein, “It’s Time to Cure the Budget Deficit,” Los Angeles Times, December 4, 1984, E3.

1108 Klein, “Time to Cure,” E3.

1109 Klein, “Time to Cure,” E3.

1110 Lawrence Klein, “Macro Policy Is No Longer Enough,” Los Angeles Times, September 23, 1980, E3.

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in 1980 for “an aggressive industrial policy that tries to outguess the market.”1111 The international scene had become an arena of fierce economic conflict, and in this contest dogmatic assumptions about the wisdom of the market had become a potentially fatal hindrance. “For the sake of a philosophical position,” he lamented, “many U.S. economists are willing to be lapped in the race for survival.”1112

Klein did not oppose the fashions of his moment entirely. He agreed that a

“lighter touch on regulation” was needed, but he still felt that put him outside the consensus in “the economics fraternity of Washington.”1113 “Economic ideology at its extreme, based on unwavering faith in the market mechanism,” had captured too many of his colleagues.1114 He paid special attention to the hazards of financial deregulation, which he judged “a mistaken policy” that “will not contribute to the ethical soundness of our banking system or to the stability of our economy.”1115 (He returned to the subject again in 1990, writing, “my arguments for tighter regulation of financial affairs is definitely a minority position but I see the possibility of serious trouble ahead unless the financial system is more closely watched.”1116)

1111 Klein, “Macro Policy,” E3. On the surge behind industrial policy, see Caroline Atkinson, “The Great Economic Policy Hunt,” Washington Post, July 3, 1983, G1; John Berry, “Leading Economists Dispute the Cases for an ‘Industrial Policy,’” Washington Post, September 4, 1983, G1; Karen Arenson, “Debate Grows Over Adoption of National Industrial Policy,” New York Times, June 19, 1983, 1.

1112 Klein, “Macro Policy,” E4.

1113 Lawrence Klein, “Some Paths to Economic Stability,” Los Angeles Times, June 23, 1981, E3; Klein, “Macro Policy,” E3.

1114 Lawrence Klein, “Federal Policy Created Farm Crisis,” Los Angeles Times, February 26, 1985, E3, Also see Lawrence Klein, “Markets Need Infusion of Morality,” Los Angeles Times, February 24, 1987.

1115 Lawrence Klein, “It’s Time to Look Closely at Banks,” Los Angeles Times, July 15, 1986, E3.

1116 Lawrence Klein, ““Tightening Regulation of the Financial System,” Box 27, “Correspondence 1990,” Klein Papers.

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When Klein invoked the specter of a Hobbesian international marketplace, he offered a fearsome portrait of a subject that had become the central theme of his work.

“There are no longer any closed economies,” he declared in 1988, which meant that the ultimate frame of economic analysis must, inevitably, be the world economy.1117 When his thoughts turned to the future of that world economy, he was less concerned by the prospect of waning American hegemony than by the likelihood of a clash between rich and poor nations—class struggle on a planetary scale. “Both economic and political stability,” he wrote in 1987, “require that a more humanistic and less materialistic view be taken by the more prosperous countries.”1118 An international problem required an international solution—in Klein’s words, “a Global Marshall Plan” yoked to internationalized Keynesianism.1119

The cornerstone of his proposal was major relief for debtor nations in Latin

America and Africa, along with the Philippines. LINK simulations on the consequences of that program, combined with further research into the benefits of fiscal and monetary policy coordination, provided a technical justification for the agenda. When he discussed these questions, Klein’s rhetoric at times recalled the mixture of academic economist and idealistic activist that characterized his radical youth. “Humanity needs an international

General Manager,” he wrote in 1989, “capable of reviving global economic activity by promoting economic growth.”1120 The message resonated with surprising audiences,

1117 Klein, “Tinbergen Initiative,” 240.

1118 Lawrence Klein, “Facing the 21st Century: Threats and Promises: The Issues of Economic and Social Development,” Box 27, “Outgoing Correspondence, 1987,” Klein Papers.

1119 Lawrence Klein and Angelos Angelopoulos, “Third World Debt: Some Proposals for Action,” Box 27, “1989–A ,” Klein Papers.

1120 Klein and Angelopoulos, “Third World Debt.”

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including Carlos Menem, Argentina’s newly elected president, and a self-described admirer of Klein’s.1121 (After taking office, though, Menem followed policies closer to the deregulatory agenda Klein opposed.)

Klein had a more mixed reception from academic economists at home. Now a senior member of the profession, he admired some members from the rising generation, and in 1990 he described the policy-oriented liberals , Lawrence Summers, and as especially impressive.1122 But he remained unbending in his view of rational expectations theory. “I think it’s ridiculous,” he told an interviewer.1123 Yet its influence had spread across macroeconomics, producing a cohort “over-impressed with pure theory-spinning”—a “fruitless turn,” in his view.1124 The pressure to publish had contributed to these problems. Even with the assistance of computers, building the elaborate models he favored required a team of researchers. That prospect had little appeal for a young economist racing against the tenure clock, especially when models using less data and more sophisticated mathematics could be produced at a faster clip by individual authors and then go on to be published in prestigious journals where colleagues would laud their rigor.

Against the tide in academia, Klein remained a resolute defender of a style of modeling his colleagues increasingly regarded as antique. “Economists like simple things,” he said in 1987, but that useful prejudice became a handicap when applied outside the classroom: “economic life is necessarily complicated, detailed and

1121 Manuel Tanoira, “Will Reality Force the Hand of Argentina’s Peronists?,” Wall Street Journal, June 9, 1989, A11.

1122 Lawrence Klein Oliver Williamson, November 19, 1990, Box 28, “1990, W-Z,” Klein Papers.

1123 Klein, “Biven Interview.”

1124 Klein and Mariano, “ET Interview,” 417.

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explainable only in terms of a big system”—“the largest possible system that can be managed,” if he had his way.1125 While acknowledging the waning support for that perspective among academics, he took solace in the continued popularity of these models in the government. “The economy definitely needs guidance,” he wrote, “and it is up to professional economists to provide public policy makers with the right information to deliver such leadership.”1126 Amid all the changes in his long career, that belief remained a constant.

But a wistful note had crept into his reflections. Klein felt himself on the defensive, not so much from academic contemporaries, although their skepticism was real, but from the expectations of his youth. Reminiscing about his time at Cowles, he noted that after he left Chicago in 1947, “we accomplished much more by way of model building and using than we ever thought possible in our wildest dreams of postwar

America, but it was never good enough.”1127 He did not worry about the flaws typically ascribed to their project; the best models, Klein believed, always had a better track record than their critics allowed, even in the 1970s. The problem was their own disappointed expectations. Since the 1940s, they had lived with the hope that they were on the brink of

“a complete breakthrough”; instead, they had made “very tiny improvements.”1128

“Dreary empirical research over the years with improved data bases, better statistical methods, better analysis of the functioning of the economy, better hardware, and better

1125 Klein and Mariano, “ET Interview,” 443; Lawrence Klein, “My Professional Life Philosophy,” in Eminent Economists: Their Life Philosophies, ed. (Cambridge: Cambridge University Press, 1992), 184.

1126 Klein, “Life Philosophy,” 186.

1127 Klein, “Lawrence R. Klein,” 24.

1128 Klein and Mariano, “ET Interview,” 419.

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software”—the progress was real.1129 So was the regret. “We thought it would be much easier, at the beginning,” he said, “but it is not all that easy.”

Following that line of reasoning too far, Klein feared, would lead to policy nihilism. Better to act with imperfect information than to do nothing. If anything, he wanted to expand the range of subjects economists could address. The economic ramifications of AIDS, or pollution, or of disarmament following the collapse of the

USSR—all of these subjects could be brought within the economist’s purview. In 1991, he endorsed replacing GDP with the broader “Measure of Economic Welfare” James

Tobin and his Yale colleague had created.1130 His politics, meanwhile, continued to lean left. In 2004, a few weeks shy of his 84th birthday, he told the Wall

Street Journal that a country whose balance of “socio-political-economic policies” seemed to yield some of the most admirable results was Norway.1131

Norway’s was not the only alternative to political economy, American-style, that captured Klein’s attention in these years. The collapse of socialism in the Soviet bloc had taken him by surprise.1132 By the time the Soviet Union fell, however, Klein’s focus had already turned to a nation that had come to fascinate him, and would return him in the twilight of his career to a subject that had transfixed him at its outset—the future of socialism.

1129 Klein, Econometric Models as Guides for Decision-Making, 53.

1130 Lawrence Klein, “Patinkin Conference Roundtable on Keynesianism,” Box 28, “1991, E-F,” Klein Papers.

1131 David Wessel and Marcus Walker, “Good News for the Globe: Nobel Winners in Economics Are Upbeat About the Future As China and India Surge,” Wall Street Journal, September 3, 2004, A7.

