History of Political Economy 34.3 (2002) 515-532
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An Early Harvard Memorandum on Anti-Depression Policies:
An Introductory Note
David Laidler and Roger Sandilands
The memorandum that this note introduces was completed by three young members of the Harvard economics department sometime in January 1932. Two of them, Lauchlin Currie and Harry Dexter White, were soon to play key roles on the American, indeed the worldwide, policy scene. Both of them would go to Washington in 1934 as founding members of Jacob Viner's “Freshman Brains Trust.” In due course, first at the Federal Reserve Board and later at the Treasury and the White House, Currie would become a highly visible and leading advocate of expansionary fiscal policy, while White, at the Treasury, was to be a coarchitect, with Keynes, of the Bretton Woods system. Both would fall victim to anti-Communist witch-hunts in the late 1940s, in White's case perhaps at the cost of his life, since he died of a heart attack in 1948 three days after a strenuous hearing before the House Committee on Un-American Activities (HUAC). The third author, Paul Theodore Ellsworth, later a professor of economics at the University of Wisconsin, is perhaps best [End Page 515] remembered nowadays as the author of a leading textbook on international economics (Ellsworth 1937), although it is worth noting that he was also a very early (December 1936) but hitherto unrecognized discoverer of what came to be called the IS-LM model as a means of elucidating issues raised by Keynes's (1936) General Theory.1
It is not known how widely this memorandum was circulated, but the fact that it is a piece of policy advocacy, combined with its relatively polished style, makes it inconceivable that it was meant for the eyes and files of its authors alone. As readers will see, it sketches out an explanation of the then rapidly developing Great Contraction, as well as a comprehensive and radical policy program for dealing with it. In keeping with its authors' explanation of the contraction as a consequence of a collapsing money supply, the main domestic components of that program were to be vigorously expansionary open-market operations and substantial deficit spending that, particularly in its early stages, was to be financed by money creation; its international dimension involved a return to free trade and serious efforts to resolve the problems of international indebtedness that had originated in the Great War and in the Treaty of Versailles that had brought it to an uneasy end in 1919.
The Memorandum's Significance
The existence of this memorandum has recently been noted in one or two publications, but apart from a brief discussion in Sandilands 2001, its significance has not been adequately appreciated. First, it is self-evidently a coherent work of high intellectual quality and provides documentary evidence about an original and provocative element in the macroeconomic thought of an important intellectual center, namely Harvard, in the early years of the depression, before the New Deal and before the importation of the theoretical ideas of Keynes's General Theory (1936). Second, it provides considerable insight into the early intellectual [End Page 516] development of Currie and White, both of whom had great influence on the course of U.S. domestic and international economic policy in the years of the Roosevelt administration. The importance of a document in which these two had a hand, and which deals extensively with domestic macroeconomic policy and international economic relations, is surely obvious. It merits the attention of any historian of interwar economic thought for this reason alone.
The memorandum is also interesting for a third reason. There are strong similarities between the program it sets out and the one embodied in the recommendations sent to President Herbert Hoover over the signatures of twenty-four economists who participated in the conference on gold and monetary stabilization held under the auspices of the Norman Wait Harris Foundation at the University of Chicago on 27–31 January 1932, and...