- 17 Luglio 2018
- by Blogger
In the Keynesian framework, the ever-expanding monetary flow is the key to economic prosperity. What drives economic growth is a monetary expenditure. When people spend more of their money, this implies they save less. Conversely, when people reduce their monetary spending in the Keynesian framework, this is viewed as them saving more. In the popular — i.e., Keynesian — way of thinking, saving is bad news for the economy. The more people save, the worse things become. (The liquidity trap comes from too much saving and the lack of spending, so it is held.)
Observe, however, that wealth comes not from money, but from goods that have been produced. The chief role of money is as a medium of exchange. Hence, the demand for goods is constrained by the production of goods and not by the amount of money as such. (The role of money is to facilitate the exchange of goods). To suggest that people could have almost an unlimited demand for money that is viewed as an unlimited saving that supposedly leads to a liquidity trap would imply that no one would be exchanging goods. (It would mean that people do not exchange any longer money for goods).