I am very glad to see this story. It amplifies a point I made in a post not long ago where I said, If you want to understand economics, put money out of your mind. The real economy is the economy of goods, meaning their production and consumption.
This WSJ piece says essentially the same thing. Here is the money quote: “Pre-Reagan, orthodox economics—-monetarist and Keynesian alike—-assumed the answer to inflation was to control the money supply, which Keynesians called ‘aggregate demand.’ Mr. Rutledge saw that the real supply of money was beyond government’s control. People, especially investors, were in charge.”
Put another way, the quantity of money is not the key to economic health; instead how money is used is the key.
To see how this is true you must realize that an investor causes money to be created out of thin air, either by borrowing from a bank or by serving as a lending bank himself. That is, some part of the total quantity of money in circulation is created by private interests that do so because they hope the effort will prove worthwhile (meaning, goods will be produced that can be sold at prices higher than the cost of their production).
Let this insight sink in. You may begin to appreciate that it is almost impossible for government to control all the money creators; that in fact it is foolish for government to try.