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On the "orthodoxy" of Leon Hirsch Keyserling: selected major analytical and policy concepts and advice to presidents.

I. Introduction

Leon Hirsch Keyserling was born in Beaufort, South Carolina, 1908. He later attended Columbia University (New York) and did extensive work under the Institutionalist Rexford Guy Tugwell as an undergraduate major in Economics, graduating in 1928. He later attended Harvard for his degree in Law (1931) before returning to Columbia for Doctoral work in Economics. Upon the election of President Roosevelt (1932), he was taken to Washington, D.C. by Tugwell who was closely connected to Senator Robert Wagner (D., New York), the latter a close associate of Franklin Roosevelt, the newly elected President.

Keyserling was first associated with the Department of Agriculture and co-authored many bills concerning both agriculture and housing, the latter a major employment policy interest of Keyserling (Brazelton, 2001). He was also greatly instrumental in co-authorship of the National Industrial Recovery Act (1935); the National Labor Relations Act (1935)--the so-called Wagner Act; the Employment Act of 1946; and later the Full Employment and Balanced Growth Act of 1978 (The Humphrey-Hawkins Act)--all of which he considered more important than the dissertation which he had not completed. He was the first vice chair of the First Council of Economic Advisors; and second chair of the Council (CEA) after the resignation of Edwin Nourse; and, as such, he became a major economic policy adviser to President Truman. His major economic analysis and policy implications were for growth--growth for full employment; mass consumption for high investment; and for social and economic justice (Brazelton and Wehmeyer, 1989; Brazelton, 1997, 2001, 2003).

In the paper that follows, (1) several selected major parts of Keyserling's analytical and policy prescriptions will be discussed; and (2) these analytical policy prescriptions will be demonstrated to continue to appear in later, selected correspondence of Keyserling with national, political figures--including Presidents--before Keyserling's death in 1987.

II. Economic Growth and Keyserling

To Keyserling, constant economic growth was a major necessity and goal for economic policy (Brazelton, 1997, 2001, esp. 157-59; Keyserling, 1954, 1957, 1962). However, unlike many advocates of "counter-cyclical" economic policy, to Keyserling, growth meant constant growth. The economic policies should always be aimed at full employment--full employment demand and full employment supply. It was, to Keyserling, demand which drove supply; and, thus, consumption which brought forth both investment and productivity. Thus, consumption was the key. It was, of course, wages which were the basic source of aggregate demand. Thus, to Keyserling, national income was a function of consumption, but consumption was derived from real wages. Thus, national income was a function of real wages and the consumption derived there-from stimulated investment and productivity (Brazelton, 2001) (Keyserling, 1957, 1958). This was a demand side orientation which never floundered as a major belief of Keyserling.

Keyserling's belief in constant economic growth for full employment led him to believe in economic growth as a policy prescription for both anti-recessionary and anti-inflationary economic policy. Obviously, in a recession, the fiscal authorities should stimulate the economy and the monetary authorities should stand ready to facilitate the fiscal deficits and the recovery from the recession. This is an orthodox policy prescription. However, to Keyserling, growth should also be maintained in inflation.

To Keyserling, inflation was generally caused by inadequate supply, not excess demand. The inflation was caused by administered pricing of oligopoly; possible restrictions of output in order to maintain said prices; and bottlenecks in the economy. Thus, a supply-type shortage, not excess demand, was the problem. The correct policy was, therefore, to stimulate supply. This could be done not by restricting demand in an inflation (demand was not the problem), but by increasing supply via selected controls over administered pricing, if necessary; and by selected tax or other incentives to stimulate investment and, thus, supply. An increase in supply would decrease the upward price pressures. Keyserling argued that to decrease output in inflation harmed all; whereas a selected program could be aimed at the specific offenders and the specific sectors where there were administered pricing, supply shortages, or bottlenecks. Keyserling believed in the proportional growth of supply and demand on both the micro and the macro levels, a point to which we will return to later herein.

Keyserling also believed that orthodox anti-inflationary policy of restricting demand was, in fact, inflationary and would, thus, increase inflation, not decrease it. If orthodox anti-inflationary economic policy cut back on aggregate demand to attempt to reduce upward price pressures, it would mean that the firm would produce less than before as demand fell. Theoretically, this would reduce prices as the "excess demand" was decreased. But, to Keyserling, given the average cost schedule of the firm, this would mean that the firm would have to cut back on its output. This would push its output towards the left of the lowest average costs per unit of output and, as a result, per unit cost would rise. As per unit costs rose, prices would tend to rise, especially in a world of administered pricing. Thus, the policy to reduce aggregate demand to end inflation could be counter-productive--it would, instead, increase inflation. The more correct policy would be to stimulate supply to meet the consumption needs of the economy with policies aimed at the lagging sectors of the economy where administered pricing and/or bottlenecks had brought about a supply side shortage--the real cause of inflation (Brazelton, 1997, 2001; Keyserling, 1959, 1964b, pp. 557).

There was another reason why "orthodox" anti-inflationary economic policy was counter-productive. Such a policy calls for higher interest rates initiated by the policies of the Federal Reserve. Higher interest rates would decrease investment and consumer borrowing to decrease aggregate demand back towards the level of aggregate supply--the diminishment of so called "excess demand" But, to increase interest rates would also increase costs which may be passed on to the consumer and, thus, may be inflationary. Also, and to Keyserling with his emphasis upon growth, it would mean that the economy was not growing at its full employment potential. This would decrease employment, decrease growth (both micro and macro), and lead to less than full employment growth in a counterproductive attempt to end inflation--an inflation whose primary cause was inadequate supply, administered pricing, and bottlenecks, not primarily, to Keyserling, by excess demand (Brazelton, 1997, 2001; Keyserling, 1959, 1960, 1962, 1964b, 1970). Lastly, the lost output from the restrictive anti-inflationary policy rather than a supply-growth orientated incentive policy to meet demand would decrease output in that period of time which would be lost forever as it cannot be made up for in the future due to the full employment ceiling of output. Thus, the output and its benefits to the economy and its citizens would be lost forever.

