Russ Roberts: Why Keynesians Always Get it Wrong (and Most Economists Too): We’ll tell you why they get it wrong. Because they believe in policies that rob the value of our dollars, our wages, our bank accounts, our homes, our property and our labor. They believe in policies that benefit only the very few ‘public servants’, government officials and government cronies that control the pump and skim the cream. And in that sense it isn’t so much that all of them get it wrong. Some of them very well know what they are doing. And what they are doing is getting rich off the productive class in the name of the poor. It is the very reason they oppose a return to the real capitalism. A free market is the only fair market. And in a fair market they can lose.
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The problem with the Keynsian model is that those who profess to be Keynsians do not have the willpower to actually follow the model. As I understand it, the model only has you flooding the market with a surplus that was saved, not printing it as you go. What is professed to be Keynsian is actually a perversion of it that is passed off as the real thing. If they have a surplus, they are supposed to save it for an economic downturn, not squander it like sailors on liberty. This is why the Keynsian model is an abject failure - no politicians can resist spending a pot of money.
I've said it before & I'll say it again. Keynsians don't understand that Keynes was against structural debt & deficit. Capital Hill is just that. Today's progressives who promote what they believe is Keynes are wrong, & will not listen to anyone telling them otherwise.
Hence the endless victory bond floats and the sky high taxes under FDR. He was a Keynesian.
But at the same time, you don't want money, and the supply of money, to be limited to a fixed amount of gold and silver coins moving around. That way, prosperity DOES become a zero-sum game, and the only way I get richer is by you getting poorer.
Printed currency, released in a controlled manner into circulation, does indeed increase the money pool without diluting value, primarily, or ideally, via loans. Pop's Grocery borrows 100k to expand -- Pop earns that amount back many times over, the loaning bank gets its money back plus interest, paying all their salaries, etc., and the overall worth of bank and Pop increase, and their cash holdings in proportion. More wealth/value, more cash in the system -- undiluted because Pop & Bank have created value.
Nothing new here, Ayn Rand tosses it off in a sentence or two and it certainly wasn't a new concept with her, it's just how things are supposed to work.
You can have those problems with a fiat currency - the EU is the example of that. Germany and some other countries do not want the ECB to print, the bankers do not want to let Spain, Portugal, Greece, et al, default and the EU politicians don't want to let these countries leave the EU and float their currencies. All the exits are blocked so the pols play games with "stability funds" and such that serve mostly to de-stabilize. Meanwhile, the PIIGS are forced to raise taxes and cut spending to pay off their debts, leading to a DECREASE in economic growth and a death-debt spiral.
I agree, the gold standard has its problems but fiat currency also has its own - mainly, the politicians are involved. As Voltaire once said, “Paper money eventually returns to its intrinsic value-zero." Unfortunately, if we do return to a gold standard, it probably won't be by informed consent and calm discussion, it would likely be kicking and screaming because of a major crisis.
I read an article once that said the people that benefit MOST from money printing are the people CLOSEST to the source and the "benefits" get watered down the further away from the source you get. For example, let's say gas (to take a simplified example) is $3 a gallon. The Fed prints a bunch of money. The people closest to the source, the banks, the wealthy cronies, the gubbermint officials, etc, get that money and buy gas at $3 a gallon. They drive the price up, of course, and as the printed money gets disbursed into the broader economy, the next group to get the wave of money being printed may see gas at $3.10 or $3.25. They buy, the money is disbursed, the price goes up, the next closest group to the source sees it now at $3.50. By the time the money filters out to the rubes, gas is at $5.00
I'm using gas as my commodity in the example but the reality is it's anything and everything. Printing money dilutes the value of money because money in a fiat currency system is just another commodity with no inherent value. The people that get their hands on newly printed money first use it when it has the most value, before prices have risen. The people that get their hands on it last see it when the prices have already been driven up while the value of their savings (i.e. money they WORKED for instead of having the Fed print it) is diluted.