The emergence of macroeconomics as a well-defined field of economic study, along with its capture of fiscal policy from public finance, is one of the principal stories of twentieth century economics. Kevin Hoover (2015) locates the naissance of macroeconomics in the econometrics of Ragnar Frisch and the system models of Jan Tinbergen. However, to focus on the data and modeling of macroeconomics misses the accompanying intellectual shift that accepted governmental orchestration of the national economy, the roots of which can be traced to the vast expansion of state that accompanied its democratization in the late nineteenth century. The growth of public spending spurred economists to consider the nature of public goods, the processes by which they are approved and financed, and their relation to national economic prosperity. The result was a new vision of the economic role of state that was dramatically different from that of their classical predecessors (De Viti de Marco 1888, Ely 1889, Sax 1887, Seligman 1894, Wicksell 1896). The financial crises of the Great Depression forced a similar reckoning, as economists wrestled with how governments could stimulate recovery and engineer full employment (De Vroey and Malgrange 2011; see also Simons 1934; Slichter 1934; Schumpeter 1934).
John Maynard Keynes’s The General Theory of Employment, Interest, and Money (1936 [1956]) was an inflection point in the history of fiscal policy. Advancing “a theory of output as a whole” (1956, vi), Keynes brought together the main components of what would become the field of macroeconomics, considering the interrelations between unemployment, wages, taxes, business cycles, government spending and borrowing, interest rates, and output (De Vroey and Malgrange 2011).1 A key feature was his reimagining of aspects of traditional public finance – taxation and government spending – as tools of macroeconomic stabilization. Indeed, as Gerhard Colm wrote, “it is almost impossible to think of fiscal policy, as it is understood in the modern world, without thinking of John Maynard Keynes, and particularly the General Theory. In fact, he gave the concept of fiscal policy a new meaning and the operations of government finance a new perspective” (1950, 450). Despite the phrase appearing only handful of times in the General Theory, the book provided the theoretical underpinning of Keynesian views that a government’s fiscal policy could have a profound effect on the functioning of the national economy.2 Even though “Keynes never gave a formal definition of fiscal policy…he certainly was one of the authors who helped to introduce, or rather reintroduce, this term into modern usage” (Colm 1950, 453). ‘Fiscal policy’ caught on quickly, popularized by Harvard’s Alvin Hansen.
By the mid-1940s, fiscal policy had become “the central topic” of economic study (Hansen 1945, 382).3 Hansen argued that modern fiscal policy could trace its origins to early twentieth century business-cycle theory and the historical public debt literature. Roy Blough, of the Council of Economic Advisors, claimed fiscal policy originated with “the germ of the idea of Federal responsibility for the economy” [which] “can be traced far back in American history” to Institutionalism, Progressivism, and their antecedents (Blough 1966, 6).
A survey of the English-language literature illustrates that the term “fiscal policy” was long in use but poorly defined. While not exhaustive, the survey indicates how the meaning and use of “fiscal policy” before the General Theory evolved in response to economic crises; in turn, these spurred important changes in economic thinking and practice which paved the way for Macroeconomics and helped establish its separation from modern Public Economics.
What becomes apparent from a survey of the early literature is that fiscal policy was analytically protean, its meaning varying to encompass an amalgam of topics including taxes, international trade and tariff policy, and public debt financing; it was “rudimentary and idiosyncratic in both understanding and practice” (Samuels 2005, 245).4 Throughout, fiscal policy was intuitively understood to refer to the government purse, the ‘fisc;’ policy implied government action or intervention in the economy. However, 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 what the government 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.
Fiscal Policy Before 1900
Use of the term “fiscal policy” predates professional academic economics in Great Britain and the United States, emerging when “the economic mind” was still broadly defined to include journalists, politicians, and social reformers and their writings in books, newspapers, periodicals, and pamphlets (Dorfman 1946; Franklin 2016). By the early 1800s, the term would have already been familiar to economists and the public in the sense of “of or pertaining to the fisc or treasury of a state or prince; pertaining to the public revenue.”5 In the public press, fiscal policy was used in relation to a variety of policies affecting the public revenue in one way or another; it was not restricted to change in taxation or public spending by way of macroeconomic management.
The next century would be characterized by profound turmoil for the fiscal state. Democratization, urbanization, industrialization, and mass migration were coupled with an incipient globalism that increased national exposure to economic crises and sparked new conflicts. Economic theory was confronted with an ever-shifting landscape of recessions, booms, and shocks. It was during this time that “national traditions” in economic thinking emerged: the Anglo-English, German, Italian, Austrian, and French (Johnson 2025; Kayaalp 2004). Although each approached the question of the economic role of government in different ways and with different emphasis, one can generalize that the continental European approaches saw government action as an inherent feature of the economy; this is distinct from British and American views of government action as interference (Dorfman 1946). That American and British economists had further to go to embrace active government management of aspects of the economy gives more scope to study the process by which the concept of “fiscal policy” was consolidated.6
While by no means comprehensive, we proceed by first surveying two national newspapers The Times (London) and The New York Times to get a sense of the evolving use of fiscal policy in the general press in Britain and the United States between 1880 and 1940. Popular use is compared with that in economics journals of the same period. Incidences in newspapers and journals are supplemented by English-language books chosen because they were (1) influential to the discussion, and/or (2) produced by economists who contributed to the dialog elsewhere. During the period under consideration, both countries witnessed an unprecedented growth in the size and scope of government. In the U.S., federal spending, which had long amounted to barely two percent of GDP, rose to sixteen percent during the Civil War and Reconstruction and to thirty percent during the First World War (Brownlee 2020). In Great Britain, maintaining the empire was an increasingly expensive venture requiring vast public and transport infrastructure in addition to military capacity (Ferguson 2004).
The Times (London) and The New York Times (U.S.) combine for 164 references to fiscal policy before 1881 (Table 1). The predominant uses were in reference to either national tariff policies or the collection of various taxes imposed by governments. “Fiscal policy” throughout this period operated as a synonym for the government or the state – particularly the public purse – and without any specific or particular meaning beyond that.7 In one typical example, Nassau Senior, writing to Thomas Robert Malthus, argued
But in fact, no plan for social improvement can be complete, unless it embraces the means both of increasing production, and of preventing population from making a proportionate advance. The former is to be effected chiefly by the higher orders of society; the latter depends entirely on the lower. As a means of improvement, the latter is, on the whole, the more efficient. It may be acted upon by every individual. But in the present state of public opinion, and of our commercial and fiscal policy, perhaps more good is to be done by insisting on the former. (Senior 1828, 90)
Following the U.S. Civil War, use of fiscal policy expanded to include issues of public debt financing. The association of fiscal policy with the repayment of war debt was prevalent throughout the next decade in the United States, and what an “an enlightened fiscal policy” entailed remained under active discussion (e.g., The North American and United States Gazette 1871, 2). In Britain, the debate ignited by the politician Joseph Chamberlain surrounding his 1903 “Imperial Fiscal Policy” viz. tariffs increased public use of the term ten-fold in The Times but with negligible impact in the United States. In contrast, the roll out of the New Deal 1933 resulted in a spike of use in the New York Times; the lack of a corresponding stimulus program in Britain is reflected in the steady use of “fiscal policy” in the London Times. These events are taken up in more detail in the subsequent section.