The above analysis concerning monetary theory and high interest rates as a curative to inflation which, to Keyserling, was a policy error, meant that he was an advocate of low interest rates to stimulate high investment and high growth. This was not a view held by only a few economists in the Post War II period, especially before 1950-51. Many economists believed that the Post World War II era would return to the depressionary conditions preceding the War, the 1930s (Brazelton, 1989, 2001). This, of course, did not happen due to the forced savings built up in the American economy during World War II due to domestic rationing of consumer products for the War effort (housing, rubber, gasoline, automobiles, certain agricultural items, etc.); the post War advent of the Cold War and the resultant continuation of military expenditures and the rebuilding of Western Europe, etc; and the general expansionary policies of the Truman era itself. However, the latter policies generally were accomplished during a period of low interest rates domestically.

The low interest rates of the period were largely due to the Federal Reserve's policy of being the buyer of last resort of government bonds at the prevailing, low rate of interest--a pegging of interest rates. This was generally expansionary as the fiscal authorities could expand the deficit without fear of rising interest rates which would decrease the expansionary effect of the budget deficit (the later so called "crowding out"). However, in 1951, the Treasury and the Federal Reserve reached an "Accord" in which the Federal Reserve would no longer be the federal bond buyer of last resort at the low, pegged interest rates, but at the market rate. This policy change was due to some inflationary pressures in the economy and to the military buildup caused by the Korean War. As a result, interest rates rose. To Keyserling, this was the greatest economic mistake of the Truman era (Brazelton, 2001; Keyserling, 1960, 1964b, 1970, 1980). In the long run, to Keyserling, it has led to higher interest rates, and less than full employment growth and a mismanagement of economic policy (Brazelton, 1997; Keyserling, 1960, 1964b, pp. 57f, 1970, 1979, 1980).

But, given the above, what should be the economic policy of the federal government? It should be growth-orientated, but what more specifically should it be? Keyserling attacked this problem under the guise of the "Nation's Economic Budget," or the "Freedom Budget," etc., in numerous publications, including the reports of the CEA itself (Brazelton, 1997, 2001; Keyserling, 1966, 1983).

The "Freedom Budget" or the "Nation's Economic Budget" was a fiscal policy concept that can be found in Keyserling's economic reports, Congressional testimonies, pamphlets, and other publications by means of charts, diagrams, and tables (Brazelton, 1997, 2001; Keyserling, 1966). (1) These indicated that to maintain full employment, the federal budget should be balanced at or near full employment. If it were balanced before full employment, unemployment would exist and actual economic growth would be short of potential economic growth. Herein, Keyserling was aware of the growth analysis of Evsey Domar and Sir Roy Harrod, but he considered them to be too theoretical (Brazelton, 2001). If, on the other hand, the federal budget should be balanced beyond the point of full employment, there would be inflation. Thus, the federal budget should be balanced at full employment for the economy to grow at a rate where actual growth was equal to potential growth (full employment growth)--a policy which also emphasizes price stability and socio-economic justice. To the reader, the above may sound like the "Full Employment Budget Concept" inaugurated by Walter Heller as chairman of the CEA under the later Administrations of Presidents Kennedy and Johnson. The two analyses were largely the same. In fact, in a later statement by Walter Heller, Heller stated that "The concept of full-employment potential and gap closing were not brand new; they traced back to the bold and innovative Truman Council under the leadership of Leon Keyserling" (Brazelton, 2003; Pechman and Simler, 1982, pp. 237-8).

The concentration upon growth had a corollary aspect to it--balance. Thus, growth must be balanced growth. This analysis of balanced growth was both micro-orientated and macro-orientated. On the micro-level, if there were an increase in the output of one product, there must be an increase in the inputs and in complimentary products. If there is not, such resultant bottlenecks might limit growth towards full employment and raise prices where the shortages existed. Herein, selective incentives might be a solution plus, if needed, anti-trust or related policies. On the macro-level, the growth in aggregate supply must be absorbed by an increase in aggregate demand. After all, the purpose of production is consumption and, via consumption, the profits necessary to further investment, productivity and growth. Thus, growth must be accompanied by balance, both in the micro-sector and the macro-sector. All was for the interrelated purpose of continued full employment growth, price stability and social justice (Brazelton, 1997, 2001; Keyserling, 1976, 1977, 1978, 1983).

A primary goal of Keyserling and his analysis and policy was growth; and the balance between the micro and macro sectors of the economy. This was to be maintained by an easy monetary and fiscal mix with the use of selective controls or incentives when and where necessary or desirable. However, especially in terms of anti-inflationary policy, Keyserling would prefer to use a well-aimed rifle to aim at specific sectors where the problems were rather than a shot-gun approach which hits all sectors of the economy--the guilty and the innocent. As we have seen above, this was a strong argument in terms of his ant-inflationary policy and, when needed, the stimulation of lagging sectors of the economy; and where administered pricing or bottlenecks were present. Growth, balance, and social justice were not separate policy objectives; they were all tied together and dependent upon one another. Growth, balance, the correct use of demand and/or supply enhancement policies for continued full employment growth are all consistently tied together in the long-run aim of socio-economic justice.

In summary, it must be re-emphasized that by economic growth, Keyserling did not mean slow growth periods to prevent inflation and rapid growth to alleviate recessions although he did recognize the need for countercyclical changes in policy emphasis. Instead, in inflation, he would maintain growth as the lost output/employment hours lost from slow growth were lost forever; and slow growth would mean that the many would suffer from the extravagances of the few. Instead, he would use selective controls and selective incentives to keep administered pricing under control and give incentives to produce more where output was in short supply. To Keyserling, inflation was a general problem of inadequate supply rather than overabundant demand (Brazelton, 1997, 2001; Keyserling, 1958, 1959, 1961). He also emphasized that constant growth depended upon aggregate demand via increasing wages/consumption as, to him, supply followed demand (Brazelton, 1997, 2001; Keyserling, 1958, 1959, 1960). An inflationary supply-shortage problem was, to him, a result of bottlenecks and administered pricing (Brazelton, 1997, 2001; Keyserling, 1981). More specifically, concerning counter inflationary monetary policy, Keyserling argued that higher interest rates decreased output and employment to loose output and wage income forever; and that by forcing business to operate to the left of lowest cost on the cost schedule, prices would rise as well as interest rates to hurt all--the guilty parties to the inflation as well as the innocent. Selectivity would be better--a rifle instead of a shotgun! (Brazelton, 1997, 2001). Indeed, in his arguments concerning the "trade-off" theory between inflation and employment, he wrote in a letter to this author that in order to have full employment, we must end the "trade-off" policy that supposedly ends inflations as subsequent policy-induced periods of slow growth have caused recessions and that such policies "... have caused us during 1953 to date in 1981 to forfeit more than 8 trillion dollars worth of GNP and about 85 million hours of civilian unemployment (above the frictional level consistent with maximum employment)...." causing both rises in inflation, stagnation, tax revenues shortfalls, and the under-servicing of national priorities (Keyserling, letter, Nov. 25, 1981). To Keyserling, the best way to "... combat any general inflationary tendency, in the long pull of a high defense economy, is to maximize production and economic growth" (Keyserling, Washington Post, Feb. 12, 1957).

