But this pro-state thinking really started to hit its stride in the wake of the the Great Depression (beginning in 1929) – with the renowned economist John Maynard Keynes arguing that laissez-faire economics had failed to maintain a healthy economy and that state planning and intervention was necessary to help the economy recover, as well as to function generally. He was especially critical of the laissez-faire illusion that capitalism was a “self-correcting mechanism” – in other words, that the state need not intervene in the economy when things seemed to be going downhill because the markets would solve the problem unassisted. The Great Depression suggested otherwise.
Micklethwait and Wooldridge argue that in spite of the fact that Keynes was a liberal not a socialist, his critique of modern capitalism was “far more devastating than Marx’s,” who believed capitalism should be overthrown, “because it was couched in the language of modern economics and because it was written […] from a position of exasperated sympathy with the [capitalist] system rather than angry hostility.” Instead, Keynes argued that capitalism could have its downsides counterbalanced by “the careful use of government spending”, as Micklethwait and Wooldridge put it.
Because his thinking advocated reform over revolution as Marx’s did, Keynesianism became accepted in Britain as the template for how the state should operate in the wider economy. And the idea that a bigger state was better for society was catching on even more so in other major economies in the early to mid-twentieth century. In Russia and Germany two forms of Socialism took over in 1917 and 1933 respectively. In Russia it was Lenin and Trotsky’s Communism, before being taken over by Stalin who made the state and the economy indistinguishable from each other, taking over the factories and collectivising the farmland. In Germany it was Hitler’s National Socialism, who used the state not only to repair the economy after the Great Depression, but also used it (as Stalin also did) to spy upon people and persecute certain minorities, culminating in the death camps which slaughtered millions of innocent Jews, Romanis and people of colour, as well as those who were physically or mentally disabled. Stalin similarly used the Russian state to butcher millions, partly so as to stamp out potential rebellions before they could occur.
Then in America there were the two Roosevelts; Teddy Roosevelt, who was president from 1901-9 and Franklin D. Roosevelt, who served from 1933-1945 – managing to win four consecutive elections, the most of any president in US history. Teddy Roosevelt acted on the Webb’s premise that laissez-faire economics was dead and believed that capitalism needed to be restrained by the state. He therefore set up regulatory bodies like the Bureau of Corporations to “break up corporations and empower consumers.” However, he did not believe that the state should actually take over private industry, but rather keep it line. He also set out to “protect consumers from rogue corporations” by passing laws to help ensure quality of produce, such as the Meat Inspection Act (1906) and the Pure Food and Drug Act (1906).
Image: By Mdbeckwith (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons