By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil. Originally published at Fixing the Economists
I have pointed out on here recently that Thomas Piketty’s views on public sector debt are wholly un-Keynesian. Well, we should also point out that his view of inflation and interest rates are also fairly un-Keynesian. Piketty basically thinks that the reason that governments have been able to run persistent government deficits is due to consistent inflation which erodes the real interest rates governments must pay on their debt. This may be true, but the conclusions he draws from it are altogether incorrect and, again I must stress, not the conclusions a Keynesian economist would draw. Piketty writes,
The inflation mechanism cannot work indefinitely. Once inflation becomes permanent, lenders will demand a higher nominal interest rate, and the higher price will not have the desired effects. Furthermore, high inflation tends to accelerate constantly, and once the process is under way, its consequences can be difficult to master: some social groups saw their incomes rise considerably, while others did not. It was in the late 1970s—a decade marked by a mix of inflation, rising unemployment, and relative economic stagnation (“stagflation”)—that a new consensus formed around the idea of low inflation. (p134)
In his book Money, the Post-Keynesian economist Roy Harrod brings to the reader’s attention a part of Keynes’ monetary theory that is not widely appreciated today. Namely, that Keynes thought — contrary to what the vast majority of working economists today assume — that the expected rate of inflation and, indeed, the actual rate of inflation have no effect on baseline interest rates. Harrod writes,
In the Keynes scheme the prospect of inflation has no tendency to raise the rate of interest. This springs from his contention that to understand the nature of the market rate, one must fix one’s spotlight firmly on the relation between cash and bonds. The point here is that cash itself is as liable to erosion by inflation as the promises to pay cash. If the choice is between holding cash and holding promises to pay cash, there is no difference whatever as between these two assets in regard to the prospect of inflation. (p179)
This leads Harrod to say, echoing Keynes, that central banks have entire control over the rate of interest. The markets really just have to take what they can get in this regard. If the choice is between cash being eroded by, say, a 7% rate of inflation every year and a bond yielding 3% being eroded by a 7% rate of inflation, the investor just has to make their choice and stand by it.
Of course, the money could flee the country. That is, there could be a run on the currency in question. But that seems very unlikely outside of a hyperinflation. And in a hyperinflation the dynamics will be self-limiting in two directions. (1) The rapidity of the increase in the money supply will greatly outpace any foreign outflow. (2) In a hyperinflation a currency generally loses its foreign exchange value almost completely, making it impossible for people to take their money out of the country and buy foreign assets.
Outside of a hyperinflationary collapse of an economy, people have to work and earn money and businesses have to turn a profit. This requires money to circulate within the country. Ultimately, this money has to go somewhere when it accrues as savings and if all of it left the country at once the economy would simply come to a halt. This has never happened in history, of course, and if you think it through it is truly an absurdity. In practice the markets just have to accept the fact that they might have negative yield on their hands. Ceteris paribus this will put them under very great pressure to invest the money in riskier assets within the country and this is part of the Keynes schema. Harrod writes,
What the prospect of inflation does affect is the comparative yield of bonds on the one hand and equities and real estate on the other. Equities and real estate are hedges against inflation, and, in periods when inflation is expected, the rate of interest on bonds should be higher than the yield on equities of comparable standing… But the fact that the prospect of inflation causes the yield of equities to fall relatively to the yield on bonds does not entail that it causes the yield on bonds to rise absolutely. According to Keynes it is impossible for it to have that effect. (pp179-180)
This is extremely important because the Keynesian view is very much so at odds with what many working economists will tell you. The Keynesian view will tell you that in an inflation risky assets will become more popular. That means that interest rates on these assets will fall, not rise. Interest rates on safe assets, like Treasury Bills, will remain wherever the central bank sets them. This is also what the historical data shows to be the case.
So, why don’t working economists generally accept this? Two reasons. First, is the loanable funds theory. This theory states that interest rates must increase when output increases. When confronted with the fact that the monetary authorities set the interest rate, loanable funds theorists have recourse to the soothing idea that too much demand will lead to inflation and this will lead to an automatic rise in interest rates. This myth salvages the model in which these economists have invested their intellectual capital. But it is inaccurate and at odds with reality.
