Graduate Students and Keynes

Though their seniors were skeptical of the General Theory, many of the gradu­ate students and instructors were enthusiastic. The key figure here was a Canadian, Robert Bryce, who graduated in engineering from the University of Toronto.

d. He would have picked up the importance of intuition from Keynes himself, for this was

Though the arguments were not complete, these lectures contained a clear account of the theory to be published in the General Theory. With the new­found zeal of a convert, Bryce engaged in what he later described as “mis­sionary endeavours,” presenting Keynes's ideas to the unconverted at LSE, discussing them with students in Friedrich Hayek's seminar. Bryce remem­bers his experience in presenting Keynesian ideas at LSE as being what moti­vated him to go to Harvard, where he arrived in the same year as Samuelson. Though he wanted to learn from Leontief, Schumpeter, and other Harvard economists, he saw himself as propagating the gospel he had learned from the master in Cambridge.

Someone on whom Bryce had relied for support in Cambridge was a fellow Canadian student, Lorie Tarshis, who like Samuelson was to be attacked for writing a textbook based on Keynesian ideas.

At Harvard, Bryce, together with Paul Sweezy, organized an infor­mal seminar on Keynes's ideas that was attended by graduate students and young faculty members, including Tarshis and Sweezy's supervisor, Seymour Harris.²² He remembers John Kenneth Galbraith, a specialist in agricultural economics working with John Black, as having attended occasionally, and Samuelson as having been involved in their discussions. Their discussions centered first on an account of Keynes's ideas that Bryce had prepared for use at LSE and then, in February 1936, on The General Theory of Employment and Money itself.²³ Because the New York publication date was several weeks after the book was available in Britain, Bryce arranged for copies to be shipped directly from Britain to Harvard. Bryce believed that for most of that aca­demic year, he was the only person at Harvard who understood and appreci­ated the book: Leontief understood it but was skeptical; Schumpeter was interested in Bryce's paper, but did not absorb its message. It was the young economists, large numbers of whom remained at Harvard because jobs were

something Keynes stressed in the lectures in which he was trying to move forward from his Treatise on Money, which Bryce and his friends attended and recorded (Keynes 1971, Rymes 1989; see Backhouse 2010).

scarce,²⁴ who were attracted by Keynes, even if, at least at this stage, they did not fully understand his theory.²⁵

Samuelson, who had taken Williams’s course in money and banking along with Bryce in the previous term, was one of those who acquired early copies of the General Theory, together with the short summary of the book that Bryce had prepared. However, he resisted the idea of equilib­rium unemployment, arguing with Bryce about it, his position reinforced by Leontief’s derision of the book.^e Samuelson later recalled that when, during his general examination, Seymour Harris asked him a question about “leakages” and the multiplier—two concepts central to the General Theory—he thought it was “off limits” and “felt uneasy about it.”^26,f If that memory is correct, not only was he not a Keynesian but also he did not even understand some of the central technical points about Keynesian theory.

In September 1937, as the United States began to fall back into reces­sion, members of the Harvard-Tufts group had the idea of writing a book on the policies that needed to be pursued. They discussed drafts in the first half of 1938, and it was published as An Economic Program for American Democracy.²⁷ Samuelson recalled that he had the opportunity to be one of those involved in the book, but “wasn’t much of a joiner” and so chose not to participate.²⁸ It is easy to see the influence of Keynes, for the book is a sustained argument for higher public spending to maintain a higher level of demand in order to achieve continuing full employment. This was needed not just for its own sake but in order to save America’s “free demo­cratic institutions.” If no action were taken, there would be a danger that businessmen, “obsessed with a devil theory of government” would use eco­nomic power to institute a dictatorship. Presumably reflecting events in Germany, they opined that the economic activity revived by such a dicta­torship would be “devoted increasingly to producing weapons of death and destruction which must sooner or later be used to plunge the country into a holocaust of slaughter and bloodshed.”²⁹

e. It is perhaps worth noting that Marion, in her UG thesis, which she discussed with Paul, used the phrase “implicit theorizing,” which Leontief used to summarize his objections to the General Theory. See chapter 6 this volume.

f. Savings are considered a “leakage” from the circular flow of income, in that they constitute income not spent on goods and services and that do not generate further income. The contrast is to spending on goods and services, whether consumption or investment, which generates income for those people from whom goods and services are purchased. If saving is high, the multiplier—the total rise in income resulting from a one-unit stimulus to investment—will be lower.

The Harvard-Tufts economists used analysis that could easily be described as Keynesian, but they framed the problem in a way that was rooted in the type of analysis Hansen was offering.

The New Deal, they argued, had been a great success. It had increased government spending, filling the role that the private sector could no longer fill. However, by 1936, once the crisis had passed, the coalition supporting the New Deal began to fragment, spending was cut back, and the result was the 1937 downturn. What was needed, they contended, was to convert the emergency measures of the New Deal into a long-term program to sustain full employment. To that end, they formulated detailed proposals for expand­ing consumption (through increased welfare benefits and redistributive taxa­tion) and investment (financed by borrowing).