Explaining the Fundamental Monetary Constraint for an Economy

An important concept missing from Macroeconomics

last edited Sept 12, 2021

This essay has six parts:

(Part 1) Why it’s important to know how the “Fundamental Monetary Constraint” explains economic weakness caused when individuals in the economy save money.

(Part 2) Precise description: of the “Fundamental Monetary Constraint.”

(Part 3) A simple mathematical analysis to explain how recessions/depressions so easily develop.

(Part 4) Other economic institutions that have historically developed to counter the economic problem caused by the Fundamental Monetary Constraint.

(Part 5)The “Fundamental monetary constraint” explains where “credit” comes from in our economy, and how easily an oversupply of credit can be created which becomes a problem when there are too few credit worthy borrowers to accept such credit, resulting in increasing amount of bad loans in an economy.

(Part 6) The Final Question. The Walmart/Amazon challenge.

Part 1: The Fundamental Monetary Constraint for an Economy has oddly slipped by, unnoticed by most economists. Its revelation may come as surprising news to those who are fluent only in the standard Samuelson Macroeconomics. I want to explain why and how this almost never mentioned constraint can explain some puzzling aspects of macroeconomics that present macro does not even try to explain; some of these are listed after this paragraph.  It’s also an important basis for the main economic essay on this website: A new macroeconomics to explain wealth inequality.

This monetary constraint applies to any economy such as in the US that uses money as the means of exchange of goods/services when (1) the total amount of money in an economy is reasonably fixed or changes only slowly, and where simultaneously (2) it is desirable to allow economic participants to save a portion of that money for their future.  If both of these are present without other historically developed countervailing economic institutions,  economies are likely to be periodically forced into poor performance—more specifically, easily susceptible to what have been historically described as “recessions” or “depressions.”  I’ve also described some other economic institutions that have historically developed to counter the development of such recessions—but these institutions do not always counteract them with enough necessary corrective force to overcome the economic harm to GDP and employment. Parts 2 and 3 will describe exactly how the monetary constraint operates to have this negative economic effect. Part 4 will describe the countervailing institutions that oppose this tendency.

I believe this explanation will make it clear how these following economic events occur, not easily explained by the usual macroeconomics.  Any criticism or comments  will be very welcome.

  1. MOST IMPORTANT: The monetary constraint explains the common occurrence of recessions or even depressions that reduce GDP and employment accompanied by a “general glut” of unsold goods. Such events have been one of the biggest puzzles to economists for centuries, who wrongly assumed traditional economic forces would always automatically sustain a favorable economic equilibrium.
  2. Total public and private nominal constantly expanding debt is now often assumed to be a harmful practice driven only by irresponsible excess spending.  I explain why such constant debt expansion is necessary to allow saving of money in such an economy over time and why it is rare that nominal debt goes down, and when it does it results in a policy of “austerity” that virtually always reduces GDP.
  3. EXPLAINS WHY other institutions of our economy and government have been developed to push back on this tendency to reduce GDP. Such actions tend to push this process in reverse: income or wealth taxes, monetary and fiscal policy, bank saving and lending, bonds that allow lending money, gradual inflation, constantly increasing nominal private and public debt.
  4. EXPLAINS HOW CREDIT is often over produced for the economy which helps to provide economic demand–but often produces too much credit that can be prudently loaned. Such loans often ultimately default resulting in economic turmoil.  
  5. EXPLAINS WHY Capitalistic economies are so highly productive. Though “capitalism” is often cited as cause, the monetary constraint is the cause that pushes a bias to overproduction rather than underproduction. That “overproduction” can have a negative sense because there is often a simultaneous lack of money demand, so the extra goods/services don’t get consumed.
  6. Related to 5, why capitalistic economies so easily develop high wealth inequality.

Definitions in Economics are often not always super precise. That’s why I will attempt to describe two important terms for this essay—including different ways they are used.

Saving: Usually means holding some kind of financial wealth in some form with intention of spending it at some later time after earning. There can be a long or short delay between earning it, and wanting to spend it; the length of that time is critical for an economy.  Savings occur in different forms, such as cash, stocks, bonds, bank saving or physical assets like a home. As explained on this site using our new macroeconomic analysis, these different forms all have different macroeconomic effects.  When a lot of monetary cash is held for saving wealth, it is sometimes called “hoarding.”