The above analysis of Keyserling raises a question of whether or not Keyserling was a Keynesian. His primary mentor at Columbia was Rexford Guy Tugwell, an Institutionalist. This mentorship was both as an undergraduate and a graduate, after Keyserling's law degree from Harvard. Indeed, it was Tugwell, who took Keyserling to Washington after the election of Franklin Roosevelt (1932) after Tugwells' call to Washington by Senator Robert Wagner (D., NY). Perhaps the Keynesian question concerning Keyserling's beliefs can best be analyzed in terms of the differences between "Institutionalism" and "Keynesianism." For example Theodore Rozenof indicates: "But whereas Institutionalists focused above all on how the economic structure changed over time, Keynes focused primarily on the changing environment in which the system operated, on forces external or exogenous to the economic mechanism itself, including not only technology, but also geography and demography" (Rozenof, 1997, p. 20). Thus, to Rozenof, whereas Institutionalists discussed institutional structures, Keynes was interested in what effects the economy, cyclically and secularly. Later, Rozenof argues that Keynesian macro-economics would have been strengthened by more institutional-orientated micro-theory concerned with the micro-structure of the economy and its institutions a la John R. Commons and Gardner Means (Rozenof, 1997, p. 268, p. 85). Rozenof also points out that Tugwell and Means both believed that "... Technological advance required large scale organizations".., and they were ... "steadfastly in opposition to the anti-trust tradition" (Rozenof, 1997, p. 14). Thus, as a result of that belief, Keyserling as Chair of the Council of Economic Advisors and afterwards met with several prominent business men up to four times a year--both Charles Wilsons of General Electric and General Motors and others, such as the leaders of International Harvester, Sears Roebuck, General Foods etc. (Brazelton, Oral Interview, 2005, p. 410). (2) These meetings were to inform, to discuss, and gain support. Later, Keyserling was a consultant with the planning of policies and directorates of Puerto Rico, Israel and India--all of the above, hardly examples of the classical competitive model of economic theory. As Lynn Turgeon adds: "Keyserling has denied being a Keynesian and would prefer to be called a pragmatist, possibly as a reflection of his earlier exposure to institutionalist economics at Columbia" (Turgeon, 1987, p. 50). From my own oral interviews with Keyserling, he was basically Keynesian, but did not use the competitive model of Keynes. He would have agreed with Rozenof: an institutionalist micrcoeconomics would have augmented rather than detracted from Keynes' concept of underemployment equilibrium (Rozenof, 1997, p. 27). Keyserling, himself, did, however, help to put the Keynesian question to rest, especially in his interpretations of Keynes. To Keyserling, Keynes stressed that in expansions the mal-distribution of income provided excess savings beyond the amount of savings that could be absorbed by private investment (Keyserling, 1973, pp. 21-23). However, to Keyserling, we also had the technological means to solve the problem of poverty and cycles--correct fiscal/monetary policy mix for full employment and output growth (Keyserling, 1964a, an Introduction by Walter Reuther). Thus, Keyserling was, as Turgeon indicated, pragmatic, but also of a Keyensian orientation with an institutionalist background from Tugwell. Let us now briefly view this mixture of Keynes worked out in Keyserlings' analysis.

Keyserling believed in a non-competitive market; but he also stressed full employment, full production growth as the Conference on Economic Progress Reports indicate (see Appendix). Keyserling also believed in the Keynesian orientated concept of countercyclical economic policy, albeit, as indicated above, he had a different view of anti-inflation policy and the causes of inflation due to an existence of non-competitive market structure as well as his emphasis upon the sustaining of constant growth (Keyserling, 1959). He did accept, in essence, liquidity preference and marginal efficiency of capital, but he never accepted the IS/LM analysis of Hicks (1937) and Hansen (1953) due to Keyserling's institutionalist background concerning the functioning of an imperfect market structure. Also, whereas Keynes stressed the short term Keynesian-oriented causes of unemployment, Keyserling, while accepting these causes, stressed policies aimed at long-run, constant, balanced full employment, full production growth--on both the macro and micro level (Brazelton, 2001, p. 5). His policy analysis was essentially a fiscal multiplier model as was his concept of the full employment budget developed by him during his CEA years (Brazelton, 2001, 2005).

Keyserling's full employment, full production constant growth model also had an aspect of social justice and social equity. For example, he preferred, ceteris paribus, expenditure increases to tax cuts for the wealthy in that the former got funds to those who needed them most--the poor and the unemployed who may be too poor to benefit from lower taxes. As Judith Russell quotes Keyserling: "It makes an economic difference" ... as more spending ... "would have provided better economic balance by getting more of the income where it was needed instead of going to the wrong places." (Russell, 2004, p. 199). In other words, expenditures for the poor, or for new and better schools were more important than tax relief resulting in a new casino. Thus, a combination of Keynes, Tugwell, pragmatism and, also, social justice as the Conference Reports (see Appendix) expand upon, were part of Keyserling's viewpoint. His analysis of tax cuts versus expenditures exemplifies his concept of social justice; his concept of anti-inflationary policies toward continued growth with selective controls and incentives exemplifies pragmatism; and his fiscal multiplier growth models and full employment growth models are Keynesian in orientation. Thus, he was not an ideologue of one view, but an user of what was useful and what made sense. (Brazelton, Oral Interview, 2005).