“Fiscal Policy(ies)” in the Popular and Academic-Economic Press.
| Occurrences in The Times (London) Database | Occurrences in The New York Times Database | Occurrences in Economics Journals Indexed by JSTOR* | |
| Before 1881 | 144 | 20 | 0 |
| 1881–1890 | 168 | 16 | 1 |
| 1891–1900 | 229 | 38 | 33 |
| 1901–1910 | 2324 | 111 | 116 |
| 1911–1920 | 386 | 96 | 76 |
| 1921–1930 | 518 | 193 | 84 |
| 1931–1940 | 558 | 693 | 193 |
| 1941–1950 | 116 | 624 | 1055 |
* From The Times (London) and The New York Times archives search for “fiscal policy” or “fiscal policies” (case insensitive). JSTOR numbers include all returns for “fiscal policy” or “fiscal policies” (case insensitive) inclusive of articles, book reviews, lists of new books, front matter, etc., published in economics journals.
The founding of the American Economic Association in 1885 and the Royal Economic Society in 1890 marked a turning point in the professionalization of English-language economics. The establishment of academic economics journals in the 1890s facilitated the adoption of more consistent terminology in the presentation of economics arguments.8 For example, the American Economic Association’s Committee on Economic Theory specifically worked to “eliminate from economic discussion the most serious misunderstandings” arising from inconsistent use of terminology (from Ely’s Secretary’s report, in Franklin 2016, 24). The shift from popular to academic writing about fiscal policy is evident in Table 1. By the 1940s, one was more likely to encounter “fiscal policy” discussed in economics journals than in the general press.
Of the twenty-three economics journal articles indexed by JSTOR that employed the term “fiscal policy(ies)” through 1900, twelve were associated with tariff policy, nine were in relation to tax policy, and the remainder considered money and banking, particularly government debt financing (Table 2). Tariff policy during this time was equal parts trade policy, commercial/industrial policy, and public finance; together they combined under the general heading of a government’s fiscal policy. For example, Frank Taussig (1891, 331) believed that the “probably permanent fiscal policy of the United States” would be an increase in free trade and the lowering of import duties. Bemoaning the tendency for countries to both seek “to give protection to domestic industries…[and] to bring the Treasury a much-needed increase of revenue,” Taussig complained the “combination of industrial and fiscal policy is too common” (1897, 65).
“Fiscal Policy” in Economics Journal Articles Through 1900.9
| Years | Author | Journal* | Field | Topic |
| 1890 | J.C. Schwab | AEA | Public Finance | Property Taxes |
| 1891 | F.W. Taussig | EJ | International Trade | McKinley Tariff Act |
| 1891 | W. Cunningham | EJ | Public Finance, History | Taxation |
| 1892 | W.B. Shaw | QJE | Public Finance | Social Legislation |
| 1892 | E.A. Ross | AEA | Public Finance | Debt and Taxes |
| 1893 | E.R.A. Seligman | AEA | Public Finance | Taxation |
| 1893 | M. Macfie | EJ | International Trade | Tariffs, Protectionism |
| 1894 | E.R.A. Seligman | AEA | Public Finance | Income Taxation, Tax Reform |
| 1894 | F.C. Howe | AAAPSS | Public Finance | Taxation |
| 1894 | C. Johnston (2) | EJ | International Trade | Tariffs; Bank Loans, Corn |
| 1894 | F.W. Taussig | EJ | International Trade | Tariffs, Income Taxes |
| 1895 | R.M. Breckenridge | AEA | Money and Banking | Banks, Loans, Credit |
| 1895 | E. Helm | EJ | International Trade | Customs Duties, Import Taxes |
| 1896 | C.M. Walsh | QJE | Money and Banking | Currency, prices |
| 1896 | H.A.L. Fisher | EJ | International Trade | Tariffs, Customs Duties |
| 1896 | J.G. Colmer | EJ | International Trade | Customs Duties |
| 1897 | C.A. Harris | EJ | International Trade | Customs Duties, Tariffs |
| 1897 | F.W. Taussig | QJE | International Trade | Tariffs |
| 1900 | J. King | QJE | Public Finance | Taxation, Property Taxes |
| 1900 | R.P. Porter | AAAPSS | International Trade | Tariff Policy |
| 1900 | J.H. Hamilton | JPE | Public Finance | Taxation |
| 1900 | L.L. Price | EJ | International Trade | War, Trade, Debt |
* As identified in JSTOR from a search of “fiscal policy” or “fiscal policies” (case insensitive). AEA refers to Publications of the American Economic Association (the precursor to the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, and AAAPSS is Annals of the American Academy of Political and Social Sciences.
Since the time of the Mercantilists, it has been understood that governmental policies would have an impact on the national economy (Blaug 1992). The classical economists generally advocated for a system of laissez-faire, where the government’s objective was a “fiscal policy aimed at the least possible interference with the functioning of the private, capitalistic economy” (Hansen 1941, 114). These views carried over into the early British neoclassical economists, as seen in the anti-tariff positions of the Cambridge economist Langford Lovell Price (1900). By the 1890s, however, whether the government should deliberately enact policies to influence and direct the national economy was increasingly under discussion (Macfie 1893; Shaw 1892; Taussig 1894). In the U.S., Progressive anxiety over growing income inequality and the poor living conditions of the working class led E.R.A. Seligman to distinguish between a “fiscal policy [that] looks merely to the needs of the administration” and its minimum necessary revenue and a “socio-political policy [that] looks at the relations of social classes to each other, and the best methods of satisfactorily adjusting these relations” (1894, 68).10 Despite being educated in the German Historical tradition, Seligman warned against Adolph Wagner “with his doctrine of socio-political taxation” that would lead to socialism. “From the principle that the state may modify its strict fiscal policy by considerations of general national utility to the principle that it is the duty of the state to redress all inequalities of fortune, is a long and dangerous step” (Seligman 1893, 52). Indeed, despite a range of radical reforms promoted by Progressives, they were exceedingly cautious of demands for income and wealth redistribution through the tax mechanism (Johnson 2024).
Politics and Fiscal Policy, 1900–1920
Over the next few decades, the use and meaning of fiscal policy was highly responsive to contemporary political events, a pattern that would continue through the Second World War. Already, by the 1870s, the phrase the “new fiscal policy” had emerged to refer to protectionist trade policies adopted as a response to economic – particularly agricultural – fluctuations. Figure 1 illustrates the close relationship between the use of the term “fiscal policy(ies)” and three distinct political-economic discussions that dominated the period between 1900 and 1920. These included the association of fiscal policy with national trade policy during British tariff debates (International Trade); (2) fiscal policy as tax policy during the push for a federal income tax in the United States (Public Finance); and (3) fiscal policy as related to public debt financing and the funding of the First World War (Money & Banking). The three topics coalesce under the broad category of business cycles beginning in the 1920s.
“Fiscal Policy(ies)” by Field in JSTOR Economics Journal Articles.
The British Tariff Debates, 1900–1905
Fiscal policy got a significant boost from the British tariff debates instigated by Chamberlain. Driven in part by a series of recessions that had hit Great Britain particularly hard, protectionism was identified as a tool that governments could use to mitigate unemployment and boost domestic manufacturing (Chamberlain 1903a, 5). Chamberlain’s “Imperial Fiscal Policy” argued for a system of preferential tariffs favoring British colonies and imposing import duties on all others. The scheme was designed to counter the protectionist policies that had been adopted by the United States, France, and Germany during the preceding decade. It marked a significant departure from Britain’s historical free-trade position (Bastable 1902; Mitchell 1904; Price 1903). As Chamberlain argued, an Imperial fiscal policy would promote “England’s greatest industries” (in Mitchell 1904, 105–107) and protect the “British industries that have suffered under the laissez faire system” (Chamberlain 1903b, 7).
