Will America redistribute the wealth?

The name Marriner Eccles may not be familiar to you. The truth is I only came across it lately.

Marriner Eccles was a banker and economist, a Mormon from Salt Lake City. The family bank he ran managed to weather the banking crash of 1929 to 1932, and Eccles helped forge various banking rescue plans engineered by Washington.

His active involvement won him the appreciation of the U.S. president at the time, the democrat Roosevelt, who appointed Eccles - despite the latter's Republican loyalties - to chair the U.S. Federal Reserve.

Eccles led the American central bank for a long time, from 1934 to 1948. He was not a true believer in the free market. He believed in government intervention, and in Keynesian action (classical Keynes theory suggests that increasing government spending during downturns may help stimulate the economy out of recession).

My curiosity regarding Eccles was piqued when I came across a quote from his testimony before Congress, which was trying to understand, in hindsight, why the Great Depression had come about.

This is what he had to say: "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," Eccles explained. "When their credit ran out, the game stopped." And in the final analysis, everybody lost everything: the borrowers had lost it all and the lenders didn't get their loans back, and they lost everything too.

Eccles was describing the years of excess that America experienced in the Roaring Twenties. The economy was booming but inequalities in wealth distribution were growing, as was the sheer scope of borrowing and lending.

And when nobody had any more to lend, and the lending stopped, it became apparent that all too many players - consumers, companies and whatnot - couldn't stay in the economic game. They were broke.

They got up from the table, leaving behind a trail of plunging demand, which depressed the economy, which cost people their jobs, which caused more people to get up from the table and leave the game, which depressed demand, and round and round it went.

Eccles offered a simple solution.

To avert economic debacle, he said, what Washington had to do was prevent an unequal distribution of poker chips from leading a large number of players to play with borrowed chips, dooming most to leave the game in shame and bankruptcy.

Economics, a la Eccles, isn't a bakery. The total size of the chocolate cake has nothing to do with its equitable distribution. On the other hand, the entire economic cake will contract if sliced into a small number of large portions enjoyed by a few, leaving nothing but crumbs for the rest.

Don't get me wrong, Eccles was no communist. He didn't believe that everybody deserved an equal piece of cake and didn't say the government was responsible for slicing it. He simply realized that over history, very unequal wealth distribution (as existed in America during the 1920s) would inevitably lead to a breakdown.

Inequality in America's wealth distribution has been mushrooming. The same is true throughout much of the third world, too.

Almost 80 years have passed since the Great Depression, yet Eccles' words still resonate. Warren Buffett, whom you can hardly