1132 Lawrence Klein, “International Commercial Perspectives in the 90s,” Box 27, “1988/89–S, Part 1,” Klein Papers.

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KLEIN FIRST TRAVELLED TO CHINA IN 1979. The United States had recently normalized diplomatic relations with the country, ending decades of non-recognition. He arrived as the leader of a team of economists visiting under the auspices of the National

Academy of Sciences. Lawrence Lau, then a professor at Stanford, was part of that delegation. Lau and Klein had met years earlier, after Lau constructed the first econometric model of mainland China, which Klein persuaded him to incorporate in

Project LINK. Klein and Lau were back in China the next year, again at the head of a group of American economists, this time to preside over a seven-week workshop on econometrics attended by one hundred Chinese students.1133 With Klein’s encouragement, the Chinese Academy of Social Sciences founded an Institute of

Quantitative and Technical Economics that, among its other activities, eventually took over the work of maintaining Lau’s model of the Chinese economy.

These trips marked the beginning of Klein’s engagement with the development of

Chinese economics. He returned to the country again in 1984, and at the start of 1985 he joined a newly formed committee organized by the Ford Foundation and dedicated to redesigning economics programs at major Chinese universities along American lines.

(The idea had come from one of the Foundation’s Asian specialists, Peter Geithner, father of future Treasury Secretary .1134) Working in tandem with the Chinese

State Education Commission, they brought the building blocks of American economics

1133 Klein, “Lawrence R. Klein,” 38-9; Lawrence Lau, “A giant, mentor, master,” China Daily Asia, November 4, 2013, available at http://www.chinadailyasia.com/opinion/2013- 11/04/content_15096156.html.

1134 Gregory Chow, Understanding China’s Economy (London: World Scientific Publishing, 1994), 64. Timothy Geithner would soon begin a career at the Treasury Department, where he would be charged with supervising forecasts of Japan’s economy. The experience left Geithner dubious of forecasting, but he ascended up the Treasury ranks, where he would serve under Lawrence Summers, nephew of Klein’s former supervisor, Paul Samuelson. Timothy Geithner, Stress Test: Reflections on Financial Crises (New York: Broadway Books, 2014), 39.

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education—as the committee’s chairman put it, “micro, macro, statistics, accounting, international trade, economic development, and money and banking”—to China.1135

More conferences followed, along with more visits from Klein, and a translation of his

1991 book A History of Macroeconometric Model-Building. Chinese economists also came to Klein, joining the long from around the world that had taken a pilgrimage to Philadelphia to study under him.

China had seized Klein’s interest from his first visit. Writing for the Los Angeles

Times in 1980, he described the “exhilarating” feeling of touring a country moving ahead with “boundless enthusiasm.”1136 This dynamism contrasted with his otherwise bleak diagnosis of the global economy: “when the rest of the world is, for the most part, poised for recession, slowdown or moderate growth,” he predicted, “China should stand out as a star performer in the world economy.”1137 Five years later, Klein was just as optimistic.

“More tall modern buildings, more hotels, more fashionable clothes, a varied fleet of imported cars, well-stocked shelves in stores and a wide variety of modern consumer goods,” he reported, “are the highly visible and impressive signs of economic change.”1138 Klein acknowledged the multiplication of markets and the inrush of foreign investment, but a less striking transformation lifted his enthusiasm to even greater heights: a proliferation of econometricians trained in the latest techniques, relying on up- to-date computer technology and an expanding array of reliable statistics.

1135 Chow, China’s Economy, 56.

1136 Lawrence Klein, “US Should Be Bullish on China,” Los Angeles Times, January 8, 1980, F3.

1137 Klein, “Bullish,” F3.

1138 Lawrence Klein, “Visitor Remains Bullish on China,” Los Angeles Times, December 17, 1985, D3.

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The boom in econometrics was caused by, and contributed to, a larger shift in

Chinese economic policy. Keynesian economics arrived in China not long after Klein did, and state officials looked to their economists for guidance on how it could be implemented.1139 The transition happened swiftly. After starting the decade as a foreign concept, by 1985 econometrics with a Keynesian bent had become an element of socialism with Chinese characteristics.

Klein was formally recruited to this project in 1992, when the Chinese State

Information Commission, part of a larger State Planning Commission, appointed him as an adviser. (He was the first Westerner, it appears, to have served in this capacity.) The post formalized duties that Klein had already performed for more than a decade. “I will train Chinese students and research scholars,” he explained, “and help the State

Information Centre, through data systems and econometrics, in preparing and building models to study China's economy.”1140 The decision was made shortly after the

Communist Party had declared its intention to expand the role of markets, a position that struck some American observers as ludicrous. Commenting on the story, Time sniffed that China’s leaders “hope Klein's wisdom can help them build a ‘,’ Deng's newest oxymoron.”1141

For Klein, ideological labels mattered less than the details of policy. In September

1993, the State Planning Committee hosted a week-long meeting of Project LINK in

Beijing. On the second day—“China Day,” in the program schedule—subjects covered

1139 On which see PB Trescott, “How Keynesian Economics Came to China,” History of Political Economy 44.2 (2012), 341-364 and Gregory Chow, China's (Oxford: Blackwell Publishing, 2002), 397-399.

1140 Sondra Wudunn, “Learn from West,” South China Morning Post, November 29, 1992, 21.

1141 “New Thinking,” Time, November 23, 1992, 19.

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included “Chinese Financial Reform,” “Chinese Energy Models,” and “Taking a Market-

Oriented Direction And Pushing Forward In A Gradual Way—A Basic Experience of

China’s Economic Reform.”1142 Back in the United States, he tried to connect Chinese economists with their American counterparts—attempting, for example, to arrange a meeting with James Tobin at the UN for a group sent by the Chinese Academy of Social

Sciences. Years spent researching Chinese statistics also made him a valuable, though qualified, defender of their accuracy. Speaking to a journalist in 2004, Klein did not rule out the possibility that government statisticians had committed unintentional errors, but he insisted that “they weren’t cooking the books.”1143 He also commented on China’s economy in academic venues, including a coedited volume, published in 2000 under the title Econometric Modeling of China, summarizing the latest research in a field that had not existed twenty years earlier.

China was a preoccupation, but it did not monopolize Klein’s attention. His reach was global, and within Asia alone he contributed to econometrics research in Taiwan, the

Philippines, Thailand, and India—the latter, especially, proved a source of considerable interest. (His students at Penn had built many of the country’s earliest econometric models.) Yet China continued to hold a distinct claim on him, perhaps partly because of his own elevated place in its economic debates. That position was suggested by an offhand comment Zhao Ziyang, then General Secretary of the Communist Party, made a few months before students began protesting in Tiananmen Square. Speaking to the visiting American economist Stanley Fischer, Zhao noted that Fischer’s perspective

1142 “Project LINK, 1993,” Box 21, “Meeting participants lists, 1991-1994,” Klein Papers.

1143 Anna Teo, “Nobel laureate with keen interest in Asian economies,” The Business Times , May 24, 2004, 7.

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diverged from the positions held by economists he was already familiar with—namely,

Milton Friedman and Lawrence Klein.1144

THE AUDIENCE FOR ZHAO’S COMPARISON was strangely appropriate. Like Klein,

Fischer had received his doctorate from MIT, and his subsequent career spun alternate versions of the integration between economic theory and policymaking that Klein described as the dominant theme of his career.1145 When he spoke to Zhao, Fischer had recently stepped down from a professorship at MIT to become chief economist at the

World Bank. He followed that with a stint at the IMF and then, in a move that caught the temper of the times, a job at . Fischer left that post in 2005 to become the head of Israel’s central bank, a title he held until 2013. His retirement was brief: in January

2014, Barack Obama nominated him to serve as vice chair of the Federal Reserve.

Fischer’s success was exceptional, but it also fell within a pattern. Students who passed through MIT’s graduate program in the eleven years Fischer spent teaching there included two future chief economists at the IMF (Olivier Blanchard and Kenneth

Rogoff); two heads of the Council of Economic Advisers (Gregory Mankiw under

George W. Bush and Christina Romer under Barack Obama); four heads of central banks

(Ben Bernanke at the Federal Reserve, Mario Draghi of the European Central Bank,

Duvvuri Subbarao of the Bank of India, and Lucas Papademos, who ran the Bank of

Greece before becoming the nation’s Prime Minister); and influential outside

1144 Blanchard and Fischer, “Fischer,” 268. Friedman described his meeting with Zhao in Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (Chicago: University of Chicago Press, 1998), 543-545.