Keynesian economies soon developed into mathematical (econometric) models via, among others, Laurence Klein and the Cowles Commission. Keynes, himself, had been critical of such analysis in his critique of Jan Tinbergen. This critique concerned the problems of mis-specification, multicolinearity, structural stability, exogenous variables and (familiar to Keyserling himself) the market structure, as is well-known (Pesaran, 1987, p. 107). Keyserling was in basic agreement with these critiques based upon expectations effects, uncertainties and of the realities of market structure (Brazelton, 2001, 2005). He did use (as his various publications and many testimonies before Congressional Committees indicate) simple multiplier models, especially in relation to fiscal variables. Perhaps, from the point of view of pragmatism, he knew Congressmen and businessmen would more easily understand graphs, diagrams, tables and simple multiplier models rather than the more complex mechanical econometric models of academic economists. This is clear from the publications of the Conference on Economic Progress (See appendix); and many other writings and testimonies before Congressional Committees.

A further development of Keynesian analysis was the well-known IS\LM analysis from the works of Sir John R. Hicks (1937) and Alvin H. Hansen (1953) which began the formation of the "Keynesian--Neoclassical Synthesis" and its later mathematical formulations. Keyserling disagreed with both IS/LM and its quantification. To him, academic economists were ivory tower theorists with a fascination for mathematics instead of economics (Brazelton, 2001, p. 25). To Keyserling, such IS/LM models oversimplify the economy; and they avoided the use of a realistic market structure. (Brazelton, 2001, p. 25). He was aware of the growth analysis of Sir Roy Harrod and Evsey Domar, but they, too, were oversimplified as Keyserling's stress was upon long-term, full employment growth over time. Thus, Keyserling's interest was the monetary and fiscal policies to maintain constant full output, full employment growth over time. (Brazelton, 2001, 2005; Keyserling, 1954, 1962, 1976, 1983).

As Keyserling continually pointed out, full employment and full production growth was, to him a constant goal (Keyserling, 1962, 1976, 1978). His dual concept was the basis of his concept of economic growth. Both recessions and inflations could be avoided or alleviated by the constant attention to the needed growth stress upon full production. His constant stress was also upon the balanced growth of supply and demand--on the macro-level on consumption, employment, production-demand and supply; and on the micro-level (demand for individual goods and supply of individual parts to produce such goods for full production/consumption). In relation to such statements by him, I once jokingly said to him: "Leon, you are sounding like an Austrian." He sarcastically and pragmatically replied: "Well Bob, the Austrians cannot be all wrong." Later, such a comment opened up questions about other theories. For example, on "Supply side" economics, he replied: There's really no such thing as supply side and demand side, you need both for a proper arrangement. As to monetarism: he agreed that the money supply must be increased over time; but that high interest rates accepted by Freidman had restricted growth below maximum; that the money supply must grow in real terms instead of nominal terms; and the money supply must be increased as needed, not at a constant rate as in Freidman's monetarist model. As to Rational Expectations, he said: "I don't know what's meant by rational expectations--you can't substitute goals for expectations. There has been too much emphasis upon forecasting by government and business. A street-wise banana seller forecasts that his bananas will be sold based upon his forecast of the number of people buying on the street--but the weather may change!" On the natural rate of unemployment: he indicated that "Natural economic laws are what Congress says they are." Thus such "natural rates" are chosen by politicians for their own justification. To Keyserling, the natural rate of unemployment has been set too high and, thus represents economic policy defeatism and restricts the higher aims of full employment and full production growth. To my reply, "Then the natural rate is high because we believe it is high," Keyserling replied, "That's right." (Brazelton, Oral Interview, 2005, 387-390).

The comment on the natural rate of unemployment growth being set too high (perhaps for political reasons) introduces a final point. Keyserling pointed out that if in year 1, you had a 6.0% growth; in year 2, a 3.0% growth; in year 3, a 2.5% growth; and in year 4, a 3.5% growth, there would be an average growth rate of 3.75%. Thus, on this basis, the government might announce that growth rate value should be aimed at 3.75%. Not to Keyserling! If growth rates had been 6.0% then, ceteris paribus, growth should be aimed at 6.0% for long-term full employment full production growth. If you can obtain the maximum, why aim at less? Here Keyserling tied together economic growth, economic equity, and economic justice into a package of maximum growth (Brazelton, Oral interview, 2005. p. 290; Brazelton, 1997, 2001 pp. 147-151; Keyserling, see Appendix, esp. 1954, 1960, 1962, 1966, 1975, 1978).

As Keyserling believed in high growth and low unemployment, the question arises as to his successes as Chair of the Council of Economic Advisors under President Truman. Keyserling was proud of the economic record of the Truman era. The oral interview (Brazelton, 2005) and other works stress that under President Truman inflation decreased form an average of 3.8% to 0.8%, despite the Korean War in the last years of Truman's Administration. The average rate of unemployment under Truman was 4.0%, but by 1952 was down to 2.9%. As the later Eisenhower Administration believed that such low rates of unemployment were dangerously low, a rise in unemployment began during the Eisenhower years as well as slower economic growth. (Brazelton, 2001, 2005). These contrasting records were, to Keyserling, proof of the economic wisdom of his full production/full employment growth policies in terms of a growth, equity and social justices--to him, the total aims of economic policy.

In a compilation of his many charts, a simplification indicates that in the Truman-Keyserling years, the average rate of unemployment was 5.3%, but, excluding the immediate Post-WWII inflation, 3.7%; the unemployment rate was 3.8%. For the entire period 1945-1988, the result was 5.0% inflation and 6.2% unemployment. The "discomfort index" (unemployment plus inflation) was 9.1% for the Truman Era, but 7.5% for the Truman period excluding the post-war inflation versus 11.2% for the entire period 1945-1988. Thus, to Keyserling, the Truman-Keyserling years (1946-52) looked good (Brazelton, 2001, p. 119-122). In the section to follow, the belief and policy goals of Keyserling were pointed out to subsequent Vice Presidents and Presidents long after the Truman years.

