Alvin Hansen has played a key role in the development of economic ideas in the US. Within a few years, he managed to import Keynesian ideas to America and to convert young economists (who for some will later win the Nobel Prize in Economics) to this new gospel. If Hansen fits with one suit of comics, it would be the shy Peter Parker (alias Spiderman) who used his web to keep villains at bay. Spun almost 80 years ago, this web seems quite tangled and complex. Confused by all these threads, it is hard to make a chronology of its making, to highlight how and when all these connections were set out. In these two posts, we will attempt to untangle the web and show how it was progressively woven.
First connection with Washington D. C.
Hansen was already 49 when he read Keynes’s General Theory in 1936. Long before he was dubbed “America’s Prophet of Keynesianism” (Miller, 2002), Hansen had made his reputation as a business cycle specialist. After Franklin D. Roosevelt was elected, he became chief economic consultant to the U.S. State Department from 1934 to 1935 (Tobin, 1976: 33). In that capacity, he participated in several congressional hearings and helped draft the Social Security Act of 1935 which loomed large in Roosevelt’s New Deal (Miller, 2002: 607).
So by the time he joined Harvard in the fall of 1937, Hansen found himself in an intermediary position. Although he wasn’t anymore chief economic consultant to the U.S. State Department and was no longer holding any high-ranking government positions, he still maintained significant ties to Washington. At that time, he still was a public member of the Advisory Council on Social Security, and even had a home in the city, as he indicated during 1935 hearings (Hansen, 1935: 372).
It is not unusual, even today, to see US economists transitioning from academia to politics. Just think that the 2022 Nobel Prize winner Ben Bernanke served as a professor at Princeton before assuming the role of Federal Reserve (Fed) Chairman until 2014, after which he returned to academic research. What is unique about Hansen is the way he managed to keep for more than two decades one foot in academia and the other in Washington.
Harvard’s fiscal seminar.
In 1937, Hansen launched, in collaboration with John H. Williams, a new seminar at Harvard. It brought together what Paul Samuelson will later call a “golden generation” with young economists like :
– Hismelf, who won the Nobel prize in 1970 for “the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science”.
– James Tobin, who won the Nobel Prize in 1981 and was one of the main designers of the Keynesian economic policies of Kennedy and Johnson.
– Evsey Domar, who we will meet again later in this story, who is responsible for reflections and models explaining economic growth.
– Paul Sweezy, a marxist economist notably known for his developments of the theory of monopoly capitalism, who worked for several New Deal agencies, including the National Resources Committee.
– Walter Salant, who had later held several high-ranking positions in the American administration, including economist for the Council of Economic Advisers, Executive Office of the President, from 1946 to 1952
– Lauchlin Currie, who worked as chief economic adviser during World War II. He will come back in this story (see post 2/2).
The seminar consisted of two weekly meetings. Mondays were dedicated to joint discussions about ongoing research of professors and students. On Friday afternoons the seminar welcomed outside speakers – often from Washington – for informal conferences, frequently followed by even less formal dinners (Salant, 1976: 17). A former student of J.R. Commons, who was known to involve his students heavily in his work (Da Costa, 2010: 86), Hansen was recognized to be an extremely inspiring and encouraging teacher (Miller, 2002: 611). The fiscal seminar was his way to help students perfect their academic work and in the meantime introduce them to the Washington men who could later offer them a career in administration.
The 1937 crisis and Hansen’s new positions
1937 was also the year of a severe crisis which proved to be an “intellectually traumatic episode” (Salant, 1976: 15). After three years of robust growth which had led many to believe that the crisis was finally over, 1937 saw the US production decline by 40%, matching in only five months the drop seen in the thirty months following the October 1929 crash. The Dow Jones fell by 49% between March 1937 and March 1938 (making 1937 the third worst year in U.S. stock market history, after 1931 and 2008), and unemployment rate surged from 14% to 19% (Dockès, 2015: 969).
For the first time, Hansen reached the conclusion that a sudden fall in economic activity may be caused by mismanagement of public expenditures. Along that line, he developed a specific understanding of the interaction of the mechanism of the multiplier and the accelerator that Samuelson managed to encapsulate into a model. It was that model which was later used by participants of the seminar to account for growth (see post 2).
In 1938, Hansen became President of the American Economic Association. On the eve of the second world war, he had thus succeeded in weaving a vast web around himself: in addition to training a more than promising new generation of economists and developing relations with Washington, the son of south dakota farmers now headed the association that gathered the greatest economists of his time.
Everything is therefore set up for the web to expand and strengthen. In the next post we will see that the impending World War will serve as the ideal catalyst, unleashing the power of Keynesian ideas through the wartime economy.
References :
Britannica, T. Editors of Encyclopaedia., 2023. “Alvin Harvey Hansen.” Encyclopedia Britannica. https://www.britannica.com/biography/Alvin-Harvey-Hansen.
Brown, C., 1989. Alvin H. Hansen’s contributions to business cycle analysis. Working paper.
Da Costa, I., 2010. L’institutionnalisme de John Commons et les origines de l’État providence aux États-Unis. Revue Interventions économiques. Papers in Political Economy, 42, 42.
Dockès, P., 2015. Les débats sur la stagnation séculaire dans les années 1937-1950. Hansen-Terborgh et Schumpeter-Sweezy. Revue économique, vol. 66, no 5, 967‑992
Hansen, A., 1935. Witness Statement in the 1935 House hearings on the President’s Economic Security Bill. https://www.ssa.gov/history/pdf/hr35state.pdf.
Miller, J.E., 2002. From South Dakota Farm to Harvard Seminar: Alvin H. Hansen, America’s Prophet of Keynesianism. The Historian 64, 603–622.
Salant, W.S., 1976. Alvin Hansen and the Fiscal Policy Seminar. Q. J. Econ. 90, 14–23.
Tobin, J., 1976. Hansen and Public Policy. Q. J. Econ. 90, 32–37