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Wednesday, October 05, 2005

confusing money with savings: real bills, phony wealth

Professor Antal Fekete makes the case that savings are not sufficient for production, but that Real Bills, i.e. Bills of Exchange in a clearing system, are alone sufficient to fund production without savings. Robert Blumen handily shatters this ludicrous theory by exposing it to the light of economic reason, drawing on both classical and Austrian economic theory, in this column at
As an inflationist in good standing, Fekete’s theory is firmly anchored in the confusion between money and wealth. Fekete starts with the true premise that clearing increases the efficiency in the use of cash, to the false conclusion that it allows production to be funded by a bill alone.

While the premise is true, the conclusion is false. Clearing has economic benefits, but it has nowhere near the magical properties that Fekete would have us think. Fekete's extravagant claim regarding the ability of bills to substitute for actual savings is entirely erroneous.

Financing is not funding. Economizing the use of cash is not the same as economizing scarce real factors. Land, labor, and fixed capital do not come into being through the establishment of clearing systems. Economizing cash only enables the existing supply of factors to trade at higher money prices.
The whole column is much longer and well worth a read.


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