The Paradox of Unthrift Waiting for another – doubtless very different – Keynes

The cornerstone of John Maynard Keynes’ General Theory of Employment, Interest and Money is the rejection of one of the pillars of classical economics, and indeed of virtue itself classically understood. That pillar is saving. In that classical world, saving is a fundamentally important action, crucial to economic survival and growth. From it flows the wherewithal to outlast economic downturns – “saving for a rainy day” – and from it flows capital which is then available for investment, either by the saver or by someone else, to whom the saver either lends or extends, in the form of venture capital. This was orthodoxy, not only for economists, but for everyone living during the age of scarcity, prior to the Industrial Revolution.

Keynes turned this economic orthodoxy on its head, when he popularized the notion of the paradox of thrift. In this understanding, saving actually is harmful to the economy because it withdraws money from circulation that otherwise would go toward consumption. In other words, saving breaks the link between production and consumption which is basic to the circular flow of the economy. Speaking of the individual saver, Keynes wrote, “For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself” (General Theory, p. 84).

Keynes wrote during the time of the Great Depression, when economists (and everyone else) were knocking their heads trying to explain the utter collapse of economies around the world. The conviction of many was that classical economics had not predicted the collapse and could not explain it. They came to these conclusions: At bottom, the problem was a collapse in demand; this was caused by, among other things, saving; demand needed to be restored in order for supply, and thus labor, to be restored. So everyone followed Keynes’ advice and turned to government to make up the shortfall through deficit spending.

What was missing in Keynes’ analysis and indeed in the solutions put forward to deal with the Great Depression was an understanding of the drastic change that had taken place in the economy as a whole which had been wrought by the Industrial Revolution. It was a change pointed out, on a different level, by José Ortega y Gasset in his book, The Revolt of the Masses, published in 1930.[1]

Hitherto the economy had run in terms of the circular flow of production and consumption at the level of the household. These two had to be in basic alignment, with the balance tipping in favor of production, or the household would not survive. Mr. Micawber put it succinctly in Charles Dickens’ novel David Copperfield: “Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

But the Industrial Revolution brought in its train the fabulous capacity to produce, far beyond anything previously imaginable. This production in turn generated wealth for the masses beyond anything that had gone before, which Mr. Ortega y Gasset brings into clear relief. But it also upset the balance of production and consumption, of the circular flow, by enabling the divorce of production from consumption: rather than being producers first, people became consumers first, and all generations since then have been characterized, not by what role they play in production, but by the fact that they are all consumers.

This consumption without regard to production has been advancing ever since the late 19th century, and it has done so through the political process and universal suffrage. Whatever else it did, the Great Depression, and indeed the Second World War, generated an exponential increase in the number and volume of programs and entitlements enabling precisely consumption without regard to production.

The Industrial Revolution did not create this divorce, but it did facilitate it, by virtue of the exponential increase in productivity it engendered.

Keynes took advantage of this possibility by 1) blaming saving, thus classical economics, for the divorce, 2) rather than restoring this balance, working on the basis of it, and 3) proposing an alternative: demand-side economics, which is deficit spending so as to facilitate consumption and in this manner generate production.

So the Keynesian Revolution hijacked the Industrial Revolution, in doing so solidifying the divorce. But the idea that demand can create supply is only an illusion made possible by the great productivity enabled by the Industrial Revolution. For that capacity to produce, seemingly as if by magic, does not nullify the fact that individual and household production still precedes consumption and enables it. All the factory systems and automation and whatever else is involved in the modern production process does not change a simple reality: it is still aggregates of networked households that do the production, and consume the results of the production. Supply still creates its own demand.[2]

Which is why we are waiting for a new – doubtless very different – Keynes. The divorce between production and consumption has to be resolved; the two need to be brought in balance again, because the alternative is nothing other than ever-increasing debt. For where does the vaunted Keynesian multiplier-inducing pump priming come from, other than deficit spending, i.e., government indebtedness? Mountains of it. And by the same token, the global-supply-chain-structured world economy[3] has broken the circular flow of national economies and turned the world into regions of production and consumption, whereby the link between the two is consciously severed, for the gain of those occupying the nexuses of the transnational framework, in the process generating massive trade deficits, all of which are “financed” by – that’s right – more indebtedness.

