The Original Case for Helicopter Money

Johann Wolfgang von Goethe's Faust is an often cited parable about a man who trades his soul for power.  Faust also is the tale of a nation oppressed by debt, the creation of fiat currency, and all that follows.

2016

Seven years of extreme monetary policy have not reduced total indebtedness, but simply transferred debt from financial institutions to governments. Worse, these heroic policies have fueled severe asset inflation without real economic growth.

These policies have aggravated inequalities of wealth and income, thus viciously reinforcing their own inefficacy: whatever liquidity is generated ends up in the wallets of those with the lowest marginal propensity to consume.

With central banks now wandering into the Wonderland of negative interest rates, it seems fitting to revisit an early (literary) case of helicopter money: Johann Wolfgang von Goethe’s Faust.

Faust – Part I of the Tragedy

Early in Part I, the Emperor’s staff laments the nation’s debt burdens:
“I’m now supposed to pay the bills and wages, but can expect no mercy from the money lenders, who execute agreements that eat up what future years must yet produce. Our hogs are not allowed to fatten, the bolster on our bed’s hypothecated, the bread we’re served already’s been consumed.”

The devil, Mephistopheles, offers his analysis—and a solution:
“Where in the world is something not in short supply? Someone lacks this, another that, but here the lack is money. Of course you can’t just pick it off the floor, but Wisdom’s skill is getting what’s most deeply hidden.  In mountain veins and in foundation walls you’ll find both coined and uncoined gold, and if you ask who will extract it, I reply: a man that nature has endowed with mighty intellect.”

The Emperor is tricked into introducing fiat currency:
“You signed, and then before the night was over quick conjurors made copies by the thousands. To guarantee that all may share this blessing, at the same time we placed your name on a whole series; thus tens and thirties, fifties, hundreds too are ready. You can’t imagine how this pleased your subjects. See how the town, so long half-dead and mildewed, is full of life and teems with pleasure seekers! Although your name has long been much beloved, never before has it been viewed with such affection.”

The initial results are positive:
There is no way these bills can be recaptured; they fled with lightning speed and are dispersed. The money changers’ shops are all wide open; there every note is honored and exchanged – at discount, to be sure – for gold and silver coin which soon gets to the butcher’s, baker’s and the dramshop; half the world seems obsessed with eating well, the other half with showing off new clothes. The drapers cut their cloth, the tailors sew. Wine flows in taverns where your Majesty is toasted as food is boiled and fried, and dishes make a clatter.

Consumption surges, but is soon followed but inflation and devaluation.  In the end, only the Court Fool has the sense to use this inflated currency and invest in hard assets:

Court Fool. I don’t quite understand these printed charms.

Emperor. I don’t doubt that! You’ll never grasp their proper use.

Court Fool. Some dropped; should I do anything about them?

Emperor. They fell your way, so you may take them.

Court Fool. Five thousand crowns! Is that what I am holding?

Mephistopheles. Wineskin on legs, have you been resurrected?

Court Fool. Many a time, but never with such profit.

Mephistopheles. You’re sweating with excited happiness!

Court Fool. Is what I’m showing you the same as money?

Mephistopheles. It will supply your gut’s and gullet’s wants.

Court Fool. And can I buy some land, a house, and cattle?

Mephistopheles. Of course! Offer enough and they’ll be yours.

Court Fool. A castle, too, with woods, a chase, and fishing?

Mephistopheles. I’d give a lot to see you as a country squire!

Court Fool. Tonight I’ll dream of my estates.

Mephistopheles (solus). Who still can doubt our Fool has wit!

Germany printed trillions of marks in massive denominations. With a flash of literate humor, many of these (ultimately worthless) bills quoted from Faust.

Often cited a parable about a man who trades his soul for power, Faust also is the tale of a nation oppressed by debt, the creation of fiat currency, and all that follows.

To me, Faust (published in 1832) is the first post-industrial dystopian novel—and, as so, it is redolent of many of our current quandaries.

Peter Yu
New York, 2016

Germany printed trillions of marks in massive denominations. With a flash of literate humor, many of these (ultimately worthless) bills quoted from Faust.

Faust – Part I of the Tragedy

Early in Part I, the Emperor’s staff laments the nation’s debt burdens:
“I’m now supposed to pay the bills and wages, but can expect no mercy from the money lenders, who execute agreements that eat up what future years must yet produce. Our hogs are not allowed to fatten, the bolster on our bed’s hypothecated, the bread we’re served already’s been consumed.”

The devil, Mephistopheles, offers his analysis—and a solution:
“Where in the world is something not in short supply? Someone lacks this, another that, but here the lack is money. Of course you can’t just pick it off the floor, but Wisdom’s skill is getting what’s most deeply hidden.  In mountain veins and in foundation walls you’ll find both coined and uncoined gold, and if you ask who will extract it, I reply: a man that nature has endowed with mighty intellect.”

The Emperor is tricked into introducing fiat currency:
“You signed, and then before the night was over quick conjurors made copies by the thousands. To guarantee that all may share this blessing, at the same time we placed your name on a whole series; thus tens and thirties, fifties, hundreds too are ready. You can’t imagine how this pleased your subjects. See how the town, so long half-dead and mildewed, is full of life and teems with pleasure seekers! Although your name has long been much beloved, never before has it been viewed with such affection.”

The initial results are positive:
There is no way these bills can be recaptured; they fled with lightning speed and are dispersed. The money changers’ shops are all wide open; there every note is honored and exchanged – at discount, to be sure – for gold and silver coin which soon gets to the butcher’s, baker’s and the dramshop; half the world seems obsessed with eating well, the other half with showing off new clothes. The drapers cut their cloth, the tailors sew. Wine flows in taverns where your Majesty is toasted as food is boiled and fried, and dishes make a clatter.

Consumption surges, but is soon followed but inflation and devaluation.  In the end, only the Court Fool has the sense to use this inflated currency and invest in hard assets:

Court Fool. I don’t quite understand these printed charms.

Emperor. I don’t doubt that! You’ll never grasp their proper use.

Court Fool. Some dropped; should I do anything about them?

Emperor. They fell your way, so you may take them.

Court Fool. Five thousand crowns! Is that what I am holding?

Mephistopheles. Wineskin on legs, have you been resurrected?

Court Fool. Many a time, but never with such profit.

Mephistopheles. You’re sweating with excited happiness!

Court Fool. Is what I’m showing you the same as money?

Mephistopheles. It will supply your gut’s and gullet’s wants.

Court Fool. And can I buy some land, a house, and cattle?

Mephistopheles. Of course! Offer enough and they’ll be yours.

Court Fool. A castle, too, with woods, a chase, and fishing?

Mephistopheles. I’d give a lot to see you as a country squire!

Court Fool. Tonight I’ll dream of my estates.

Mephistopheles (solus). Who still can doubt our Fool has wit!