Oskar Lange, New Deal, FDR. PT 2: When the US were about to became a socialist society — how the fight for general equilibrium was won

 

On January 30, 1934, President Franklin Delano Roosevelt issued another executive order, with which he secured the transfer of a huge amount of publicly owned gold from the Federal Reserve Board to the Treasury Department. Coins were minted and additional banknotes were printed for a small fraction of the equivalent of the gold reserve to infuse the government with cash, badly needed to cover unemployment benefits and some other urgent government expenses. On the other hand, the increase in money supply which stimulated demand (by unleashing the purchasing power of the public sector), was mainly due to the introduction of new series of treasury bonds.

Buying treasury bonds the rich paid something like a tribute to the rest of society but at the same time these securities served as the capital investment for them. With one hundred percent gold backing for the currency and issued by the government bonds, confidence in the Roosevelt’s administration skyrocketed. The President and his ministers used the extraordinary income thus generated to launch programs of social and economic reforms, carried out by federal agencies established for this purpose, from the scratch. They also funded huge public investments throughout the country.

Source of the picture: Small stack of assorted U.S. coins on two one hundred dollar bills. Free for private use. Commercial use allowed.

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The President and his secretaries politely but very firmly suggested to the capitalists how to take an active part in the fight against the Great Depression. This is probably related to the Rockefeller family funding scholarships for a group of exceptionally promising economists from abroad, including OskarLange.

Docent Dr. Lange left for the Western countries in 1934 as a noted specialist in the field of economic statistics. He was to spend the next 15 years there

He went first to Britain and then to the United States, as scholarship-holder and later a lecturer. He gained an additional degree in economic science needed to became professor at an United States university. In the second half of the year 1936 he returned to Krakow to the Department of Statistics of the Jagellonian University to share his new experience and knowledge with Polish students and scholars. He condemned the sanation regime which subjugated his home country but was interested in better future for the Polish people. He hoped his contribution would help to overcome the Great Depression there.

On July 1^st, 1938 he was appointed to the professorship at Departament of Economics in University of Chicago

An international group of prominent economists and mathematicians was assembled there to prepare a sort of socio-economic Manhattan Project. Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, Herbert Simon, Stanley Reiter and (another Poland born scientist) Leonid Hurwicz were prominent members and directors of the Cowless Commission for Research in Economics which moved to Chicago one year later. The Commission pursued monetary reforms which were soon conducted by President Roosevelt. FDR and his advisors were sure the men of Alfred Cowless can achieve some important goals which could be crucial if the reforms of American capitalism will not produce proper results.

Besides, the Second World War was about to begin

… and Roosevelt as well as his political staff in White House were aware that it will be another possibility to end the Great Depression but United States must be prepared to be equally, even more efficient in the field of armament industry, the war-time resources allocation etc. as the fascist States were. As a result of the gentlemen agreement between Alfred Cowless and President Robert Hutchins three Chicago economics faculty professors: Oskar Lange, Jacob Mosak and Gregg Lewis were given positions also in the Commission. So, the proponents of the general equilibrium were able to pick some of the world’s brightest minds to bring to fruition the realization of the dreams about the full employment welfare state. Some left-wing dreams indeed!

Lange began pioneering research into mathematical economics, or econometrics

At the time only some economic dissertations featured several mathematical equations. Most of them were strongly influenced by personal philosophy of their authors. That was rapidly to change due to the efforts of Oskar Lange as well as his fellow scholar and personal friend, an ingenious mathematician John von Neumann. Both gentlemen spoke fluently German and Neumann used this language to present his views and theories in the circle of his friends. Together they were able to learn a lot of things from each other and the Neumann’s publications were at least published in clear English, because Lange became his advisor in this regard.

As a final result the badly needed instruments for the factual central economic planning were created, ciphered in the poetry of mathematics

By the way, the necessity to make more and more equations to increase the effectiveness of national economy was an incentive to invent the big computing machines. John von Neumann greatly contributed to creating them during the 1940s, establishing thus the IT industry.

Oskar Lange and his Chicago fellows had ideas and the FDR governing team get them work — their main task was to secure the general equilibrium to the national economy of United States

The econometric work had a profound effect on economic analysis and management during Second World War. Their task was to secure the maximally effective war-time economy in the “arsenal of democracy” (Roosevelt’s citation), but later the welfare economics as well. This approach proved to be ingenious and effective, turning US in the superpower of almost unlimited possibilities. Unfortunetaly only for four decades before the neoliberal insanity destroyed all institutions of the partial market socialism created by the political workhorse and martyr FDR.

What Lange worked on and its practical use pointed to his theory of advanced and just society. The market economy and at the same time socialist system which he begun to create since he was 25 years old, was now ready to be launched in the real life

Oskar Lange once likened the prospects of a purely theoretically free market (subjugated in praxis to big business owners) achieving efficiency to the situation of ‘an ape trying to write the Encyclopedia Britannica’. He had no doubt that an economic system that failed to satisfy the basic needs of ordinary people does not deserve any excuse or continuation. He was, since 1936, one of the leading figures in the socialist calculation debate which he won against the Austrian school economist von Hayek in the year 1948, as the world have seen that Lange’s home country Poland recovered from the WW2 economic consequences more succesfully than Western Europe, using the principles of market socialism.

President Roosevelt died from overwork few weeks before the allied victory in Europe. He probably considered an ultimate economic reform – a market socialism in Northern America which he could be able to introduce due to his immense and still growing popularity

Since December 7th, 1941 he took control of a number of the nation's crucial industries, appointing generals and admirals as their new chief executive officers and general managers. He cited his authority as Commander in Chief and the need to maintain an uninterrupted supply of war materials. The State was now responsible for raw materials, amount of produced goods, wages and prices, also dealing with management-labour disputes. It was quite possible that he would take advantage from his personal supra-constitutional powers and his unprecedenced popularity to take some next logic steps in the same direction, calling the socialist socio-economic order the New Democracy or so ...

The next, chosen by FDR as his succesor US President Harry Truman made, however, a moderately successful attempt to define the new American superpower as a moderate left-wing project

He launched some important economic and social development programs like the free education for war veterans or an unexpensive housing for everybody. The federal help for unemployed men and woman and other citizens in extremely heavy troubles was continued. Above all the strong and badly needed in regard to the general economic equilibrium federal institutions for markets regulation and storing the production surpluses were mantained by Truman and few next US Presidents.

The housing skyscrapers and blocs of unexpensive (due to the technical progress and the generous federal refunding) flats in planned communities became one of the landmarks of American cities during the first after-war decades.

These fruits of hard work of indomitable patriot President Roosevelt, not an alleged invisible hand of free market which ceased to exist, in fact, during the late 19th century, made United States of America not only military but also economic superpower for decades to come. Oskar Lange noticed, of course, the fruition of his and his fellow scholars theories but was forced to change his way of life. His home country called him for help and he was, surprisingly, together with a modest Catholic priest, the only man who was able to save Poland.