All Keynes did was acknowledge the reality of what was already transpiring but had yet to receive any theoretical justification from economists. Our – doubtless very different – St. Benedict will need to provide an economics that recognizes this reality and instead shows how to redress the imbalance wrought by politics and indeed by changed social mores. That will not be easy, for it will require the complete overhaul of our system of values. But who was St. Benedict, other than someone who enabled the conservation and transmission of civilization itself? Nothing less is needed.

(for more, see also The Problem of Saving)


[1] For this and the following, see the previous article.

[2] This will continue to hold true even in the new age of automation ahead of us, in which robotics will play the leading role – Blade Runner notwithstanding.

[3] Paraphrasing Rousseau, I would say that “Man was born free but everywhere is in global supply chains.”

The Problem of Saving

When Schumpeter writes, “Now to the question: what is a savings account?”,[1] he is not being facetious. There is more to savings than meets the eye. Of course, the bare fact of saving is simple enough to understand. Rather than spend all of our earnings, we take some and put it to one side. What could be more straightforward?

Actually, the problem is not so much understanding what savings, or a savings account, is, but what kind of effect it has. And that is anything but straightforward.

Essentially, what is accomplished with the act of saving is the removal of circulating medium from the cycle which is what an economy is.

An economy is a cycle or a circular flow: this is one of the first lessons of basic economics, encapsulated in the principle originally put forward by Jean-Baptiste Say, “supply creates its own demand.” All this means is that, at the end of the day, the producers are the consumer and the consumers, the producers. It is the same people producing who do the consuming, and vice versa.

At least, this is the basic picture, before things get complicated with things like foreign trade and fiscal policy. And things like savings. For what savings does is remove some of the circulating medium by which this economic cycle does its cycling. There are two aspects to the cycle: the circulation of goods and service, and the accompanying circulating medium by which the goods and services are accounted. When a shortfall of the circulating medium crops up, the result is deflation. And so, saving on the face of it has a deflating effect on wages and prices. And a deflationary environment is noxious to economic growth.

As a result, we have what economists have dubbed the “paradox of thrift” whereby saving, normally thought of as an act of economic virtue, or at least efficiency, actually depresses economic activity. The details as to how this occurs differ depending on the analyst, but the upshot is that saving, far from being the benign, even constructive act that it may well be on the personal level, actually has, or can have, a negative effect on the economy at large.

So which is it? Do we really have a paradox here along the lines of moral man, immoral society? Is personal saving something good for the individual or the household or other economic entity, but bad for the economy at large?

To figure this out, we have to take a look at what actually happens in the act of saving. First, of course, there is the proverbial mattress, or, especially in the days of coinage, the chest. In such a case, we have the circulating medium definitively removed from the economy for however much time the saver desires. (Or for much longer than that, as witness contemporary discoveries of hoards of coins from e.g. Roman times.) We can call this form of saving “hoarding.” It is peripheral to the main discussion.

What happens in the modern world is something different. When we save, our first resort is not the mattress but the bank. And when we do this, our money earns interest. What is interest? Let’s just say that is another of those phenomena that economists have a hard time figuring out. Perhaps we can address that subject in a future article. For now, we mention it in passing with the caveat that in the contemporary zero-interest-rate environment, it is not the incentive for saving that it normally might be.

So we put our money in banks. What happens then? Does it just sit there, like in the mattress? Not in the modern system. Instead, it enters into a second market, which runs independently of the market for goods and services with which we are already acquainted. We speak of the financial market. Banks (and non-bank financial institutions) are the gatekeepers of this market. We include a graphic taken from the accompanying course to indicate the structure of this second market.

Figure 3:  Two Markets, Two Monetary Circulations
Figure 1:  Two Markets, Two Monetary Circulations

Savings, then, go into this market, where they are “put to use” to earn income for the bank or other financial entity. The differential between what these latter entities earn and the interest they pay out is their profit.

What happens on this market? There are several submarkets which determine this. The bond market is where corporate and government borrowers go to get ahold of some of these savings. The stock market is where corporate interests go to sell stock in their companies – the money that goes here is not savings in the strict sense, as is money lodged with banks, but it does fall under the same category of earnings set aside to earn a separate income and to be available for future use, so we include it in our discussion.

