A working site for research and writing on the thinkers who developed the system that works.

Saturday, February 28, 2009

Leon Keyserling, the New Deal and the Postwar Prosperity

A manifesto


Employment and the "New Economics"

Leon H. Keyserling Council of Economic Advisers
The main focus of national economic and related social policies should be upon federally guaranteed full em ployment and a federally initiated nationwide system of guar anteed income for those who cannot be brought within the employment stream. Progress toward these objectives will add more to personal development and national achievement than a further proliferation of marginal programs called "new." Full-time unemployment should be reduced to about 2 per cent of the civilian labor force, and the true level of unemployment to about 3 to 3.5 per cent. Full employment, optimum eco nomic growth, and optimum allocation of resources, in line with the great social priorities of national needs, are inseparable objectives and do not involve much programmatic differentia tion. The prevalent view that these objectives involve exces sive or even enlarged inflationary pressures is not justified by empirical observation. The drive against "inflation" thus far has inflated the fat and starved the lean. The aggregate and structural approaches to full employment need a new synthesis. We need, particularly under the aegis of the Employment Act of 1946, a ten-year budget of our needs and resources. All na tional public policies importantly affecting resource-allocation, including the federal budget, should be made an integral part of this long-range budget. The core problem for the years ahead is to maintain that one increasing purpose in our national life which is essential if we are to realize the promise of America.

The ANNALS of the American Academy of Political and Social Science, Vol. 373, No. 1, 102-119 (1967)
DOI: 10.1177/000271626737300105

Monday, February 9, 2009

Leon Keyserling on the Fed - 08.12.09


Throughout the recorded history of mankind, there have been periods when certain institutions or other citidels of power became what might be called "sacred cows." Although the damage they did far exceeded the benefits, their strongly positioned defenders prevented effective challenge to their misdeeds, or at least reduced the challenge to an ineffectual whisper. Very few people, unlike the child in the wellknown fable, dared to raise their voices and point out that "the king has no clothes on."

The outstanding example of this in the United States has become the Federal Reserve Board and System ... created in 1913 during the first Administration of Woodrow Wilson. It would be interesting and instructive to trace in detail the many times since 1913 when the Fed has instituted policies so erroneous and impervious to real needs that great hurt has been done to the economy and to the American people. Before and during the Great Depression, the smaller depression of 1920-1922, and the economic stagnations and recessions since 1953, the Fed has been a main contributor to the oncoming of economic and related social disaster or lesser calamity and to their aggravation and protraction.


The opening of Leon Keyserling's "Money, Credit and Interest Rates: Their Gross Mismanagement by the Federal Reserve System," 1980, published by the Conference on Economic Progress.


Treatment of ... technicalities is not necessary to describe and appraise the practical consequences of the two basic things which the Fed is doing or attempting to do, which are to determine or predominantly influence the availability of money and credit and rates of interest. Indeed, the excessive focus upon ... technicalities involves recognition that the general public cannot really be well-informed about them, and all too frequently is based upon awareness that this excessive focus maintains the unchallenged authority of the "sacred cow." This leads the trusting public to believe that it must let those in authority do as they please, because only they and other experts or so-called experts can possibly understand what it is all about.

Leon Keyserling - Bio Sketch from W. Robert Brazelton

                                    W. ROBERT BRAZELTON, PHD.
                                                            Preliminary: Not for general distribution.

            Leon H. Keyserling had a primary goal in terms of economic policy—constant, full employment/output growth.  This appeared in his writings, his critiques before numerous Congressional Committees from the 1930’s , the 1940’s until his death in 1987;   and as Chairman of the  Council of Economic Advisors  to President Truman, 1949-53.  Before Keyserling had been responsible for the New Deal/Fair Deal Legislation as a principle author of several important  Congressional  Bills/Acts, such as: the Public  Works Act of Senator  Robert Wagner (D, NY) with whom Keyserling was closely connected; The National Industrial Recovery Act, 1935; The National Labor Relations Act( The Wagner Act), 1935; U.S. Housing Acts—an important part of Keyserling’s   policies for full employment, countercyclical policy, and decent housing, 1937 and afterwards; The Employment Act of 1946: General Housing Act of 1949, Full Employment and Balanced Growth Act ( The Humphrey-Hawkins Act), 1977 and others (Brazelton, 2001, p. 160).