1145 On MIT during Klein and Fischer’s time as graduate students, see E. Roy Weintraub, ed., MIT and the Transformation of American Economics (Durham: Duke University Press, 2014).

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commentators like Paul Krugman. Two years after receiving his doctorate, Krugman joined Fischer on MIT’s faculty, where the two shared departmental space with future

Treasury Secretary Lawrence Summers and future Governor of the

Mervyn King. In some respects a diverse group, they are united by the same commitments that linked Fischer and Klein—along with the benefits they have reaped from deploying a particular kind of economic knowledge.

The macroeconomic models whose value Klein championed have not fared as well in the corporate world. Econometric forecasters survived the shakeout that began in

1980, but the industry never returned to the heights it reached during its boom. Though a lucrative field for the surviving remnant, it also fell adrift intellectually. An enterprise that had arisen half a century earlier from the meeting of academic research and corporate demands grew distant from the economics profession. Corporations, meanwhile, pioneered a new method for managing the risks presented by an uncertain future: financial derivatives, which promised a more remunerative protection against economic fluctuations. The shift was most pronounced in the banking sector, first an ardent proponent of modeling, and then one of the most enthusiastic converts to planning through derivatives.1146 This introduced a novel way of governing the present through the future—a future illuminated not by a model but by the verdicts of financial markets.

Yet, for all the setbacks, macroeconomic modeling survived, shorn of its grandest ambitions, but essential nonetheless. Sometimes, the purpose could reach beyond the narrowly economic. In 1997, the WEFA issued a forecast predicting that proposed regulations on carbon emissions would cost Americans thousand of jobs; funding for the

1146 Peter Passell, This Model Was Too Rough; Why Economic Forecasting Became a Sideshow,” New York Times, February 1, 1996, D1.

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study had come from an consortium of companies opposed to a pending climate change treaty.1147

Models were still more important for the institutions charged with governing the economy, institutions that also provided forecasters’ with their most reliable customers— institution such as the Federal Reserve, which remains an unapologetic devotee of macro modeling. That preference caused a brief outburst among economists in 2014, following the publication of FRB/US, the bank’s core model. As a staffer at the Federal Reserve had explained a few years earlier, FRB/US has “a very central role in macroeconomic analysis at the Board,” where it provides simulations of the consequences produced by shifts in policy and, at a more abstract level, “the intellectual framework around which the staff organizes its thinking about economic developments.”1148 After the full model was published, academic erupted with frustration. Dredging up names from the distant past, one noted, “if Klein and Goldberger were alive, I don’t [think] they would find the FRB/US model an unfamiliar object.”1149 That was precisely the problem.

“Academic macroeconomists haven't used or studied this type of model in decades,” another observed, seemingly embarrassed for both parties.1150 Yet this archaic remnant had survived, and somehow managed to shape policy at the Fed.

1147 John Cushman, “Whether It Creates Jobs or Joblessness, the Agreement Will Affect Everyone,” New York Times, December 12, 1997, A16.

1148 David Stockton, “What Makes a Good Model for the Central Bank to Use?,” manuscript, Federal Reserve Board, 2002. Also see Susan Schmidt Bies, “Behind the Scenes at the FOMC: How the Federal Reserve Determines Monetary Policy” (presentation, the Academic Speaker Series, University of Tennessee, Martin, Tennessee, February 7, 2005).

1149 Stephen Williamson, “The FRB/US Model and Inflation,” Stephen Williamson: New Monetarist Economics, April 9, 2014, available at http://newmonetarism.blogspot.com/2014/04/the-frbus- model-and-inflation.html.

1150 Noah Smith, “The Foxy Fed,” Noahpinion, April 7, 2014, available at http://noahpinionblog.blogspot. com/2014/04/the-foxy-fed_7.html.

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For economists throughout the government, in fact, the models—with their assuring size, easy fit to the national income accounts, and ability to generate a variety of forecasts for the economy as a whole—remained indispensable.1151 They had advocates outside the United States as well—at the United Nations, for example, where Project

LINK continues to be updated. Responsibility for that work has passed to Pingfan Hong, a Chinese economist who received his doctorate from the University of Pennsylvania, where he studied under Lawrence Klein.

And it was not just the models. Paul Volcker had explained the situation well in the 1980s. “We are all Keynesians now,” he said, “in terms of the way we look at things.

National income statistics are a Keynesian view of the world, and the language of economists tends to be Keynesian. But if you mean by Keynesian that we’ve got to pump up the economy, that all these relationships are pretty clear and simple, that this gives us a tool for eternal prosperity if we do it right, that’s all bullshit.”1152 Specific Keynesian policies could be discarded, but the practices they had brought into policymaking— national income statistics, econometric forecasting—were harder to shrug off. So, too, was the imperative that had emerged in tandem with Keynesianism: the need to manage the economy.

One of the most astute explanations for this state of affairs came from a surprising corner. Speaking in 2003, Robert Lucas observed that while the battle over Keynesian models had ended in the academy long ago, victory among the professors had not yielded

1151 For a defense of this adherence, see Vipin Arora, “An Evaluation of Macroeconomic Models for Use at EIA,” Working Paper, December 2013 (U.S. Energy Information Administration), available at http://www.eia.gov/workingpapers/pdf/macro_models-vipin-wappendix.pdf.

1152 Quoted in William R. Nekirk, Volcker: Portrait of the Money Man (Chicago: Congdon and Weed, 1986), 78. Like Heller, Volcker has been neglected by historians.

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the changes in practice that he had hoped. But he did not regard this as an outrage. In fact, he blamed himself, and those who had come after him. Despite their analytic advances, the latest wave of models had weaknesses of their own: “there’s a residue of things they don’t let us think about,” he admitted.1153 The Great Depression in the United

States, the long downturn Japan entered in the 1990s, the financial crises that had shaken countries in Latin America and Asia in the same period—all of that was left in darkness.

“We may be disillusioned with the Keynesian apparatus for thinking about these things,” he said, “but it doesn’t mean that this replacement apparatus can do it either. It can’t.”1154

If officials charged with governing an economy neglected these subjects, they would not last long in their posts. With that audience, an imperfect model that could plausibly claim to yield some insight would always trump mathematically consistent ignorance.

Economic theorists could trust in the market, but economic management required a different way of thinking.

After 2008, Lucas’s catalogue of omissions would have grown even longer. The politics of the economy had their own logics, and they could make for curious partnerships: China and the United States, for instance, both of which instituted quintessentially Keynesian stimulus policies in 2009.1155 By themselves, models offer no guarantee of policy outcomes, as any witness to the fever for that has swept across Europe in recent years can attest.1156 Yet their importance should not be

1153 Lucas, “My Keynesian Education,” 514.

1154 Lucas, “My Keynesian Education,” 514.

1155 , “China Unveils Sweeping Plan for Economy,” New York Times, November 9, 2008, available at http://www.nytimes.com/2008/11/10/world/asia/10china.html.

1156 Paul Krugman provides an exasperated discussion of this point in “The Austerity Delusion,” , April 29, 2015, available at http://www.theguardian.com/business/ng-

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underestimated. They have become part of the vocabulary of policymaking, and mastery of this language grants a distinct kind of power.

In the twentieth century, few revealed the sinews of that power better than

Lawrence Klein. From his first days as a graduate student, his career led him through some of the most important sites dedicated to understanding, and taming, the economy:

MIT, where he helped establish a distinctive theory and politics of the economy its adherents called Keynesian; the Cowles Commission, where the synthesis of cutting-edge mathematics, economic theory, and grand visions of economic planning became an object of widespread devotion; then the nascent field of econometric modeling building, which took him to corporate boardrooms for the WEFA, Jimmy Carter’s White House (at least for the occasional visit), and governments across the world for Project LINK. Klein began this career dedicated to a more radical ambition—not governing the economy, but revolutionizing society. Eventually, he found himself fighting to hold onto what had already been achieved and defending the technicians who could carry on the tradition after he had gone. But he need not have worried. Although the moment that gave rise to the politics of the economy had receded into the past, the commitment to managing the economy endured. So did the experts who attended to this chronically ailing patient—a staff of technicians all the more important for being, to most people most of the time, invisible.

interactive/2015/apr/29/the-austerity-delusion. Mark Blyth takes a longer view in Austerity: The History of a Dangerous Idea (Oxford: Oxford University Press 2013).