III. Keyserling's Correspondence: General and Presidential.

In a Keyserling memo for release on October 29, 1960, in reply to the then Senator John F. Kennedy's farm program (Wallace, October 29, 1960), he stated that Kennedy's desire to increase farm incomes closer to urban worker's incomes would not, as Henry Wallace had predicted, be inflationary because, as Keyserling reminded Wallace, such a program objective would not take place all at once. Also, Wallace had forgotten that as population increased, so would the demand for food and the need for farming--the growth concept of Keyserling re-established therein. Also, increased output of farms would add to exports; and higher incomes to farmers would increase food demand itself as well as an increase in agricultural efficiency; bring about farm employment in general due to higher consumption by farmers and, as a result, bring about decreased storage cost of farm commodities; and increase income/consumption throughout the economy (Keyserling, Memo of October, 29, 1960). Thus, the Kennedy farm proposal would not be inflationary.

In a letter to Arthur Schlesinger, Jr. whom Keyserling accused of "... becoming illiberal in your values about private living standards even while you are liberal in your views about standards of public programs," Keyserling also pointed out that we should maintain a 4.5 percent rate of economic growth with the participation of both the public and the private sectors. In regards to private incomes, as he pointed out later in his reply to Wallace, as indicated above, farm prices had fallen 18 percent since 1952 while farm retail prices had risen 5.0 percent and industrial prices had increased by 13 percent throughout the Administration of Dwight D. Eisenhower (Keyserling, Memo of October 26, 1959)--a redistribution of income away from the family farm.

By 1960, Senator John F. Kennedy had become President Kennedy and, later, Senator Humphrey and Senator Johnson were to become Vice President and President, respectively. Keyserling had correspondence with each of them before 1960-61 (especially Senator Humphrey) and continued this correspondence into their Presidential and Vice Presidential Administrations. Once again, the policies of growth and balance were implicit therein.

John Fitzgerald Kennedy was elected President in November, 1960. By December 10, 1960, Keyserling had composed a memo to the President-elect concerning how to achieve full employment (Keyserling, letter, Dec. 10, 1960). Therein, Keyserling stressed that growth usually "... ignores or grossly underestimates the quantitative magnitudes ..." of the problem; and that such discussions are weak on specific programs recommendations. He follows with several charts indicating that: the average growth rate 1953-60 was only 2.5 percent compared with 3.8 percent, 1922-60 (excluding the Depression and wars); and 4.0 percent 1922-29 and 1947-53. As Keyserling believed in a 4.0-4.5 percent rate of growth, this was a criticism of the Eisenhower years, 1953-60. Also, he maintained that the period 1953-60 was "rhythmic" in terms of recessions and weak recoveries and stressed his belief that weak recoveries were a cause of subsequent recessions due to slow growth of aggregate demand in the weak recoveries. (Keyserling, letter, 1960, pp. 1-4). There was, then, a "gap" between "needed growth" for full employment and actual growth--an output deficit (Keyserling, letter, 1960, p. 6; see also Brazelton, 2001, 2003). Recessions had not caused slow growth; but, rather, slow growth had caused recessions (Keyserling, letter, 1960, p. 6). Further, any policy to solve current economic problems must be considered in terms of their long-run growth effects. Thus, in relation to tax cuts, the tax cut must be designed in terms of its short-run effects and, also, upon future growth in the long-run aimed at high and steady growth. But for what reasons were such high growths proposed?

The first purpose was to "reasonably" utilize our man-power, skills, resources, technology and avoid long-term waste of lost output if high growth were not maintained. The second purpose must be to achieve "balance" between the sectors of the economy: public and private needs; demand and supply on the micro and the macro levels so as to prevent bottlenecks and shortages plus policies and incentives to reduce them where they existed. The third purpose of high growth is to promote the "... equality of opportunity and a fair division of goods" (Keyserling, letter, 1960, pp. 8-9). The latter indicates that Keyserling also saw economic policy not only in terms of its economic effects, but also upon its social and moral effects (Keyserling, 1960, p. 10). Furthermore, high growth was a means to defeat the totalitarian challenges from abroad (Keyserling, 1960, p. 9: see also, Brazelton, 2001).

The basic "requirement" for achieving such purposes is not, to Keyserling, in the "fundamental productive powers" of the economy and nation. The basic requirements are, instead, the achievement and maintenance of a balanced "equilibrium" in the use of resources. This equilibrium is necessary to achieve full employment growth over time. First, there must be an expansion of production facilities and their output through primarily the private sector, but also the public sector in terms of natural resources, education, et cetera. Second, as output increases, so must demand meaning private demand and consumption and public consumption, the latter in terms of defense, environment, health, education, technology, old age benefits, et cetera. If aggregate supply exceeds demand, we have recession and, if the opposite, we have inflation. Thus, there needs to be high employment and equal changes in the quantities of both supply and demand (Keyserling, letter 1960, p. 12).

In this letter, to President-elect Kennedy, the unrealized potentiality of the Employment Act of 1946 was then analyzed. To Keyserling, the Council of Economic Advisors had concentrated on short-run policies to the virtual exclusion of long-term policies, especially 1952-60--the Eisenhower years in contrast to the Truman years. There should be a return to the concept of a "Nation's Economic Budget" for both long-run and short-run--a concept Keyserling had developed with similarities to the "Full Employment Budget Concept" of Walter Heller as Chair of the Council during the Kennedy-Johnson years (Brazelton, 2003; Keyserling, Dec., 1960; Pechman and Simler, 1982). Furthermore, tax policy should not concentrate merely on arguments as to whether to stimulate consumption or investment, but rather to balance consumption and output and related priorities (Keyserling, letter, Dec., 1960, p. 17); and a realization of complementary private and public actions, the former making up 83 percent of the economy (Keyserling, Dec. 1960, pp. 16-17).

As to the problem of inflation, Keyserling's emphasis to the President-Elect Kennedy was that price trends depend upon rational resource allocation; that recent inflation had not been dangerous and was mild; that the current inflation was cost-push due too slow growth policies; unused capacity; higher costs due to too restrictive economic policies; and administered pricing. Too restrictive a policy mix increased per unit costs by decreasing output to the left of minimum costs and higher interest rates along with administered pricing tended to increase prices and restrict real growth--a constant stress of Keyserling which led him to favor nationwide price/wage policies if necessary and increased social benefits to make up for the upward movement of administered pricing (Keyserling, Dec., 1960, pp. 21-22; Brazelton, 1997, 2001).

