24 ms·

"Keynes suggested stuffing bills into bottles and burying them down mineshafts." Can someone explain how such an action would help the economy?

by dominik 18y ago

jorgeortiz85 18y ago
If people are jealousy guarding their cash for fear of losing wealth on other investments (seriously, what else would you invest in, in this environment?), then printing cash and throwing it around is SO irresponsible that no one can credibly believe their bills will maintain value. They'll spend their cash on goods and services rather than see it's value disappear.
there 18y ago
to get at the money, one would have to employ people and buy equipment.
- mechanical_fish 18y ago
  Yep, that's it. It would be nice if these people did something useful, but Keynes' point was that this is an optional feature which should not be allowed to detract from the main goal.
  - dominik 18y ago
    The main goal being getting money circulating again? But why should that be a main goal? Why have money changing hands for the sake of changing hands? Isn't money just a medium of exchange -- a go-between, a currency -- used to convert one type of good into another? We don't just want money to circulate, we want money to circulate purposefully -- in transactions on the free market. I still don't see how burying money and having miners dig it up helps anything. It doesn't create value. Those miners could do other, more productive things instead.
    - randallsquared 18y ago
      Exactly. It doesn't create value. Well, much value; I suppose some people might simply enjoy the work.
    - mechanical_fish 18y ago
      Isn't money just a medium of exchange...used to convert one type of good into another? I'm tempted to answer "no". Money has properties -- the very ones that prompted its design -- that make an exchange of money quite different from an exchange of goods or services. The important property for this discussion is: an exchange of services doesn't offer you a reliable medium of savings. If I offer to shingle your house in exchange for you shoveling my snow, but it's January and I can't shingle the house until May, we're stuck. You can shovel the snow first and have me owe you the shingling, but what if I flee the state, or injure myself? Or what if May comes around and you have decided that you'd rather have the lawn redone than the shingles replaced? I don't know lawns! I only do shingles! But money solves this problem because you can put it in the bank (or a piggy bank, for that matter) and decide later what to trade it for and with whom. Which leads directly to the problem we're worried about: deflation. Right now is a very bad time to hire someone to reshingle my house for $75 an hour, because in six months another 3-5 million people will be out of work and there will be a lot more unemployed people with building skills, some of whom might be willing to reshingle my house for $50 an hour. But, of course, at that point I might be out of work myself, and $50 might seem like a lot of money, but no problem, because if I wait another six months the price might be down to $25 an hour... In a depression people hoard their money, because there isn't a lot coming in and because it's worth more the longer you wait. That's the phenomenon which Keynesian stimulus seeks to prevent. You have to offer folks $50 an hour (or whatever) to do anything -- twiddle their thumbs, if necessary -- to keep money flowing into and through the system and to fight the universal tendency toward deflationary deadlock: The situation where everyone sits on their cash and their labor, waiting. (Since the 1930s, we've prevented our economy from falling into this terrible state by using monetary policy. But you can't use monetary policy to maintain equilibrium once the real interest rate is zero. Which it apparently now is.) Unfortunately, a depression is one of those nonlinear, non-equilibrium, black-swan situations that relatively few living Americans have experienced, and we're seeing the very real danger that people will refuse to recognize the possibility this time until it's too late. You have to anticipate these things, because economies have a lot of momentum.
  - baguasquirrel 18y ago
    I thought the mine shafts bit was supposed to be a joke.
arebop 18y ago
Then, the idea was to let miners dig them back up. The burying and mining activities themselves are silly and useless, but then the multiplier effect kicks in. Keynes says the important thing is to get money circulating so that resources can (eventually) be put to practical use, whereas if everyone saves and does not reinvest then potentially productive resources are left fallow. http://www.economictheories.org/2008/11/keynes-theory-of-saving-unemployment.html http://www.economictheories.org/2008/11/keynes-theory-of-sav... gives a little more context.