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Conclusion

IN DECEMBER 2011, WITH A REELECTION campaign impending and his approval ratings underwater, Barack Obama sought to revive his flagging administration by falling back on the gift that had made his run for the presidency possible in the first place. He would give a speech, a wide-ranging reflection on American politics of the kind that had turned him into a celebrity after the 2004 Democratic National Convention. Frustrated by

Republican intransigence, sniping from fellow Democrats, and his own failure to forge consensus in Washington, Obama wanted to put aside the compromises of his first term and recapture the spirit that had animated his campaign for the White House.1157 The speech also gave him an opportunity to respond to Occupy Wall Street, the movement that had burst into national prominence three months earlier, pushing economic inequality to the forefront of political debate and attracting more than a few disillusioned former

Obama supporters along the way.1158 With his presidency in the balance, one subject loomed in Obama’s mind—and in the title of the address, published by the White House under the heading, “Remarks by the President on the Economy in Osawatomie,

Kansas.”1159

The choice of location had been just as deliberate as the choice of subject. Almost a hundred years earlier, Theodore Roosevelt had traveled to the same Kansas town,

1157 E.J. Dionne, Jr., Why the Right Went Wrong: Conservatism from Goldwater to the Tea Party and Beyond (New York: Simon and Schuster, 2016), 336-341.

1158 Nathan Schneider, Thank You Anarchy: Notes from the Occupy Apocalypse (Berkeley: University of California Press, 2013).

1159 Barack Obama, “Remarks by the President on the Economy in Osawatomie, Kansas,” December 6, 2011, available at https://www.whitehouse.gov/the-press-office/2011/12/06/remarks- president-economy-osawatomie-kansas.

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where he outlined his vision of a “New Nationalism.”1160 Obama cited TR repeatedly in his talk, casting himself as the inheritor of the progressive tradition Roosevelt embodied.

As Obama explained it, when Americans of an earlier generation wrestled with the changes making their country an industrial colossus, Roosevelt had charted a path between extremes. “He praised what the titans of industry had done to create jobs and grow the economy,” Obama said, but he also “understood the free market only works when there are rules of the road that ensure competition is fair and open and honest.”1161

Now Americans had reached another crossroads. Arguing that Republicans offered a “brand of ‘you’re on your own’ economics,” the president insisted that only

Democrats would create “an economy that’s built to last.” Marrying this proposition to a favorite theme of another President Roosevelt, Obama linked economic progress with the recognition of interdependence: “rebuilding this economy based on fair play, a fair shot, and a fair share,” he said, “will require all of us to see that we have a stake in each other’s success.” A vibrant democracy and an expanding economy—this was the progressive agenda that Obama had come to Osawatomie to revive.1162

It was not, however, the progressive agenda Roosevelt had thought he was advocating in Osawatomie a century before. Early in his speech, Roosevelt had connected

“the triumph of a real democracy” with “an economic system under which each man shall be guaranteed the opportunity to show the best that there is in him,” but that was his last

1160 Heather Cox Richardson, To Make Men Free: A History of the Republican Party (New York: Basic Books, 2014), 167-168.

1161 Obama, “Remarks.”

1162 Obama, “Remarks.”

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mention of anything like the economy.1163 Instead, Roosevelt moved on to more pressing matters. An outraged New York Times editorial summarized Roosevelt’s program.

“Taking all corporations under Federal regulation,” “reaching out the Federal hand on all the vast natural resources of the land,” and “intervention regarding sanitation and home life” were just some of his “various schemes.”1164 The paper could have continued: an income tax, inheritance tax, investigation of the causes and possible remedies of financial panics, and an independent commission of experts charged with setting tariffs also made

Roosevelt’s docket. All were united, the Times concluded, by the “obsessing idea that the

Federal Government shall take control of the daily life, the earnings, the property of every American citizen.”

Roosevelt phrased it differently. While he acknowledged that his litany of proposals would enhance the government’s influence over “social and economic conditions,” he depicted the extension of state power as a practical way of promoting “the welfare of the people” and “the right type of good citizenship” in the age of incorporation.1165 Roosevelt believed Americans had not yet figured out how to rethink democracy for this new world, and he intended to confront that fundamental challenge.

Both Roosevelt and Obama portrayed themselves as guardians of the common good, but their understandings of how to carry out that duty were separated by a century that had redefined what it meant to exercise political power. Roosevelt was an archetypal representative from the age of social politics, Obama a creature of the technocratic regime that supplanted it, where the invention of the economy had solved the problem of

1163 Theodore Roosevelt, The New Nationalism (New York: The Outlook Company, 1910), 3.

1164 “Mr. Roosevelt’s Issue,” New York Times, September 11, 1910, 10.

1165 Roosevelt, New Nationalism, 18, 31, 33.

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the corporation. Roosevelt’s speech contained portents of what was to come, and echoes of the past sounded in Obama’s, but they belonged to different worlds.

THE SAME TRANSITION CAN BE FOUND in the writings of the figures charged with filling in the details of the projects sketched by presidents. Start with David Wells, a

Yankee engineer who turned his hand to political economy during the Civil War.1166 An

1864 study conducted by Wells on the Union’s ability to pay off its debts led to the creation of a National Revenue Commission. Wells joined the group, where he presided over early attempts by the federal government to produce economic statistics meant to guide policymaking. After his stint in government, Wells authored a series of books on economic affairs, culminating in the 1889 publication of Recent Economic Changes and

Their Effect on the Production and Distribution of Wealth and the Well-Being of

Society.1167

Wells’s title signaled his concerns: the chasm opening up between classes, and the danger this posed to society. He could not go long without highlighting the immensity of his subject. “The epoch of time under consideration,” he wrote, “will hereafter rank in history as one that has had no parallel.”1168 Groping for a vocabulary that could describe this process, Wells noted the record-breaking “expansion of all that pertains to what is called ‘business,’” and “the now much-talked-of ‘periods’ or ‘cycles’ of panic and speculation, of trade activity and stagnation” that had afflicted the country since the onset

1166 Fred Joyner, David Ames Wells: Champion of Free Trade (Cedar Rapids: The Torch Press, 1939).

1167 David Wells, Recent Economic Changes and Their Effect on the Production and Distribution of Wealth and the Well-Being of Society (New York: D. Appleton and Company, 1889).

1168 Wells, Recent Economic Changes, 465.

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of the panic of 1873.1169 Elsewhere, reflecting the novelty of the vocabulary, he quoted the Economist observing that in 1887 the United States “did a distinctly bigger business” than in 1886.1170 Verifying that claim proved difficult, because in the absence of reliable statistics would-be diagnosticians had to rely on “a general concurrence of opinion.”1171

Undeniable, however, was the reaction all this provoked. Wells termed it “an attack on the whole present organization of society,” quoted one friend who pronounced the existing order a “preposterous fraud” and another who suggested the country was

“unconsciously, and from sheer force of these new elements, drifting fast into a form of actual socialism.”1172 Scientific inquiry provided the only escape from this volatile situation. Americans needed to “to understand the situation as an entirety” so they could devise “remedial action on the part of society for acknowledged societary evils.”1173

Wells believed the mechanics of society had grown so intricate that the slightest interference could derange the whole system, but he recognized the limits of his insight.

More research was needed, perhaps orchestrated by “commissions of great states,” to master this strange new world.1174

Four decades later, one of those commissions published its findings in a volume that was also called Recent Economic Changes in the United States. The similarities in their titles only underscored the distance between the texts. Wells’s book, which brought

1169 Wells, Recent Economic Changes, v, 80.

1170 Wells, Recent Economic Changes, 9.

1171 Wells, Recent Economic Changes, 9.

1172 Wells, Recent Economic Changes, vi.

1173 Wells, Recent Economic Changes, 428.

1174 Wells, Recent Economic Changes, 111.

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together articles previously published in journals like Popular Science Monthly, was a solo effort produced by a self-taught economist. Its successor was the work of a team supervised by arguably the most respected economist in the nation reporting to the future president of the United States. Anxiety emanated from Wells’s pages, while Mitchell’s researchers thrummed with excitement. By 1928, the economic and social transformation that once seemed to endanger civilization now appeared tame. Complete mastery had not been achieved, but apocalyptic rhetoric had given way to confident assurances about the fundamentally sound character of what the report called, just once, the American economy.

Despite everything that separated Wells’s tidy volume and Hoover’s economic encyclopedia, the two shared an important assumption. Hoover intended Recent

Economic Changes in the United States to serve as the prologue to a final opus, the even more ambitious study of society released in 1933 under the title Recent Social Trends in the United States. The confidence in the durability of the status quo that coursed through

Hoover’s earlier survey had cracked under the weight of the Depression, but faith that knowledge of society held the key to unlocking prosperity—that had survived.

Fifteen years later, a very different set of assumptions shaped a book that would familiarize generations of undergraduates with the study of economics. Paul Samuelson’s

Economics: An Introductory Analysis was first published in 1948, the same year its author turned thirty-three. Over multiple editions and subsequent decades, it went on to sell more than four million copies.1175 For its early readers, Samuelson presented an accessible synopsis of what economics was becoming; soon enough, it summarized what

1175 , “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11.2 (Spring 1997), 137.

