'Fiscal Policy' Before Keynes' General Theory

Abstract

In this paper, I consider the evolution of the meaning of “fiscal policy” as understood in the economics literature before the publication of Keynes’s General Theory. Consideration of the evolving meaning of fiscal policy is preliminary to understanding both the rise of Macroeconomics and the development of modern Public Economics. In brief, fiscal policy was conceived very differently in the period before 1936, and it was only in the 1930s that the meaning of “fiscal policy” even began to approach the modern narrow definition – macroeconomic stabilization through the manipulation of taxation and government spending. What is apparent from a survey of the early literature is that fiscal policy was analytically protean, it’s meaning varying to encompass an amalgam of topics including taxes, international trade policy, and public debt financing. Fiscal policy was intuitively understood to refer to the government purse and implied government action or intervention in the economy. What constituted fiscal policy at any point in time was highly responsive to the external pressure of politics and the public’s view of what economics is/was and should/could do. Thus, the history of fiscal policy is, in part, the history of changing conceptions of the government’s role in the economy.