Wednesday, 18 June 2014

Does it matter what new money is used for?

Positive Money is keen to have new money used “in the public interest”. See the above picture of theirs.
I beg to differ. As Keynes pointed out, the important objective in a recession (i.e. where a larger than normal amount of new money is needed) is to implement stimulus, and if the INITIAL use of the new money is blatantly futile, that doesn’t matter too much.
Keynes cited burying freshly printed £10 notes and “employing” people to dig them up. I seem to remember he also cited “employing” people to dig holes in the ground and fill them up all day long.
And at this point in the argument some cerebrally challenged Austrian normally pipes up with the Earth shatteringly original observation that digging pointless holes is – er – pointless. Yes, thank you Austrians. We all tumbled to that. As did Keynes.


  1. I love the graphics of this poster.
    But the words have several problems additional to the points you make.

    1. The message is probably meaningless to the intended target, the next PM. I doubt is any of the likely candidates has any clear idea what money creation is.

    2. The message is politically pointless. It seems that all of the likely candidates to be the next PM have already completely rejected Keynesian policies - see

    Given this and continuing unemployment, is there a case for continuing bank loans/private sector money creation?
    In other words, does the case for Full Reserve banking collapse if the public sector is incapable of Keynesian demand management?
    Isn't erratic stimulus by the private sector and banks better than continued recession due to public sector austerity?

    1. Yes, it's a choice between two evils. Personally I regard Keynsian demand at least in theory as being FAR BETTER than "erratic stimulus by private banks". But the big problem with Keynsian demand management, as Paul Krugman pointed out, is that politicians, particularly on the political right, interfere with it big time and partially wreck it. Plus there are some economically illliterate so called "professional" economists (e.g. Kenneth Rogoff) who join in the wrecking spree. However, despite the latter vandalism, I still plumb for Keynsian demand management rather than erratic stimulus coming from private banks.


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