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His assertion that the idea of "mass production" must also be accompanied by "mass consumption" is based on the idea that the individual has the economic resources to be able to purchase goods. This, by its very nature, implies that income is distributed throughout society, and in situations where it is not, it leads to economic crisis'. In the case of the United States in the 1920's, the kind of income distribution necessary to maintain a mass production economy slowly disappeared into the coffers of a few wealthy individuals. and, "as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped." (Eccles, 1951) Eccles blamed, in part, the extension of private credit, or credit that was provided outside the traditional banking system. This included mortgages, consumer installment debt, broker's loans, and foreign debt which allowed for the economy to maintain a high level of employment for a short period of time, but ultimately overextended itself. And as American citizens ran out of credit, they were forced to reduce their consumption, or spend less, which in turn led to a reduction in demand. The reduction in demand led to a situation of overproduction that brought about a significant drop in prices and employment. The downward spiral, caused by the accumulation of money in the hands of the wealthy and the lack of credit on the part of the ordinary American, continued until "one third of the entire working population was unemployed, with out national income reduced by fifty percent, [and] the aggregate debt burden greater than ever before." (Eccles, 1951)
All of these problems originated with the accumulation of more and more wealth in the hands of fewer and fewer individuals. And since these individuals did not re-invest their money back into the economy, but instead hoarded their money in savings, there was less money in the general economy to fuel it. As Marriner Eccles emphasized in his memoirs, "had there been less savings by business and the higher-income groups and more income in the lower groups-- we should have had far greater stability in our economy." (Eccles, 1951) the point being that if more money had been distributed among those belonging to the lower economic class in the form of higher wages or lower prices on goods, there would have been less of a need for credit, particularly private credit, and far more economic power being generated from the bottom. This power, generated by the working class, would have been the fuel to maintain the mass production economy by providing the ordinary American with more money to purchase more goods. This idea would have necessarily resulted in less profits and less wealth accumulation by the well-to-do members of society, but would have been of overall benefit to the national economy and possible could have prevented, or at least minimized, the economic chaos that resulted in October of 1929. Herbert Hoover probably said it best when he stated that "The only trouble with capitalism is capitalists. They're too damn greedy." (McElvaine, 2009)
As the United States faces another situation where the rich seem to be getting richer and the ordinary American is losing economic power, advisor to the president, David Axelrod's comments, seem to have a deeper meaning that originally thought. His contention that the United States has suffered an economic calamity on par with the Great Depression may have been hyperbole on his part, but there are similarities. The current economic troubles have also been caused by the accumulation of too much capital in the hands of too few individuals, while the overextension of credit led to bursting of the credit bubble. Like those whom Hoover derided as "greedy capitalists," the wealthy of today also have hoarded their wealth and not invested it in the economy, causing a severe restriction of the necessary economic resources needed to jumpstart the economy and get the United States out of the current turmoil and back into a position of economic leadership in the world.
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Hall, Thomas, and J. David Ferguson. (1998). The Great Depression: An
International Disaster of Perverse Economic Policies. Michigan, USA:
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Jackson, David. (5 August, 2012)."Obama Seeks Perspective on Economy."
USA Today. Retrieved from http://content.usatoday.com/communities/theoval/post/2012/08/obama-seeks-perspective-on-economy/1%20//%20.UB6vzE2PWYw
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