Friday, February 12, 2010

Should we bury bottles of money so we'll be more wealthy?

You may have heard of "Keynesian" economics. The following excerpt from The General Theory by John Maynard Keynes will give you a sense of the general idea behind it.

"When involuntary unemployment exists .... Pyramid-building, earthquakes, even wars may serve to increase wealth.... If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again ... there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

How could burying bottles filled with money increase the wealth of a community? In chapter 9 we'll see why Keynes, and Keynesian economists of today, hold these views. We'll see that if you accept their assumptions, their conclusions make sense.