John Stossel, who I admire greatly for his continued struggle for the advancement of liberty, recently devoted a show to debunking Keynesian economics. The show was great, but here was a comment from one of the pro-Keynesian guests which was not addressed and that I would like to comment on in greater detail:
I don't recall the exact quote, but it was something of the variant, "During a recession there is a lot of money sitting on the sidelines that we need to bring back into the economy so it can be productive."
Really? Sitting on the sidelines? Ladies and gentlemen, you can tell me if this is not true for you, but all of my money is being used in some way or another all of the time. I have active investments, which I assume Keynesian theory would consider to be not on the sidelines, that I expect to grow fairly aggressively over time. I have checking and savings accounts for use for daily business; the extra fat I have in there is serving as a cushion for unforeseen expenses. Even if I were to' hoard' cash or precious metals, which I plan to do, they would be in use as well, as a hedge against really rainy days. Furthermore, how we allocate our savings serves to signal everyone else in the market as to our time preference and our perception of risk.
There is no such thing as money that is not being used. Only if you ignore one of the fundamental uses of money, a store of value, does this line of argument make sense. This thinking belies the childish notion that today's spending is all that counts and that saving today to spend tomorrow is an old-fashioned bromide of our grandparent's generation.
The origin of this line of thinking is the collectivist/socialist foundation of Keynesianism that leads to the conclusion that only the use of money in the aggregate matters. 'Individual rights and preferences be damned, we have a society to manage.'
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