Between 1901 and 1905, fiscal policy(ies) was discussed times 1849 times in The Times (London). A more modest spike in use in academic journal publications is also apparent during this era (Table 1). The German public finance economist Gustav Cohn commented on the discussion: “the contest now dividing the political and scientific world of England [is] with respect to that country’s ‘fiscal policy’” (1904, 188). Twenty-one of twenty-three academic journal articles from this period examined tariffs; more than half were published in the Economic Journal (Table 3). In many, economists wrestled over how fiscal policy might be used to influence national employment outcomes.11 For example, Walther Lotz, member of the German Historical School, explained for an international audience that “the official programme of fiscal policy in Germany, both as for customs duties and as for rates of State railways, has, since 1879, invariably been protection of national labour” (1904, 515).
“Fiscal Policy” in Economics Journal Articles, 1901–1905.12
| Years | Authors | Journals* | Fields | Topics |
| 1901 | R.C. Matthews | JPE | Public Finance | Canadian Budgetary System |
| 1902 | M. Robinson | AEA | Public Finance | Estate & Property Taxes |
| 1902, 1903, 1904 | L.L. Price (3) | EJ (all) | Trade | Free Trade, Imperial Fiscal Policy |
| 1902 | A.C. Pigou | EJ | Public Finance | Corn Tax |
| 1902 | C.F. Bastable | EJ | Trade | Preferential Tariffs |
| 1903 | J.W. Root | EJ | Trade | Fiscal Enquiry |
| 1903 | A.W.F. | EJ | Trade | Canadian Tariffs |
| 1904 | T.W. Mitchell | AAAPSS | Trade | Chamberlain’s Fiscal Policy |
| 1904 | S.N.D. North | AAAPSS | Trade | U.S. Tariffs and Exports |
| 1904 | S. Huebner | AAAPSS | Trade | U.K. Foreign Trade |
| 1904 | J.A. LeRoy | JPE | Trade | Laissez-Faire in the Philippines |
| 1904 | G. Martineau | EJ | Trade | Sugar Trade and Duties |
| 1904 | G. Cohn | EJ | Trade | Free Trade and Protectionism |
| 1904 | G.W. Gough | EJ | Trade | Imports, Tariffs |
| 1904 | J.R. Smith | AAAPSS | Trade | Free Trade |
| 1904 | C. Plehn | EJ | Trade | Trade, Cotton, Economic Theory |
| 1904 | W. Lotz | EJ | Trade | German Protectionism |
| 1904 | F.H. Jackson | EH | Trade | U.K. Tariff Reform |
| 1905 | H. Parker Willis | AEA | Trade | Reciprocity and Preferential Tariffs |
| 1905 | J.H. Hammond | AAAPSS | Trade | U.S. Commercial Interests Far East |
| 1905 | W.E. Bear | EJ | Trade | Fruit Industry, Tariffs |
* As identified in JSTOR from a search of “fiscal policy” or “fiscal policies” (case insensitive). AEA refers to Publications of the American Economic Association (the precursor to the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, and AAAPSS is Annals of the American Academy of Political and Social Science.
Chamberlain received significant support in the popular press for his Imperial Fiscal Policy. Discussions included considerations of a broader economic role for government that would include distributional and welfare considerations in addition to employment levels.
[to] have a fiscal policy adapted to the times and circumstances in which we live…A fiscal policy worthy of the name embraces a great deal more than food taxes and preferential duties…Fiscal science…covered the whole range of public finance. It concerned itself not merely with the levying of taxes, but with the ability of taxpayers to pay them (Blackwoods Edinburgh Magazine 1903, 277).
The public was told “let us hope [for] a more scientific fiscal policy at home, an elastic revenue, greater credit, continuous employment for our working men, reduction of poor rates, a united, self-supporting, self-contained, impregnable Empire” that would result in the United Kingdom becoming the leading economic power in the world (Preece 1903, 108).
Economists, however, lined up against government intervention in trade (Mitchell 1904; Price 1903, 1904). Leveraging their professional training and academic positions, fourteen leading British neoclassical economists signed “The Manifesto for Free Trade” (1903).13 Alfred Marshall provided his own analysis refuting Chamberlain’s “fiscal policy of international trade” (in Robertson 1910). J.A. Hobson argued “the case against the use of a scientific tariff as a remedy for ‘unemployment’ becomes overwhelming” when one considers that a “dispassionate scientific fiscal policy” is impossible because politicians would inevitably manipulate tariffs for short-term political gains (1904, 62–63).14 Though Chamberlain and his party lost the 1906 election, others continued to put forth proposals in which “fiscal policy” – governmental action – would be used to deliberately influence national economic outcomes. For example, “A Fiscal Policy for Labour” argued that income and inheritance tax reform would benefit the laboring classes and improve employment levels (Villiers 1906).
The U.S. Income Tax
Tariffs as a revenue source and as a mechanism of industrial protection continued to be considered part of fiscal policy throughout the subsequent decade. Not everyone was happy about this expansive use of the term. Cohn (1904, 194) argued “it is no aid to clearness in these questions to speak of the Zollpolitik (tariff politics) of Germany as ‘fiscal policy.’ ‘Fiscal’ belongs to that which is levied for purposes of revenue, not for purposes of commercial policy,” something also reflected in his public finance textbook (Cohn 1895). Cohn’s view would become more common, as use of the term fiscal policy shifted from the trade literature to that of public finance (Table 4).15
“Fiscal Policy” in Economics Journal Articles, 1906–1915.
| Years | Authors | Journals | Fields | Topics |
| 1906 | L.L. Price | EJ | History | History of Economic Ideas |
| 1906 | H.O. Meredith | EJ | Trade | Infant Industries |
| 1906 | G.E. Snider | AEA | Public Finance | Taxation of Railway Receipts |
| 1907 | C.J. Bullock | EAE | Public Finance | Finance and Fiscal Policy of Mass. |
| 1907 | M. Coster | AAAPSS | Trade | Tariffs |
| 1907 | E.C. Cooke (2) | EJ | Trade | Sugar, Tariffs |
| 1908 | V.S. Clark | QJE | Trade | Australian Tariffs |
| 1908 | C.L. Jones | AAAPSS | Trade | Most Favored Nations |
| 1908 | E.R.A. Seligman | AEA | Public Finance | Progressive Taxation |
| 1908 | W.E. Lunt | QJE | History, Pub. Fin. | Taxation of the Papacy |
| 1908 | C.C. Plehn | EJ | Public Finance | U.S. Tax Reform Movement |
| 1911 | J.W. Grice | AER | Public Finance | English Taxation |
| 1911 | M.H. Robinson | AER | Public Finance | Federal Corporation Tax |
| 1911 | L.L. Price | EJ | Agricultural Econ | English Rural Land Questions |
| 1912 | S. Bell | AER | Money and Banking | Profit on Bank Notes |
| 1913 | C. Sifton | AAAPSS | Trade | Reciprocity, Trade Liberalism |
| 1913 | J.H. Jones | EJ | Trade | Dumping |
| 1914 | E.R.A. Seligman | EJ | Public Finance | U.S. Federal Income Tax |
| 1914 | A.M. Dodge | AAAPSS | Political Science | Women’s Suffrage |
| 1915 | S.M. Harrison | AAAPSS | Public Finance | Property Taxes |
| 1915 | W.J.A. Donald | JPE | Public Finance | War Taxation |
| 1915 | E.R.A. Seligman | AAAPSS | Public Finance | Income and Estate Taxation |
| 1915 | A.M. Mandel | AAAPSS | Public Finance | Budgeting |
| 1915 | H. Bruère | AAAPSS | Public Finance | Budgetary Procedures |
| 1915 | S.G. Lowrie | AAAPSS | Public Finance | Function of State Budgets |
* As identified in JSTOR from a search of “fiscal policy” or “fiscal policies.” AEA refers to Publications of the American Economic Association (becomes the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, and AAAPSS is Annals of the American Academy of Political and Social Science.