Hoarding means holding spendable monetary cash that one does not immediately spend.  The ambiguity here is  the word “immediately.”  People usually hold some cash for daily expenses—which could, but is usually not called “hoarding.” Hoarding is usually a pejorative term that means holding cash money for an unusually long time, or unusually high quantity, which makes it sound like a bad thing to do.  But there is ambiguity about how long—or how much cash must be held to be called “hoarding” rather than just “holding a prudent amount.” It must be balanced between too little and too much.

Part 2: Description of Fundamental Monetary Constraint. The monetary constraint applies to an economy with a simple money system that has  a fixed amount of total money, or at least where that total amount changes only very slowly with time. This is approximately true for money in our US economy, especially before 2009.  In 2009 M1 money in the US was about $1.4 Trillion.  From 1976 to 2009 M1 money increased by only 0.5% per year in real terms. (From 1976 and 2009 M1 money increased in nominal terms by 4.6%/year but inflation averaged 4.1% per year.) 

There are serious limitations to an economy which has only a money system having a definite fixed amount that is used to trade goods/services in an economy.  This was apparently similar to Europe in the 15th century, and could be one possible reason for the lack of economic growth before that time.  Specifically: the monetary constraint makes it difficult for people to save money if there are no other institutions that enhance the ability to save.  To begin I will discuss what would happen if we had none of the following institutions, many of which came to mature development after the 15th century: bank saving and lending, taxes on income or wealth, monetary and fiscal policy, bonds that allow lending money, gradual inflation, constantly increasing nominal private and public debt. I then discuss how these institutions worked to correct the economic defects of the very simple monetary system.

Limitation 1: With a simple monetary system saving cash is a zero sum game. The total amount of $5 trillion cash money in the US economy is distributed in different portions to everyone in the economy. The cash balance for each individual bounces up and down somewhat depending on how much goods/services they are buying or selling. If someone “saves money” that means that person has after a year (or some other time) raised the amount of cash he/she holds.  If that amount has increased by $D dollars, the same person in that year has produced $D more value in goods/services than he/she consumed in the economy.  Since the total amount cash in the economy is fixed, that means that some others must have been forced to dissave by the same amount.  So the dissavers produced $D less value in goods/services than they consumed.  For an economy with fixed amount of cash, it is just not possible for everyone to save, because if some save an amount $D that requires dissaving $D by others.

Limitation 2: If some do save in such an economy, that takes money out of circulation for others, thus hindering exchange of goods, and thus forcing down GDP:  Since the “saver” is holding saved money, and not intending to spend it, that money is unavailable for trading goods/services until the saver finally spends it. Saved money gets transformed to “non transactional” cash because it is for a time not available for anyone to trade goods and services.  This has the effect of reducing the money supply during the period it was saved, which is virtually the same as what the Fed does when it wishes to slow an economy by removing money.  So not only does saving force others to dissave as explained as constraint 1, it also tends to reduce rate of spending, and thus GDP, for the same reason, and having the same effect as Fed monetary contraction.  An equivalent way to describe this is to say that saving cash reduces monetary velocity, which is how it is described in the in the main macroeconomic essay on this site: “A new macroeconomics to explain wealth inequality.

Is that conclusion difficult to believe? Since saving is so commonly already practiced and also regarded as an obvious personal virtue, some readers may find it surprising that saving by some requires dissaving by others. Although it’s also the case that explanations similar to what I have offered here have  been understood and clearly expounded by a minority of economists in the past three centuries, the dominant economist establishment has steadfastly refused to admit that there could be any possible–even temporary negative economic consequence that “saving” could cause. However it must be said that the term “hoarding” has long had a negative connotation, which was likely given because of the two described negative economic attributes of “saving cash” that (1) it removes money from circulation, and (2) requires that an equal amount must be dissaved by others. The negative connotation of the word “hoarding” suggests that there must be something unspecified that was bad about saving too much cash rather than other forms of wealth. The mathematical description to follow clearly explains why.  But not to worry too much, because after that  I will soon describe additional economic institutions that developed historically which were in large part intended to avoid “hoarding” and allow individuals to successfully save wealth without saving cash which would tank an economy. Some of these were “credit reforms” that were instituted in the 16th century Europe that perhaps gave the initial shove that could be credited to boosting the European economy by making saving easier to “save” and “loan” and encouraged wealth growth and development of capitalism around the fifteenth century.  But some of these innovations didn’t completely fix the problem, and caused other problems for which this website was established to explore.

Part 3: A simple mathematical analysis

As an aid to get a clearer understanding of this process I will follow a very basic mathematical analysis that describes what happens in a simple economy of our example, which assumes a constant total quantity of money. The conclusion will also suggest why most economies now must at least slowly increase the money supply.

