Because a number of people have asked, and the relevant section—the start of the letter—doesn’t seem to be on the Internets elsewhere, I provide here the opening of Keynes’s letter to Roosevelt, with some interpolation/translation and historical detail.

… the present recession

—by which he means, the downturn of late 1937-1938, not the Depression—

is partly due to an ‘error of optimism’ which led to an overestimation of future demand, when orders were being placed in the first half of this year. If this were all, there would not be too much to worry about. It would only need time to effect a readjustment….

But I am quite sure that this is not all. There is a much more troublesome underlying influence. The recovery was mainly due to the following factors:—

(i) the solution of the credit and insolvency problems, and the establishment of easy short-term money;
(ii) the creation of an adequate system of relief for the unemployed;
(iii) public works and other investments aided by Government funds or guarantees;
(iv) investment in the instrumental goods required to supply the increased demand for consumption goods;
(v) the momentum of the recovery thus initiated.

Now of these (i) was a prior condition of recovery, since it is no use creating a demand for credit, if there is no supply.

This is the start of what teachers call the “praise sandwich”—we’ll say something nice, before we explain why you get a D. So let’s begin: good for you, Mr. President: the bank holiday, revaluing and stabilizing the currency, deposit insurance, recapitalizing the banks with the RFC—all that was swell.

But an increased supply will not by itself create an adequate demand.

For example, notice how people still aren’t borrowing from banks, which still aren’t lending? That means you still have work to do.

The influence of (ii) evaporates as unemployment improves, so that there is a dead point beyond which this factor cannot carry the economic system.

Good for you too, for not letting people starve: but relief is not recovery.

Recourse to (iii) has been greatly curtailed in the past year.

I use the passive voice here to spare your feelings, but why oh why did you cut back on the WPA and the PWA, seeking a balanced budget, when the recovery had barely begun?

(iv) and (v) are functions of the forward movement and cease—indeed (v) is reversed—as soon as the position fails to improve further.

You see, the flywheel of government spending had only just barely engaged the gears of the economy when you timidly pushed the clutch back in, so of course you started immediately to slow down.

The benefit from the momentum of recovery as such is at the same time the most important and the most dangerous factor in the upward movement. It requires for its continuance, not merely the maintenance of recovery, but always further recovery. Thus it always flatters the early stages and steps from under just when support is most needed.

You need the government to spend more to get over that initial inertia and let the economy begin to run smoothly of its own accord.

It was largely, I think, a failure to allow for this which caused the ‘error of optimism’ last year.

Unless, therefore, the above factors were supplemented by others in due course, the present slump could have been predicted with absolute certainty.

I’m trying very politely not to say that a monkey could have told you not to cut back on government spending at just that moment. “Have you perhaps a monkey to advise you?” is the kind of thing I am avoiding saying.

It is true that the existing policies will prevent the slump from proceeding to such a disastrous degree as last time.

Congratulations, you have not made quite such a mess of things as Herbert “almost twenty-five percent unemployment!” Hoover. Yet.

But they will not by themselves—at any rate, not without a large-scale recourse to (iii)—

Remember (iii)? (iii) was “public works and other investments aided by Government funds or guarantees”. You need more of that. On a large scale. Otherwise, “error of optimism” –> catastrophe.

—maintain prosperity at a reasonable level.

The letter goes on at some length to make further recommendations, and toward the end gets on to being nice to FDR again, letting him know that he can lead the markets with the often-quoted comparison of businessmen to “domestic animals by nature, even though they have been badly brought up and not trained as you would wish.”

John Maynard Keynes to Franklin Delano Roosevelt, 2/1/1938. “Activities 1931-1939,” vol. XXI of The Collected Writings of John Maynard Keynes (Cambridge, Eng.: Macmillan, 1982), pp. 434-439.