Table Of ContentMacroeconomic Policy and a Living Wage
Donald R. Stabile
Macroeconomic
Policy and a Living
Wage
The Employment Act as Redistributive
Economics, 1944–1969
Donald R. Stabile
Department of Economics
St. Mary’s College of Maryland
St. Mary’s City, MD, USA
ISBN 978-3-030-01997-6 ISBN 978-3-030-01998-3 (eBook)
https://doi.org/10.1007/978-3-030-01998-3
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Preface
Tis book is a study of macroeconomic policy in the USA in the period
following World War II. It challenges the idea that this period was an Age
of Keynes in macroeconomic policy. To do so, it uses two concepts that I
have coined: the political economy of a living wage and the hybrid system
of redistributive economics. Te frst concept describes an efort to use
government regulation and taxation to secure a living wage for workers as
a method to increase aggregate consumption. Te second concept com-
bines the political economy of a living wage with fscal policy to further
augment aggregate consumption through higher wages due to increased
aggregate demand. In both concepts, the overarching goal was a more
equal distribution of income.
Te principal efort in the USA to create the hybrid system of redis-
tributive economics took place during the second half of the 1940s as
part of the drive for the Employment Act. In this book, I will investigate
what politicians, union leaders, economists and pundits wrote about the
hybrid system of redistributive economics. Chapter 1 serves as an intro-
duction to and overview of the two key concepts of the political economy
of a living wage and the hybrid system of redistributive economics. In
Chap. 2 I will start exploring the political economy of a living wage
before and during the New Deal as background for the Employment Act.
Chapter 3 will continue that background by reviewing Keynes’ ideas
v
vi Preface
regarding wages as set forth in his book, Te General Teory of Employment,
Interest and Money, and considering what was written about it by
e conomists in the 15 years after it was published. A key fnding of the
chapter is that Keynesian economics downplayed the role of wages in
bringing about a recovery and worried that full employment might bring
about wage-induced infation. In Chap. 4, I will complete the back-
ground of the Employment Act and trace its origins to Roosevelt’s Second
Bill of Rights, introduced in 1944, with a promise of “Te right to a use-
ful and remunerative job.” Trough consideration of the legislation of the
Act and the Economic Reports of the President that it required, I will
argue in Chap. 5 that in the late 1940s the Truman administration and
its followers bundled Keynesian economics with the political economy of
a living wage to produce the hybrid system of redistributive economics.
Chapter 6 will explore the economics of the Kennedy administration.
John F. Kennedy, usually thought of as a Keynesian, used the hybrid sys-
tem of redistributive economics to revive the economy. When that
approach did not get the economy moving fast enough, he switched to a
policy of tax cuts that combined Keynesian economics with the free-
market approach of supply-side economics. In Chap. 7, I will present
Johnson’s Great Society as a culmination of the hybrid system of redis-
tributive economics. Keynesian economics in the form of government
spending and the Kennedy-Johnson tax cut helped to produce a very
prosperous economy that enabled Johnson to pay for his Great Society
and its goal of completing the New Deal program for a living wage. Te
same policies, however, along with spending on the Vietnam War, pro-
duced infation and Johnson was not able to fnd a policy to keep infa-
tion in check. Tis left the hybrid system of redistributive economics
vulnerable to attack with both the political economy of a living wage and
Keynesian economics being blamed for the infation that persisted
through the 1970s.
From the early 1920 to the late 1960s, Progressives were optimistic
that their programs would bring about their ideal of a living wage. Tey
initially based their programs on a simple formula: collective bargaining
plus social insurance plus a minimum wage yielded a living wage, espe-
cially when supplemented by fscal policy. It did not end the Great
Depression. In the 1940s, they added Roosevelt’s Second Bill of Rights
Preface vii
and Keynesian fscal policy, as a way to determine how much the
g overnment needed to spend to reach full employment, to the formula.
Tey had ceased using the term “a living wage,” by the 1940s, but their
objective remained a living wage. It was not until the 1990s, as I will
discuss in Chap. 8, that Progressives revived a living wage as a rallying
slogan for their movement.
Tis revival recognized that even with the programs of the Great
Society and the use of Keynesian economics, there were still many work-
ers in the USA who did not earn a living wage. Te hybrid system of
redistributive economics had abetted the development of the mixed
economy, but starting in the 1970s, it was increasingly under attack
because of its putative failures. Tose attacks, however, came not only
from conservatives. Rather, as I will describe in Chap. 8, elements of the
Progressive movement found shortcomings in the hybrid system of redis-
tributive economics as set forth as a macroeconomic policy.
Troughout the book, I will be reviewing arguments by supporters of
the political economy of a living wage and by advocates for Keynesian
economics with emphasis on the detailed Economic Reports of the
President as required by the Employment Act along with criticisms of
those Reports by economists and other intellectuals. I do not profess to
have exhaustively selected every person who wrote in favor of either
approach, but have tried to ofer a sample that ranges from well-known
politicians to little-known economists and union ofcials. Where possi-
ble I have tried to give biographical details of each person or at least their
year of birth and death; in some cases, even that information was not
available.