When some economic subgroup (called the R People) regularly saves, because of the monetary constraint, the existence of the R people requires another group, the P people, that are the dissavers.  Of course there is no requirement that both groups have the same number of people. But everyone will be in either one or the other.

The math:  Suppose both R and P people (“Rich and Poor”) all start out with enough cash to satisfy their economic needs the first year.  Suppose the R people over one year successfully save $D dollars in total.  The previously explained monetary constraint requires after one year:

  1. The R people produced $D dollars’ worth more of goods/services than they consumed.
  2. The P people lost $D dollars in savings after one year, which went to savings of the the R people, because $D of goods they purchased  from the R people.
  3. The P people produced $D dollars less value of goods/services than they consumed.
  4. If continued for additional years the P people would lose $D dollars per year, their wealth dropping every year while the R people gain an equivalent amount.  The R people will be doing fine but eventually after many years of declining savings the P people will have very little money left. They will be able to purchase goods in value for what they earned and produced, but because of lack of savings not the additional “extra” value the R people produced.

When the P people run low on savings money the economy will be headed for crisis, going into a classic recession, or depression having these properties:

  1. The R people, as they did in previous years, will have produced $D more in goods/services—but these goods now remain unsold. Although the P people would like to have those goods they do not have savings money left to purchase them. There will be a glut of unsold goods valued $D on the market.
  2. In the crisis year because of lost sales the R people’s income will drop to $D less than previous years but they will not be financially strapped because of their previous savings.
  3. Unemployment will rise, because the amount of goods/services produced went down by $D, so less labor will be required to produce goods/services and less money $D will be available to pay workers.

This matches well known properties of recession or depression:

  • GDP unexpectedly falls by $D because fewer goods/services are exchanged.
  • The economy developed a surplus of goods which remained unsold of value $D. This surplus has been historically referred to as a “general glut” of goods, which for this economy demonstrates a lack of demand, not of supply.
  • The economy has higher unemployment, because of reduced production of goods/services, and less money to pay workers.
  • Some P people who have low income are hurting with lower income and greater unemployment. Some R people with higher income and savings have somewhat reduced income, but are not in difficult financial circumstances. We just described the classical recession/depression.
  • Lots of mystified economists, who were trained with classical Samuelson macroeconomics, wondering how it could possibly happen in capitalism that goods are so plentiful, but buyers are so scarce. Where did the money go? Some will find external “shocks” or “frictions” to explain. Others may prescribe “more investment” requiring more saving and austerity with tax cuts to the rich to increase investment, and which would “trickle down” to make jobs for the unemployed—despite obvious evidence of more than adequate goods/services available to sell, so questionable need for investment that would produce even more goods. Only cranks and incompetents such as writers on this website would dare suggest that it could have anything do with saving imbalance.  Anyone with a proper grasp of economics knows that “Saving more will always make an economy better.”

An unlikely and unattractive way to fix the problem:

Institute a 100% tax on cash savings:   Tax the increase actual cash over each year being held by an individual.  Those that held more cash than they spent, and therefore produced more than they consumed would have the extra money taxed away.  However the tax could be avoided if the taxpayer loaned the cash increase to someone else as an investment to spend to maintain their former cash balance. The government would pay welfare payments money obtained by the tax to the others that produced less than they spent, and also pay public expenses.  That would allow them to purchase all of the extra goods/services produced by the overproducers who were taxed.

This is not a serious practical proposal.  However it is illustrative of what could fix the problem.

Part 4a: Some historically evolved methods to allow “saving” wealth without the above problem.

(1) Bonds and bank saving accounts became important methods to recycle money back to transactional form: Instead of saving and holding cash as described above—other ways have fortunately been developed to hold wealth.  Instead of “hoarding,” cash is loaned to others who spend it immediately to maintain necessary spending in an economy.  “Saving” in this sense for the saver is holding forms of “promissory” wealth such as bonds and saving accounts.  People save a promise that the borrower in the future will return the cash upon some agreed upon time, also with additional periodic interest payments to the saver.

