This photo illustration shows 1,000 Argentinian pesos and a 100 US dollar bill in Buenos Aires on April 11, 2025. The International Monetary Fund on Tuesday announced it had reached a preliminary agreement with Argentina on a $20 billion four-year loan arrangement to support a “comprehensive economic program.” (Photo by LUIS ROBAYO / AFP) (Photo by LUIS ROBAYO/AFP via Getty Images)
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No serious economic thinker would ever concentrate on consumption, nor would any reasonable government ever endeavor to stimulate it. As humans our consumptive desires are unlimited, and only limited by our individual production, the production of others we have access to, or production of others that governments redistribute to us.
Consumption is preceded by production. Always. That production must take place so that the fun part (consumption) can follow is arguably the most iron law in economics.
Not surprisingly, however, there are economic schools of thought rooted in the notion that Say’s Law can be evaded. Call it something for nothing economics.
Keynesianism is the most prominent school in the something-for-nothing category. According to the disciples of the 20th century British economist (notable here is that John Maynard Keynes thought his disciples “fools”), governments can grow the economy and even instigate higher prices born of a so-called “demand multiplier” through their spending. Except they can’t.
Since governments produce nothing they can hardly increase so-called “demand.” But they can shift so-called “demand” or consumptive power through their taxing power.
Keynesianism has a sister, or a nephew. It’s monetarism. Ironic about monetarism is that the disciples of Milton Friedman (1912-2006), the most prominent monetarist of all, fancy themselves free-market proponents. Naaah.
Friedman admitted in 2003 that the central planning theory he’d tied his good name to was bogus. Debate settled? No. Call it a disciples problem.
Monetarists are out in force yet again. To develop a taste of the religion, consider a recent op-ed by Ramesh Ponnuru in the Washington Post. Ponnuru wrote that “Some economists have for years advocated that the Federal Reserve adopt a nominal spending target. Their main argument is that this approach would better stabilize the economy.” If it sounds like central planning, that’s because it is.
For confirmation of the above, we just catch on again with Ponnuru. He writes that “Under the new target, the Fed would commit to keeping the economy growing at a steady rate, as measured by the number of dollars U.S. households and businesses spend and make in a year.” Except that the Fed could no more centrally plan consumption than it does production. Which is the point.
It’s lost on Ponnuru and his fellow planners that consumption always and everywhere mirrors production. And this is true even if the biggest producers live like monks. Short of the monks literally stuffing the money they take in for their production in coffee cans, the so-called “demand” explicit in their production will be shifted to others: this could be family members, borrowers from banks, and yes, recipients of the government’s taxing power.
Ponnuru would almost certainly nod along to the laughable conceit of Soviet five-year production plans of old, but he would do so unaware that he was nodding sans clothes: production can’t be planned, which means its consumptive mirror can’t be.
Ponnuru et al can and do claim that market economies require central banks to provide so-called “money supply” for the productive, but production implies money. Better yet, money in circulation is production determined. The latter is vivified by the simple truth that exponentially more dollars circulate in San Francisco, Chicago and New York than they do in Spokane, Springfield, and Buffalo.
It’s also vivified by the circulation of dollars in Caracas, Pyongyang and Teheran. The Fed didn’t place the dollars in U.S. and foreign cities mentioned, but production did. Without it the dollars wouldn’t be there.
It’s a reminder that monetarism is Keynesianism’s something-for-nothing variant. Production is the only source of spending, and neither governments nor central banks produce anything that would position them to control it.
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