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In the 1930s, the Depression economics of Britain's John Maynard Keynes modified classical doctrines, but it still had a whiff of the "dismal science" about it: the internal dynamism of the capitalist economy was gone forever, as Keynes saw it, and permanent government manipulation would be needed to keep the economy from sinking into stagnation. Even after the splendid performance of the U.S. economy in World War II (in part because of planning, in part in spite of it), economists tended to take a melancholy view of what lay ahead, predicted massive transitional unemployment. It was against this somber background that Congress passed the Employment Act of 1946, making it a "responsibility" of the Federal Government "to promote maximum employment, production and purchasing power," and creating the Council of Economic Advisers.
Soap-Bubble Systems. Since 1946, U.S. economics has undergone some pervasive changes. The spiritual parent of these transformations was Columbia University's Professor Wesley Clair Mitchell (1874-1948), whose treatise, Business Cycles, is widely regarded as the most important of all U.S. contributions to economics. Mitchell was the "prophet of facts and figures." In his youth he studied economics and philosophy, and he noticed in both a common tendency to "spin speculations by the yard," build up "grand systems like soap bubbles." Mitchell insisted that what economics needed was more facts. To that end he founded, in 1920, New York's National Bureau of Economic Research (now presided over by Arthur Burns, sometime CEA chairman under President Eisenhower).
Perhaps the most important development in U.S. economics since 1946 has been the emergence of what Mitchell called for: a body of statistical information on how the economy actually behaves under various conditions and under the impact of various policies. Says Walter Heller: "We simply know a whole lot more about where we are than we ever did before." The accumulation of detailed economic data, plus the refinement of statistical techniques, has brought about what Stanford Economics Professor Kenneth Arrow calls the "professionalization" of economics. By broadening the areas of fact, the professionalization has narrowed the areas of theory, of disagreement, and blurred the old boundaries between liberals and conservatives.
Confidence Restored. Those boundaries have been further blurred since 1946 by a growth of confidence in the vitality of the U.S.'s "mixed" economy—capitalism modified by Government involvement. Here, again, Wesley Mitchell was something of a prophet. He took an "optimistic view of the future," he wrote in 1923. "For since the money economy is a complex of human institutions, it is subject to amendment. What we have to do is find out just how the rules of our own making thwart our wishes, and to change them."
The performance of the U.S. economy after 1946—avoiding both deep recessions and severe inflation, reaching unprecedented peaks of national affluence—restored Depression-shattered confidence in the market economy, and reconciled conservatives to Government intervention to combat unemployment and help out the weak with welfare programs.