Secondly, many working economists work in central banks or market institutions. The idea that inflation might lead to a rise in interest rates serves a nice mythic purpose for both. For the central bankers it acts as a taboo that reinforces their inflation fears because they believe that if they violate some sort of Divine Law then they will lose control over the situation. For the market economists it gives the illusion that their institutions — market institutions — have some modicum of control over interest rates. It also serves as an implicit threat to the authorities that if they dare to provoke inflation — which, of course, the financial markets hate beyond all else — market actors will jack up the interest rate.
But none of this is true. In reality, the authorities control the interest rate and no amount of inflation will move it beyond the boundaries in which they set it. High inflation may be an evil in its own right but let’s not fool ourselves with some sort of old time religion. Economists like Piketty would do well to give these issues a bit more thought before spooking the general public with the boogeyman of the supposed burdens of public sector debt and the supposed unsustainability, reminiscent of the doomsday warnings of the Austrian cranks, of eroding it through a healthy inflation.
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Like it or lump it?
Well …
” In reality, the authorities control the interest rate and no amount of inflation will move it beyond the boundaries in which they set it. ”
A fait accompli? Moral hazard is quaint?
I might become an anarchist.
Leave no incumbent in office.
Who are “the authorities” who “control the interest rates”?
They are the Central Banks – they set “the boundaries”.
And Central Banks follow rules that lead them to raise interest rates every time inflation raises its head.
So, in the real world rising inflation will indeed bring higher interest rates. Not as a result of any law of nature, but as a consequence of the policy rules and choices adopted by all the existing central banks.
Well, sort of. The central bankers have an idea about inflation and they do use that idea to raise and lower interest rates, but their idea is wrong.
‘If the choice is between cash being eroded by, say, a 7% rate of inflation every year and a bond yielding 3% being eroded by a 7% rate of inflation, the investor just has to make their choice and stand by it.’
No, Phil. Not since 1981, when linkers were pioneered in the U.K., followed by Canada and the U.S. (in 1997).
http://www.fixedincomeinvestor.co.uk/x/learnaboutbonds.html?id=206
Now that expected inflation is directly observable in the breakeven inflation rate (that is, the interest rate on nominal bonds minus the interest rate on linkers), Keynes’ sophomoric twaddle about inflation not affecting interest rates is not only irrelevant, but demonstrably wrong.
Remember that the USD still had a gold link during Keynes’s lifetime, so perhaps we can forgive his error. But that’s no excuse for contemporary observers.
Central banks always follow a policy of raising interest rates when inflation edges or threatens to edge upward.
So, in the real world rising inflation will indeed mean higher interest rates. Not as a result of some mysterious law of nature but as a consequence of policy choices implemented by the central banks who have the power to set the short-term interest rate.
As an aside, anyone wanting to understand Keynes’ work better without slogging through his texts will find value in Skidelsky’ s Keynes: A Very Short Introduction .
Gotterdammerung, twilight of the Gods. All this Keynesian talk is making me nostalgic. If the Austrians are cranks, what does that make the Keynesians? The latter have run things for more than half a century and brought us to the fall of Valhalla. I think I’ll go lose myself in Wagner until it’s all over.
Huh? The Bretton Woods Conference nullifies Keynesian economics, bastardized for pleasure sure, 1975 is good vintage stuff to wash it down with… eh.
Even though Keynes succeeded with Bretton Woods, one could say that Keynes’ theory was nullified from day 1.
John Hicks squeezed Keyne’s theory into the classical framework again – the very framework Keynes was trying to distance himself from – thereby nullifying the centrality of Keynes’ thoery – Knightian uncertainty. Instead of Keynes’ uncertainty, we then had Hicks’ risk – risk which one could (in theory) calculate.
And it was this underestimated calculated risk that took down the Western economies.
And nothing has changed – yet.
In 1980, Hicks even admitted he was wrong, he said that he should have thought about the importance of Keynes’ uncertainty. And he basically withdrew his IS-LM model, which is nevertheless still taught in almost all undergraduate macroeconomics courses today.
The passage Philip quotes from p. 134 isn’t part of an explanation of “the reason governments have been able to run persistent deficits”, as he says. What Piketty is discussing in that section of the book is the distributional effects of deficits, and the ways in which government debt has historically benefited rentiers, who are the people who invest most heavily in it. The “inflation mechanism” he is talking about is the mechanism of using inflation to reduce the real value of the nominal government assets held by investors in government securities. He is considering the possibility that issuing debt in the context of inflation can offset the upward re-distribution, and his claim the public cannot employ this mechanism indefinitely.