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economics had become. A partisan of the field that had not yet acquired the label macroeconomics, Samuelson opened by contrasting the devastation of the Depression with the wartime boom that followed. “It is the first task of modern economic science,” he wrote, “to describe, to analyze, to explain, to correlate these fluctuations of national income.”1176 Samuelson used simple mathematics to elucidate the principles an increasing number of his colleagues employed to interpret these shifts. Only after a thorough examination of this subject did he move to the more familiar terrain of supply and demand.

To justify this recalibration of priorities, Samuelson emphasized the political salience of what some of his colleagues had dubbed a “national income approach.”1177

“Perhaps present-day Americans will have no more important civic duty,” he speculated,

“than that of approaching critically the President’s Economic Report to Congress.” Most of his countrymen would not have agreed with that conjecture, but Samuelson hit closer to the mark when he claimed that being able to reflect upon subjects like inflation, unemployment, and the national debt had become a prerequisite for good citizenship.

Hanging over the textbook was a pervasive uncertainty about the economic future.

The first discussion question in the book asked, “How do you expect to fare in the next depression?”1178 “There is no vaccination or advance immunity,” he warned, “from this modern-day plague”—an especially dire threat for an age when successful economic

1176 Paul Samuelson, Economics: An Introductory Analysis (New York: McGraw-Hill Book Company, Inc., 1948), 4.

1177 Hirschman, “Inventing the Economy,” 48.

1178 Samuelson, Economics, vi.

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management had become vital to “the political health of a democracy.”1179 To remind students of how badly policymakers could bungle their analysis, Samuelson cited the experience of the “distinguished committee” that produced Hoover and Mitchell’s Recent

Economic Changes in the United States: “despite their confident expectation that the

American economy would remain in an excellent state of ‘balance’ and ‘dynamic equilibrium,’” he wrote, “this Committee stood unknowingly on the edge of an abyss.”1180

Samuelson excised that reference in later editions of the book. Backward-looking gloom had less of a place in these volumes. As he phrased it in the third edition, published in 1955, while he had earlier focused on depressions, he now stressed “efficient growth and security.”1181 Not all the news was good. The Cold War had split the globe in two, and the enemies of the United States were on the ascent, buoyed by collectivist economies that had slain the business cycle. “Either we learn to control depressions and inflationary booms better than we did before World War II,” he wrote, “or the political structure of our society will hang in jeopardy.”1182 Despite these concerns, Samuelson felt optimistic when he looked ahead. “The American economy is in better shape in the 1950s than it ever was in the past,” he declared, and it could look forward to sustaining that performance in the years to come.1183

1179 Samuelson, Economics, 11, 3.

1180 Samuelson, Economics, 606.

1181 Paul Samuelson, Economics: An Introductory Analysis: Third Edition (New York: McGraw- Hill Book Company, Inc., 1955), vi.

1182 Samuelson, Economics, Third Edition, 321.

1183 Samuelson, Economics, Third Edition, 734.

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Advances in economic theory deserved no small credit for that achievement,

Samuelson believed. National income remained the centerpiece of his analysis. “The whole of our discussion of Part One leads up to and can be summarized by the important concepts of national income or net product,” he wrote, adding for the historically curious that “only in the last 20 years have we had any adequate statistical data on these important concepts.”1184 But he had coined a new term for this approach, one that better captured his theoretical ambitions. Eschewing the Keynesian label, Samuelson announced that “a grand ” had reconciled the two great traditions in economics.1185 “[P]erhaps for the first time,” he wrote, “the economist is justified in saying that the broad cleavage between and macroeconomics has been closed.”1186 From one perspective, this healed a rupture that reached back at least to

Adam Smith; from another, one more attuned to the recent arrival of both

“microeconomics” and “macroeconomics” in the discipline’s lexicon, the timeline was significantly more compressed.

This was more than just an intellectual union. A healthy economy, Samuelson argued, was a precondition for smoothly functioning markets. In his words, “solving the vital problems of monetary and fiscal policy by the tools of income analysis will validate and bring back into relevance the classical verities.”1187 Twentieth-century economists had invented devices that could make the world their nineteenth-century predecessors had foreseen into a reality.

1184 Samuelson, Economics, Third Edition, 184.

1185 Samuelson, Economics, Third Edition, vi.

1186 Samuelson, Economics, Third Edition, 360.

1187 Samuelson, Economics, Third Edition, vi.

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While Samuelson did not predict that arguments over economics would die out, he hoped a consensus among economists would provide a shared framework for political debates. “There is not one theory of economics for Republicans and one for Democrats,” he wrote, “not one for workers and one for employers”—just as there had never been, contrary to Nazi assertions, a Jewish physics and a German physics.1188 Transcending political divisions was as much a part of making economics into a proper science as the increasingly sophisticated mathematics used by the discipline’s rising stars. Already, the mixture of countercyclical monetary and fiscal policies that served as the practical corollary of the neoclassical synthesis was gaining ground outside the Soviet bloc. All of this was underpinned by economists’ distinctive vantage point—their ability, in

Samuelson’s words, to see “the working of the economy as a whole.”1189

The neoclassical synthesis was the economic counterpart to the much-vaunted liberal consensus of the postwar boom years, and it fared just as poorly in the fractured decades that followed. But Samuelson’s volume continued to set the standard against which new textbooks were judged. Though he revised it to reflect changes in the political climate, pushing back the explication of macroeconomics and moving supply and demand forward, his focus on the economy as a whole remained part of the book’s analytic core.

That would also be the case for the work that replaced it as the intellectual trendsetter in the field, Gregory Mankiw’s Principles of Economics. Published to much anticipation in

1997, almost half a century after Samuelson made his debut, Mankiw’s textbook began with an etymology of its chief subject: “The word economy,” he wrote, “comes from the Greek

1188 Samuelson, Economics, Third Edition, 5.

1189 Samuelson, Economics, Third Edition, 7.

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word oikonomos.”1190 In a list of reasons justifying the study of economics, Mankiw led with the claim that it would answer “many questions about the economy that might spark your curiosity,” followed it up by noting that “it will make you a more astute participant in the economy,” and concluded by observing that it would help students decide their positions on questions political leaders faced, such as “How does a government budget deficit affect the economy?”1191 Aspiring intellectuals, entrepreneurs, and politicians all had something to discover because they were all part of the economy.

Old standbys of Samuelson’s exposition of the economy also made their way into

Mankiw’s discussion. Both, for example, mapped the circular flow of dollars through an economy with what Mankiw called “a very simple model of the economy.”1192

Figure 1: Paul Samuelson and Gregory Mankiw’s circular-flow diagrams.1193

1190 N. Gregory Mankiw, Principles of Economics: 7th Edition (Stamford: Cengage Learning, 2014), 3.

1191 Mankiw, Principles, xi.

1192 Mankiw, Principles, 23.

1193 Paul Samuelson, Economics: An Introductory Analysis: Seventh Edition (New York: McGraw- Hill Book Company, Inc., 1967), 171; Mankiw, Principles, 23.

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The circular-flow model had distant roots in François Quesnay’s tableau économique, but where the Frenchman’s illustration had been inscrutable even to his followers, no special training was required to grasp Mankiw’s diagram. Unlike Quesnay’s tableau, it fit seamlessly into a larger intellectual infrastructure built by a community of researchers over generations. “To understand how the economy works,” Mankiw insisted, “we need a model that explains, in general terms, how the economy is organized and how participants in the economy interact with one another.”1194 Modeling had had become the essence of economics around the same time the first edition of Samuelson’s textbook appeared, and in Mankiw’s hands the circular-flow diagram became an introduction to the practice of economics. An obscure idiosyncrasy in the eighteenth century had become the foundation of the discipline.

Then there was the question of audience. In less than two decades, Mankiw’s

Principles has sold more than a million copies and been translated into twenty languages, providing him with a readership Quesnay could only have imagined.1195 At $280 each, it also turned a tidy profit, earning its author, by one estimate, more than $40 million.1196

The textbook is just one element of Mankiw’s public profile. The Harvard professor frequently consults with prominent Republicans, writes regularly for the New

York Times, runs a popular , and teaches one of his university’s most popular

1194 Mankiw, Principles, 22.

1195 “Biography,” available at http://scholar.harvard.edu/mankiw/biocv.

1196 , “A $280 Textbook Busts Budgets, but Harvard Author Gregory Mankiw Defends Royalties,” The Oregonian, February 12, 2015, available at http://www.oregonlive.com/education/index.ssf/2015/02/a_280_college_textbook_busts_b.html.

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courses—introductory economics.1197 He also exercises a subtler kind of influence.

