Needed: printing-press helicopter fiat so ample that demand from it replaces Wall Street investment entirely.
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Akira Takayama at Texas A & M when discussing the liquidity trap and the difficulty of "pushing on a string" by open market purchases to get banks to lend when demand was dried up, explained the concept of printing-press "helicopter fiat" and the suggestion of Keynes, possibly half serious, that money be buried in bottles that people would then have to dig up etc. in order to increase aggregate demand -- or purchasing power as Irving Fisher would have it. At that point a doctoral student asked why not have helicopter money completely replace secular investment, that is replace Wall Street lending for investment -- and have helicopter money distributed simply per capital to each household so that -- and this is the beauty of it -- household demand could really become the sovereign director of the invisible hand of the market place. In that way there would always ample purchasing power -- received as negative income tax, or a dividend check -- but not debt financed. The receiver of the funds would not be a lending institution that then must find entrepreneurs conceive of ventures that will stimulate an economy in which demand has dried up. Rather by injecting the new money directly to households so that households could be first spenders -- the economy would recover directly from the market signals of the people as to the goods and services they want. The purchasing power "helicoptered in" on a regular basis -- with rational expectation of inflation so that people will spend rather than save -- their demand would -- if the entrepreneurs are alert enough -- direct production to satisfy that demand, hireing people, buying factor inputs and resources etc. Especially attractive would be the fact that the helicopter money was debt free. (Money invested does not only have a half-life of circulation like radium has a half-life -- but loaned funds decay even more than the original mass -- a trick in economics that can't be duplicated in physics.)
The objection is raised of course that the loanable funds market and interest rates are necessary in order to allocate over time. The answer to that objection is that tomorrow will be like today which will be like yesterday if an Irving Fisher quantity theorist watching indices of wages, consumer prices, and purchasing power was ensuring the the constancy of the market basket the "helicopter dividend" would buy.
Now thirty years later we are faced with the failure of a sizable stimulus -- debt financed -- going directly to a financial sector which -- because of insufficient demand in US markets to attract credit-worthy entrepreneurs -- to end a recession that bites pretty hard the domestic producer and wage earner.
In the General Theory Keynes makes reference to an analysis offered by a non-economist Major C. H. Douglas. Earlier, during the MacMillian Committee hearings, 24th day, 1 May 1930 Keynes also directly asked Major Douglas the primary question of chronic insufficient purchasing power.
4471. [Mr. KEYNES] The cost of production to the manufacturer is A plus B. Of that A goes to the public and is spent by them on manufactured goods, but B goes elsewhere? --
[Major DOUGLAS] Yes.
4472. [Mr. KEYNES] Where does it go? --
[Major DOUGLAS] "Group B. All payments made to . . . bank charges. . . . The real weight to be attached to this undoubted statement of fact -- as it stands it is simply a statement of obvious fact -- is whether the transfers from one firm to another are financed by either trade credit or from the firm's own credit, let us say its working capital, or by a bank's credit. . . . If the B payments are really financed from working capital then that working capital must, I think, inevitably have been obtained by the process of investment . . . "
In other words -- my words -- investment flows in -- the famous "injection" of investment -- but the larger amount of the investment plus interest flows out -- the leakage of paid off loans and paid off interest. No steady state equilibrium is possible at any level of employment if leakages must always exceed injections. Clearly it takes "inflation" to get out of this trap -- and only debt-free fiat helicopter money replacing the loanable funds market and corporate borrowing can give a steady household demand directed entrepreneur rewarding market solution.
I think that printing-press helicopter money distributed only to households and replacing both private and public debt financing -- so that businesses expand by investing profit and governments spend by taxation and printing press inflation but no borrowing -- is a solution overcoming the present systemic failure.
Richard Eastman
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