Creating More Money Won't Revive The Economy

The central bank could monetize the government budget deficit - it could mail checks to every citizen of the US. All this, however, will only further undermine real savings and devastate the real economy.

But surely the government and the central bank should be doing something to prevent the economic deterioration because of the coronavirus. Unfortunately, neither the central bank neither the government have the real resources to grow an economy.

Neither the central bank nor the government are wealth generators they are supported by diverting resources from the wealth-generating private sector.

This means that any measures that the government is going to undertake must be at the expense of activities that are generating wealth. Needless to say that this will weaken the ability of the economy to generate goods and services.

Hence, regardless of good intentions neither the central bank nor the government are capable to help the economy to counter the damage inflicted by the coronavirus. Only the wealth-generating private sector could do it.

The critics of our way of thinking argue that monetary pumping creates a temporary illusion of richness and this is going to boost the demand for goods and services. On this way of thinking, an increase in the demand will trigger an increase in the supply i.e. in the production of goods and services.

We have however, seen that without the increase in real savings it is not possible to increase the production of goods and services. Hence if the ability of the economy has been damaged boosting the demand is not going to repair the damage if the flow of real savings was weakened.

[1] Ludwig von Mises, Human Action, 3rd revised edition (Contemporary Books 1966) p 421.

[2] Ibid.

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