As to specific policies for the President after his inauguration in 1961, Keyserling suggested the establishment of long-term goals such as defense, education and social insurance; short-term policies for short-run problems, but long-term objectives and commitments as well (Keyserling, letter, Dec. 10, 1960, p. 25).

Later President Lyndon Johnson received a similar memo from Keyserling in which the letter criticized the Federal Reserve for raising interest rates to protect the Dollar against the Pound which had seriously hurt the Pound; and called for an international monetary agency similar to the Federal Reserve for such problems. Further, he stressed that to decrease our balance of payments deficits not by restrictive policies, but by policies to increase output for increased export potential along with policies to stimulate efficiency in production; and stressed the need for keeping interest rates low and administered pricing under control; and praised the former President Kennedy for rolling back steel prices earlier (Keyserling, letter, Dec. 4, 1964). President Johnson responded in a letter recognizing Keyserling's stress upon "... the linkage between poverty and high levels of employment" ... and the requirements for "... continued economic expansion" (Johnson, letter, Dec. 19, 1964). Later, in 1966, Keyserling recommended to President Johnson that he not raise taxes because, to Keyserling, there was less of a possibility of an inflation than there was of a recession. The recession would restrict the nation's international and domestic obligations and priorities; not allow us to manage the federal Budget along acceptable lines; complicate the President's leadership potential; and, thus, worsen the recession (Keyserling, letter, Nov. 25, 1966). He utilized as evidence of a more likely recession than inflation projection on the basis of declining automobile sales; declining retail sales adjusted for price increases; and steel purchase slowdowns. Instead, he suggested no tax increases and an easier monetary policy to reduce interest rates and expand housing and related home furnishing sales and the employment therein--a constant stress of Keyserling for the continued growth of income, jobs, and counter-cyclical stabilization. If there were to be tax increases, they should be selective to decrease superfluous activities (Keyserling, letter, Nov., 25, 1966, pp. 2-3) as, to Keyserling, new school buildings were more important than new casino buildings for long-term growth. On November 7, 1968, Keyserling wrote again to President Johnson explaining to him his own resignation from the Americans For Democratic Action (ADA) due to its criticism of President Johnson and Keyserling further wrote therein that "I believe that President Johnson has been one of the most effective, if not the most effective, fighter for economic and social causes ..." of any President in his (Keyserling's) lifetime. (Keyserling, letter, Nov. 7, 1968).

Vice Presidents were not exempt from Keyserling's letters. On August 16, 1968, he wrote Vice President Hubert Humphrey (a close friend of the Keyserling's) on the "Task Force on the Post Vietnam Budget." Keyserling stressed the need for an honorable end to Vietnam; that defense expenditures be reduced for increases in the aid to the underprivileged and minorities; and to re-affirm to the "liberals" that the Administration is still on tract for domestic programs. Keyserling saw these as necessary for the economy and the coming campaign. He criticized Walter Lippman's idea that psychologically, politically, and financially that the United States could do only one thing at a time. To Keyserling, we must do more domestically and by doing more, we would also eventually bankrupt the less efficient Soviets (Keyserling, letter, Aug. 16, 1968).

Earlier, on June 24, 1966, Keyserling had stressed to Vice President Humphrey the needs of the 34 million poor and the 47 million living above poverty but beneath a "... modest but adequate budget"; the ill-housed; and the ones not able to afford medical care. He stressed that "But in the final analysis, social progress consists in helping those who need help most ..." which means re-allocations of the budget and national income (Keyserling, letter, June 24, 1966, p. 2). To obtain such goals, Keyserling stressed continual growth goals and high employment rather than the three recessions of the Eisenhower years. Thus, there should be more growth-orientated monetary and fiscal policies (Keyserling, June 24, 1966, p. 2).

Keyserling had stressed these points to Humphrey earlier. On January 3, 1963, the then Senator Humphrey had suggested decreased tax rates for lower and middle income groups to which Keyserling was in agreement. However, to Keyserling, the budget should also be dedicated more to education, health, housing, urban renewal, and other public and private needs. These were, to Keyserling, priorities not touched by overall tax cuts. Later, on January 18, 1963, he criticized to Humphrey the view of "our friend" Walter Heller's belief that we could not increase Federal expenditures to key areas of the economy until the increased tax revenues from the decreased tax stimulus materialized. To Keyserling, funds had to go to develop resources, aid the poor, and promote efficiency and technology, and transportation by use of both the private and the public sectors. All of these could not be done by tax cuts alone, but by growth-orientated policies and expenditures. He accused "our friends" of not doing their "homework" (Keyserling, letter, Jan 18, 1963).

Lastly herein, in a letter of November 2, 1978, without its recipient's name, Keyserling criticized the then Administration of President Jimmy Carter. He accused the Carter Administration of paying too much attention to the "trade-off" between employment and inflation and had, as a result, opted for slower growth and higher unemployment to prevent inflation. Keyserling argued that his own statistics since 1953 belies the tradeoff analysis and its use after 1953 by Arthur Burns as Chair of the Council of Economic Advisors had driven unemployment up from 2.9 percent to 6.7 percent in 1961. The same criticism was aimed at the Nixon-Ford years. The Truman-Kennedy-Johnson years were praised for their high growth/high employment policies in contrast to the low growth/low employment policies of Eisenhower-Nixon-Ford. Keyserling also criticized the Carter Administration for ignoring the provision of the Humphrey-Hawkins Act which indicated in Section 104 "... that policies and programs for reducing the rate of inflation shall be designed so as not to impede achievement of the goals ... for the reductions in unemployment." To these comments, Keyserling stressed his constant belief that the means to decrease inflation in the long-run was increased output to decrease shortages; and increased in wages/consumption to absorb those outputs. A rational economy is a balanced economy, micro and macro (Keyserling, letter, Nov. 2, 1978).

