Contra Krugman, Policies of Countering Unemployment Are Costly
When the economy goes into a recession, most economic commentators believe that the government and the central bank should take steps to counter the rise in unemployment. Some economists believe that lowering unemployment can be achieved without any cost, given that the unemployed workers are idle. According to Paul Krugman, “If you put 100,000 Americans to work right now digging ditches, it is not as if you are taking those 100,000 workers away from other good things they might be doing. You are putting them to work when they would have been doing nothing.”
But how will such a policy be funded? Who pays the unemployed for digging ditches? It seems that Krugman believes that funding can be easily generated by the central bank via money printing.
Now, funding is not about money as such but about real savings, which is the amount of consumer goods produced less the consumption of these goods by the producers of consumer goods. Real savings sustain people who are engaged in the production of goods.
When a baker trades the saved loaves of bread for potatoes, he provides the means of sustenance to the potato farmer. Equally, the potato farmer provides the means of food, his saved potatoes, to the baker. These real savings sustain producers while they create intermediate goods and consumer goods and services.
To maintain their life and well-being, individuals require consumer goods, not money as such, which is just the medium of exchange. Money helps to facilitate trade among producers—it is not real wealth itself. According to Murray Rothbard, “Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.”
Paraphrasing Jean Baptiste Say, Ludwig von Mi
Article from Mises Wire
The Mises Institute’s website is a treasure trove for enthusiasts of Austrian economics, libertarian philosophy, and classical liberalism. Serving as both an educational platform and a research resource, the site offers a vast array of articles, academic papers, books, and multimedia content aimed at advancing the principles of individual liberty, free markets, and limited government. Whether you’re a scholar, student, or just someone interested in libertarian thought, the Mises Institute provides invaluable insights and tools for exploring the intellectual foundations of a free society.