Piketty is not trying to spook the public about the burdens of public debt or about solvency issues, the long-term budget constraint, etc. What he is primarily interested in is the way in which public debt can lead to a redistribution of the wealth share toward rentiers, and the way it has done so historically, since public debt has always been one of the leading investment vehicles for the capital class. One question is whether the yields on public debt have typically exceeded the rate of inflation. Throughout history, I believe they have, and by margins substantial enough that rentiers have been able to make tidy profits simply by investing in the day-to-day operations of government.
But the question, then, is whether that fact merely reflects a government and central bank policy choice that could be carried out otherwise. Could the government consistently hold the nominal returns on public debt down at so low a level relative to the rate of inflation that the investors in that debt always come out losers in the long run. Piketty thinks no, and that market demand plays a role in that in good times the government has to offer rates of return on its debt that are competitive with rates of return people can obtain on other forms of low risk debt available in the financial markets. Philip thinks the answer is yes, because no matter how low the nominal rate of return on government debt, so long as it is positive, people will prefer that low positive rate to the zero rate carried by currency itself, since inflation will then still eat away at the value of currency faster than government securities.
Perhaps the answer lies in between. Philip’s reasoning applies to any period who desire to stay highly liquid, and who are thus making a choice between, for example, holding dollars or holding t-bills. But for people who are making choices among one of several investment vehicles, where liquidity is not the top concern, it might not apply. Also remember that Piketty’s book was originally written in French and the discussions on public debt seem to have a European target audience in mind. Since EZ countries don’t have autonomous central banks, their governments can’t direct the central bank to carry out a negative real yield monetary policy for EZ public debt.
Recall that Piketty’s book is not a treatise on employment, inflation, wages, growth, etc. – the main topics of Keynesian economics. It is a treatise, as he says, on distributional economics, not aggregate economics, and his arguments are almost all related to distributional topics. The results and policy suggestions can be combined fairly easily with Keynesian or other related approaches to employment, development and public finance to build a big picture macroeconomic policy agenda. His main concern about public debt is that it has always been owned by a wealthy minority of the population, and that historically, this has helped make that minority richer. If this is right, we might want to think hard about alternative public deficit finance mechanisms that dispense with selling government securities to the rich.
Last time I checked many people who consider themselves Keynesian economists integrate the theory of distribution right into the heart of the theory of aggregate production and output. The two things are two sides of the same coin. But because Piketty doesn’t have a coherent macroeconomic framework — he has basically admitted this in public interviews — he sells dodgy narratives like the one I highlight in the book which implies “rising government debt leads to rising inequality”. Anyone remotely familiar with the theory of aggregate production and output would know that this is one of the most misleading and reactionary narratives that could possibly be sold to the general public. Add into the mix the above hint that public debt might ultimately be unsustainable and Piketty is just basically shilling for the Hollande government and its austerity programs. And so are you, Dan.
… integrate the theory of distribution right into the heart of the theory of aggregate production and output. The two things are two sides of the same coin.
That’s a nice trick, but I don’t see how that can be the case. If the idea is that as long as we conduct our macro policies in the right way to get something close to full employment and full capacity growth, then then distributional matters will take care of themselves, I beg to differ. Full employment and worker empowerment will definitely help with the most egregious forms of labor inequality, but they do not address the fundamental social injustices and anti-democratic forces that are built into capitalism’s inherent tendency to concentrate the control of the means of production in a few private hands, issues that can only be addressed by deliberate redistribution and fundamental institutional changes that include, I believe, a greater public role in the democratic control of capital. Nor have I seen the Keynesians and post-Keynesians on the whole devoting a great deal of attention to economic inequality in recent years. You can certainly point to this or that individual Keynesian economists who cares about these issues, but it doesn’t seem to be a major research topic for them on the whole. Yet we’re way beyond the problems that can be fixed simply by more stimulus and stronger growth.
You might think that Piketty’s claim that government debt has contributed to economic inequality is dodgy, but Piketty has a lot of empirical research into actual history to back him up, and it’s simply a historical fact that nominal yields on government debt have almost always exceeded the rate of inflation by substantial amounts. Why should the wealthy be permitted to earn a return on the ordinary day-to-day operations of government?