It might seem that a difficulty with these options is that eventually debts need to be paid back to the original loaners, together with additional interest payment, which would reverse the benefit they originally provided. Although that is true,  this difficulty is in practice avoided in the US because total public and private nominal debt (meaning not accounting for inflation) virtually always rises fairly rapidly, so such total public and private debt over time increases to accommodate the continual cash recycling over time. Here’s a graph of US total nominal debt (in billions of dollars) since 1950 Total US debt since 1950

(2 )One important example of (1):  From time to time an exciting new profit making technology comes along which is financed by persuasive salesmen selling bonds or stocks for the new investment thing that’s going to make savers rich.  Richard Vague in his book  “A Brief History of Doom” has many interesting historical examples. One example in the 19th century were railroad investments that were hot. These attracted much  “saved cash”  to invest in stocks or bonds that paid interest and stocks promising great cash rewards.  Such manias can provide a way to attract and absorb cash savings, which are used for employing many people and providing a possible strong, but temporary stimulus to an economy by converting non transactional money to transactional.   As such investments gain in value, more cash money is attracted.  As Richard Vague describes, eventually enthusiasm ends and many of these investments eventually fail, but not before providing a lot of temporary economic stimulus in jobs.  The virtue, for our purpose at least, is that since many such investments went bust they were unable to return the investment money, so there was no need to pay such money back which could have converted back to non transactional cash which would have reversed the benefit. Of course it left many wealthy people with regret that they lost their money.  But the process in this case also provided useful new transportation for economy while simultaneously providing the benefit of converting non transactional cash back to transactional. 

(3)Public debt as one important saving option:  Many public debt worriers find it disturbing that public debt always goes up.  For example, public debt in the US from 2008 to 2018 rose by nominal 10% per year, or a nominal (actual cash amount ) $11.6 Trillion over ten years. However the logic presented above should make it clear why public debt must go up in actual dollar terms to provide the possibility of converting non transactional cash to transactional.  Public debt between 2008-2018 allowed $11 trillion of “saving” of public bonds to be accommodated which caused $1.16 Trillion per year of extra goods and services that were purchased by government which helped to maintain demand and GDP. To enhance this process, mild inflation is often a part of official policy to aid this nominal debt to continually increase, which must rise to continue to allow saving to occur.  Total nominal US  public and private debt (not accounting for inflation)  rose from $32T to $48T between 2008 and 2018. US Federal debt in 1966 was about $0.31T dollars. 55 years later in 2021 it was at $27T. The ONLY time it went down during that period was a tiny drop of 1.7% over a couple of quarters in 2001 under President Bill Clinton, which likely cost the Democrats the next election. Very soon after  it continued its relentless rise measured in total dollars, aided by the Bush tax cuts. Many believe that public debt has dropped during some historical periods–but that is only because when Public debt is reported it is almost always compared to GDP. Using that measure it has dropped on some occasions–but that has only been possible because of inflation over that period. Here is nominal public debt data since 1965: fred.stlouisfed.ort/series/TCMDODNS

(4) Nominal private debt, another option for savers, also tends to go up—and also some portion regularly defaults, keeping some of it from returning as non transactional cash.  During the period 2008-2018 US private debt went up by $4.8 trillion.  A “feature” of public debt is that it cannot default because public debt is “backed” by the Fed’s printing press which never runs out of ink.  Private debt, however is susceptible to default, which prevents some having to be paid back.  So during ten years 2008 – 2018 private debt accommodated $4.8 Trillion of additional saving, plus an amount that defaulted during that time.  I don’t have a default figure for that time period, however here is default data, from 1971-2006 corporate default averaged 4.2% of total cash per year.

See Table 15.1 in the following reference for data on corporate defaults: http://people.stern.nyu.edu/ealtman/AboutCorporateDefaultRates.pdf

Part 4b: Methods that reduce the rate of cash saving so that the methods in Part 4a don’t have to work so hard to keep money transactional.

(1) Taxation of income or wealth which is soon spent for public purposes such as income tax, corporate tax and inheritance tax.  This keeps transactional cash transactional as it pays for governmental services. The effect is similar to purchasing government debt (4a.1 above),  however taxation does not have the disadvantage of requiring interest or principal to be paid back as would be if purchasing government debt.  Proposals for a universal basic income would also fit this category.

(2) Don’t allow interest rates that are too low: Low interest rates reduce the motivation for savers to use the methods of saving by loaning, because if interest is too low the motivation for using that method of saving will disappear.

(3) Discourage monopolies that make high profits: Maintain laws that prohibit monopolies that through unfair competition earn excessive profits.  This lessens the rate of conversion from transactional to non transactional profit cash.