"Keynes suggested stuffing bills into bottles and burying them down mineshafts." Can someone explain how such an action would help the economy?

by dominik 18y ago

"Keynes suggested stuffing bills into bottles and burying them down mineshafts." Can someone explain how such an action would help the economy?

jorgeortiz85 18y ago

If people are jealousy guarding their cash for fear of losing wealth on other investments (seriously, what else would you invest in, in this environment?), then printing cash and throwing it around is SO irresponsible that no one can credibly believe their bills will maintain value. They'll spend their cash on goods and services rather than see it's value disappear.

there 18y ago

to get at the money, one would have to employ people and buy equipment.

mechanical_fish 18y ago
Yep, that's it. It would be nice if these people did something useful, but Keynes' point was that this is an optional feature which should not be allowed to detract from the main goal.
- dominik 18y ago
  The main goal being getting money circulating again? But why should that be a main goal? Why have money changing hands for the sake of changing hands? Isn't money just a medium of exchange -- a go-between, a currency -- used to convert one type of good into another? We don't just want money to circulate, we want money to circulate purposefully -- in transactions on the free market. I still don't see how burying money and having miners dig it up helps anything. It doesn't create value. Those miners could do other, more productive things instead.
  - randallsquared 18y ago
    Exactly. It doesn't create value. Well, much value; I suppose some people might simply enjoy the work.
  - mechanical_fish 18y ago
    Isn't money just a medium of exchange...used to convert one type of good into another? I'm tempted to answer "no". Money has properties -- the very ones that prompted its design -- that make an exchange of money quite different from an exchange of goods or services. The important property for this discussion is: an exchange of services doesn't offer you a reliable medium of savings. If I offer to shingle your house in exchange for you shoveling my snow, but it's January and I can't shingle the house until May, we're stuck. You can shovel the snow first and have me owe you the shingling, but what if I flee the state, or injure myself? Or what if May comes around and you have decided that you'd rather have the lawn redone than the shingles replaced? I don't know lawns! I only do shingles! But money solves this problem because you can put it in the bank (or a piggy bank, for that matter) and decide later what to trade it for and with whom. Which leads directly to the problem we're worried about: deflation. Right now is a very bad time to hire someone to reshingle my house for $75 an hour, because in six months another 3-5 million people will be out of work and there will be a lot more unemployed people with building skills, some of whom might be willing to reshingle my house for $50 an hour. But, of course, at that point I might be out of work myself, and $50 might seem like a lot of money, but no problem, because if I wait another six months the price might be down to $25 an hour... In a depression people hoard their money, because there isn't a lot coming in and because it's worth more the longer you wait. That's the phenomenon which Keynesian stimulus seeks to prevent. You have to offer folks $50 an hour (or whatever) to do anything -- twiddle their thumbs, if necessary -- to keep money flowing into and through the system and to fight the universal tendency toward deflationary deadlock: The situation where everyone sits on their cash and their labor, waiting. (Since the 1930s, we've prevented our economy from falling into this terrible state by using monetary policy. But you can't use monetary policy to maintain equilibrium once the real interest rate is zero. Which it apparently now is.) Unfortunately, a depression is one of those nonlinear, non-equilibrium, black-swan situations that relatively few living Americans have experienced, and we're seeing the very real danger that people will refuse to recognize the possibility this time until it's too late. You have to anticipate these things, because economies have a lot of momentum.
- baguasquirrel 18y ago
  I thought the mine shafts bit was supposed to be a joke.

arebop 18y ago

Then, the idea was to let miners dig them back up. The burying and mining activities themselves are silly and useless, but then the multiplier effect kicks in. Keynes says the important thing is to get money circulating so that resources can (eventually) be put to practical use, whereas if everyone saves and does not reinvest then potentially productive resources are left fallow. http://www.economictheories.org/2008/11/keynes-theory-of-saving-unemployment.html http://www.economictheories.org/2008/11/keynes-theory-of-sav... gives a little more context.