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Cash Isn’t Output

Here’s a letter to The Atlantic:


Derek Thompson, describing how the Danish economy will allegedly be saved from the coronavirus, writes that the government there will “throw the whole economy into a deep freezer, and when the virus winds down [it] can thaw it out and almost everybody will still be with the company they worked for in January” (“Denmark’s Idea Could Help the World Avoid a Great Depression,” March 21). The specific means of foisting the Danish economy into the freezer is for government to pay 75 percent of the salaries of most private-sector workers who remain formally employed but who miss work because of COVID-19.

Nothing is easier for governments than to dispense cash. But cash is inedible. Cash doesn’t cook, clean, cut hair, catch fish, can vegetables, or care for crops. Cash doesn’t refine fuels or drive delivery vehicles. Cash has neither the muscle power to stock store shelves nor the brain power to repair automobile engines, household appliances, leaky roofs, or downed electrical wires. As factory labor, cash is hopelessly inept. Cash cannot distinguish who among those persons who wish to borrow it are worthy risks and who are not. Cash doesn’t treat illnesses or wounds. Cash cannot teach children.

Cash, in short, is useless except insofar as it enables those who possess it to entice fellow human beings to perform services for them. But to the extent that the economy is ‘frozen,’ individuals perform services for no one but themselves and their families. And so people who receive, as cash handouts, 75 percent of their regular pay will have nothing remotely close to 75 percent of the spending power that they have when all are working.

‘Freezing’ the economy severs individuals from the complex process of networked specialized labor and exchange that is the market. Restoring these connections is not easy, and the mere possession of amounts of cash that are useful during normal times does very little to ensure adequate access to real goods and services during distressed times.

By creating the illusion that its massive cash handouts keep ordinary Danes prosperous as it ‘freezes’ the economy, the Danish government risks further magnifying the consequences of the COVID-19 outbreak into an unprecedented calamity.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030


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