Prior to 1914, the U.S. federal government had relied on a hodge-podge of tariffs, duties, stamp taxes, and property taxes to meet revenue needs. The latter was particularly problematic, for though “the general property tax…ha[d] hitherto been at the basis of American fiscal policy,” the structure was increasingly archaic and unfair (Seligman 1914, 75). Vast fortunes made from capital income went untaxed while farmers bore larger and larger tax burdens. The intense debate over whether to implement a national income tax was reflected in print. Of the articles published in economics journals indexed by JSTOR between 1906 and 1915 that refer to “fiscal policy(ies)”, fourteen of twenty-six are on issues of taxation (Table 4). More than 90 percent of articles published in the New York Times during this period used fiscal policy(ies) in reference to tax reform.
The American Progressive economists pushing for a national income tax were familiar with the fiscal reforms in continental Europe, many having studied in Germany in the 1880s and 1890s (Furner 1975; Mehrotra 2007; Ross 1991). With the passage of the Sixteenth Amendment, the conversation in the American public finance literature shifted from the necessity of an income tax to the management of the tax and of the budget viz. national fiscal policy. Since the federal government “needs a fisc, it needs also a fiscal policy” (Meredith 1910, 46). The “science” of budget management emerged, where “fiscal policy is an executive problem” (Mandel 1915, 172; see also Brentano 1910). Others demanded “a harmonious program correlating all the features of a proper fiscal policy” (Bruère 1915, 176). If fiscal policy had specific outcomes to achieve – such as reducing income inequality or increasing employment – then expert knowledge of taxation and the budgetary process was necessary. “The budget embodies the government’s fiscal policy. It is a definite proposal for legislative action. It must be prepared by one thoroughly familiar with the government’s plan of activity, and familiar with the needs of the state in its various branches” (Lowrie 1915, 49).16
Unlike wars which put tremendous but temporary demands on national finances and which had hitherto been associated with provisional measures in the United States, the national income tax gave economists a permanent role as government advisors, opening the door to government tax policies designed to achieve specific economic, political, and social ends (Johnson 2024).17
The First World War
The “the imperious necessity of financing great wars” (Hansen 1941, 116) dramatically upended conceptions of fiscal policy, inclusive of its variations as tax policy, tariff policy, industrial/commercial policy, and public debt management. By 1916 it had become clear that the war would be lengthy and expensive; the problem of how to finance the war quickly consumed the attention of economists (Table 5). From 1916 to 1920, of the twenty-four journal articles cataloged by JSTOR that employed the term fiscal policy(ies), sixteen addressed issues of war finance or debt. Contributions came from economists throughout the U.S., Canada, the U.K. and continental Europe, including Sweden’s Gustav Cassel (1919), France’s Charles Gide (1919) and Italy’s F. Quattrone (1918).
“Fiscal Policy” in Economics Journal Articles, 1916–1920.
| Years | Authors | Journals | Field | Topics |
| 1916, 1917 | H.J. Davenport (2) | JPE, AER | Money, Public Finance | War Finance, Debt, Single Tax |
| 1916 | H.H. O’Farrell | EJ | History, Pub. Finance | Export Trade Before the War |
| 1916 | L.M. Sears | JPE | Public Finance | Purveyance in English, 1500s |
| 1917 | R.L. Morton | JPE | Public Finance | State Debt |
| 1917 | E.D. Durand | JPE | Public Finance | War Financing |
| 1917 | O.D. Skelton | AER | Public Finance | War Financing |
| 1918 | F. Quattrone | AAAPSS | Public Finance | Financial Problems of Italy, War |
| 1918 | M.L. Schiff | AAAPSS | Public Finance | War Time Borrowing |
| 1918 | J.J. Fitzgerald | AAAPSS | Public Finance | War Financing |
| 1918, 1919 | W.S. Culbertson (2) | QJE, AER | Trade | Tariffs and War, Colonial trade |
| 1919 | No Author | EJ | Public Finance | Property Taxes, Public Debt |
| 1919 | A. Berglund | QJE | Trade | Iron Ore |
| 1919 | J.S. Eagles | EJ | Public Finance | Alcohol Taxation |
| 1919 | C. Gide | EJ | Public Finance | French War Budgets |
| 1919 | L.R. Gottlieb (2) | QJE (all) | Money, Public Finance | Public Debt, Bank Credit, War |
| 1919 | G. Cassel | EJ | Money and Banking | Depreciation of the German Mark |
| 1919 | C.R. Fay | EJ | Public Finance | Transportation Policy, War Finance |
| 1920 | E.G. Nourse (2) | JPE (all) | Agricultural Econ | Crop Prices, Ag. Markets |
| 1920 | W. Notz | JPE | Trade | Cartels, Trade, War |
| 1920 | J.S. Davis | RESTAT | Money and Banking | Credit, Currency, War, Inflation |
* Identified by JSTOR from a search of “fiscal policy” or “fiscal policies” (case insensitive). AER refers to the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, RESTAT is the Review of Economics and Statistics, and AAAPSS is Annals of the American Academy of Political and Social Science.
Despite public finance being the predominant field from which to address war funding as related to fiscal policy, use of the term fiscal policy remained eclectic.18 H.H. O’Farrell (1916, 161) attributed pre-war British-German trade patterns to comparative advantages in transport rather than “any difference of fiscal policy” (e.g., commercial or industrial policy). Gide (1919, 130) defended France’s low tax rates and claimed that the “fiscal policy of the French government was inspired…by the desire to ‘maintain the magnificent enthusiasm of the people by enabling their families to endure’” the war. Herbert Davenport (1916, 100) estimated that “England’s fiscal policy” required that roughly one half of the national income be given over to war financing. All shared the view that war financing was an exigent circumstance and not subject to the usual rules of public finance.
Fiscal Policy in the Interwar Years
Economists’ use of the term fiscal policy throughout the 1920s continued to reflect the importance of debts incurred during the war. Of the thirty articles published in economics journals that used fiscal policy(ies), seven addressed war debt. Nine of the thirty can be classified as public finance; an additional six were on topics related to international trade (Table 6). The American public finance specialist Merlin Hunter employed fiscal policy in its most traditional form, arguing for changes in inheritance taxes: “this form of tax appears as a modern development in fiscal policies” (1921, 165). Similarly, Louis R. Gottlieb (1924, 226) claimed that when “a country that pursues a wise fiscal policy during war time, taxation is bound to remain on a high level for years and years after.” Reviewing several books on the Indian economy, the British colonial official J.M. Douie argued the “hopeful feature is the increased attention given to the study of Economics, and especially to the branch of that science which deals with fiscal policy” (1923, 229). Though not stating which branch that might be, Douie found the title Fiscal Policy in India “is misleading, for it does not deal with the fiscal policy of the Indian government as a whole, but only with that branch of it which is concerned with tariffs” (ibid).
