by Frank Shostak
In response to the coronavirus, central banks worldwide are currently pumping massive amounts of money. This pumping, it is held, is going to arrest the negative economic side effects that the virus-related panic inflicts on economies. As appealing as it sounds we suggest that this view is erroneous.
The view that more money can revive an economy is based on the belief that money transmits its effect through aggregate expenditure. With more money in their pockets, people will be able to spend more and the rest will follow suit. Money then, as one can see in this way of thinking, is a means of payments and a means of funding.
Money, however, is not the means of payments but the medium of exchange. It does not have a life of its own; it only enables one producer to exchange his produce for the produce of another producer.