Monday, 28 November 2011

Ron Paul, Bernanke and can money for capital investment come from the printing press?

Youtube clip of Ron Paul interviewing Bernanke.

Ron Paul asks whether money for capital investment can come from the printing press – see 1min 30 secs into the interview. Bernanke does not give a straight answer. The answer is thus.

If an economy is at capacity, and the government / central bank machine (GCBM) prints money and distributes it to commercial banks, who then lend it to firms doing capital investment, that investment expenditure will raise demand, which in turn will raise inflation. That effectively robs those who are not in receipt of GCBM largess, and those robbed are forced to forgo consumption.

Thus the REAL RESOURCES for the capital investment come from those robbed. And that is a pretty random selection of the population, and an illogical way of organising the reduction of consumption needed to fund capital investment.

If the economy is below capacity.

In contrast, if the economy is BELOW capacity, the additional demand may well not exacerbate inflation too much. But robbery still takes place. That is GCBM allocates the “right to control resources” (i.e. money) to a few chosen institutions (i.e. banks). That is money that could have been simply spent into the economy, and/or used to cut taxes (as advocated by Modern Monetary Theory and by this lot.

If GCBM can show that the amount of investment is sub-optimum, i.e. that there has been market failure, then artificial assistance for investment could be justified. But of course GCBMs have never demonstrated this: that would be too much like hard work.


Hat tip to Dr Mike Heywood. I got the link to the above Youtube clip from an email that Dr Heywood distributes about once a week. This email contains what he thinks are interesting economics articles, and a selection of economics / politics related cartoons. Contact:


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