It was John Maynard Keynes, the most important economist of the first half of the 20th century, who first showed the world that “wealth brings wealth and progress brings progress.” He did this with what is now known as the Keynesian multiplier.
In all economic literature, J. M. Keynes and Karl Marx were perhaps the only men to have a significant impact on the world economy. Keynesian theories had a huge influence on the renewal of classical economic theories and the reformulation of free market policy.
For the global optimum to be the sum of local optimums, we must earn (generate wealth) as capitalists and spend (make use of wealth) as socialists.
Keynesian Multiplier – Money Generates Money
The circulation of money from hand to hand produces its own multiplication. In previous articles, I illustrated this fact with a dynamic where I started with a one real bill and the willingness to buy something. And in the end, after several negotiations had taken place with that one real bill, I had the object initially purchased with it, and at the cost of a new transaction, it returned to my hands (if you haven’t read it, request a reissue of that article).
Let’s delve deeper into this subject with a more complex example. To make it easier, refer to the illustration:
Imagine that the Central Bank, to heat up the economy, decides to issue R$ 200 million and buy bonds from buyer 1.
Buyer 1, who is a bank, receives the R$ 200 million and deposits it. After deducting 10% for the compulsory deposit, which is part of banking rules, this buyer 1 now has R$ 180 million available to lend to its clients.
One of these clients, client 2, requests a loan of R$ 200 thousand from the bank, which is deposited in a bank account. The bank where this money was deposited, after deducting the compulsory deposit, has R$ 180 thousand available for lending.
A client of this bank requests a loan of R$ 20 thousand and deposits it in another bank which, after deducting the compulsory deposit, has R$ 18 thousand to lend. So far, R$ 380,198,000.00 has been moved from the initial R$ 200 million.
This movement makes the wheel of abundance turn faster.
DR. LAIR RIBEIRO
Cardiologist, speaker
www.lairribeiro.com.br
lrsintonia@terra.com.br