“For future use” – this already indicates that the so-called paradox of thrift need not be so paradoxical. The writers on the problem of saving often seem to talk as if the money put into saving will never come back. In fact, the whole point of saving is to put earnings aside for “a rainy day,” or for the later purchase of big-ticket items, or for retirement – at any rate, not to eliminate it but to return it to circulation at some future time. And in a developed economy, over time the money put aside as savings will be counterbalanced by money previously set aside as savings and now returning to circulation. In addition, this money may have been supplemented by earnings on the financial market, which means that more money will be returning to circulation than left it. So on the face of it, this shouldn’t be a problem.

But there is a problem, and it is this. In normal situations this flow of funds back and forth between the ordinary and the financial markets is not problematic. But in the contemporary situation, it is.

One reason is because the ordinary market is being hit from various directions, making it unproductive and therefore unattractive. Firstly there are what Jane Jacobs (see this post for more on her) called “transactions of decline,” in which government removes money from productive activities, precisely because they are productive, and redistributes it to non-productive activities, precisely because they are unproductive. This can have a Keynesian motivation, whereby Say’s Law is turned on its head: demand then creates its own supply, and all government has to do is distribute money around to consumers (breaking the link between production and consumption) to generate productivity. According to Keynesians, this should in and of itself bring about prosperity, but as Jacobs points out, it only undermines productive activity and the human capital that underlies that productive activity, and so becomes a self-generating downward spiral.

Other things government engages in that undermine productivity are excessive taxation and regulation. All of this makes the ordinary market an unproductive affair, in which risks exceed rewards. The upshot is that savers put their money, not in ordinary investment, but in the financial market, which essentially is a zero-sum game, but in which at least the prospect of a decent return beckons.

And so more funds flow into the financial market than flow out, creating a dearth of liquidity in the ordinary market, which manifests itself in low interest rates combined with difficulty in borrowing (despite those low interest rates).

The flip side of the dearth of liquidity in the ordinary market is a glut of liquidity in the financial market. As funds pile into the market, returns there diminish and the quest for “alpha” (market-beating returns) becomes a frenzy. This is what happened during the 2000s in the run-up to the credit crisis. With the excess liquidity in the financial market, funds were available for lending that never would have been lent in a normal risk/reward analysis, often under political duress. An example is the subprime lending that took place. Michael Lewis (see this post for more on him) wrote about this in two of his most important books, The Big Short and Boomerang (the latter in particular gives a dramatic picture of the workings of the liquidity glut).

This was exacerbated by the trillions of dollars kept in the financial market by exporting countries like Japan and China (see this post this post for more on this), in their attempts to hold down the values of their domestic currencies. That in itself added substantially to the glut. But the very fact that what these countries were doing– looked at globally – was further undermining productivity by destroying productive capacity in rich countries while misdirecting investment in their own countries, only meant that another nail was being driven in the coffin of the ordinary market. Such “global value chains,” when established and maintained through currency manipulation and other fiscal and monetary policies designed to create unfair advantage for exporters at everyone else’s expense, only make the ordinary market even less attractive, which is another reason for the flight to financial markets, and even to inert investments like gold and other luxury items such as works of art.

A lot of work has to be done to restore ordinary markets to decent functionality. One of these is a return to an emphasis on the national economy as opposed to the lopsided emphasis on global-value-chain globalism such as obtains today. And within the national economy, a return to emphasizing the production side of the economy. Consumption does not magically engender productive activity; in particular, deficit spending to fund consumption is as pernicious a fiscal policy as can be devised. Various forms of capital are needed for that, various forms of infrastructure, from legal to educational (virtue versus entitlement) to religious. All of this is fodder for new discussions, so we’ll leave it at that for now.

This topic and more are dealt with more fully in the accompanying course.


[1] Treatise on Money, p. 147.

Another Look at Quantitative Easing

In a previous post (“Quantitative Easing and Substitutionary Atonement”), I discussed some of the underlying philosophy of quantitative easing, the latest of the Fed’s attempts to “stimulate” the economy.

Quantitative easing, to recap, is the term for central bank purchases of assets on the open market.

The difference with traditional “open-market operations” is twofold.

Firstly, the purpose: open-market operations normally have interest-rate manipulation as their goal. The Fed maintains what is called the federal funds rate, which is the interest rate (yield) the Fed targets in buying and selling short-term treasury paper, the most liquid asset on the money market. This sets a floor for interest rates generally. Quantitative easing, on the other hand, is not conducted to manipulate interest rates. Rather, it is conducted to amplify the money supply in the financial market, and in this manner to affect asset prices.

