Money Creation … Physically printing the stuff

Printing Money

First the old fashioned way, simply printing a whole lot of new £50 notes.

This always gave a problem, how do we get the things into circulation?

In today's world money in the guise of notes and coins, has all but been superseded by plastic. In times gone by wages were paid in cash, that is rarely the case in the modern world and the physical printing of money poses a problem of how to inject into the economy. Governments are also loathe to allow an excess of printed currency in circulation as this is, often, the route to a growing informal economy outside of easy reach of the taxation system.
However assuming that we did print all those notes, how would we get them in to the economy so that they could have an effect?

Two suggestions;

The First from Keynes.
“If the treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled 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 (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory) … It would, indeed be more sensible to build houses and the like; but … the above would be better than nothing.”

The second from Ben Bernanke after he had persuaded Congress to allow the creation of an extra 750 billion dollars in the midst of the credit crunch.
“The best thing we can do with this is to go up in a fleet of helicopters and spread it over the country”

As silly as these two suggestions may sound they both have more than an element of truth.
The Keynes suggestion makes an excuse for creating employment on a worthless enterprise, which ultimately creates bank deposits, increases demand and thus stimulates the economy. (Against this of course is the fact that this is indirectly the way the Nazi Government revived the German economy … they were using Keynesian Economics before it had been invented!).

The Bernanke proposition would probably have achieved a lot more than propping up the banks did, as it plays with a characteristic of human behavior … windfall money is more readily spent than that which has been earned by the sweat of ones brow. (The saying “easy come, easy go”) Yes it may have created a demand led inflation but the USA economy would have been buzzing!


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