“Fiscal Policy” in Economics Journals Articles, 1921–1929.
| Years | Authors | Journals | Field | Topics |
| 1921 | G. Jéze | QJE | Public Finance | War and Income Taxes, Budgets |
| 1921 | B. Wallace | AAAPSS | Trade | War Tariffs, Customs Duties |
| 1921 | M.H. Hunter | AAAPSS | Public Finance | Inheritance Tax |
| 1921 | C.E. McGuire | AAAPSS | Public Finance | Debt Forgiveness, Taxation |
| 1921 | B. Sarkar | AAAPSS | Public Finance | Indian Taxation |
| 1922 | E. Patterson | AAAPSS | Money and Banking | Federal Reserve, War, Bank Loans |
| 1922 | J. Hollander | AER | Public Finance | War, Classical Economics, Taxes |
| 1922 | J. Rovensky et al. | AER | Public Finance | War Taxes, Public Debt, Creditors |
| 1922 | J. Viner | JPE | Trade | Trade, Price Theory, Exports |
| 1922 | S. MacClintock | JPE | Public Finance | French Finances, Debt |
| 1923 | F. Lavington | EJ | Econ. Development | Agriculture, Land, Capital, Tariffs |
| 1923 | H.P. Willis | AER | Business Cycles | Loans, Investments, Forecasting |
| 1923 | J. Thompson | JPE | History, Development | Feudal Land, Agriculture |
| 1924 | R.R. Kuczynski | JPE | Public Finance | Railways, Budgets, Deficit, Cycles |
| 1924 | L.R. Gottlieb | JPE | Public Finance | Local Taxation, War |
| 1924 | P.A. Wadia | EJ | Trade | India, Trade Policy, Tariffs |
| 1924, 1925 | J. Davis (2) | RESTAT | Money and Banking | Bank Loans, Credit, Unemployment |
| 1924 | J.M. Keynes | EJ | History | Obit for Marshall |
| 1924 | F. Taussig | QJE | History | Obit for Marshall |
| 1924 | W. Ashley | EJ | Trade | Free Trade, Tariffs, Employment |
| 1924 | J.M. Keynes | EJ | Historical | List of Marshall Writings |
| 1925 | W.O. Weyforth | JPE | Money and Banking | National Banks, Credit, Paper Money |
| 1926 | H. Heaton | AER | Survey | Australian Economy and Education |
| 1926 | C.F. Remer | QJE | Trade | Trade, Raw Materials, Prices, Cycles |
| 1926 | W.E. Heitland | EJ | History, Ag Econ | Economics of Ancient Rome |
| 1927 | D.H. MacGregor | EJ | Industrial Organization | Cartels, Competition, Employment |
| 1928 | G.E. Jackson | CCE | Business Cycles | Unemployment, Depressions |
| 1928 | O. de R. Foenander | QJE | Industrial Org, Trade | Tariffs, Rail Industry, Production |
| 1929 | R.M. Campbell | EJ | Trade | Free Trade, Tariffs |
* AER refers to the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, AAAPSS is Annals of the American Academy of Political and Social Science, RESTAT is Review of Economics and Statistics, and CCE is Contributions to Canadian Economics.
When public finance began to be regularly taught as a specialty course in colleges and universities in the United States in the 1880s, it was often combined with money and banking into a single-semester specialty course (Johnson 2014). The post-World War I public debt discussions brought the field full circle as debt financing was equal parts taxation and monetary economics, the latter dealing with private and public bonds, paper money, and inflation. Managing public debt would become an increasingly important part of public finance in the subsequent decade as reflected by postwar public finance textbook revisions. Both British and American public finance textbooks increased the space devoted to public debt from a chapter or two to roughly a third of their textbook (Dalton 1924, 1926, 1927; Hunter 1921; Jensen 1924; Lutz 1924; Plehn 1920, 1926).19 Expertise in public debt was useful for another reason: it provided public finance specialists entrée into the spending, tax, and deficit discussions of governmental agencies in the 1930s and 1940s (Brownlee 1990).
What was new during the interwar years was the use of “fiscal policy” in reference to a collection of governmental policies focused on mitigating economic fluctuations and boosting unemployment and national income (five of the thirty articles listed in Table 6).20 Business cycle theory had emerged from the First World War as a new and active research area, capturing the attention of leading economists. The National Bureau of Economic Research (NBER) was founded in 1920, with a large part of its research program focused on the statistical analysis of business cycles. A.C. Pigou wrote Industrial Fluctuations (1927). Hansen’s doctoral dissertation at Wisconsin considered “Cycles of Prosperity and Depression” (1918 [1921]); he followed it with a wealth of articles and Business Cycle Theory (1927).21
In the popular press, “fiscal policy” continued to be used variously; articles in the New York Times refer to the tax, debt or trade policies of the U.S., the U.K., Mexico and Germany. Several articles addressed French postwar taxation but one also referred to a new French bank note issuance as fiscal policy. Two articles discuss the recovery of the British coal industry due to sound fiscal policy, meaning trade restrictions. And it was announced that the new “fiscal policy of the Soviet Union” was going to “squeeze private business…just short of actual extinction” (Duranty 1926, 7). However, much like in the academic literature, fiscal policy was becoming increasingly associated with business cycles and unemployment. Reeling from high post-war unemployment and a loss of trading partners, Britain announced “the prosperity of the country depends upon increased production” which would be promoted by a new “general fiscal policy” to boost manufacturing and exports (New York Times 1919, 8). The National Convention Platform of the Democratic Party in the United States (1928) called for “a new fiscal policy,” claiming “we expend vast sums of money to protect our people against the evils of war, but no Government program is anticipated to prevent the awful suffering and economic losses of unemployment.”22
Fiscal Policy and the Great Depression
The political events of the preceding forty years combined with a shift in public opinion regarding the economic role of government contributed to a growing interest in national fiscal policy (Brownlee 2020). By the late 1920s, the idea that fiscal policy could be a tool of economic management rather than merely descriptive of the process of raising necessary government funds and the management of the public purse was increasingly in evidence. The stock market crash of 1929 and the Great Depression spurred economists to consider government policies as potential mitigants for low output and high unemployment.23 In the run-up to The General Theory, fiscal policy indicating some sort of national economic policy, dominated the economics literature. Of the 36 journal articles that used the term fiscal policy(ies) between 1930 and 1936, all but two focused on some aspect of the depression (Table 7). Six of the articles discuss fiscal policy in the context of deficit spending.
