The Fiscal Revolution in America: A Reinterpretation

Between the 1930s and early 1960s, U.S. economic policy underwent an important transformation, described by economist Herbert Stein as “The Fiscal Revolution in America.” During those years, policymakers utilized Keynesian ideas to promote prosperity, and the fiscal revolution reached its peak after John F. Kennedy proposed a growth-boosting tax cut despite the unprecedented peacetime consequence of running a deficit in nonrecession conditions. This article explores how that revolution developed during the postwar period. It challenges the argument that the business community shaped and consolidated the fiscal revolution in the late 1950s and early 1960s. Instead, this article shows that liberal economists played a crucial role in fashioning Keynesianism’s postwar consolidation, so much so that the brand of that doctrine implemented in the early 1960s owed much to their efforts and was significantly different to the one championed by the business community.