Abstract: Keynesian Mortgage Policy in the 1937 Recession
Most historians have argued that President Franklin Roosevelt’s response to the recession of 1937 inaugurated the use of Keynesian-style deficit finance as the solution to economic downturns in the United States. By contrast, this paper will argue that Roosevelt’s first response to the recession, and his desideratum throughout it, was to use lending programs and controls on costs to encourage investment, most especially in housing. The administration hoped federal mortgage guarantees and the creation of new quasi-public corporations, most importantly Fannie Mae, would lower financing costs and spur investment. At the same time, the administration was willing to fight unions and fight for lower wages in order to make investment more profitable in certain critical sectors, again most especially in housing. Far from embracing mass-consumption deficit spending, the New Deal in this period doubled down on its previous desire to increase business investment, even at the cost of consumption and wages.