“Fiscal Policy” in Economics Journals Articles, 1930–1936.
| Years | Authors | Journals | Field | Topics |
| 1930 | Editorial Board | EJ | Political Economy | Trade Relations, Parliamentary Reform |
| 1931 | D.B. Copeland | QJE | Trade | Tariffs, Trade, Costs |
| 1931 | M. Copeland | AER | Theory | Market Prices, Productivity, Costs |
| 1931 | A. Usher | RESTAT | Business Cycles | Market Prices, Fluctuations, Indices |
| 1931 | G. Ambrose | EHR | History | Mercantilism, Trade |
| 1932 | M. Copeland | JPE | Business Cycles | Estimates, Banks, Savings |
| 1933 | W. Spahr | AER | Money and Banking | Bank Failures, Reserve Banking |
| 1933 | S. Harris | EJ | Money and Banking | Legislation, Prices, Banking, Wages |
| 1933 | E. Fagan | QJE | Public Finance | Tax Shifting, Prices, Costs |
| 1934 | J. Sundelson | AER | Public Finance | Debt, Federal Budgets, Taxes |
| 1934 | S. Slichter | AER | Public Finance | Public Works, Unemployment, Business Cycles, Consumer Spending |
| 1934 | S. Harris | QJE | Trade | Trade, Money, Exchange Rates |
| 1934 | Editorial Board | RESTAT | Business Cycles | Indices, Banking Legislation, Prices, Deficits |
| 1934 | R. Kindersley | EJ | Finance | Investments, Capital, Dividends |
| 1934 | C. Bullock | RESTAT | Public Finance | Inflation, Public Debt, Recovery, Public Expenditures |
| 1934 | H. Simons | JPE | Business Cycles | Reconstruction, Policy, Gold Stand. |
| 1935 | L. Edie | AER | Money and Banking | Prices, Deficits, Banks, Gold Stand. |
| 1935 | O. Nathan | AER | Business Cycles | Depressions, Cartels, Monopoly, Industrial Policy |
| 1935 | B. Adarkar | EJ | Public Finance | Government Spending, Railways |
| 1935 | A. Muhse | JPE | Trade | Tariffs, Duties, Imports/Exports |
| 1935 | J. Schumpeter | RESTAT | Business Cycles | Fluctuations, Investment, Credit, Economic Systems |
| 1935 | A. Gayer | EJ | Money and Banking | Federal Reserve Banking |
| 1935 | F. Underhill | CJEPS | Political Economy | Nationalism, Economic Systems |
| 1935 | R. McQueen | CJEPS | Political Economy | Federalism, Tariffs, Depression |
| 1935 | D. MacGregor | CJEPS | Trade | Tariffs, Manufacturing, Exports |
| 1935 | A. Gayer | QJE | Money and Banking | Federal Reserve, Liquidity, Deposits |
| 1935 | H. Simons | JPE | Money and Banking | Monetary Policy, Currency |
| 1936 | R. Stewart | CJEPS | Trade | Trade Agreements, Exchange Rates |
| 1936 | S. Saunders | CJEPS | Trade | Treaties, Exports, Tariffs |
| 1936 | H. Simons | AER | Political Economy | Monopoly, Liberalism, Regulation, Competition |
| 1936 | J. Williams | AER | Money and Banking | Reserve Banking, Federal Reserve Bank, Legislation |
| 1936 | J. Maxwell and D. MacGregor | CJEPS | Business Cycles | Debt, taxes, Depressions, Revenue |
| 1936 | J. Hubbard | RESTAT | Money and Banking | Debt, Bank Assets, Reserve Banking |
| 1936 | M. Bowley | Economica | Theory | Influence of Nassau Senior (Obit) |
| 1936 | F. Graham | AER | Money and Banking | Assets, Commercial Banks, Reserve Banking |
| 1936 | E. Hamilton | QJE | Money and Banking | Banks, Prices, Paper Money, Index Numbers |
* AER refers to the American Economic Review), EJ is the Economic Journal, JPE is the Journal of Political Economy, QJE is the Quarterly Journal of Economics, RESTAT is Review of Economics and Statistics, EHR is Economic History Review, and CJEPS is the Canadian Journal of Economics and Political Science.
One take away from the list of articles in Table 7 is that broad divergencies remained in the use of fiscal policy; often little effort was made to clearly define exactly what was meant. J. Wilner Sundelson provided an exception, describing “federal fiscal policy: namely, the assignment of specific tax revenues for a designated purpose” (1934, 55). In contrast, F.F. Burtchett reflected a much broader view of fiscal policy in his review of Antonio de Viti de Marco’s Principii de Economia Finanziaria (1936), claiming the book was one of the few available treatments of public finance which trace in detail the social and economic effects, not of taxes, imposts, tariffs, duties and special assessments, but of public debts, inflation, deflation, devaluation, reflation, currency management, stabilization, international capital movements, and other currently discussed problems of national fiscal policy (1936, 356).
Lionel Edie (1935, 164) identified fiscal policy – meaning the federal government budget deficit/surplus – as one of the necessary elements of stabilization policy, along with the price level, public debt, and the banking system. Hansen (1941) adopted a similar macro level focus.
As the depression continued, economists began to consider an increasingly broad range of stimulus policies under the purview of the fisc, including spending on public infrastructure and a variety of income stimulus programs. The Institutionalist Morris Copeland (1931, 78) accepted the theoretical premise that the government “necessarily directs the functioning of that economic system” through its fiscal policy. What was needed was “reformulation of descriptive theory” into testable hypotheses to conduce “wiser fiscal policy” (Copeland 1931, 72, 78). Others were less certain that fiscal policy could provide an appropriate stabilizing function. The conservative Harvard labor economist Sumner Slichter doubted the ability of government to effectively pull the correct levers: “government fiscal policy needs to be subject to quick reversal. Programs of public works tend to tie the hands of government in reversing its fiscal policy and hence to weaken its ability to control booms” (Slichter 1934, 187). The Chicago School’s Henry C. Simons had similar concerns. Simons (1934a, 798) imagined “a great director, giving out orders for the increasing and decreasing of public-works expenditures, and continually consulting…a chart showing the whole future course of industrial fluctuations.”24 Considering this image ridiculous and the accompanying theoretical effort “squandered,” Simons argued that fiscal policy was important, but only because “an adequate monetary system could not possibly be made effective without the most careful ordering of fiscal practice” (1934a, 799).25
Despite – or perhaps because of – his skepticism toward the efficacy of the fiscal policy representative in the New Deal, Simons debuted the first course devoted entirely to fiscal policy in the United States at the University of Chicago in 1934.26 The Economics of Fiscal Policy (EC 361) was part of the graduate sequence for students specializing in public finance. The course description promised
A study of fiscal practices with reference to (1) booms and depressions (budget-balancing), (2) distribution of income (inequality), and (3) composition of the national income (incidence). The latter weeks will be devoted to study of particular kinds of taxes, especial attention being given to problems of income taxation.27
In addition to parts of his Personal Income Taxation (1938), Simons assigned his students drafts of his rules versus authorities in monetary policy (1936). Later, he added his critique of the Beveridge Program (1945)28 and an essay on the “monumental misconceptions” of Hansen, one of which was the usefulness of business cycle theory (Simons 1942a, 44).29 Simons’ course predated the famous Harvard seminar of Hansen and John Williams by four years. Similar in description if not in philosophy, the Harvard seminar was “concerned with public finance in relation to economic, political, and social institutions and systems. It deals with the monetary aspects of expenditures and revenues, with public finance as a compensatory mechanism in the business cycle, and with the social and political implications of government spending.”30 Because of how it was organized, the seminar proved important for developing two-way flow between elite academic economists and Washington researchers and policy makers. It was in the seminar that Harvard students and young faculty such as Richard Musgrave, Paul Samuelson, and Walter Salant interacted with key representatives of the Federal Reserve and the U.S. Treasury including Gerhard Colm, E.A. Goldenweiser, and Lauchlin Currie (Desmarais-Tremblay and Johnson 2019).