            Keyserling received his primary economics at Columbia University of New York City under the Institutionalist, Rexford Guy Tugwell both as an  undergraduate and, after his Law Degree for  Harvard University( 1931), as a doctoral student having returned to Columbia.  Having been taken to Washington , D.C. by Tugwell and Senator Wagner after the inauguration of President Franklin Roosevelt (1933), he did not finish his doctoral dissertation, but considered the Congressional Acts mentioned above primarily or partly written by him to be of, at least, an equivalent.  As a student of Tugwell, he was a liberal with both influences from the Institutionalists and  Keynes and, as Lynn Turgeon  writes (Turgeon, 1987) was pragmatic in is views, but, to me, within a largely Institutional/Keynesian framework (Brazelton, 2001,2005, 2006).  Also, as a member of the Council of Economic Advisors, 1946-49, and its Chair, 1949-52, he developed what was to referred to later as the “Full Employment Budget” under Walter Heller in the Kennedy-Johnson Administrations (Brazelton, 2003; Pechman and Simler, especially the chapter by Walter Heller therein). As such,  his constant concentration was upon full employment and full output secularly and cyclically—even during  periods of inflation (Brazelton, 1997, 2001, 2005).  As I have covered these points elsewhere, I will herein concentrate upon his full employment beliefs to indicate his early stress upon the concept of economic (f9scal) policy and its relevance for us today---still a man for our times!

            Full employment meant to Keyserling a constant goal for both secular and cyclical  economic policy.  Secular referred to his constant growth policies for constant,  full employment growth such as  in the Full Employment Budget Concept; and  his cyclical policy meant that even in an inflation, he would not first stress restricting demand but, rather increasing supply as the cause of inflation was to him primarily inadequate demand, not excess demand!  Thus, increase supply in the economy where needed via selective economic policies aimed at the lagging sectors—micro and macro.  This related to his concept of “economic balance” where supply growth must equal demand growth, both micro and macro.  To increase supply in an inflation, one needed selective incentives.  But to decrease demand in an inflation would,  to him,  not end inflation, but create more due to administered pricing, high interest rates, and in cutting  output forcing  companies to operate to the left of minimum average costs—all inflationary.  Indeed administered pricing, was a major result of inflationary pressures and of imperfect market structures which Keyserling accepted as reality (Brazelton, 1997, 2001, 2005), as can be seen in his publications of the Conference on Economic Progress (see Appendix); and the early development of the “Full Employment Budget Concept”—his “Freedom Budget” or “Nation’s Economic Budget”, etc.   (Brazelton, 2001,2003).  To Keyserling, full employment growth meant a constant emphasis upon full employment/output.  This can be seen from a selection of pertinent  quotes; and from a sixteen point program for constant growth and employment (Keyserling, 1975).  To quote:

“Maximum employment means full-time jobs for all willing and able to work, allowing for minimum or “frictional “ unemployment, with growth in the number seeking employment not inhibited by scarce job opportunity.  It means programs to qualify for employment those now handicapped by inadequate education or training, or debilitated by bad housing and inadequate health care.  It means  also that those on the job should not be underutilized, and should have a chance to upgrade their skills  and earning power.  By definition, maximum employment is incompatible with unemployment—or inferior employment or pay—based upon  discrimination due to color, race, or sex” (Keyserling, 1964, pp. 87f).


“Under the Employment Act, full employment means more than jobs.  It means full employment of our natural resources, our technology and science, our farms and factories, our business brains, and our labor skills…Full employment means maximum opportunity under the American system of responsible freedom…and a concept which must grow as our capabilities grow” (Keyserling, 1975,p. 7).

