A Propensity to Consume? : An analysis of the Norwegian Labor Party's transition towards Keynesian ideas in the 1930s

Abstract

All the four major Norwegian parties proposed crisis plans in 1934. Of the four plans, the Labor Party’s plan was clearly the most ambitious. The plan suggested a new understanding of what a government could do to improve the economic situation facing the country by calling for governmental intervention in the economy. The party believed that by increasing governmental spending, government could effectively revive demand by raising consumption.

This argument amounted to what has been called demand management and it represented a novelty in the political debates of Norway. This study seeks to answer the question of why the Labor Party came to pursue these ideas. Three theoretical approaches are outlined to answer this question: the economist-centered, the coalition-centered and the state-centered approaches. The analysis in turn identifies three explanations of why the Labor Party pursued the Keynesian idea. The first sees the policy as the result of the influence of Ragnar Frisch. The second explanation focuses instead on the party’s ambition to govern and finds that the party perceived the Keynesian strategy preferable in light of this goal. The third explanation sees the party’s new program as a result of the gradually reduced importance of the Bank of Norway.