Quantitative easing comes into play when interest-rate manipulation has run its course — such as when interest rates have already been lowered to zero or near-zero, in which case those efforts come to resemble pushing on a string.

Secondly, and in line with the purpose, the quantity involved: as can be seen on the accompanying graph, quantitative easing involves a massive increase in asset purchases as compared with standard open-market operations. The latter were in operation prior to the credit crisis of 2008, and the asset level was stable at around $900 billion, reflecting the fact that buying and selling were conducted interchangeably. The former was initiated soon thereafter, as can be seen from the explosion in asset holdings. In the meantime, it has stabilized at $4.5 trillion (!).

fed balance sheet 2007-2016
Fed balance sheet, 2007-2016. Data obtained from the Federal Reserve Board.

What has been the effect of this? Well, as my previous post explained, it has simply increased the money circulating within the financial market. By contrast, it has done nothing to stimulate the ordinary market. This disconnect between the two markets is explained further in our course in economics, which outlines the relationship between these markets.

Now let’s juxtapose the Fed’s balance sheet with the Dow Jones Industrial Average, this time updated to March 2016:

Correlation of the Fed's balance sheet with the Dow Jones Industrial Average, 2007-2016
Correlation of the Fed’s balance sheet with the Dow Jones Industrial Average, 2007-2016. Data obtained from the Federal Reserve Board and S&P Dow Jones Indices LLC.

The correlation still seems to hold true. The Fed has not added to its holdings since late 2014, and the DJIA has been unable to break through the ceiling that inaction has formed. Whether or not the correlation is a direct one, or whether there is any real relationship between the two, is more a matter of theoretical plausibility than practical proof, but it would certainly seem that there is some causal relationship.

Assuming that there is such a relation, this would also indicate where the stock market is headed once the assets start being reduced, either by being sold or by being retired. This will take money out of the financial market, causing prices to drop. This in turn might lead investors to take out their own money, precipitating what could become a rout.

Thoughts on the Piketty Thesis

As is the case with the vast majority of commentators on this topic, I have not read Thomas Piketty’s book (Capital in the Twenty-First Century). The following is therefore gleaned from other sources, mainly this interview, from which, unless otherwise indicated, the following quotations are taken.

The first thing to say is that, on the face of it, Piketty’s exposition is capitalism-friendly. In fact, his approach would seem to be a capitalist prerequisite, for it requires wealth to be put to work, which is a capitalist imperative. In his own words “my point is not at all to destroy wealth. My point is to increase wealth mobility and to increase access to wealth.” Which sounds like a good thing.

But, for one thing, it would entail the capitalization of resources that otherwise would be kept out of the sphere of what is unkindly referred to as capitalist exploitation. For instance, forestry. Having been an undergraduate forestry student, I recall the discussion in forest economics class with regard to the exigency placed on forests by a property tax. All of a sudden, a landowner must generate a revenue from that forest simply in order to pay the tax, on a piece of land that otherwise might be left undeveloped, hence ecologically undisturbed. This could lead to the application of sustainable multi-use forestry practices, or it could lead to elimination of the forest, depending upon the ecosystem involved. The same thing applies to traditional, less-than-profitable land uses. Followers of the television series Downton Abbey will recall the difficulties put upon the estate by the imposition of a wealth tax, causing Lord Grantham to anguish over having to remove inefficient tenants in order to turn the land to more productive uses.

Furthermore, a wealth tax would penalize saving in favor of consumption. Piketty can argue that consumption is difficult to distinguish from investment: “What’s the consumption or income of Warren Buffett or Bill Gates when they are using their corporate jet? Are they consuming? Are they investing? Nobody knows.” But the fact of the matter is, the imposition of a wealth tax would establish a prima facie incentive to spend income rather than save it, especially given the bias against inheritance Piketty displays (“In order to get a zero capital tax result, you need basically two very strong assumptions. One is that wealth is entirely a life-cycle wealth; you have no inheritance at all. Once you have inheritance, you want to tax it”). The moral will be, “eat, drink, and be merry, for what is not taxed today will be taxed tomorrow, if you try to hold onto it.” In Holland, there already is a wealth tax, on top of the 52% income tax (highest bracket, which begins rather early), the 21% VAT, the gasoline tax that jacks the price of a gallon up over $10, etc. So the money that escapes the fevered clutches of the Belastingdienst the first time around gets hit at the rate of 2.5% a year in perpetuum. The moral: spend it before it gets eaten away. Or at least, invest it for a return in excess of 2.5%, which in this day and age is no mean feat.

