It is an old and strange idea that political authority–say, Joe Biden, Donald Trump, or Louis XIV–can “inject money” in the economy. Speaking of a recent federal law, a Wall Street Journal report matter-of-factly mentions “the Inflation Reduction Act, a broad clean-energy, tax and healthcare law that injects nearly $400 billion into the U.S. economy (“Biden Struggles to Push Trade Deals With Allies as Election Approaches,” December 28, 2023).

This formulation can convey a misleading impression, for a dollar injected in the economy by a government is ipso facto extracted from it, either by current or future taxes or by inflation. To speak in terms of real resources, the government has to obtain command over the resources (labor and other inputs) that it needs to divert to its projects.

Keynesian economic theory claimed that during a recession, when many resources are idle, the government could stimulate the economy, even if it paid people to dig holes and refill them (as Keynes’s General Theory of Employment, Interest and Money famously suggested). Such injection was meant as short-run solution but it was bound to become a permanent activity, and it was already drifting there in the General Theory.

Jean-Baptiste Say, the famous 19th-century economist and successful entrepreneur, emphasized the gross error of considering government expenditure as an injection in the economy. In his Treatise on Political Economy (Elliot & Co, for the 4th edition), a translation of the Traité d’économie politique (1803 for the original edition), he wrote:

Madame de Maintenon mentions in a letter to the Cardinal de Noailles that, when she one day urged Louis XIV to be more liberal, in charitable donations, he replied, that royalty dispenses charity by its profuse expenditure. …

When Voltaire tells us, speaking of the superb edifices of Louis XIV, that they were by no means burdensome to the nation, but served to circulate money in the community, he gives a decisive proof of the utter ignorance of the most celebrated French writers of his day upon these matters.

Rulers of course had a personal interest in this sort of voodoo economics. J.-B. Say also quotes Frederick II of Prussia:

My numerous armies promote the circulation of money and disburse impartially amongst the provinces the taxes paid by the people to the state.

The money disbursed by Louis XIV as wages or input purchases came either from taxes that his subjects had been forced to pay or from other exactions such as trade monopolies, sale of government jobs and privileges, occupation of the royal domain, obstacles to private enterprise and social mobility, and so forth.

Whether monarchic or democratic, a government spends its subjects’ money. These expenditures may serve to produce “public goods” for the subjects, but if they are not to result in a waste, the value produced must be higher than the value taken (see my post “Is It True that the State Produces Nothing?”). The question under consideration here is different: Does the mere injection or circulation of money from the government’s expenditures generate something over and above the value of the final goods or services produced for the subjects? The answer to this question is no.

To reformulate Say’s argument differently: The person who gets money from the Prince as wages or profits has to work for it, but he had already worked to pay the taxes that pay his remuneration. The government’s money that circulates and is supposed to benefit him makes him work twice (at least) to get the same remuneration, that is, to allow him the same consumption of private goods. The government does not inject anything that it has not extracted.