Aftershock: The Next Economy and America's Future Read Online Free PDF

1930s, during what might be termed the first stage of modern American capitalism, most workers didn’t share in the bounty. Large factories, mammoth machinery, and a raft of new inventions (typewriters, telephones, electric lightbulbs, aluminum, vulcanized rubber, to name just a few) dramatically increased productivity. But most working people earned far less than five dollars a day. America’s burgeoning income and wealth was concentrated in fewer hands. Consequently, demand couldn’t possibly keep up. Periodic busts ensued. The wholesale price index, which had stood at 193 in 1864, fell to 82 by 1890. Sharp downturns continued to jolt the economy.By the first decades of the twentieth century, the economy had stabilized, but productivity gains continued to outpace most Americans’ earnings. The rich, meanwhile, used their increasing fortunes to speculate—making the economy more susceptible to cycles of boom and bust. Eccles saw this pattern eventually culminate in the Great Depression.
    British economist John Maynard Keynes also understood the crucial connection between the level of wages and the demand for what workers produced. A tall, charming, self-confident Cambridge don, Keynes was born in Cambridge, England, in 1883, the same year Karl Marx died. Yet his writings probably saved capitalism from itself and surely kept latter-day Marxists at bay. During the depths of the Great Depression, when many doubted capitalism would survive, Keynes declared capitalism the best system ever devised to achieve a civilized economic society. But he recognized in it two major faults—“its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” Until these were corrected, Keynes argued, capitalism would continue to be highly unstable, vulnerable to economic booms that would often be followed by catastrophiccollapses. Yet if government worked to correct these faults, he felt confident that future generations could inherit a stable and prosperous world.
    Classical economists had viewed markets as self-correcting. They had supposed that full employment would always prevail in the end. Any spate of unemployment would cause wages to drop until employers found it profitable to hire workers again. By this view, persistent unemployment was the result of stubborn resistance on the part of workers who insisted on keeping their old level of wages even though they didn’t work hard enough to justify them. The only answer was to make them experience joblessness long enough to accept lower wages. This view fit nicely into the prevailing Social Darwinism of the era: Only the fittest should survive, and any effort to make the less fit more comfortable was bound to inflict harm on the greater society. After the Great Crash of 1929, Herbert Hoover’s secretary of the Treasury, millionaire industrialist Andrew Mellon, reflecting this prevailing view, cautioned against government action. He advised that wages and prices should be allowed to fall, thereby clearing the system of waste and lassitude.“Liquidate labor, liquidate stocks, liquidate the farmer, liquidate real estate. It will purge the rottenness out of the system.… People will work harder, lead a more moral life.” This was the same nonsense Marriner Eccles had come up against, leading Eccles to conclude that people in power were trying to justify the status quo by invoking a dubious morality.
    Like Eccles, Keynes did not view unemployment as a moral failing. He saw it as a failure of demand. Average workers lacked enough purchasing power to buy what they produced. Keynes’s big idea was to use macroeconomic policy to maintain full employment. Policymakers should expand the money supply to permanently lower interest rates, so that consumers and businesses could get lower-cost loans, and government shouldincrease its own spending to make up for the shortfall in consumer demand, so that more jobs would be created.
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