It should be noted that in the above Keyserling stresses economic balance (“…a concept which must grow as our capabilities grow”); and the growth of jobs and income as, to him, the relations between jobs and adequate  income are crucial.  The growth of output must be offset by the growth of demand (micro/macro). Thus, to Keyserling if C=f(Y),  and Y=f(wages), then Y=f(wages) so that to take goods off the growing market (supply—micro/macro,  then wages and other forms of demand must grow as well—micro/macro. 

That is the essence of long term growth, stability and social justice (Keyserling 1975: Brazelton, 1997, 2001,2003, 2005).  Thus, the sixteen points. 

            In his Conference on Economic Progress Report “Full Employment Without Inflation, 1975 (pp. 34-44), Keyserling argues for a sixteen point program shich I will indicate below and elucidate upon when I consider relevant to the problem of employment introduces by the preceding analysis by Professor Henry.  In this paper I will deal with those points which specifically deal with the problem of “employment”, a subject raised by this session.  I will number to points as they are numbered by Keyserling and comment upon them  in analytic terms. 

1.      The need for consistent long-term goals

a.       Keyserling’s point here was that too much time is spent on short-term analysis and forecasting, not enough on long-term constant full employment/output growth.

2.      Growth analysis is an essential, constant goal, but needs as awareness of high
Priorities such as housing, education, health, environment and other shortages.
3.      Goals to overcome shortages: The Key Role of Housing

Housing increased the quality of life, but also gave employment to many skilled and unskilled; and increased output/employment in related industries such as furnishings, utilities, roads, etc.---a multiplier effect.

4.      Public employment—a permanent public service employment for “eligibles               not employed elsewhere” which would serve about one million people (his      estimate) and similar to propositions such as the Center for Full                                     Employment  and Price Stability (C-FEPS) at the University of Missouri-                 Kansas City, Department of Economics.

5.      A new monetary policy to lower interest rates for investment, housing; and   to reduce (or end) the independence of the Federal Reserve (yes,            controversial) to make monetary policy  “…in accord with the real       economic  growth needs required to restore maximum employment and             production…” (Keyserling, 1975, p.34).  The same must be true for fiscal         expenditures via the multiplier effect.

8.      Balance the Federal Budget, but, first, get out of recessionary conditions and           lance only after  “…restoration of a fully-rised economy (Keyserling,            1975. p. 38;  Brazelton, 2005;  Pechman and Simler, 1987).

10.  Income supports would be to restore full  employment equilibrium and in     terms  of needed “social insurance” such as unemployment compensation,    etc.

11. In terms of the above (10) substitute the “…ragbag or costly and grossly     inadequate  ‘welfare’ programs …” with “..limited universal income supports…” (Keyserling, 1975, p.40).

13.  A manpower to train and retrain workers in regard to the needs of full         employment and national priorities and shortages.

The above selected, employment related sections of Keyserling’s  sixteen
Points are all basically for the purpose of establishing a full employment/output growth economy constantly.  This is obvious in terms of its income/employment suggestions (aggregate demand)  and its output stress (aggregate supply) where on both the micro and the macro level, the growth of both must be equal for full employment, price stable growth in the long-run.  Also,  in Keyserling’s stress against administered pricing, we see a stress upon output in real terms, not merely monetary terms—the former increasing output, the latter limiting real output in favor of price increases and inflation via said administered pricing.  These are, of course, still the needs of our times as they were the needs of  Keyserling’s times---the fulfillment of national priorities and shortages;  maximum output/employment; the control of inflation including administered pricing;  the training  of an adequate labor force; and environmental, health, income support and energy needs met and reformed.  Thus, Keyserling is “Still a Man For Our Times”—or, perhaps, for the future as we have never reached the goals set forth by Keyserling decades ago.  That is our failure, not his!


