When Money Circulates

Money is worthless if it isn't moving through the economy. We learned this in the Great Depression. Prudent spending puts money through the banks. Banks lend money to productive enterprise (properly, that's what banks do). That money grows when it is invested in the production of goods and services. That production employs workers. Those workers, as consumers, spend money which ends up in the banks, and multiplies again. The enterprises also put money through the banks, with the same result. By this process, the economy expands with reinvestment, profit taking, and entrepreneurship. Why wasn't this working properly before the bailouts? Mainly because the banks and other financial operators were diverting the flow of money into other forms of national and international investment. The real estate credit crunch and devaluation resulted from that diversion. If the financial institutions had stayed within the mainstream perameters, the collapse would not have happened. The state of the economy required the bailouts. The rest of Americans don't deserve what has happened (yes, they should have had more savings), but we all have to pay for the economic sins of a relative few. Barack Obama is on the right track as he proposes to create jobs. Those millions of jobs will pay billions in wages, and those wages will multiply through the banks. The employers will also put money through the banks, and their money, too, will multiply. Beyond this, restoration of a healthy economy absolutely requires diligent regulation of the financial marketplace, to prevent a recurrence of the shenanigans that got us into this recession. Another lesson learned the hard way in the Great Depression.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future