Michael Hudson makes a lot of great contributions on this end. Largely on using taxes to greatly limit the power of the FIRE sector and give more power to labor.
From his recent book ‘Beyond the Bubble’
“”Industry and agriculture, transport and power, and similar production and consumption expenditure account for less than 0.1 percent of the economy’s flow of payments. The vast majority of transactions passing through the New York Clearing House and Fedwire are for stocks, bonds, packaged bank loans, options, derivatives, and foreign-currency transactions. The entire stock-market value of many high-flying companies now changes hands in a single day, and the average holding time for currency trades has shrunk to just a few minutes.””
Piketty is intervening in a debate at a particular moment in time. He is putting forward the message that “increased public sector debt = increased inequality”. In the current circumstances this is enormously misleading and indicates that keeping the economy below full employment is good for reducing inequality because it reduces the public debt burden (or does it!?). Not only is this message highly contentious (and no, evidence cannot decide whether it is or not as we would have to think through counterfactuals…) but it is an intervention on the side of the Hollande government against the Keynesian alternative.
Frankly, I knew this would happen eventually. I knew the far-left would eventually figure out a way to take the focus away from sensible Keynesian macroeconomics and take a “let’s impoverish everyone to hit the single target of reducing inequality” line. Because there’s an element of truth in that right-wing accusation. There are some on the left that are so narrowly obsessed with income inequality that they want to treat the problem in isolation from every other economic question.
Well, if you want to do that then that’s your prerogative. Sign on to the Socialist Party in France, push the politics of ressentiment and watch as their poll numbers tank and the Front Nationale see their base increase. Keynes called such people the “catastrophists” in his own time and he knew they would never want an alternative way of doing things.
Philip, why not just work on putting together an agenda that addresses stagnation, unemployment, inequality and and the domination of our societies and politics by concentrated private capital rather than get bogged down in ad hominem diatribes.
It seems to me that there is a way of constructively combining the insights, of Keynes, Piketty, Minsky and Mazzucato We need:
A larger state role in setting an economic development strategy and achieving transformative social and economic goals.
A massive redistribution of capital assets, and reforms to corporate governance.
A commitment to full employment and worker rights and empowerment.
Financial system reform the promotes stability, directly attacks the power of rentiers and the dismantles the institutions that keeps them in place.
Greater direct democratic participation in charting our economic destiny.
The elimination of shelters and other means for capitalists to escape democratic control.
“Philip, why not just work on putting together an agenda that addresses stagnation, unemployment, inequality and and the domination of our societies and politics by concentrated private capital rather than get bogged down in ad hominem diatribes.”
Yeah, that’s what the Keynesian crowd are trying to do. That’s why we try to integrate the theory of distribution with the theory of output and employment. That’s what all my posts against Piketty’s book are about. Meanwhile, Piketty is floating in fantasy land telling us that we need a global wealth tax Hollande-style. And he is gearing every argument in his book in order to show why this is the Only Way.
If I get your argument, Phil, it’s that the Fed controls the price of money and we all just need to kowtow to that. That’s the Keynesian fantasy all right: that the trillions of individual economic decisions made by actors all over the world complexly interacting with each other can be understood by economic formulae and dialed by the geniuses in the Marriner Eccles bldg. No. They can print until their scrip is finally seen for what it is: confetti. They’ve been given a hall pass this time around for four reasons:1. they’re all massively debasing at the same time (for the first time); 2. they’ve financialized the dollar price of gold (so people have no anchor of value and can’t tell what’s happening); 3. they’ve fooled with the meter and can now say the inflation number is whatever they want it to be; and 4. we have technology, wage globalization, and automation acting as very powerful counterbalancing deflationary forces. The phrase “longer than you can remain solvent” echoes in my head.
Philip, perhaps you’ve seen this article by Unger?
It seems to hit on what you’re talking about.
http://www.levyinstitute.org/pubs/wp_658.pdf
“WORKING PAPER NO. 658 | March 2011
Keynes after 75 Years
L. Randall Wray
Rethinking Money as a Public Monopoly
“In this paper I first provide an overview of alternative approaches to money, contrasting the orthodox approach, in which money is neutral, at least in the long run; and the Marx-Veblen-Keynes approach, or the monetary theory of production. I then focus in more detail on two main categories: the orthodox approach that views money as an efficiency-enhancing innovation of markets, and the Chartalist approach that defines money as a creature of the state. As the state’s “creature,” money should be seen as a public monopoly. I then move on to the implications of viewing money as a public monopoly and link that view back to Keynes, arguing that extending Keynes along these lines would bring his theory up to date.”