Brazelton, W. Robert (1997), “Retrospectives: The Economics of  Leon H. Keyserling”,
            Journal of Economic Issues, 11 (4), pp. 189-97.
Brazetlon, W. Robert, (2001), Designing US Economic Policy: An Analytical Biography            or Leon H. Keyserling, London, Palgrave Press.
Brazelton, W. Robert, (2003),  “The Council of Economic Advisors and the ‘Full          Employment Budget Concept’ : Keyserling Before Heller”.  Journal of    Economics , xxix (2), pp. 87-102.
Brazelton, W.Robert, (2005), “Oral Interview with Leon H. Keyserling”, Research Paper          Report, Vol . 2, pp. 377-445.  On deposit at the Truman Memorial (Presidential )           Library, Independence, Missouri, USA; and the University of Missouri-Kansas      City Library and Archives.
Keyserling, Leon H.  (1964), Progress and Poverty, Conferences on Economic Progress,          Washington, D.C. , pp. 87f (see, also, appendix hereto).
Keyserling, Leon H. (1975), Full Employment Without Inflation, Conference on             Economic  Progress, Washington, D.C.( see appendix hereto).
Pechman, Joseph and Simler, N.J. ,(1982), Economics in the Public Service: Papers in Honor of Walter Heller( especially chapter by Walter Heller), Norton Press,  New             York.
Turgeon, Lynn (1987), Leon H. Keyserling, The New Palgrave Dictionary in Economics,          John  Eatwell, Murray Milgate, Peter Newman, (eds),  Vol. III, Macmillan Press,
            New York. 


            The following are pamphlets edited by Leo H. Keyserling and his wife, Mary Dublin Keyserling, an economist in her own right, via the Conference on  Economic Progress, 1954-83.  They are deposited at the Truman Memorial (Presidential) Library, Independence, Missouri, USA and are crucial in terms of research in this area and era of economic policy and analysis. 


Toward Full Employment and Full  Production, 1954
National Prosperity Program for 1955, 1955
Full Prosperity for Agriculture, 1955
The Gaps in Our Prosperity, 1956
Consumption—Key to Full Employment, 1957
Wages and the Public Interest, 1958
The “Recession”—Cause and Cure, 1958
Toward A New Farm Program, 1958
Inflation—Cause and Cure, 1959
The Federal Budget and “The General Welfare”, 1959
Tight Money and Rising Interest Rate, 1960
Food and Freedom.1960
Jobs and Growth, 1961
Poverty and Deprivation in the U.S.,1962
Key Policies for Full Employment, 1962
Taxes and the Public Interest, 1963
The Top-Priority Programs to Reduce Unemployment, 1963
The Toll of  Rising Interest Rates, 1964
Agriculture and the Public Interest, 1965
The Role of Wages in a Great Society, 1966
A “Freedom Budget” for all Americans, 1966
Goals for Teachers’ Salaries in our Public Schools, 1967
Achieving Nationwide Educational Excellence, 1968
Taxation of Whom and for What, 1969
Growth with Less Inflation or More Inflation Without Growth, 1971
The Scarcity School of Economics, 1973
Full Employment Without Inflation, 1975
Towards Full Employment Within Three Years, 1976
The Humphrey-Hawkins Bill  “Full Employment and Balanced
            Growth Act of 1977, 1978

Goals for Employment and How to Achieve Them Under the “Full Employment
            And Balanced  Growth Act of 1977, 1978
“Liberal” and “Conservative” National Economic Policies
            And Their Consequences, 1919-1979,  1979
Money, Credit and Interest Rates: Their Gross Mismanagement by the Federal
            Reserve System, 1980.
How to Cut  Unemployment to Four Percent and End Inflation
            And Deficits by 1987, 1983

Sunday, February 8, 2009

Leon Keyserling - some writings

  • Redirecting Education (with Rexford Tugwell) (1934)
  • Toward Full Employment and Full Production (1954)
  • Consumption-Key to Full Prosperity (1957)
  • The Federal Budget and the General Welfare (1959)
  • The Peace by Investment Corporation (with Benjamin Javitts) (1962)
  • Taxes and the Public Interest (1963)
  • Progress or Poverty (1964)
  • The Move Toward Railroad Mergers (1965)
  • A Freedom Budget for All Americans (1966)
  • The Scarcity School of Economics (1973)
  • Liberal and Conservative National Economic Policies and Their Consequences, 1919-79 (1979)
  • The Current Significance of the New Deal (1984)