Summary of Optimal Money Flow

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Technology will further exacerbate income inequality, with money flowing to the owners of capital and away from labor, says professor Lawrence C. Marsh in this instructive and innovative work. Because the wealthy spend less of their income than others do, businesses will face worsening consumer demand, and less money will circulate in the economy. To tackle this new world of weak demand and deflationary pressures, Marsh proposes a new type of quantitative easing that would directly help Americans in times of recession. Better that, he posits, than to have cash chasing asset bubbles.

About the Author

Lawrence C. Marsh is a professor emeritus in economics at the University of Notre Dame.

 

Summary

An “optimal money flow” is a better economic metric than GDP.

The concept of GDP marking whether an economy is experiencing growth or recession is long established. But that tells only part of the story. In times of widening inequality and inflating asset bubbles, a growth headline might not be a good reflection of how ordinary Americans are faring. Gross domestic product represents the numerous exchanges of money and wages for goods and services in the marketplace, and it highlights the circular nature of an economy, in which one person’s spending provides another’s income.

Those economists who support an optimal-money-flow approach believe that the degree to which an economy is healthy and prosperous is seen in how well money is moving within it. This way of looking at economies emphasizes the reach and dispersal of dynamic flows of money, rather than aggregate GDP totals at any point in time. To understand this thinking, imagine the economy is a living body, with cash as the blood circulating within it. A healthy body needs blood to flow effectively to all areas; a body with massive ...


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