Fiscal policy and business cycles

Full Recovery or Stagnation? By ALVIN H. HANSEN. New York: W.H. Norton and Company, Inc. 1938. Pp. 350. ($4.00) Fiscal Policy and Business Cycles. By ALVIN H. HANSEN. New York: W. H. Norton and Company, Inc. 1941. Pp. ix, 462. ($3.60) Full Recovery or Stagnation? has been largely put together from book reviews and other papers which have appeared from time to time elsewhere. To a lesser extent this is also true of Fiscal Policy and Business Cycles. Both books in a general way focus about the problem of how to maintain full employment having regard to the rhythm of business activity. Possibly owing partly to the way these volumes have been built up, the material in neither appears to have been reduced to a unity. The author's viewpoint seems to vary as he passes from the consideration of one topic to another. In the earlier volume Hansen appears to be very distrustful of the ability of democratic processes to cope with modern economic problems. He stresses the unlikelihood of democracy pursuing for long a consistent monetary policy and points out that modern democracies have "so often demonstrated a lack of capacity in self-control." In the later volume he puts forward the idea of a dual economy that will provide an escape "from a highly regimented private industrial system on the one side and an equally highly regimented collectivist system on the other." This, one gathers, he thinks might be worked out on a basis of compromise that would enable democracy to survive. Professor Hansen has been enormously impressed by the 1923-9 boom in the United States and the appalling amount of unemployment and suffering which arose in the succeeding depression. He urges that a course of public policy be pursued that will ensure the maintenance of full employment and prevent the recurrence of depressions. His proposition is large expenditures by the government to maintain income until private investment develops again to high levels.' The basis of Professor Hansen's position is his view that such a large proportion of income is saved annually that from time to time consumption does not absorb the flow of consumption goods currently produced. In the then existing state of public tastes and production costs every effective demand is satisfied. There are no outlets for new investment.