The seminars at Chicago and Harvard and the exchanges between Simons and Hansen contributed to substantial stabilization and consolidation of the term “fiscal policy” by the mid-1940s. A survey of textbooks from the period illustrates how the territory of fiscal policy continued to be held by public finance, despite the variety of fields treated in published journal articles (Table 7). Public finance textbooks offered expanded consideration of deficit spending and public expenditures designed to promote aggregate demand along with discussions of the implications of growing federal debt burdens. Princeton’s Harley Leist Lutz updated his textbook to account for the “new stresses during the depression years” (1936 [1929], vii). Columbia’s William Schultz and C. Lowell Harris revised their Institutionalist American Public Finance (1931) in 1932 and again in 1938 because “the expansion of fiscal theory during the past seven years” required substantial changes. The last edition included new sections on “maintaining prosperity; preventing inflation,” the “effects of business cycle development,” “recovery and relief functions” and the newly enacted Social Security program (1938, vi–vii).31 British Labour Party economist Hugh Dalton (1934,1936) gave his textbook “a very thorough revision” to account for the “strange sights” and “fresh thoughts” of the depression (1936, viii). He took particular pains to point out that “the boundaries of public finance are not clear cut” and were “very much entangled at some points with the theory of money and of industrial fluctuations” (1936, viii). In contrast, standard money and banking and international trade textbooks from this period had yet to catch up. Most contained very little (or no) treatment of public debt, deficit financing, or macroeconomic stabilization through taxation, tariff, and spending policies (e.g., Cole 1933; D.H. Robertson 1922, 1928, and 1937; Schumpeter 1934). For example, Ralph Hawtrey’s Currency and Credit made no reference to fiscal policy in the 1919 edition; his 1923 edition contains a single reference to French fiscal policy after the First World War (Hawtrey 1923, 392).
While many, including Henry Simons, would continue to view fiscal policy as the purview of public finance, others such as the German emigree Gerhard Colm argued that public finance had become only a small part of fiscal policy, which should be seen as an independent subject. In this, Colm was particularly influenced by his practical policy work for the Bureau of the Budget and the Council of Economic Advisors. On the intersection of Keynesianism and public finance, Colm wrote
Keynes did not discuss matters of public finance per se. He looked at public finance as one of the instruments of a policy designed to influence employment and income. By using the term ‘fiscal policy’ rather than the conventional ‘public finance,’ Keynes apparently intended to indicate that he was concerned only with one aspect of public finance (Colm 1950, 453).
Indeed, fiscal policy was increasingly seen as both a counterpart to monetary policy and as entangled with the new interest in economic planning (Neal 1940). This presented a new set of challenges, as Henry Simons (2005, 258) explained
Fiscal policy is usually short-run and the product of legislative halls…A satisfactory system would have to imply a close connection of fiscal and monetary policy – At present the other extreme is reached, with fiscal policy and monetary policy at opposite poles – And a preposterous division of power – Expenditure and taxation in control of legislature – Monetary control in hands of Central Bank (Simons in Samuels 2005, 244).
As economists settled on “fiscal policy” to capture the deliberate use of government spending, taxation, and deficits to influence aggregate demand, stabilize the economy, and promote full employment, how policy was to be effected would become one of the central questions of the 1950s. This sort of fiscal policy amounted to a significant expansion of the traditional study of public finance as taxation and spending; it required a new administrative and institutional framework and new specialists (Desmarais-Tremblay 2025). Yet despite the changes, fiscal policy would remain closely associated with finance specialists such as Roy Blough, Gerhard Colm, Walter Heller, Richard Musgrave, Joseph Pechman, but now increasingly supplemented by generalists and proto-macroeconomists including Paul Samuelson, Kenneth Boulding, J.M. Clark, and Abba Lerner.
Conclusions
The history of fiscal policy is often presented as one of discontinuity, emerging suddenly in the midst of the difficulties of the Great Depression, authoritated by Keynes’s General Theory (1936). In the United States, Harvard’s Fiscal Policy Seminar played a pivotal role propagating a domesticated version of Keynesian fiscal policy, leaving “a deep impact on the future development of macroeconomics and public policy in the United States (Musgrave 1976, 5; see also Haberler 1976, 11; Desmarais-Tremblay and Johnson 2019). Yet while certain events and personalities have facilitated a perception of discontinuity,32 what such narratives miss is a half-century of gradual reassessment of the economic role of the state, largely but not solely associated with the emergence of modern public finance. The evolution of fiscal policy prior to Keynes’s General Theory reflects not a sharp conceptual rupture but a gradual, contested redefinition of the state’s economic role, shaped by shifting political priorities, institutional reforms, and intellectual developments. Well before the Great Depression, economists, policymakers, and the public invoked “fiscal policy” in discussions ranging from tariffs to taxation to public debt, though its meaning remained fluid and highly contextual.
Nonetheless, it would be incorrect to conclude that economists had a well-established notion of fiscal policy in the 1930s. Rather, the meaning and use of the term was shaped by the larger socio-political context, as historic events forced the hands of economists and demanded policy responses – reactions often referred to as fiscal policy. What changed in the period leading up to the General Theory was not so much the meaning of fiscal policy – the term had long been idiosyncratic and malleable – but the nature and scope of the problems to which fiscal policy could be proposed as a solution.
