June 4, 2015

Collateral damage

Comment on ‘What Is Helicopter Money, Anyway?’


The function that money, and helicopter money in particular, performs has to be clarified within a comprehensive framework. The concrete details of the central bank's technical operations are secondary and distracting surface phenomena.

The challenge for theoretical economics is, first of all, to explain how the (undifferentiated) product market, the labor market, the secondary market, and the financial market (including money) fits together.

No such framework exists. From their previous dismal analytical performance it can safely be extrapolated that neither Walrasians nor Keynesians can answer the question how helicopter money works.

The key point is that it does not matter much whether helicopter money is handed over to the household sector or to the public sector, it ends invariably up as profit of the business sector. By consequence, proponents of helicopter money produce massive distributional effects as collateral damage. This, not inflation, is the real crux.

The consistent and comprehensive theory of how the various financial markets emerge as integral parts of the monetary circuit which links all markets has been put forward by Constructive Heterodoxy (2015).

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Financial Markets. SSRN Working Paper Series, 2607032: 1–33. URL