(4) Social security: One very common universal need for saving is older age financial support after retirement.  To avoid the saving of cash, Social Security was developed in the 1930’s to avoid saving money.  Cash goes directly from the payroll tax to retirees who normally use it for immediate expenses. Many people have no idea that the payroll tax has never been held in a cash “lockbox.”  The payroll tax collected for Social Security is delivered directly to older recipients who likely spend it, and if more is collected in tax than needed the extra is used to purchase public debt. Then that money is immediately used pay for government expenses just like any purchased public debt.  Some believe that it is cheating to “borrow” this money to spend for governmental purposes. But it was deliberately set up this way to avoid the problem of slowing the economy by holding cash. When the payroll tax is insufficient to pay retirees all their money, cashing in the same public debt is used to make up the difference.  This extra money comes from current income taxes, not a dusty old lockbox.

(5) Increase more low paying jobs to reduce savings.  This is an inadvertent “solution” that has already been “discovered” in the US.  Economists have often noted with approval that as higher paying manufacturing operations have been moved to China and Mexico, there are many more service jobs that have taken their place in the US.  These service jobs are usually not as profitable or productive (according to the economic definition), therefore pay is lower, which leaves less left over for saving.  This supplies jobs for many, but with pay cuts that reduce saving opportunity.  Elementary math can show that If some workers managed to produce 25% more value of goods/services than they consume, they would make redundant 20% of workers no longer needed to produce 100% of the work required for everyone. That would be OK except that they would not have jobs or sufficient pay to purchase these extra goods if there were not the other institutions available such as we discussed to convert cash back to transactional cash.  High profit manufacturing companies like Apple Computer hold very high levels of non transactional cash which reduces  total GDP.

(6) Encourage the rich to buy more expensive stuff to reduce cash holding:  This just means equalizing their income with consumption. Even centuries ago this was recommended by some. Buying expensive luxury goods was advocated as a way the income of the rich could truly “trickle down” to less wealthy laborers who made such goods.

Part 4c: Increase the quantity of transactional monetary cash.

(1) Fed expansive monetary policy: The Fed can produce money allegedly from thin air and increase the money supply.  If interest rates are not very low, this can effectively encourage investment that could increase transactional cash.

I suggest visualizing an economic big view  rather than regarding it as mathematical abstraction.  Imagine a big cash money supply pile in the economy. It is divided up into little portions for everyone.  Depending on the preference of those holding money, some is held as transactional money for spending in the economy while the rest is held as “wealth” or non transactional cash. The transactional part is doing the GDP work that promotes the economy.  As people with money save cash they slowly convert some of this pile from transactional to non transactional cash, especially when those of high income save, who tend to save more.  At the same time other economic institutions as were mentioned above recycle cash back to transactional:  such as those who save in banks, purchase bonds and pay taxes that tend to convert cash back to transactional form which maintain or increase GDP.

These two forces need stay in balance. If too many people save and hold non transactional cash, that will gradually lower the rate of GDP, tending towards recession/depression. The opposing forces that maintain or increase transactional money such as higher taxation, more investment, more social security will increase transactional cash, and increase GDP.  Note that unlike what some economists claim, taxes, if spent usefully, do not lower GDP, they increase it because this money is spent in the economy immediately.  Tax cuts to high income people, especially when such saving reduces public spending that likely reduces GDP.  Such saved cash is likely to remain non transactional, especially during times of very low interest which discourages bank saving or bond purchases.

A contest between extremes: If cash goes too non transactional, recessions or depression can occur.  If it becomes too transactional, prices could rise which in extreme provokes even higher prices and inflation as people attempt to spend money quickly before prices rise even more.

If the saving of cash goes faster than the forces tending the other way, that will reduce transactional cash and thus reduce GDP and  produce a recession/depression. One policy option to improve the economy is  create new transactional cash such as with government fiscal policy, (4b.1, above) which means government spending using increased public debt, which can increase money velocity and GDP.  That will give a chance for underemployed “takers” to become employed and make the money they need to purchase goods from the former “makers” and maintain demand from them.

Part 5: The “monetary constraint” explains where “credit” comes from: I have shown that if total money stock remains the same, if one economic subgroup “saves cash,” the monetary constraint requires that the remaining subgroup must be “dissavers” in the same dollar amount.  That automatically creates one class with more money than they needed to spend, who may want to loan this money with benefit of interest to the other class of potential borrowers that was required to dissave. This is required to maintain demand for the extra goods produced by savers–who may otherwise not sell all their product/services.  Otherwise the economy will suffer a drop in GDP.  The rise of private and public debt aids this process.

Credit is created thanks to the “monetary constraint,” helped by people in the economy who choose to save.  Without the mitigating effects of the additional methods described in section 4, if the total amount of money saved is $D, the potential rate of credit creation will be proportional to $D/$M per unit time, where $M is the value of money supply. 