Though a Mitt Romney adviser in 2012, he took comfort after the election in Barack

Obama’s choice to head the Council of Economic Advisers: , who had written a doctoral dissertation at Harvard under the supervision of one Gregory

Mankiw.1198

Except for his reluctance to dabble in private consulting, a standard practice among his colleagues that earnings from his textbook make less tempting, Mankiw is a characteristic representative of the elite economist in the twenty-first century.1199 The demarcations between the state, the academy, and the corporate world are clear in theory, but the most respected economists move across them, shuttling from government posts to lucrative positions in business and finance, all while maintaining footholds in their universities. They are part of an informal but cohesive system that effaces the boundaries that supposedly divide public and private.1200 It is no coincidence that Mankiw’s resume

1197 N. Gregory Mankiw, “Know What You’re Protesting,” New York Times, December 3, 2011, available at http://www.nytimes.com/2011/12/04/business/know-what-youre-protesting-economic- view.html.

1198 N. Gregory Mankiw, “Politics Aside, a Common Bond for Two Economists,” New York Times, June 29, 2013, available at http://www.nytimes.com/2013/06/30/business/politics-aside-a-common- bond-for-two-economists.html.

1199 N. Gregory Mankiw, “My Ten Principles of Time Management,” ’s Blog, May 27, 2006, available at http://gregmankiw.blogspot.com/2006/05/my-ten-principles-of-time- management.html; Read, “A $280 Textbook.”

1200 James Ferguson, The Anti-Politics Machine: Development, Depoliticization, and Bureaucratic Power in Lesotho (Cambridge: Cambridge University Press, 1990) offers a parallel discussion of what could be called an economic-knowledge machine. For the United States, see Mary Furner and Barry Supple, eds., The State and Economic Knowledge (Cambridge: Cambridge University Press, 1990); The State and Social Investigation in Britain and the United States, ed. Michael Lacey and Mary Furner (Cambridge: Cambridge University Press, 1993); Dietrich Rueschemeyer and Theda Skocpol, ed., States, Social Knowledge, and the Origins of Modern Social Policies, ed., (Princeton: Princeton University Press, 1996); and Alice O’Connor, Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth- Century U.S. History (Princeton: Princeton University Press, 2001). The best examination of this institutional apparatus at work in economics remains Philip Mirowski, Machine Dreams: Economics Becomes a Cyborg Science (Cambridge: Cambridge University Press, 2002).

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includes stints at two organizations that embody this fusion of supposedly contradictory imperatives: the NBER and the Federal Reserve.

Mankiw’s gift for simplifying complex economic arguments, expertise in macroeconomics, and faultless credentials all made him an attractive candidate for the role of Samuelson’s successor; they also led George W. Bush to select him in 2003 as chairman of the Council of Economic Advisers. At Mankiw’s inauguration ceremony, his four-year-old son tottered over to the President and delivered a warning. “Don’t be mean to my daddy,” young Peter Mankiw said. Bush’s response was less than reassuring: “As long as the economy improves.”1201

THE ENSEMBLE OF FORCES THAT SHAPES the production of economic knowledge today—and makes a career like Mankiw’s possible—first came together in the United

States at the turn of the twentieth century. At the time, the only person employed by the federal government with the title of economist was an “economic ornithologist.”1202 By

World War II, that number had ballooned to five thousand. Despite an initial retreat in peacetime, when economists returned to the academy, by the 1970s the total was back at wartime levels, where it has stayed ever since. And the federal government is just one of the prospective employers vying for the attention of talented economists.

1201 David Leonhardt, “Into the Politics of Economics,” New York Times, June 22, 2003, available at http://www.nytimes.com/2003/06/22/business/into-the-politics-of-economics.html.

1202 James Lacey, Keep From All Thoughtful Men: How U.S. Economists Won World War II (Annapolis: Naval Institute Press, 2011), 32.

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Figure 2: Economists in United States federal government, excluding Congress and the Federal Reserve, 1955-2002.1203

Consider the Federal Reserve 1204 Today, it includes over two hundred economists on its payroll in Washington D.C. and about 250 more at the regional banks scattered across the country.1205 The importance of these regional banks should not be underestimated: the St. Louis branch of the Federal Reserve supplied an important incubator for monetarism, and the Minneapolis bank served a parallel function for rational expectations theory. But the staff at the Federal Reserve Board alone is a larger supporter of economic research than any university. Federal Reserve economists

1203 Fourcade, Economists and Societies, 110.

1204 Although scholarship on the Federal Reserve remains underdeveloped, but for its recent history two of the best accounts of the institution’s recent history have come from journalists: William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon & Schuster, 1989) and Neil Irwin, The Alchemists: Three Central Bankers and a World on Fire (New York: Penguin Group, 2013). For a more analytic perspective, see Alasdair Roberts, The Logic of Discipline (Oxford: Oxford University Press, 2010).

1205 Timothy Shenk, “The Only Game in Town?,” The Nation, March 7, 2016, 31. The following pages draw on both this essay and “Apostles of Growth,” The Nation, November 24, 2014, 17-28.

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specialize in James Tobin’s “practical macroeconomics,” and they are supervised in this work by Tobin’s former student, and current Federal Reserve Chair, .

It is easy to think of economists as just another kind of academic, like philosophers who happen to deal with money. That analogy had some merit in the time of

John Stuart Mill, the quintessential philosopher-economist. Over the course of the twentieth century, however, economics became a different kind of undertaking— something much more like medicine, another profession built out of mixing the public, the private, and the scientific. Economists traded in their philosophical aspirations and refashioned themselves as doctors of markets and the economy. Yet forsaking these ambitions gave economists a credibility that turned them into the closest thing the country had to public philosophers. That combination of intellectual power, practical influence, and career security has also made economics into one of the country’s most popular majors, arousing a passion for the subject that could surprise even economists: in the aughts, one father informed his daughter, an undergraduate at Stanford, that unless she graduated with a degree in economics he would divorce her mother.1206

Such success (and family psychodrama) exceeded anything Irving Fisher and

Wesley Mitchell could have envisioned when they called for an institute devoted to economic research at the end of World War I. As the years passed—through slumps and booms, intellectual failures and triumphs—the strangely coherent hodgepodge of institutions undergirding the production of economic research continued to grow. Starting with tentative first steps, it moved to a confident stride and, eventually, a headlong sprint that continues to this day. Fisher and Mitchell, along with Gardiner Means and Lauchlin

1206 Julie Lythcott-Haims, “Kids of Helicopter Parents Are Sputtering Out,” Slate, July 5, 2015, available at http://www.slate.com/articles/double_x/doublex/2015/07/helicopter_parenting_is_ increasingly_correlated_with_college_age_depression.html?wpsrc=sh_all_dt_tw_top.

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Currie, Simon Kuznets and Alvin Hansen, Wassily Leontief and Jan Tinbergen,

Lawrence Klein and Robert Lucas, were some of the most acute observers of this evolution, and they did their part to hasten its acceleration.

Though often portrayed as an apolitical endeavor, this transformation had a profound impact on the practice of politics. In the era of Theodore Roosevelt and

Woodrow Wilson, economic management proceeded along discrete tracks—one for tariffs, another for currency, another for trusts. What agenda, if any, could turn these disparate subjects into a unified economic program remained uncertain. The political goals were clear, the means for achieving them opaque. That ambiguity persisted in the

1920s. Though it was an era filled with obituaries for the business cycle, questions persisted about what powers the government could bring to bear on this phenomenon, as did arguments over what part the Federal Reserve should play in this emerging program.

New Dealers built upon foundations Hebert Hoover’s team had laid, in part because so many of them moved easily from one administration to the next. Yet the problem of making a cohesive politics of the economy endured throughout Franklin

Roosevelt’s time in the White House. Caught between conflicting imperatives—revive expansion or accept the limits of economic maturity—Roosevelt’s team made little progress in this goal during his first term. But talk of the economy had exploded, and a litany of bold plans for bringing order to its workings had followed. Distinctions between capitalism and socialism appeared shakier by the day—if either of those concepts could be trusted to make sense of the new order coming into sight.

A comprehensive analysis of the economy with practical methods that could be used to implement its recommendations emerged under the sign of Keynesianism.

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Preoccupied with unemployment, confident in the efficacy of fiscal policy, and centered in the White House, with due consideration for Congress, this was the first true program for governing the economy in American history. It did not preclude aggressive economic planning, but it did undercut assertions that such planning was indispensable for managing a modern economy.

