How FDR Learned to Stop Worrying and Love Keynesian Economics

By Tim Price |

FDR once thought austerity was the answer, but he quickly learned how wrong he was.

As European leaders watch their austerity measures generate economic setbacks and pain at the polls, they’re re-learning a lesson that FDR also learned the hard way: Balancing a budget during an economic crisis might sound like a nice idea in theory, but the real-life consequences are a killer. While FDR is today remembered as a president who embraced Keynesian economics with programs like the Works Progress Administration and the Civilian Conservation Corps that helped lead America out of the Great Depression, he started out as something of a deficit hawk. To explain this forgotten chapter in history, our partners at the FDR Library have put together this illuminating (and perhaps surprising) resource on Roosevelt’s evolving fiscal policy, including copies of some original documents from the period.

They note that “FDR began his 1932 campaign for the presidency espousing orthodox fiscal beliefs” and “believed that a balanced budget was important to instill confidence in consumers, business, and the markets, which would thus encourage investment and economic expansion.” But as the severity of the Great Depression became clear, he recognized that emergency relief programs were a necessity no matter the cost. Speaking at a campaign rally in 1936, he declared that “to balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people… When Americans suffered, we refused to pass by on the other side. Humanity came first.” As the economy began to improve, he eventually gave in to conventional wisdom and tried to cut back on spending, triggering the so-called Roosevelt Recession of 1937.

Duly chastened by the painful effects of his attempt at balancing the budget, FDR was persuaded to embrace the theories of John Maynard Keynes and called for more deficit spending beginning in 1938 and continuing throughout World War II. His change of heart culminated in his famous speech calling for an Economic Bill of Rights in 1944, in which he said, “We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.”

As Roosevelt Institute Senior Fellow David Woolner has noted, what’s important about this story is that FDR learned from his mistakes and changed course when he saw that orthodox economic theory wasn’t working. The question is, will today’s leaders show the same wisdom and courage?

Click here to read the FDR Library’s full explainer, “FDR: From Budget Balancer to Keynesian.”

Tim Price is the Roosevelt Institute's Editorial Director.