“”Here’s the rub. Bank money is privately created when a bank buys an asset— which could be your mortgage IOU backed by your home, or a firm’s IOU backed by commercial real estate, or a local government’s IOU backed by prospective tax revenues. But it can also buy one of those complex sliced and diced and securitized toxic waste assets that created all the trouble since 2007. A clever and ethically challenged banker will buy completely fictitious “assets” and pay himself huge bonuses for nonexistent profits while making uncollectible “loans” to all of his deadbeat relatives.””
“”My favorite example is Minsky’s universal employer of last resort (ELR) program in which the federal government offers to pay a basic wage and benefit package (say $12 per hour plus usual benefits), and then hires all who are ready and willing to work for that compensation (Wray 1998). The “price” (labor compensation) is fixed, and the “quantity” (number employed) floats in a countercyclical manner. With ELR, we achieve full employment (as normally defined) with greater stability of wages, and as government spending on the program moves countercyclically, we also get greater stability of income (and thus of consumption and production).
Unfortunately, government usually does not recognize it operates a monopoly money, believing that it must pay “market determined” prices—whatever that might mean. Unemployment and inflation are the results of this misunderstanding”
Compound interest takes from the poor and middle classes to enrich the wealthiest. It is fascinating that economists do not seem to mention this. Margrit Kennedy explained that compound interest is inflationary in and of itself. She presented in two short books, both available as free pdfs, a sustainable monetary system.
Interest and Inflation Free Money:
http://kennedy-bibliothek.info/data/bibo/media/GeldbuchEnglisch.pdf
Occupy Money:
http://ge.tt/9QsKvxh/v/991
Margrit Kennedy died in December 2013, but in these two books alone, she left a generous legacy.
Carla, thanks for the links. I read Kennedy’s chapter on Women (page 37) and was struck by her insight there. When I began to earn money after my children were in school, I tried my hand at investing in a mutual fund, a few ounces of gold and a gold company. I learned quickly that the stock market was something I did not understand and gave up trying to save money that way. During the inflation period of the eighties, I bought Savings Bonds, RRSPs and GICs and did quite well.
Because women do not earn the same wages as a man, it makes it difficult for them to save for retirement. I have had to depend on my husband’s good salary in order to make my own savings count.
Exactly. Government bonds have a real cost – interest. Most of the interest is paid to the wealthiest families and most powerful institutions and corporations, entities the wealthiest families use to create even more wealth.
A significant portion of tax revenue is raised from regressive taxes, such as payroll taxes, VAT and sales taxes. So at the end of each year, lower and middle income families have less money since the government takes taxes from them, and the wealthiest families have been enriched by the government that pays interest to them. Anyone who thinks this is a good system is no friend to the bottom 2/3 of families.
If people want governments to spend more money, rather than issue debt that benefits the wealthiest families, make the government raise taxes on rich people, focusing the tax burden on the biggest earners of rent income, interest, dividends, out-sized corporate salaries and capital gains. Oh, and a good tax would be a modest graduated wealth tax on families who own substantial assets (starting at over $5 or $10 million of assets), one of the few policy prescriptions mentioned by Piketty.
Housing costs are too high for most families. Taxes on working people have increased fairly substantially over the past 50 years. These are the two significant issues that deserve our immediate attention, not esoteric discussions about monetary policy. If we can significantly reduce housing costs and taxes for most families, they will have more disposable income that will be used to buy more goods and services, which will create increased economic activity, including jobs and tax revenue.
There are other ways of doing this. Governments could simply issue additional units of the currency directly rather than issuing securities and swapping them for currency already in existence. Also, the central bank could be turned into a national public bank open to ordinary depositors. Prudent management of the size of the annual deficit in conjunction with interest payments on ordinary time deposits at the public bank would then be at one and the same time an exercise in monetary policy and fiscal policy, and the goal would be to keep the money supply growing at an appropriate rate given the rate of economic growth.
If compound interest is simply a way of redistributing money from the poor to the wealthy, than it is hard to see how it could be inflationary.
That depends on what definition of ‘inflation’ you use and/or accept. Can you see how it could inflate the FIRE ‘sector’ while deflating the real economy of production and consumption.
