'Aftershock: The Next Economy and America's Future,' by Robert Reich

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'Aftershock,' by Robert Reich

When Eccles's anxious bank depositors began demanding their money, he called in loans and reduced credit in order to shore up the banks' reserves. But the reduced lending caused further economic harm. Small businesses couldn't get the loans they needed to stay alive. In spite of his actions, Eccles had nagging concerns that by tightening credit instead of easing it, he and other bankers were saving their banks at the expense of community—in "seeking individual salvation, we were contributing to collective ruin."

Economists and the leaders of business and Wall Street—including financier Bernard Baruch; W. W. Atterbury, president of the Pennsylvania Railroad; and Myron Taylor, chairman of the United States Steel Corporation—sought to reassure the country that the market would correct itself automatically, and that the government's only responsibility was to balance the federal budget. Lower prices and interest rates, they said, would inevitably "lure 'natural new investments' by men who still had money and credit and whose revived activity would produce an upswing in the economy." Entrepreneurs would put their money into new technologies that would lead the way to prosperity. But Eccles wondered why anyone would invest when the economy was so severely disabled. Such investments, he reasoned, "take place in a climate of high prosperity, when the purchasing power of the masses increases their demands for a higher standard of living and enables them to purchase more than their bare wants. In the America of the thirties what hope was there for developments on the technological frontier when millions of our people hadn't enough purchasing power for even their barest needs?"

There was a more elaborate and purportedly "ethical" argument offered by those who said nothing could be done. Many of those business leaders and economists of the day believed "a depression was the scientific operation of economic laws that were God-given and not man-made. They could not be interfered with." They said depressions were phenomena like the one described in the biblical story of Joseph and the seven kine, in which Pharaoh dreamed of seven bountiful years followed by seven years of famine, and that America was now experiencing the lean years that inevitably followed the full ones. Eccles wrote, "They further explained that we were in the lean years because we had been spendthrifts and wastrels in the roaring twenties. We had wasted what we earned instead of saving it. We had enormously inflated values. But in time we would sober up and the economy would right itself through the action of men who had been prudent and thrifty all along, who had saved their money and at the right time would reinvest it in new production. Then the famine would end."

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