Fiscal Policy and Public Finance Before Keynes

This paper examines how fiscal policy was understood in the English language economics before the publication of Keynes’s General Theory (1936). 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 meant something different to economists before the Great Depression. It was only through the impetus of fiscal crisis in the 1930s that the meaning of fiscal policy began to approach the modern definition – macroeconomic stabilization through the manipulation of taxes and government spending. What is apparent from a survey of the early literature is that fiscal policy was analytically protean. 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 and the economic role of government.