IV. Conclusion

Keyserling was a strong and constant believer in continuous economic growth and economic policies that continue to stimulate such growth. He also firmly believed that economic growth must be balanced. Sectors of the economy must grow in some proportion to one another for the purpose of continuous growth and price stability between sectors of the overall economy and within specific sub-sectors of the overall economy. Demand was important as well as the growth in relation to supply, micro and macro. As can be seen from Part HI above, Keyserling's letters to political leaders stress his major economic analysis with the policy implications thereof.

Keyserling was a constant and prolific writer of memos, letters, and the 36 Conference On Economic Progress Reports, 1954-1983. In his letters to the Presidents and the Vice President indicated above, he was a constant supporter of the "liberal" programs of the Roosevelt-Truman period of which he was an important player in terms of aiding in the writing of important legislation and as Chair of the Council of Economic Advisors under President Truman. His constant points were the desirability of continual growth to achieve and maintain high employment; social and economic welfare and equity; and our domestic programs and international goals, including defeating the less productive, totalitarian and expansionist Soviet regime and economy; and to maintain a balanced economy in terms of output and high employment/wages/consumption--the latter being the key to prevent long-term inflation.

All of the above are part of a growth agenda to rationally use our resources and maintain and increase the welfare of the nation and its people. As he stated in the Washington Post, February 12, 1957, the way to combat a general inflation "... is to maximize production and economic growth ... as the price inflation of today results in part from a few bottlenecks and, in part, from crass exploitation of markets by some who rigidly lift their own prices without justification." Therein, he also stressed the need for improvements in the economy's balance between investment and consumption to prevent both inflation and recession, a constant Keyserling belief (Keyserling, letter, Washington Post, Feb. 12, 1957).

In a letter to the then Senator Humphrey, Keyserling stated that some believed that the "liberal" era of high growth and employment and social security improvement was waning. In that letter to Senator Hubert Humphrey of December 2, 1977, he quoted a poem (author unknown):

"I am wounded sore, the old Knight said, But by God, I am not slain; I will lie me-down, and bleed awhile, And rise to fight again."

Appendix I

The following 36 pamphlets (Keyserling's definition) were developed by Keyserling and his economist wife, Mary Dublin Keyserling and are referred to in the text and in the references below. They are also in deposit at the Truman Memorial (Presidential) Library, Independence, Missouri USA.
Conference on Economic Progress Reports:

Toward Full Employment and Full Protection July 1954
National Prosperity Program for 1955 February 1955
Full Prosperity for Agriculture November 1955
The Gaps in Our Prosperity September 1956
Consumption--Key to Full Prosperity May 1957
Wages and the Public Interest January 1958
The "Recession"--Cause and Cure June 1958
Toward a New Farm Program December 1958
Inflation--Cause and Cure July 1959
The Federal Budget and "The General Welfare" December 1959
Tight Money and Rising Interest Rates July 1960
Food and Freedom October 1960
Jobs and Growth May 1961
Poverty and Deprivation in the U.S. April 1962
Key Policies for Full Employment September 1962
Taxes and Public Interest June 1963
The Top-Priority Programs to Reduce Unemployment December 1963
The Toll of Rising Interest Rates August 1964
Progress or Poverty December 1964
Agriculture and the Public Interest February 1965
The Role of Wages in a Great Society February 1966
A "Freedom Budget" for All Americans Fall 1966
Goals for Teachers' Salaries in our Public Schools December 1967
Achieving Nationwide Educational Excellence December 1968
Taxation of Whom and for What December 1969
 Growth with Less Inflation or More Inflation
Without Growth December 1970
Wages, Prices and Profits December, 1971
The Coming Crisis in Housing December, 1972
The Scarcity School of Economics December 1973
Full Employment without Inflation January 1975
Toward Full Employment within Three Years January 1976
 The Humphrey-Hawkins Bill "Full Employment and
Balanced Growth Act of 1977" February 1978
Goals for Full Employment and How to Achieve Them February 1978
 Under the "Full Employment and Balanced Growth Act
Of 1978"
 "Liberal" and "Conservative" National Economic September 1979
Policies And Their Consequences 1919-79
 Money, Credit and Interest Rates: Their Gross
Mismanagement by the April 1980
Federal Reserve System
 How to Cut Unemployment to Four Percent and End
Inflation February 1983
And Deficits by 1987


(See also Appendix I)

Brazelton, W. Robert. (1997). Retrospectives: The Economics of Leon H. Keyserling. Journal of Economic Perspective. 11 (4), 189-97.

Brazelton, W. Robert. (2001). Designing US Economic Policy: An Analytical Biography of Leon H. Keyserling. London, MacMillan/ Palgrave Press.

Brazelton, W. Robert. (2003). The Full Employment Budget Concept: Keyserling Before Heller, Journal of Economics. XXIX (2), 87-102.

Brazelton, W. Robert & Wehmeyer, Willadee. (1989). Leon H. Keyserling and Mary Dublin Keyserling: Over Fifty Years of Economic Policy and Analysis from Roosevelt, Truman to Bush. A study for the Truman Memorial Presidential Library, Independence, Missouri, USA.

Brazelton, W. Robert. (2003). Alvin Harvey Hansen: Economic Growth and a More Perfect Society. American Journal of Economics and Sociology. October, 427-40.

Brazelton, W. Robert. (2005). Research Paper Report, Volume II, Oral Interview: Leon Keyserling. On file, University of Missouri-Kansas City Library; Truman Memorial (Presidential) Library. Independence, Mo., USA.

Gates, Robert Joseph. (1968). The Role of the First Council of Economic Advisors. Master Thesis. University of Missouri-Kansas City, Kansas City, Missouri; also on deposit Truman Presidential Library, Independence, Missouri, USA.

Hansen, Alvin H. (1953). A Guide to Keynes. New York: McGraw-Hill.

Hicks, J.R. (1937). Mr. Keynes and the Classics: A Suggested Interpretation. Econometrica. 147-159.

Johnson, L.B. (1964). Letter to Keyserling, December 19, 1964, Truman Presidential Library, Independence, Missouri, USA, Box 83.

Keyserling, Leon H. (1954). Toward Full Employment and Full Production, Washington: Conference on Economic Progress (see Appendix I for this and below).

Keyserling, Leon H. (1957). Consumption--Key to Full Employment. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1957). Letter to Editor, Washington Post, Feb. 12, 1957, Truman Presidential Library, Independence, Missouri, USA, Box 32

Keyserling, Leon H. (1958) Recession--Cause and Cure. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1959). Inflation--Cause and Cure. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1959). Letter to Arthur Schlesinger, Jr., October 26, 1959, Truman Presidential Library, Independence, Missouri, USA, Box 33.

Keyserling, Leon H. (1960). Tight Money and Rising Interest Rates, Washington: Conference on Economic Progress.

Keyserling, Leon H. (1960). Memo to Henry Wallace, October 29, 1960, Truman Presidential Library, Independence, Missouri, USA, Box 34.

Keyserling, Leon H. (1960). Letter to President-Elect, Dec. 1960, Truman Presidential Library, Independence, Missouri, USA, Box 83.

Keyserling, Leon H. (1961). Jobs and Growth. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1962). Jobs and Growth. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1963). Letter to Hubert Humphrey, January 3, 1963, Truman Presidential Library, Independence, Missouri, USA, Box 19.

Keyserling, Leon H. (1964a). Progress and Poverty. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1964). Letter to Hubert Humphrey, January 18, 1963, Truman Presidential Library, Independence, Missouri, USA, Box 19.

Keyserling, Leon H. (1964b). The Toll of Rising Interest Rates. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1964). Letter to President Johnson, December 4, 1964, Truman Presidential Library, Independence, Missouri, USA, Box 83.

Keyserling, Leon H. (1964). Letter From President Johnson, December 19, 1964, Truman Presidential Library, Independence, Missouri, USA, Box 83.

Keyserling, Leon H. (1966). A Freedom Budget for All Americans. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1966). Memo, November 6, 1966, Truman Presidential Library, Independence, Missouri, USA., Box 83.

Keyserling, Leon H. (1966). Letter to Humphrey, June 24, 1966, Truman Presidential Library, Independence, Missouri, USA, Box 19.

Keyserling, Leon H. (1968). Letter to Humphrey, August 16, 1968, Truman Presidential Library, Independence, Missouri, USA, Box 19.

Keyserling, Leon H. (1966). Letter to Johnson, November 25, 1966. Truman Presidential Library, Independence, Missouri, USA, Box 53.

Keyserling, Leon H. (1968). Letter to the President, November 7, 1968, Truman Presidential Library, Independence, Missouri, USA, Box 83.

Keyserling, Leon H. (1964a). Progress on Poverty. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1970). Growth with Less Inflation and More Inflation without Growth, Washington: Conference on Economic Progress.

Keyserling, Leon H. (1973). The Scarcity School of Economics. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1975). Full Employment Without Inflation. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1976). Towards Full Employment Within Three Years, Washington: Conference on Economic Progress.

Keyserling, Leon H. (1977). Letter to Senator Humphrey, December 2, 1977, Truman Presidential Library, Independence, Missouri, USA, Box 26.

Keyserling, Leon H. (1978). The Full Employment Bill and Full Employment Within Three Years. Washington: Conference on Economic Progress.

Keyserling, Leon H. (1978). Letter of November 2, 1978 (no name), Truman Presidential Library, Independence, Missouri, USA, Box 46.

Keyserling, Leon H. (1979). Liberal and Conservative Economic Policies and Their Consequences, 1919-79, Washington: Conference on Economic Progress.

Keyserling, Leon H. (1980). Money, Credit, and Interest Rates: Their Gross Mismanagement by the Federal Reserve, Washington: Conference on Economic Progress.

Keyserling, Leon H. (1981). Letter to Brazelton, November 25, 1981, Truman Presidential Library, Independence, Missouri, USA, Box 32.

Keyserling, Leon H. (1983). How to Cut Unemployment to Four Percent and End Inflation and Deficits by 1987. Washington: Conference on Economic Progress.

McCoy, Donald R. (1984). The Presidency of Harry S. Truman. Lawrence, KS: Kansas University Press, University of Kansas.

Pechman, Joseph & Simler, N.J. (1982). Economics in the Public Service: Essays in Honor of Walter W. Heller. New York: Norton Press, esp. chapter by Walter Heller.

Pesaran, M. Hashem, (1978). Econometrics, John Eatwell, Murray Milgate, and Peter Newman. (1978) The New Palgrave Dictionary in Economics, Vol. 2. London: MacMillan, 5-19.

Rozenof, Theodore, (1997). Economics in the Long Run: The New Deal Theorist and Their Legacy 1933-1993. Chapel Hill/London: University of North Carolina Press.

Russell, Judith. (2004). Economic Bureaucracy and Race: How Keynesians Misguided the War on Poverty. New York, Columbia University Press.

Silverman, Corrine, (1959). The Presidential Economic Advisors. Tuscaloosa, Alabama: Intra-University Press, University of Alabama).

Turgeon, Lynn (1987). Leon H. Keyserling: The New Palgrave Dictionary in Economics, Eatwell, John, Millgate, Murray and Newman, Peter. Vol. 3. London: MacMillan, 50-51.

Wehmeyer, Willadee (1994). Mary Dublin Keyserling: Economist and Social Activist (A dissertation, University of Missouri- Kansas City. Also on file, Truman Presidential Library, Independence, Missouri, USA).


(1.) It is true that if the expenditure multiplier 1/1-b is larger then the tax multiplier -b/1-b the fiscal budget should be balanced just prior to full employment by the appropriate mathematical amount. For the sake of simplicity, herein, we will avoid that problem as it does not affect the general analysis of the Full Employment Budget Concept.

(2.) The interviews were made mainly in 1987 before Keyserling's death. They were not, however, officially transcribed for the Truman Memorial (Presidential) Library until deposited there in 2005. The interviewer included the present author and Willadee Wehmeyer who later finished a dissertation on Mary Dublin Keyserling, an economist of relevance in her own right.

W. Robert Brazelton, Professor Emeritus, Economics, University of Missouri-Kansas City; e-mail: brazeltonw@
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Date:Mar 22, 2007
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