If the economy was fully employed–with every worker and every factory at full stretch–new credit creation might well lead to inflation. In that case it would indeed be true that additional government spending would be financed by ‘involuntary saving’. But if labour and machinery were lying idle, the game need not be zero-sum. After all, with millions of workers desperate for work and with factories starved of orders, there was little reason to expect prices to rise. Under conditions of mass unemployment, government spending financed by new credit would result in greater real demand, greater
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