It shows the economic need for finding sufficient borrowers to loan the excess, or alternatively of reducing this value by the mitigating effects in section 4: such as taxation, fiscal expansion policy, rising money supply, other transfer payments such as unemployment insurance or Social Security.

Tax cuts for the rich who then save are likely to increase the accessible credit, and therefore need for more debt.  This also boosts wealth inequality as the saved money gets loaned by the rich to the dissavers.

The “monetary constraint”  is the basis for our main essay “A new macroeconomics to explain wealth inequality” which explains how rising debt leads to higher wealth differences, and when the process goes to excess serious financial crashes can eventually occur.  

The later, more serious economic event: In Part 3 I described the more common, and less serious, more frequent form of economic slowdown, often described as a “recession.” The more serious event, when great overextension of credit occurs is described in the previous paragraph.  Although creating debt is a way of reducing the less serious type of recession already described, a more serious economic difficulty which may be described as “secular stagnation” or “depression” can occur when that same debt cure begins to get so much larger that it begins to poison the economy, having values exceeding yearly GDP.   Bond and savings and stock values become much higher than GDP, mainly held by a small number of the rich, tending to drag an economy with a higher total interest cost burden on the economy paid to the wealthy,  while lowering aggregate demand by others of low wealth. Wealth does not “trickle down.” Total interest paid in the economy rises but interest rates drop to lure more borrowing, but the economy cannot afford more borrowing which keeps interest rates low.  Interest paid to the rich constitutes a “trickle up” of money which tends to be a place from which it is difficult for an economy to escape because high political pressure by the rich to lower their taxes and otherwise allow them to control the economy in their best interest.

Part 6: The final question: What happens when production efficiency improves so much that only a few need to produce enough for everyone? Where does the money come from that enables people to buy those goods?  The Amazon/Walmart challenge to our economy.

In the 1950’s I remember reading articles predicting the big problem for our economy that was going to develop by the 1980’s and  90’s.  It was popularly called “The problem of excessive leisure.”   Because production of goods and services was becoming so much more efficient than before, some observers predicted that it would take fewer workers to produce the same goods and services that everyone needed—so everyone was going to have so much extra time to not work that there would be a problem for people to figure out how to provide meaningful activity for all this leisure time.  A similar point was also made by J.M. Keynes two decades earlier.  Roman “Bread and circuses” were not specifically mentioned at the time as a desirable solution, but some commentators said that some similar substitute form of leisure entertainment would need to evolve to keep the populace amused.

So what happened to that prediction? What happened to that leisure?  The answer became reality a few decades later.   I was a teenager in the 1950’s  when those predictions were made.  It was usual for one (often male person) to be employed to earn money sufficient to allow a family with children to purchase necessary housing, food and other goods/services.   But a few decades later, rather than reaching the perceived desirable state of widespread leisure,  the economy somehow evolved so that it was no longer possible for many families to buy all necessary products and services with one income.  Not only husbands, but also wives needed to be employed—and together they often needed to pay for child care.  Unlike in the early 1950’s Sundays were no longer days of rest—all businesses were full bore open seven days per week.  Now, in the 2020’s it has not gotten any better despite even more widespread adoption of robots in automobile and electronics manufacture, and extensive use of computers to vastly reduce labor and increase precision with accounting and other  management tasks.   There seems to be even more lower income people desperate for money that may have two or even three part time jobs.

The analysis from this essay should supply enough information to explain why there seem to be at least as many people needing to be employed now, while at the same time many unable to get jobs because of higher work skill requirements and fewer number of people required.  Many jobs now require a college degree to have a chance to get a reasonably paying job that formerly required only a high school education. This despite, or perhaps because much improved efficiency of the economy.  The false assumption was that with technological improvement less human labor would be required to meet everyone’s needs, so therefore many others would not need to be employed.

I hope this essay has made clear why this is so.  The problem is that the only way to claim goods is to have money provided by a job. But fewer are needed for jobs to produce needed goods/services but just as many jobs as before are required to get paychecks to buy them.  It is explained by the dual need for jobs:  to produce goods/services, but also to get money to claim the goods. These two are inextricably tied by the “Fundamental Monetary Constraint.”  As fewer “maker” workers are needed, with as many “takers” competing for money paying jobs, wages for workers tend to decline, which also causes demand for goods/services to decline further.  These people would like to have the goods, but do not have the needed supply of money.