Te reader should take note that this book presents an intellectual his-
tory of fscal policy with a focus on the labor elements of the hybrid
model of redistributive economics rather than a broad-based economic or
a political history of the reforms of the postwar era. Tat focus will leave
out arguments made against both the political economy of a living wage
and Keynesian economics; Eric Crouse has already provided a solid his-
1
tory of free-market criticisms of Keynes. It will also make few references
to monetary policy. Herbert Stein ofers a history of monetary policy
during this period, and, as he argues, the Keynesians and the advocates
viii Preface
for what I call the political economy of a living wage believed that
2
m onetary policy was inefectual.
Even though political leaders employed the hybrid system of redis-
tributive economics, there remained a debate between Keynesian eco-
nomics and the political economy of a living wage that concentrated
on fscal policy and the extent to which it should include programs to
improve the wages of workers. My objective is not to determine which
side of the debate had the better argument. Rather, I contend that they
wound up as collaborators with each side winning points that per-
suaded the other side to cooperate with it. Whether their collaboration
produced the results they desired is another issue I have skirted.
Economists have difculty in identifying whether their pet policies are
efcacious. Economic historians do not agree on what caused the Great
Depression, and their explanations for why it lasted so long include
that the New Deal did too much or that it did not do enough. To give
a more concrete example, Keynes’ interpretation (see Chap. 2) that the
recession of 1937–1938 was due to reduced government spending
overlooks an alternative explanation that it resulted from the tight
monetary policy the Federal Reserve was putting in place at the same
time by raising the reserve ratio of banks. As a historian of economic
thinking, I am more interested in looking at the ideas that political
leaders found plausible to use and ofer slight insight into which were
correct.
St. Mary’s City, MD Donald R. Stabile
Notes
1. Crouse, 2018, pp. 462–464, 603–615 and 791–863.
2. Stein, 1994, pp. 46, 50 and 71.
Acknowledgments
Te path to the fnal version of this book has been tortuous. I began with
a premise from my earlier work that the era after World War II “became
an age of Keynes … and not an age of Roosevelt and [John] Ryan that led
1
to implementation of a living wage.” On review of the early Economic
Reports of the President as part of this book, I soon learned that President
Harry Truman had not abandoned the political economy of a living wage
but had combined it with Keynesian fscal policy. Further research, how-
ever, showed me that politicians and economists in the USA had appreci-
ated the role of government spending as a macroeconomic policy before
Keynes told them about it. As I will describe in Chap. 1, economist and
later senator Paul H. Douglas published a book on solving the problem
of the Great Depression by using both a living wage and fscal policy a
2
year before Keynes’ great work appeared. Douglas’ goal was to use both
approaches to redistribute income to workers as a way to increase aggre-
gate consumption. It is to him I owe the concept of the hybrid system of
redistributive economics.
I also owe others for help in not losing my way on the path to this
fnal book. Bruce Kaufman performed a very benefcial service of
reminding me that I was on the verge of getting lost on the path and
his many suggestions helped me to fnd my place. Bob Pollin gave me
ix
x Acknowledgments
his wisdom on the issues related to a living wage and helped me track
down the origins of the modern living wage movement in Baltimore
(see Chap. 8). My background in macroeconomic policy, a key ingre-
dient of this book, dates to my undergraduate days at the University of
Florida where I took my frst two courses in macroeconomic theory in
spring and fall of 1965, when the events described in Chap. 7 were
taking place and being discussed by my professors, especially
E.L. Jackson. During my time in the PhD program at the University
of Massachusetts Amherst, in spring 1975, I learned frsthand from
Leonard Rapping the state of disarray into which Keynesian econom-
ics had already fallen; from Sol Barkin I learned that there was a politi-
cal economy of a living wage, even though he did not call it that. Tis
background and a career-long study of the history of political economy
all contributed to this book, but none of the above persons bears any
responsibility for the way I have used their guidance.
I would also like to thank the many persons who have done the work
of digitizing and putting online many of the documents that I have used
in researching this book. Te degree of their assistance can be seen in the
number of online sources contained in the bibliography. In addition, I
thank the anonymous reviewer of Palgrave Macmillan for helpful sugges-
tions and an overall understanding of what I am trying to accomplish in
this book. Tose same thanks extend to the editorial staf of Palgrave
Macmillan, Elizabeth Graber and Allison Neuburger, for their support
and help on this project. I also express my sincere gratitude to St. Mary’s
College of Maryland for granting me the sabbatical year that enabled me
to work on this book.
Finally, I wish to point out to the reader that this book is a sequel to
3
my last book and builds on the ideas of two earlier books. As a result
some of the material in this book, especially in Chap. 2, has been pub-
lished previously. On starting this project I had thought I would be able
to cite that material and refer the reader back to those earlier works. To
do so, I fnally decided, would be to shortchange the reader and the