Another point is that Piketty’s wealth tax would be tax on “net” wealth, in other words, assets minus liabilities, property owned net of debt. It thus incentivizes indebtedness. “If you own a house worth $500,000, but you have a mortgage of $490,000, then your net wealth is $10,000 so in my system you would owe no tax. Under the current system, you pay as much property tax as someone who inherited his $500,000 home or who paid off his debt a long time ago.” The anti-saving bias is evident here. What is also evident is the built-in incentive to take on debt so as to offset taxable property holdings.

Regarding Piketty’s discussion of inequality: the message is that inequality has been increasing over the past 20-plus years, precisely the period of time in which globalization and international trade have surged forward. While Piketty himself does not argue this point, his findings do prompt the conclusion that globalization and free markets lead to inequality, while protectionism and government intervention are needed to foster income equality. And Piketty’s wealth tax is precisely one form of government intervention.

Piketty argues that income and wealth inequality have been increasing (although his findings are disputed), and blames it on the “huge cut in marginal tax rates.” From the interview: “Matthew Yglesias: How do we know that high executive compensation comes out of the pockets of other wage earners? Thomas Piketty: Well, because the labor share including CEO compensation did not increase. It actually declined. Maybe it would have declined even more without the rise in CEO compensation, but that’s hard to believe. I think the rise of very large CEO compensation came at the expense of the workers.”

This does seem to be the case, but as a matter of fact, I would have been shocked if the effect of the globalization of the post-Bretton Woods period had not led to greater inequality. But that doesn’t entail a critique of globalization per se, nor excessively low marginal tax rates, but the way in which the international trading system has been manipulated. Let me explain.

Ever since Bretton Woods, we have had a system of ostensibly floating exchange rates. Ostensibly — because exporting countries have been resorting to various hooks and crooks to maintain their exchange rates at artificially low levels, thus to manipulate and subvert that float. The dollar being the reserve currency of choice, and the US being the export market of choice (referred to tongue-in-cheek as “the consumer of last resort”), the manipulation is conducted against the dollar, keeping the exporting country’s exchange rate low vis-à-vis the dollar, allowing the exporting country to sell its production to America at ongoing low-wage-maintaining levels. The result is that production capacity shifts towards the low-wage countries, because the exchange rate is not allowed to adjust upward like it should. So the low-wage countries remain low-wage. Meanwhile, production capacity shifts away from the US, leaving only service-economy jobs there, which likewise generally command lower wages than manufacturing jobs. So in both the exporting countries and the consuming countries, the tendency is to depress working-class wages. On the other hand, the profits from the exchange continue to flow, into the hands of exporting country elites and multinational corporation managements, along with (of course) investors in those enterprises. This works to expand the income gap and thus income inequality. No surprise, really.

So the solution to this problem is not to abolish globalization per se, nor to increase marginal tax rates. Rather, it is to get the countries involved to stop manipulating the global system in favor of various special interests and elites, be they domestic or foreign. After all, the working class in the exporting countries suffers just as much from this situation as does the working class in the importing countries. Both are having their wages depressed.

Again, from the interview: “Matthew Yglesias: I thought one of the most interesting graphics in the book is the one where you show the price-to-book ratio in Germany is quite a bit lower than in the other countries. Is there an important lesson the rest of the world can learn there? Thomas Piketty: Yeah. Actually, to me this was quite striking. Previously I didn’t take seriously this idea that there were different ways of organizing capitalism and the property of capitalistic firms. I think the lesson from this graph is that the market value of a corporation and its social value can be two different things. Of course you don’t want the market value to be zero, but the example of the German corporation shows that even though their market value is not huge, in the end they produce some of the best cars in the world. They export a lot, and they are very successful. I think getting workers involved on the board of German corporations maybe reduces the market value for shareholders, but in the end, it forces workers and unions to be a lot more responsible for the future of the company.” I don’t want to speculate as to the reasons why German companies have relatively low valuations, but I will point out that Germany is at the exporters’ end of the export-import imbalance, only this time the import partners are southern Europe. How did the southern European countries run up so much debt? Mainly by paying for imports from, in the main, Germany. Germany’s model parallels Japan’s and China’s, only it functions mainly within the European sphere, with the help of the euro. In essence, Germany’s currency is structurally undervalued, while Spain’s, Italy’s, Greece’s, is overvalued. That’s how Germany can display such favorable economic data. But as Michael Pettis has shown, Germany’s workers are structurally underpaid because of it. The surplus goes to Euro elites.