Notes
- For example, Keynes wrote that “the inducement to the individual to save depends…not only on the rate of interest but on the fiscal policy of the government,” particularly income taxes and asymmetries in the treatment of income of various types (1956, 94). “If fiscal policy is used as a deliberate instrument for the more equal distribution of incomes, its effect in increasing the propensity to consume is, of course, all the greater” (1956, 95). [^]
- Jacob Viner declared The General Theory “brilliant, original, and provocative” (1936, 147). The “break with accepted theory [was] sharp” (Hardy 1936, 490). John R. Hicks considered it “an obvious example of a major revolution” (1975, 321). [^]
- For example, a Google Ngram of “fiscal policy(ies)” (case insensitive) indicates that fiscal policy was regularly in use by 1900; a sharp upward spike in use occurs in 1942, which is sustained, with some variation, through the 1970s. [^]
- History of economic thought textbooks are remarkably unhelpful in tracing the evolution of the term. Blaug uses the term only once in reference to Keynes (1985, 644), stating “finally, the chief policy implication of Keynesian theory – the superiority of fiscal over monetary policy in combating depressions – marked a striking contrast to the central role of monetary management in the writings of quantity theorists.” Fiscal policy does not appear in Spiegel (1971). Schumpeter harkens to the older view of “fiscal policy” when he indicates in his index to “see also taxation,” or that “nothing shows so clearly the character of a society and of a civilization as does the fiscal policy that its political sector adopts” (1994, 769). [^]
- The term can be found in A New English Dictionary on Historical Principles (1884), which attributes the ‘fisc’ or ‘fiscus’ as originating with the public treasury of Rome. [^]
- Another reason to limit the exploration to the American-British literature is that the linguistic hurdles to studying the evolution of a term such as ‘fiscal policy’ are steep. Take for example, the range of related German terms that could be relevant: Zollpolitik Wirtschaftspolitik, Finanzpolitik, Planwirtschaft, Finanzwissenschaft. The narrative presented here would benefit from comparison with national studies that consider similar problems in the German, French, and Italian literatures. [^]
- These early occurrences of fiscal policy are meant to be illustrative. It was recognized at the time that economics terms have different, changing, and evolving meanings – including fiscal policy. For example, see Clarence Edward Dutton (1898, 163) that “the ideas which people hold concerning such far-reaching subjects as the tenure of land, of the dignity and moral value as well as the economic value of labor, of the nature and functions of money, of taxation, of commerce, of fiscal policy, all these have had their changes and evolutions. Yet all of them are interdependent, and their changes have moved along slowly through the ages, seeking an adaption to and a coordination with each other.” [^]
- The Quarterly Journal of Economics began publication in 1886 and The Economic Journal in 1891. The Journal of Political Economy published its first volume in 1892. The American Economic Review followed in 1911, though it had been preceded by Publications of the American Economic Association, which began in 1886. The Annals of the American Academy of Political and Social Science began in 1889. [^]
- Two methodological issues should be noted. First, bibliometric analysis is sensitive to the database used and the selection of journals to be studied. In this case, both problems are mitigated by the small number of professional economics journals in existence before 1936 and by the well-understood characteristics of these journals (e.g., institutional affiliation, philosophical leaning). Second, and more problematic, is the classification of field which relies on subjective judgement. For a more detailed discussion of the methodological issues in quantitative histories of economic thought, see Cherrier and Svorenčik (2018). [^]
- On inequality and the condition of the working classes in Progressive economic thought, see Gomez Betancourt and Vallet (2024) and Johnson (2024). [^]
- Aslanbeigui and Oakes (2015, 47) argue that Chamberlain’s fiscal reform proposal “entailed an unprecedented increase in the scope and responsibilities of the state, massive changes in fiscal policy, and expansion of public finance on a scale that had never been envisioned in peacetime.” [^]
- Note the discussions of fiscal policy by notable public finance specialists: C.F. Bastable, C.C. Plehn, A.C. Pigou, Gustav Cohn, and M. Robinson in Table 3. [^]
- The Times, 5 August, 1903. The letter was signed by C.F. Bastable, A.L. Bowley, E. Cannan, L. Courtney, F.Y. Edgeworth, E.C.K. Gonner, A. Marshall, J.S. Nicholson, L.R. Phelps, A.C. Pigou, C.P. Sanger, W.R. Scott, W. Smart, and A. Smith. [^]
- “Scientific fiscal policy” was increasingly envisioned as “systematic cooperation between all the productive forces of the country. It assumes that there are common aims and interests uniting Government and people” (Blackwoods Edinburgh Magazine 1903, 277). [^]
- The United States had no peacetime income tax until 1894. Ruled unconstitutional the following year, the income tax became permanent in 1913 with the ratification of the Sixteenth Amendment. A history of the U.S. Income Tax can be found in Mehrotra (2013). [^]
- Expert budget management extended beyond the federal government. For example, an editorial in the New York Times called “first [for] the establishment of a proper fiscal policy of the City of New York” combined with professional management (1914, 21; see also Mandal 1915). [^]
- “A far more revolutionary aim of social policy now appeared on the horizon, the full implications of which were at first not wholly visible” (Hansen 1941, 115). [^]
- War finance had long been recognized as a special case for public finance economists. For example, H.C. Adams explicitly excluded “problems of money, currency, and banking,” which though important, were not part of the “science of finance” except in “some great fiscal exigency…like the advent of a war” (1909, 2). Fifty years later, James M. Buchanan (1958, 135) made much the same claim, that “it will be useful to examine this war-created debt as a special case.” [^]
- In contrast, Money and Banking textbooks made no attempt during this period to incorporate debt financing (e.g., Hawtrey 1919 and 1923; D.H. Robertson 1922 and 1928; Scott 1920). [^]
- For example, G.E. Jackson writes that “in so far as unemployment is due to seasonal causes, it is obviously not worthwhile to tack it on to the discussion of fiscal policy. Perhaps it will someday dawn upon some government that a thorough, non-partisan investigation of the possibilities for stabilizing seasonal fluctuations in employment would do more to keep Canadians in Canada than all the rhetoric, flatteries and abuse” (1928, 50). [^]
- JSTOR identifies 272 references to “business cycles” in economics journal articles before 1929; of these, 80 percent were published between 1920 and 1929. [^]
- The platform can be found at the American Presidency Project, https://www.presidency.ucsb.edu/documents/1928-democratic-party-platform, [^]
- The prolonged nature of the Great Depression produced a period during which “fiscal policy was forced into service as a compensatory device,” often “more by accident than by design” (Hansen 1941, 116). [^]
- Throughout the 1930s, Jacob Viner, Lloyd Mints, Frank Knight, Simons and other members of the “old Chicago School” had argued for monetary policy actions to boost private investment and spending, largely eschewing fiscal policy prescriptions and New Deal spending plans (Burns 2016; Nerozzi 2009). Though holding a deep antipathy for economic planning and limitless deficit spending, many Chicago economists did accept limited counter-cyclical deficits to counter deflation. Their support, however, was conditional on the requirement that debts be retired as immediately as possible. [^]
- Simons viewed deficit spending a reasonable weapon against deflation; nonetheless, he sought to constrain fiscal policy to be subordinate to monetary policy. “The rules of fiscal policy are the rules of monetary policy” (Simons 2005, 244). [^]
- Additional details can be found in Johnson (2018). [^]
- University of Chicago. Announcements: The College and the Divisions, Sessions of 1945–1946. Vol. XLV, No. 7 (June 15, 1945), 219. The readings list of Simons’ 1946 fiscal policy course can be found at Irwin Collier’s Economics in the Rearview Mirror, http://www.irwincollier.com/chicago-henry-simons-last-course-fiscal-policy-1946/. [^]
- Written by the liberal economist William Beveridge (1942), the report is widely considered the founding document of the British welfare state, promising freedom from “want…disease, ignorance, squalor, and idleness.” It underpinned the expansion of national unemployment insurance and founded the national health system. [^]
- In fact, Simons believed that “the sooner we quit talking about cycle theory as a major field of inquiry, the better” (1942a, 163). [^]
- The annual report to the dean of the Graduate School of Public Administration at Harvard from Irwin Collier, Economics in the Rearview Mirror, http://www.irwincollier.com/harvard-economics-hansen-and-williams-fiscal-seminar-1937-1944/#Motivation. [^]
- The public finance textbooks cited were the popular standards of their day (Johnson 2014; Rosen 1997). One could also consider Pigou’s revision of A Study of Public Finance (1928 [1947]) though slightly outside the timeframe specified here. In the preface to the edition, Pigou stated that in the revision “Public Finance in relation to unemployment policy is new.” [^]
- Consider John R. Hicks: “can one imagine the General Theory of Employment being written, by the greatest genius, in 1900? It marked a change of attention that was motivated by the fluctuations, and by the monetary disasters, of 1920–1935” (1975, 321). [^]
Acknowledgements
I would like to thank Maxime Desmarais-Tremblay, Nicola Giocoli, and Kevin Hoover for helpful comments and suggestions as well as the participants of a Duke Center for the History of Political Economy Seminar.
Competing Interests
The author has no competing interests to declare.
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