When the expected postwar depression turned into an unprecedented boom, the fears of unending stagnation that had accompanied the first theorizing of the economy melted away, replaced by vistas of perpetual growth. Samuelson’s neoclassical synthesis provided one marker of the time’s optimistic temper; the craze for econometric modeling that propelled the career of his student, Lawrence Klein, offered another. Instead of clearing a path for detailed economic interventions, prosperity encouraged political leaders to move their attention elsewhere. With economic growth assured, Lyndon

Johnson promised a Great Society, not a Great Economy. Economists, meanwhile, saved monetary policy from the disrepute it had fallen into during the Depression, making it fiscal policy’s equal partner in economic governance. Taxes and interest rates provided levers that experts could manipulate, allowing them to set the economy’s course at an

Olympian remove.

The twinned ascents of inflation and unemployment in the 1970s brought economists back to earth. Yet the reaction to stagflation proved as much a surprise as the phenomenon itself. Alan Greenspan, head of Gerald Ford’s Council of Economic

Advisers, later recalled that “anyone who could have foreseen 9 percent unemployment would have expected massive demonstrations and barricades in the streets.”1207 Instead, discontented focused on rising prices. Without formal legislative action, responsibility for

1207 Greenspan, Age of Turbulence, 71.

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stabilizing the economy shifted to the Federal Reserve. At a moment rife with complaints about unruly electorates and the spineless politicians who appeased them, transferring authority to central bankers promised to drain the politics from policymaking. At the same time, it passed responsibility for the pain inflicted by monetary tightening onto bureaucrats protected from irate voters.

Persistent inflation is an accepted fact of life today, but in the middle of the twentieth century it was still a novel phenomenon. Prices had risen and fallen across the nineteenth century, but they had demonstrated more stability over longer horizons: in the

United States, the price level in 1910 was about the same as it had been forty years earlier.1208 Inflation had not figured in the debates over the Federal Reserve’s creation because legislators assumed the gold standard would determine the price level in the long run. But decades of change—the breakdown of the gold standard, the ascent of robust welfare states, and the growing conviction that small increases of inflation could boost employment—had created an environment more vulnerable to climbing prices. With both interest rates and inflation running high, central bankers had a problem to solve and a blunt but effective set of tools for solving it.

The Fed was not stealing power; it was filling a vacuum. Hamstrung by deficits that exploded under Ronald Reagan, neither Congress nor the President could propose a credible alternative program. Not even members of the Fed seemed prepared for the powers all but thrust upon them. “It is wrong for the Federal Reserve to try to run the economy, but that’s the position we were put in,” said Frederick Schultz, Vice Chairman

1208 National Bureau of Economic Research, Index of The General Price Level for United States, retrieved from FRED, Federal Reserve Bank of St. Louis, available at https://research.stlouisfed.org/fred2/series/M04051USM324NNBR.

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of the Fed from 1979 to 1982. “It’s wrong, but there we are—struggling to be the economic czars for the entire country.”1209

Those anxieties waned under Alan Greenspan’s watch. Average growth rates were lower than in the postwar boom, but stability was greater, and inflation controlled.

Even former opponents marveled. Asked to explain the Fed’s improved performance,

Milton Friedman said, “I’m baffled. I find it hard to believe.” In the 1960s, Greenspan was a skeptic of Keynesians in Washington who believed fiscal policy could tame the business cycle.1210 Thirty years later, he used monetary policy to achieve the same goal.

Greenspan was a different kind of expert operating a different set of instruments, but this acolyte of Ayn Rand—and former student of Wesley Mitchell’s protégé Arthur Burns— had become the country’s de facto economic planner.

THE FED HAD TRANSFORMED, and so had the typical Fed official. A half century ago, the archetypal monetary policymaker was a financier who had spent time in the government bureaucracy, or vice versa. Over the last generation, a different kind of expert has risen in stature. Combining the claims to expertise of the Wall Street alum with the impartiality of the academic, economists gained unprecedented sway over policymaking across the world. A survey of government leaders in 160 countries found that by 1998 about half of them had an economics degree, and that 16 had a doctorate in the subject from a university in either the United States or Europe.1211 The links being

1209 Quoted in Greider, Secrets of the Temple, 425.

1210 “An Interview with Milton Friedman,” in Inside the Economist’s Mind: Conversations With Eminent Economists, eds. Paul Samuelson and William Barnett (Oxford: Blackwell Publishing, 2007), 115.

1211 Fourcade, “Global Profession,” 167.

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forged between academic economics and the exercise of political power quickly became evident to even the profession’s newest recruits. “Two students here came up to me and said that they wanted to rule the world,” a graduate student in Harvard’s economics department told an interviewer in 1985. “They were serious.”1212

Yet the growing influence of economists coincided with a mounting anxiety over the state of their profession. In 1991, a commission established by the American

Economics Association warned that economics departments had become manufacturers of “idiots savants.”1213 Mathematics had become the vernacular of economics in the middle of the twentieth century, but the leaders of this earlier turn feared they had unleashed a monster.

An empirical turn resolved this predicament in the decade that followed. Today, economists are more likely to praise colleagues for statistical ingenuity than baroque mathematics. Less concerned with the behavior of prices, economists have expanded their purview to cover the study of incentives construed in the broadest sense.

Experimental economics has made laboratories and randomized control trials into agents of economic inquiry, while expanding computer power has turned calculations that once required days of effort by teams of researchers into tasks that can be completed with a few clicks on a keyboard. Meanwhile, the emergence of has opened new lines of communication with psychologists, and led an increasing number of economists to discard assumptions about rational utility maximizers for more complicated models of human behavior. In the age of Freakonomics, the discipline

1212 Arjo Klamer and David Colander, eds., The Making of an Economist (Boulder: Westview Press, 1990), 95.

1213 Anne Krueger, “Report of the Commission on Graduate Education in Economics,” Journal of Economic Literature 29.3 (September 1991), 1044.

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covers a larger range of subjects, but it does so with greater confidence in its analytic core.1214

Reinventing microeconomics, however, did little to address the problems facing macroeconomists. By 2000, the fevered conflict between Keynesians and their opponents that had defined the previous generation of macroeconomics had waned, replaced by what one much-cited article labeled, with echoes of Samuelson, a “new synthesis.”1215

Acceptance of a specific kind of —dynamic stochastic general equilibrium, or DSGE—provided the basis for a rapprochement. DSGE models used technical innovations pioneered by Lucas and his followers but they could justify conclusions that retained a place for countercyclical economic management. Chicago won the battle over theory, MIT the argument over policy. The models require simplifications that even their proponents admit strain credulity, but these assumptions allow them to attain greater mathematical sophistication, trading empirical precision for theoretical rigor.1216

After 2008, the limits of this approach—and of contemporary macroeconomics more generally—came into the foreground. Economists who had moved into

1214 David Colander, ed., The Making of an Economist, Redux (Princeton: Princeton University Press, 2007); Rodger Backhouse, “Economics” in The History of the Social Science Since 1945, eds. Roger Backhouse and Philippe Fontaine (Cambridge: Cambridge University Press, 2010), 38-70; , Misbehaving: The Making of Behavioral Economics (New York: W.W. Norton and Company, 2015); , Economics Rules: The Rights and Wrongs of the Dismal Science (New York: W.W. Norton and Company, 2015); Peter Spiegler, Behind the Model: A Constructive Critique of Economic Modeling (Cambridge: Cambridge University Press, 2015).

1215 Michael Woodford, “ in Macroeconomics: Elements of the New Synthesis,” American Economic Journal: Macroeconomics 1.1 (January 2009), 267-279.

1216 , “How Did Economics Get That Way and What Way Did It Get?,” Daedalus 126.1 (Winter 1997), 39-58; Paul Krugman, “How Did Economists Get It So Wrong?,” New York Times Magazine, September 6, 2009, 36-43; Building a Science of Economics for the Real World: Hearing Before the Subcommittee on Investigations and Oversight: Committee on Science and Technology, 111th Congress (July 20, 2010); John Cochrane, “Lucas and Sargent Revisited,” The Grumpy Economist, July 17, 2014, available at http://johnhcochrane.blogspot.com/2014/07/lucas-and-sargent-revisited.html.

