In the Wall Street Journal of August 19, 2011, Stephen Moore put his finger on what may be the most colossal swindle of the 20th and 21st centuries: the Keynesian multiplier theory. As Moore pointed out, "The multiplier theory only works if you believe there's a fairy passing out free dollars."
Exactly. This was the contention of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, on pages 77 through 90 of The Formation of Capital (1935), volume three in a four-past series presenting an alternative to the Keynesian New Deal. Production and employment, not inflation and increased spending, are the keys to sustainable economic recovery.
Money to finance economic growth should not come from State-emitted bills of credit that simply redistribute existing wealth through inflation and debauch the currency. Sound money to finance sustainable economic growth, create jobs naturally, balance the budget, eliminate the national debt, and provide a stable, elastic, asset-backed currency can come from monetizing the present value of existing and future private sector marketable goods and services by discounting and rediscounting bills of exchange, whether between businesses, or at commercial banks and the Federal Reserve.
When, as Louis Kelso and Mortimer Adler added in The Capitalist Manifesto (1958) and The New Capitalists (1961), the ownership of all new capital financed with such "pure credit" and collateralized with capital credit insurance and reinsurance instead of existing investment is spread out, sufficient effective demand is generated to sustain economic growth without constant artificial and inflationary "stimulus."
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