We've always had time on our sides
Now it's fading fast
As the New Deal foundered with a new Depressionary leg lower following the election of 1936, FDR was running out of options and rationale for continued government spending. Four years after amassing record deficits and instituting myriad economic programs, the federal government had little to show for the effort. Moreover, the Supreme Court had been striking down various New Deal programs such as the NIRA and the AAA.
Then along came a pamphlet sized book, An Economic Program for American Democracy, written by seven Harvard and Tufts economists in 1938. The book grew from meetings in Cambridge among various instructors and students on the direction of economic policy.
While the academic affiliations lend of air of legitimacy to this work, the actual content is pure drivel. The book cheerleads FDR's New Deal efforts. They probably felt it necessary because the actual results of the New Deal were not laudable by unemotional analysis.
The book's basic thesis was that capitalism in its pure form was over. The capitalism phase was marked by Westward expansion and technological advancements that drove a capitalistic engine of investment. Unfortunately, the frontier was now closed and there were few new technologies (!) to absorb new investment. Absent new investment, the capitalistic system becomes dysfunctional. The authors proposed that the stock market crash in 1929 signified the end of capitalism in America.
To pick up the slack from lack of investment, the author proposed that it was government's role to borrow and spend. This could be done indefinitely in their view because there was no need to pay back the debt. Bondholders, they proposed, are happy as long as they got their coupon payments. In the event that they wanted to sell their holdings, bondholders would be happy as long as the market was liquid.
This process--funding ever more economic intervention thru deficits and debt, could go on forever, the authors said. A mechanism for utopia.
As laughable as this thesis is, FDR and his administration embraced it. Subsequently, they fired up federal government financing operations on a scale previously unseen. Various of the authors of the book, plus the two broad champions of this policy, John Maynard Keynes (the originator) and Alvin H. Hanson (domestic proponent, Harvard), were brought to Washington to advise/implement the program.
Thus, ever growing defictis became institutionalized in the US.
Gilbert, R.V., Hildebrand, G.H., Jr., Stuart, A.W., Sweezy, M.Y., Sweezy, P.M., Tarshis, L., & Wilson, J.D. 1938. An economic program for American democracy. New York: The Vanguard Press.