Great point. Over the past 40 years that is exactly what’s happened – the FIRE sectors have become enormously profitable and the wealthiest asset-owning families have seen their net wealth skyrocket, while the standard of living for the majority of society has declined, or stagnated at best. When people talk about “inflation” or “deflation” without distinguishing whether they mean price and wage inflation/deflation or asset inflation/deflation, whatever points they’re trying to make are dubious. Price and asset deflation are good things since it means we can purchase more for the same amount of labor, or we can work less without reducing our standard of living. And wage inflation is meaningless if prices are rising even faster, or if the wage increases are merely being transferred to landlords (higher rent), the government (more taxes), the banking sector (a house purchase), or corporate shareholders (higher product prices).
“If compound interest is simply a way of redistributing money from the poor to the wealthy, than it is hard to see how it could be inflationary.”
I don’t really understand that statement.
According to Margrit Kennedy, our debt money system means that the cost of interest is factored into the price of every product or service we must purchase to live. She calculated it accounts for about 40 percent of the cost of everything, averaged across the board. So even those who own their houses and cars outright and have no other debt (pay off the credit card every month, etc.) are still paying interest. Lots of it.
I’m most certain there is no correct theory for what we have now. That is, if someone is trying to discern one from whatever they think “market behavior” may be.
The Federal Reserve Chair, whom I’ll just refer to as “Sky Pilot”, because the names change now and then, is charged with driving our collective economic bus. They use a speedometer to see how they are doing, and have decided the windshield, steering wheel, and rearview mirror aren’t useful for anything. No one of any consequence uses these optional features either.
The cruise control is connected to the speedometer, but the speedometer is not connected to the wheels. Sky Pilot confers with the BLS to decide on a cruise control setting that gives the “correct” speedometer readout. An annoyed BLS responds – “yes, yes – we know the correct answer is 2%.”
Sky Pilot incessantly tells the passengers of the importance of the gas pedal. Pushing on it makes the bus go faster, eventually, and going faster is what we always want buses to do. Keep your eye on the speedometer, please!
Knowing that people can be a skeptical lot, at times, the cab of the bus is made from high tech glass (bullet proof and sound proof – so as not to distract Sky Pilot from performing his duties), providing the much necessary “market transparency”. Sky Pilot has placed a very large, nearly unmovable, rock on the gas pedal. The rock is painted florescent orange.
At least once a week, Sky Pilot shouts out the speedo reading and releases a photo of the orange rock to the press. Bonds traders execute humongous carry trades keeping one eye on the big orange rock.
The gas pedal is connected to the alternator. The alternator provides it’s connected components with positive or negative energy. The well known economic effect “karma” takes over from here. It is good karma.
Those impatient with the progress of the bus, or apparent lack of movement at all (it’s built like an accordian), can inquire if something is wrong with bus. A whole cadre of customer service experts, many with PhDs, are watching the bus and will happily answer any questions we may have.
But the experts always caution that getting anywhere on the bus can take time. It’s a very, very big bus, they council – the wheels aren’t even all located in the same country!
Give this man a regular NC column!
Bone
Inflation wouldn’t be bad if what’s inflating is bad for you. But economists don’t look at it that way, and even some people don’t.
If the price of being hit in the head with a hammer is going up, that’s presumably good. But the problem is some people like being hit in the head with a hammer. Why would somebody like that? Because of their utility preference function. Then they go to the hospital and a doctor treats them and that helps GDP, then they need painkillers for a week, and that helps GDP.
It also causes young people to go to doctor school, painkiiller school and hammer-making school. Some of them eventually have crises of conscience and regret their decisions. At that point, nobody cares.
If a man says “The price of hammers is rising, lend me money at 5% and I’ll make a hammer factory and pay you back”. And I say, “hammers are rising in price and so are painkillers, make it 7% and you’ve got a deal.” The govermint says, lend me money, and I say 7% dude. Maybe the Fed will do 5 but not me. haha. I’m not a hammer head.
“Ultimately, this money has to go somewhere when it accrues as savings and if all of it left the country at once the economy would simply come to a halt. This has never happened in history, of course, ” Readers interested in the precise meaning of this observation might wish to consider meditating on the Pine Tree dollar and the disappearance of money in parts of America prior to the Revolution.