When Frankie Met Johnny: The 1934 Meeting of Roosevelt and Keynes

Recently by Gary North: Refuting Keynes, Line-by-Line

Few historians or economists know that the most influential American President of the twentieth century and the most influential economist of the twentieth century had a meeting in June of 1934. This is recorded in a book by Frances Perkins, who served as Roosevelt’s Secretary of Labor: The Roosevelt I Knew (1946).

The account appears in Perkins’ chapter, “Labor and the Codes.” The National Recovery Administration (NRA) under Hugh Johnson in 1934 was forcing businesses to adopt price floors and wage floors. More than any other institution of the early New Deal, the NRA extended the depression. By making it illegal for businesses and workers to offer their goods and services at a market price, the NRA extended unemployment, not just of workers but of all economic assets. Miss Perkins was a big fan of the NRA.

All over the industrial world, government organizations and pricing policies comparable to the NRA’s were deepening the depression. Politicians, business executives, and labor union representatives joined forces to keep markets from clearing through price competition. The years from 1930 to 1934 launched the first great peacetime departure from the principles of classical liberalism that had brought both peace and growing prosperity to the West, beginning no later than 1800 and escalating on an unprecedented scale after the defeat of Napoleon in 1815.

Perkins’ assessment of the NRA was typical of the bureaucrats of the New Deal era. It is also the standard textbook account.

Without an internal market supported by the wages of millions of working people, there would have been a further decline of our economy and a deeper depression. That was the theory. The setting of minimum wage rates, sometimes even rates above the minimum, by the code process had a revivifying effect. It gave working people a little money in their pockets to spend of [on] a Saturday night, and the results affected all industry (p. 225).

She did not mention that these wage floors led to greater unemployment. She did not mention the lack of money in the pockets of non-working people. She did not mention how this affected all industry. Neither do the textbooks.

Combined with the relief programs and with public works, it constituted an effective demonstration of the theories which John Maynard Keynes had been preaching and urging upon the English government.

Here, Perkins’ memory deceived her. His magnum opus, The General Theory of Employment, Interest, and Money, had been published a decade earlier, in 1936. In 1934, Keynes was an influential figure among British economists, but he was unknown to American intellectuals and economists, except for his 1919 critique of the Versailles Treaty, The Economic Consequences of the Peace. He was known by British economists mainly for his continual flip-flops on economic policy, whether tariff policy or monetary policy. Perkins writes as if the meeting had taken place in 1938.

Roosevelt himself was unfamiliar with the economics of Keynes. Others in the administration had read his works, but he had not yet attained popular acceptance. His was the formula that public expenditures should be increased when private expenditures fell off.

This was an accurate summary of The General Theory. It was not an accurate summary of his then-magnum opus, A Treatise on Money (1930). In any case, Keynes’ chief rival, the 32-year-old immigrant from Austria, F. A. Hayek, had so completely demolished the Treatise on Money in the scholarly journal Economica that Keynes replied to Hayek privately, “Oh, never mind, I no longer believe all that.”

Perkins records that Keynes came to America in 1934 and consulted with members of Roosevelt’s administration. She then writes the following.

He pointed out that the combination of relief, public works, raising wages by NRA codes, distributing moneys to farmers under agricultural adjustment, was doing exactly what his theory would indicate as correct procedure. He was full of faith that we in the United States would prove to the world that this was the answer.

What Perkins neglected to mention was that these early New Deal policies were the intellectual offsprings of two books by two non-economists, William Foster and Waddill Catchings. Foster was the president of Reed College, a left-wing school in Portland, Oregon. Foster’s Ph.D. was in English, with a specialty in rhetoric. Catchings was a businessman. Their books, Profits (1925) and Money (1928), offered a defense of the idea that insufficient consumer demand is what causes economic slumps. Their work is generally regarded as pre-Keynesian. It would be more accurate to say that Keynes’ work was Foster/Cachingsism.

Perkins’ account points to the reality of Keynes’ intellectual revolution. It was based on what European governments had been doing for at least six years by the time the General Theory appeared. Keynes’ visit to America, if we are to believe Miss Perkins’ assessment of his enthusiasm, gave him the encouragement he needed to write another magnum opus, to replace the one that Hayek had torpedoed so thoroughly.


Here is Perkins’ account of the meeting.

Keynes visited Roosevelt in 1934 rather briefly, and talked lofty economic theory.

Roosevelt told me afterward, “I saw your friend Keynes. He left a whole rigmarole of figures. He must be a mathematician rather than a political economist” (p. 225).

Roosevelt had a politician’s ability to size up a man rapidly. Did he have Keynes’ number! Keynes had earned a bachelor’s degree in mathematics (1905). His book, A Treatise on Probability (1920), was respected at the time. He had not majored in economics. His father, Cambridge economist John Neville Keynes, had put up half of the money for Cambridge to hire him. Keynes, Jr. earned no degree beyond the B.A. To call him a legacy scholar would be condescending but accurate.

Perkins added this.

Coming to my office after his interview with Roosevelt, Keynes repeated his admiration for the actions Roosevelt had taken, but said cautiously that he had “supposed the President was more literate, economically speaking” (p. 226).

He had sized up Roosevelt as accurately as Roosevelt had sized up him.

Perkins then added this report on Keynes’ words to her. I have seen no better summary of Keynesian economics.

He pointed out once more that a dollar spent on relief by the government was a dollar given to the grocer, by the grocer to the wholesaler, and by the wholesaler to the farmer, in payment for supplies. With one dollar paid out for relief or public works or anything else, you have created four dollars’ worth of national income.

Perkins did not ask this question: “Where did the government get that dollar?” This question is also not asked in any college-level economics textbook, and never has been. It deserves at least a subsection.

The absence of this obvious question over the last seven decades provides what I regard as the supreme example of academic blindness in modern times. There are lots of others, but nothing matches this one for its simultaneous simplicity and centrality. Ludwig von Mises was correct. Keynesian economics is the economics of stones into bread. In Paul Samuelson’s version, it is fiat money into bread.


There has yet to be a full-scale revisionist history of the New Deal that covers its domestic policy, its foreign policy, its military policy, and its post-War plans. Until this multi-volume study appears, the Roosevelt legacy will continue unabated. The triumph of liberalism is seen here: no such study exists. The vast bulk of historians serve as his hagiographers.

Similarly, there is no comprehensive academic critique of Keynes’ economics, one that challenges every Keynesian concept as little more than Major Douglas’ Social Credit — Keynes expressed respect for Douglas in The General Theory — and Foster and Catchings’ underconsumptionist theories, all dressed up in mathematics.

Until Frankie and Johnny receive their comprehensive academic comeuppance, the American Right will not have done its job. We have waited for seven decades.

Until this two-part story in high school American history textbooks, we will remain outsiders looking in.

October 22, 2009

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North