As we saw in yesterday's posting, the Keynesian theory of "quantitative easing" assumes that once "the pump is primed," there is no further need to inflate the currency. Unfortunately, since Keynesian theory doesn't seem to work as advertised (or at all, for that matter), what we get is one round of quantitative easing hard on the heels of another. The idea that the money supply should be linked directly to the present value of existing and future production of marketable goods and services doesn't seem to occur to the people obsessed with the belief in a divine State that can accomplish anything by fiat.
Looking objectively at what happens in "quantitative easing," we realize that something is wrong. The demand for new capital — and thus new jobs — derives from increases in demand, i.e., consumption. Quantitative easing forces consumers to reduce consumption. Assuming that all goes according to plan (which, obviously, it isn't), the "effective demand" — savings — taken from one set of consumers is taken by producers, and redistributed through job creation to another set of consumers . . . with a rake-off for the producers to finance new capital and allow for profits that are withheld from consumption by being retained in the corporation.
We are forced to an astounding conclusion. Assuming that capital is "congealed labor" (which it isn't) and thus all the money producers pay for new capital goes to labor (which it doesn't), and producers take no profit whatsoever (which they most certainly do, or there is no incentive to produce), then there has been absolutely no increase whatsoever in effective demand! In fact, in the real world outside the fantasy framework of Keynesian economics, there is a net decrease in effective demand as producers retain earnings instead of paying them out to shareholders.
What happens is obvious. Given the Keynesian assumptions, purchasing power — effective demand — is confiscated through inflation from one set of consumers and redistributed through artificial job creation to another set of consumers. The only ones who benefit are the government, which has control over new money by increasing its debt, and producers, who realize larger profits from less production. Consequently the wealth gap continues to grow at an accelerating rate, employment continues to decline, and the economy goes from mere stagnation to decay.
Of course, this is only the case if we accept Keynesian theory as sound and its assertions and definitions (always in a fluid state, due to Keynes's idea that the government can "re-edit the dictionary"). What really happens is something we'll look at next week.
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