There is much more to this story than merely the level of marginal tax rates. As long as the causes of inequality are misconstrued, the solutions on offer will always have be more akin to political footballs than actual fixes. Piketty claims that his “point is not to increase taxation of wealth. It’s actually to reduce taxation of wealth for most people, but to increase it for those who already have a lot of wealth.” Which of course appeals to most of us, because most of us don’t have “a lot of wealth.” But this “fix,” like many others past, present, and future, will get nowhere unless based upon a proper evaluation of the causes of the problem it purports to address.

Quantitative Easing and Substitutionary Atonement

In attempting to explain to my wife why investing in the stock market right now is not such a good idea, I came up with a little graph, which at one glance reveals the matter succinctly. Here it is:

 

Fed and Dow Jones 2007-2013

It shows that the stock market growth of recent years has less to do with fundamental economic growth, which has been anemic, than with the action of the Federal Reserve. The Dow Jones Industrial Average has been rising in close correlation with the growth of the Fed’s balance sheet. The Fed’s program of “quantitative easing” has been nothing less than a boon for the stock market.

What we have here is the Fed’s version of “blessing.” It is blessing the stock market by assuming the “curse” – debts – of big banks, and exchanging them for deposits, which those banks can then turn around and lend. That money appears to be going into speculation, not productive activity. And voila! We have a stock market boom. Such a blessing cannot endure, despite what prognosticators may say.

The fresh funds provided by the Fed in exchange for this debt are no “godsend.” They only add to already existing funds on the money market seeking for returns in a return-starved economy. And so they only serve to feed asset bubbles. Which is why they are being funneled into speculation on the stock market, yielding the direct correlation to be seen in the graph between the Dow on the one hand and the Fed’s balance sheet on the other. This gives an appearance of prosperity, but in fact is only turning the stock market into a casino.

That’s not all. This “blessing” of stock market growth is balanced by the Fed’s assuming the curse of debt burden. Hence the Fed is functioning as mediator, the absolver of debt. But this Christ-like function is only an appearance. For the Fed cannot wipe the slate clean, cannot atone for these debts, cannot defray them. It can only assume them. They continue their existence, and will eventually have to be sold back onto the market, draining it of liquidity and precipitating a downturn (or even a crash), or be held until maturity or default.

In the end, the bonds, consisting mainly of treasury paper and mortgage-backed securities, will have to be either repaid or defaulted on. For the time being at least, treasury paper can be counted on, but the mortgage-backed securities are another story. If they are defaulted on, they blow a hole in the holder’s balance sheet: all of a sudden, liabilities are left without corresponding assets.

If this were to happen to the Fed, the shortfall would still have to be made up, for contrary to popular opinion, the Fed cannot “print” money directly, but only issue it against market-valued assets. There are always assets on its balance sheet to offset the liability of note issue. And so, a reduction on the asset side of its balance sheet would have to be compensated by a reduction on the liability side, either by reducing member bank deposits or eliminating notes issued. How that exactly would work, I have no idea, but the effect would be highly deflationary, as it would collapse the money supply to the money market.

Quite obviously, the Fed’s program of quantitative easing cannot go on forever. Adding $1 trillion-plus a year to its balance sheet will eventually lead to its collapse. So it is trying to backtrack. But every hint of “tapering” leads to market disruption — which is not the desired outcome.

Summing up, we can conclude that the Fed’s little adventure in substitutionary atonement only points up the artificiality of man’s efforts to bequeath himself blessings. In the economy, as in life, atonement is not attained by shifting debts and passing on burdens. It is attained by paying up. For redemption to function, one needs someone with the requisite amount of legal tender ready and willing to make a final settlement of “all debts public and private.” In the temporal as in the spiritual economy, there are no free lunches.