With the creation and expansion of an American middle-class in the 20th century, society took a leading economic role that forever changed our way of life. Unfortunately, society has no place in mainstream economic theories. Economics deals with individuals, not societies; with recessions, not depressions.
The socio-economy (society and economy) of a certain time and place embodies both the shared purposes of life and the agreed-upon means for achieving them.
To understand why we are in a depression today it is necessary to review America’s not-too-distant history. The paradigm shift that ultimately created the Great Depression actually had its roots in the industrial revolution beginning around 1845. That’s when the children of fiercely independent small farmers and business owners began to dream of building a world-powerful industrial colossus.
Those emerging nineteenth century Americans were totally the opposite of the shopaholics we see around us today. Typically working six ten-hour days a week for pitifully small wages, those patriotic ancestors of ours decided their manifest destiny was to work incredibly hard and pinch pennies so they could save and invest. They consumed little beyond the bare necessities of life and almost nothing on credit. They did so in order to build railroads, commercial farms, utility systems, mines, skyscrapers, tenements, trolley lines, shops, stores and much more.
As the new paradigm spread, progress was swift. Chicago became the center of a vast industrial network and in only 60 years—1840 to 1900—its population leaped from 4,500 to 1.7 million!
After 1900, however, we began to run out of opportunities for still more railroads and industrial development. Production began outstripping demand. Marxists confidently believed that over-production would bring the long-predicted demise of capitalism.
Instead, ‘We the People’ paradigm-shifted to a new variety of capitalism. We created a middle-class society devoted to fixing this shared problem. The social value of both buying on credit and owning more ‘things’ began being seen as having a positive social value—very slowly.
The prime cause of the Great Depression was the difficulty and length of time it took to counterbalance the 19th century’s obsession with thrift and patriotic duty.
We had to unlearn thrift and welcome the new life of wasteful abundance. The Great Depression was our learning time. Eventually, the new American consumers would spend us into full employment. In the meantime we sang “Brother, can you spare a dime?”
By the end of World War II, Americans had finally learned how to buy, Buy, BUY. We became little kings in our very own suburban domains, and we created a time of widespread prosperity in the bargain.
These socio-economic evolutions are difficult to track, though, because they always proceed simultaneously, yet on two opposing tracks. For example:
1) The Little King era was spawned at the peak of the industrial revolution, in about 1900, as a new socio-economy devoted to self-consuming America’s increasingly excessive output at the end of the 19th century’s industrial era. The social value of its prodigious appetite for consumption spending actually peaked in the 1960s; since then, its further excesses have been detrimental.
2) The new socio-economy, which we call “Responsible Capitalism,” likewise began in the ’60s as an oppositional force to the Little King’s decline into an excessive, unsustainable level of consumption. Its birth was documented in 1961 when incoming President Kennedy told the nation, “ask not what your country can do for you – ask what you can do for your country.” Although most Americans studiously ignored his appeal, a tiny minority found the new President’s call to service irresistible.
The now-declining Little King era focused on “What’s in it for me?”—get it all now on credit and don’t worry about the payments coming due. Today, the Little King scenario is becoming increasingly overpowered by Responsible Capitalism, the Kennedy-initiated paradigm of “What’s in it for us?”—gaining a higher level of satisfaction and happiness through assuring the welfare of others.
Even ownership of huge suburban mansions—the flagship of our 20th century consumerism and the goal, pride and sacred icon of the Little King’s socio-economy—has increasingly lost its luster.
In 2006, after continual rises since 1994, the unsustainable housing bubble finally burst. The subsequent mortgage foreclosures, lenders’ losses, unemployment and other economic jolts of 2008 were all linked to that single event in 2006. Unlike recessions since World War II—averaging eleven months—the crisis since 2006 is already over four years old, with no end in sight.
The bursting of the housing bubble in 2006 announced the certain departure of the Little King and parallel, fast-track rise of Responsible Capitalism—a wholesale socio-economic shift—the fourth we have documented since 1790. ‘We the People’ are once again inventing an entirely new societal way of being, a wholesale change in what is “cool.” Still, these socio-economic shifts always take more time that one might expect.
Ultimately, expect billionaires to give ever-larger shares of their wealth to philanthropic causes. Expect the 20th century’s concern for the middle class to be eclipsed by the 21st century’s concern for the poor. Expect an increasingly rapid embrace of ‘green’ technology. Eventually—imagine!—expect a majority to vote for politicians who promise to raise our taxes to promote social welfare.
Our economic policy-makers have had little to do with the nation’s success since 1945. Rather, it was due to our profligate and unsustainable levels of consumption. Today, however, we can take steps to make this transition occur faster and more smoothly.
We need to enact policies that nurther the nobility of spirit that gives more than it takes. Applaud billionaires like Bill Gates who donate large portions of their wealth. Support the helpful volunteers who stream into disaster areas like New Orleans, Asia, Haiti and Africa. Insist upon a political and legislative will to fight climate change and environmental degradation.
We’re at the beginning of a revolutionary socio-economic change, one that will ultimately provide a sustainable, wholistic type of prosperity for America and the world. Only by recognizing what is occurring will we get there as quickly as possible.

In the U.S. and elsewhere there have been many discussions about what the increasingly powerful Chinese economy can and will soon do to exert an influence on economic matters. Many economists have weighed in on the heavyweight impact China will soon make as a consumptive economy.

Since the Chinese are back on track as having a relatively high growth rate, it might seem sensible to believe that Chinese-based consumption will soon be able to provide a substitute demand for any economic slowdown in the West.

However, that is simply not the case. Here’s a historical perspective of why: In the early 1900s, Americans were strikingly similar: big on saving, not consuming. “Prudence” was the byword of the day. As the century unfolded, the U.S. industrial revolution kept expanding such that excess production became a problem. Even with falling prices, people were unconvinced they should buy anything on credit, nor was there a credit market established.

A look back at socio-economic history shows the Great Depression was created because Americans were unwilling to increase their level of consumption, rather than continuing on their saving ways. A disequilibrium was created as a result.

From the turn of the 20th century it took on the order of 45 years to teach our citizens to become spenders, rather than savers. Part of this was the time it took to change the average mindset, through conversations, movies, plays and more. Also needed was the development and implementation of easy ways to entice them: credit cards, “no money down, and no payments until,” and much more.

Currently, the Chinese savings rate is a whopping 40-50% of individual and family GNP. With such a high predilection for saving, it will not be an overnight process to develop a high consumption domestic market in China. For that to occur, a large number of social taboos and current practices will need to be overcome. That will all take many years.

Even with electronic exchange and the Western idea of buying on credit already established as concepts, you can count on any such transition taking at least a decade or so. Don’t count on the Chinese becoming big time consumers any time soon.