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As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealthnot of existing wealth, but of wealth as it is currently producedto provide men with buying power equal to the amount of goods and services offered by the nations economic machinery.

Instead of achieving that kind of distribution, a giant suction pump had by 192930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumer, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world.

Roosevelt, however, never committed himself wholly to the underconsumptionist view, and few economists endorsed it. Hobson, Foster, and Catchings were well outside the economic mainstream. However, in 1936, the eminent British economist John Maynard Keynes revived the underconsumptionist view in his book The General Theory of Employment Interest and Money. He argued that capital was not created by saving but by capitalists perceiving an increase in demand for their products. As Keynes wrote, [C]apital is brought into existence not by the propensity to save but in response to the demand resulting from actual and prospective consumption. Indeed, he argued that thrift was counterproductive to growth by diminishing consumption. He called this the paradox of thrift.

Subsequently, the Roosevelt-Keynes idea that increasing consumption was the key to economic growth became known as trickle-up economics, in contrast to the trickle-down policies of the Republicans, which saw the prosperity of the wealthy as the key to growth that would eventually benefit the masses. One of the first people to draw the trickle-up/trickle-down distinction was the Democratic humorist Will Rogers. In a November 26, 1932, column, he wrote:

The money was all appropriated for the top [under the Republicans] in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didnt know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows hands. They saved the big banks, but the little ones went up the flue.

This was in fact the historical Democratic point of view. William Jennings Bryan, three-time Democratic nominee for president, had articulated it in his famous Cross of Gold speech in 1896. There are two ideas of government, Bryan said. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.

I bring up all this history because President Joe Biden made a revealing comment in his April 29 address to a joint session of Congress: My fellow Americans, trickle-downtrickle-downeconomics has never worked, and its time to grow the economy from the bottom and the middle out. Biden is the first Democrat since Lyndon Johnson to forthrightly declare that trickle-up is the partys philosophy of growth. Indeed, Bidens program is reminiscent of Johnsons declaration on January 15, 1964, launching the Great Society: We are going to try to take all the money that we think is unnecessarily being spent and take it from the haves and give it to the have nots that need it so much.

See original here:
Joe Biden and the Democrats' Rediscovery of Trickle-Up Economics - The New Republic