ABSTRACT
Before the First World War, when the public sector’s direct claim upon resources was small, governments could ignore with impunity the macroeconomic impact of their fiscal operations. The enlargement of the public sector after 1914 quickly forced the authorities to consider the macroeconomic consequences of their fiscal actions. The decision to actively manage demand, however, was neither an immediate nor inevitable consequence of this. While the war-induced changes in the technical interaction of the budget and the real economy were an essential precondition for such a decision, it was political developments that determined the pace and form of progress towards the managed economy.