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policymaking were especially severe critics. “In September 2008, central bankers were in desperate need of a playbook,” said Narayana Kocherlakota, former president of the

Federal Reserve Bank of Minneapolis.1217 “Macroeconomics should have been able to provide that playbook. It could not.” According to Lawrence Summers, former Secretary of the Treasury and head of Barack Obama’s National Economic Council, the field

“abstracts away from most of what is important” and has not “informed the policy making process in any important way.”1218 In a 2010 interview, one former Fed official dismissed the fashionable models as “a caricature that’s so silly that you wouldn’t want to get close to it if you were a policymaker.”1219 In the summer of 2010, the barrage grew loud enough to prompt the House of Representatives to hold a hearing on the failures of

DSGE models and consider what a committee report termed more “realistic” options.1220

Judgments from within the academy could be just as harsh. “We are digging ourselves deeper and deeper into a fantasyland,” wrote MIT economist Ricardo Caballero in 2010.1221 Caballero’s language was dramatic but not exceptional. A graduate student in

Caballero’s department had remarked a few years earlier that his courses in macro were

“pretty worthless,” adding, “We don’t see why we have to do it, because we don’t see

1217 Narayana Kocherlakota, “Modern Macroeconomic Models as Tools for Economic Policy,” The Region (May 2010), 5.

1218 Lawrence Summers, “Advanced Economies Are so Sick We Need a New Way to Think About Them,” Washington Post, November 3, 2015, available at https://www.washingtonpost.com/news/wonk/wp/2015/11/03/larry-summers-advanced-economies-are-so- sick-we-need-a-new-way-to-think-about-them/; “A Conversation on New Economic Thinking,” Larry Summers, April 8, 2011, available at http://larrysummers.com/commentary/speeches/brenton-woods- speech/.

1219 Mark Sniderman, “Interview With Laurence Meyer,” Forefront 1.3 (Fall 2010), 24.

1220 Building a Science of Economics for the Real World, 5.

1221 Ricardo Caballero, “Macroeconomics after the Crisis: Time to Deal With the Pretense-of- Knowledge Syndrome,” Journal of Economic Perspectives 24.4 (Fall 2010), 90.

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what is taught as a plausible description of the economy.”1222 One of his colleagues had a shorter explanation: “Macro sucks.”1223

Despite the complaints over the state of macroeconomics, the importance of governing the economy went unquestioned. If anything, harsh economic times pushed the economy even further into public consciousness. As one frustrated liberal political consultant observed, both Republicans and Democrats were “absolutely guilty of . . . putting ‘the economy’s’ needs and desires and wants—as if it were our crotchety uncle— ahead of everything else.”1224 The term was just as likely to appear in the wider culture, whether mass (one character in a popular sitcom fumed, “the economy stinks, bees are dying, movies are pretty much all sequels now”) or highbrow (an acclaimed short-story collection featured grumbles about “self-important snobs from their effete enclaves, bringing the entire economy with them”).1225 Those sentiments were reinforced by the

President of the United States. Coming off his 2012 victory, where for the second time he had won an election in which most voters listed the economy as their most important concern, Barack Obama issued this announcement in the first State of the Union address of his new term: “A growing economy that creates good, middle class jobs, that must be the north star that guides our efforts.”1226

1222 Colander, ed., Making of an Economist, Redux, 169.

1223 Colander, ed., Making of an Economist, Redux, 174.

1224 Josh Eidelson, “Don’t Say ‘Government Shutdown’! How the Left Gets Rolled by Tea Party Talk,” Salon, October 9, 2013, http://www.salon.com/2013/10/09/dont_say_government_shutdown_how_ the_left_gets_rolled_by_tea_party_talk/.

1225 “Synopsis for ‘New Girl’: Backslide (2012),” IMDb, available at http://www.imdb.com/title/tt2367667/synopsis; Greg Jackson, Prodigals (New York: Farrar, Straus, Giroux, 2016), 72-73.

1226 Barack Obama, “Address Before a Joint Session of Congress on the State of the Union,” February 12, 2013, available at http://www.presidency.ucsb.edu/ws/index.php?pid=102826.

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PERVASIVE AS THE ECONOMY APPEARED, there was something fragile in its ubiquity. Paul Krugman, the New York Times columnist and Nobel Prize winning economist, captured both facets of this phenomenon in two entries published less than half an hour apart on his widely read blog. Describing a recent drive along the New

Jersey Turnpike, Krugman wrote that during the trip, he “had one of those moments when the sheer scale of the world economy hit me.” Not even his doctorate from MIT had equipped him with the tools he needed to understand such a leviathan. He had been trained to “analyze this gigantic system using stylized little models that reduce all this vastness to a couple of intersecting lines,” but in truth “nobody can picture the reality of our getting and spending.”1227 Twenty-three minutes later, Krugman was up with another

1227 Paul Krugman, “The Scale of Things,” The Conscience of a Liberal, July 6, 2015, available at http://krugman.blogs.nytimes.com/2015/07/06/the-scale-of-things-personal-and-trivial/.

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post, this one warning, “if you believe that officials have the economy—any economy— under control, you’re setting yourself up for a big disappointment.”1228 An object that had to be governed but could not be commanded, that was everywhere and nowhere at the same time—the economy seemed both more secure and less certain than ever.

Discussion of the economy can quickly take on a metaphysical cast, but the concept attained its centrality because of a particular set of assumption that converged at a specific moment—assumptions that are increasingly dubious, and a moment that is receding farther into the past. For a generation scarred by the Great Depression, economic growth seemed like a panacea. With a rising tide lifting all boats, the lives of every American could be trusted to improve. From the aftermath of World War II through the 1970s, most of the total earnings from economic expansion flowed to the bottom 90 percent of Americans. That came to an abrupt end in the 1980s. Although the

Clinton years posted marginally better tallies on this front than the Reagan era, the record since 2001 has been abysmal, and the worst has come under Obama. From 2009 to 2012, the last year with reliable data, incomes for the lower 90 percent have declined, while those for the top 10 percent have increased at a healthy clip, with the greatest accruing to the top one percent and above.1229

1228 Paul Krugman, “Delusions of Control,” The Conscience of a Liberal, July 6, 2015, available at http://krugman.blogs.nytimes.com/2015/07/06/delusions-of-control/. 1229 Neil Irwin, “The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans,” The Upshot, September 26, 2014, available at http://www.nytimes.com/2014/09/27/upshot/ the-benefits-of-economic-expansions-are-increasingly-going-to-the-richest-americans.html.

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Figure 3: GDP per capita and median family income, 1947 to 2007.1230

While the benefits of economic growth for the average American have become increasingly fuzzy, the costs have snapped into focus. Before the Industrial Revolution, economic growth was held in check by the pace at which animals could labor, crops mature and soil recover from depletion (or unexploited territories be acquired). Shifting to fossil fuels—first coal, then oil—upended that system. Energy previously supplied by immense tracts of land worked over decades now came from lumps of coal formed over millions of years. Thus commenced a revolution of economic time and space, with exponentially rising energy consumption propelling economic growth, a flight from the countryside to towns and cities, and a population explosion. Though restricted in the nineteenth century for the most part to Europe and the United States, that revolution has since spread across the planet. Between 1950 and 2000, the world’s population more than

1230 Lane Kenworthy, “Slow Income Growth for Middle America,” Lane Kenworthy, September 3, 2008, available at http://lanekenworthy.net/2008/09/03/slow-income-growth-for-middle-america/.

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doubled, petroleum consumption more than tripled, and the global economy expanded sevenfold. Meanwhile, the amount of carbon dioxide in the atmosphere rose by almost a fifth. That has prepared the way for an as yet undetermined statistic: how far and how fast the earth’s temperature will climb.1231

Figure 4: Fossil-fuel based carbon emissions, 1900-2011.1232

“There is no mystery to what an economy is,” Gregory Mankiw’s textbook informs students. “Whether we are talking about the economy of Los Angeles, the United

States, or the whole world, an economy is just a group of people dealing with one another as they go about their lives.”1233 Others are not so sure. “The economy is our god today,” the Bishop of London said in 2013, “but we have no idea what it means.”1234 Both are

1231 Fredrik Albritton Jonsson, “The Origins of Cornucopianism: A Preliminary Genealogy,” Critical Historical Studies 1.1 (Spring 2014), 164; Angus Maddison, The World Economy: Historical Statistics (Paris: OECD Publications Service, 2003), 226.

1232 United States Environmental Publication Agency, “Global Greenhouse Gas Emissions Data,” available at https://www3.epa.gov/climatechange/ghgemissions/global.html.

1233 Mankiw, Principles, 4.

1234 Martin Vander Weyer, “Bishop of London Richard Chartres on bankers, Occupy and Justin Welby,” Spectator, May 11, 2013, available at http://www.spectator.co.uk/2013/05/delphic-wisdom-for- bankers-from-the-bishop-in-the-library/.

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right. The economy is one way to interpret the collision of forces—social, ecological, economic, political, technical, and cultural—that makes up collective life. In an age when other terms that had once brought order to this assemblage—notions like society, and history itself—fragmented in popular discourse, the economy loomed more prominently than ever, so unavoidable that children felt qualified to weigh in on the subject, even if they could not quite spell it. Inevitably, different people imbued it with different meanings. Tracing the concept’s genealogy shows that much. But examining the surprisingly short life of the economy also demonstrates that the categories used to understand the world have changed before, sometimes abruptly—and no history can reveal what comes next.

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