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HOW TO COMBAT
RECES SION
How to Combat
Recession
Stimulus without Debt
Laurence Seidman
1
1
Oxford University Press is a department of the University of Oxford. It furthers
the University’s objective of excellence in research, scholarship, and education
by publishing worldwide. Oxford is a registered trade mark of Oxford University
Press in the UK and certain other countries.
Published in the United States of America by Oxford University Press

198 Madison Avenue, New York, NY 10016, United States of America.
© Oxford University Press 2018
All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system, or transmitted, in any form or by any means, without the
prior permission in writing of Oxford University Press, or as expressly permitted
by law, by license, or under terms agreed with the appropriate reproduction
rights organization. Inquiries concerning reproduction outside the scope of the
above should be sent to the Rights Department, Oxford University Press, at the
address above.
You must not circulate this work in any other form

and you must impose this same condition on any acquirer.
Library of Congress Cataloging-in-Publication Data

Names: Seidman, Laurence S., author.
Title: How to combat recession : stimulus without debt / Laurence Seidman.
Description: New York, NY : Oxford University Press, [2018]
Identifiers: LCCN 2017053675| ISBN 9780190462178 (hardcover : alk. paper) |
ISBN 9780190462192 (epub)
Subjects: LCSH: Recessions—United States. | Monetary policy—United States.
Classification: LCC HB3743 .S45 2018 | DDC 339.5/20973—dc23
LC record available at https://lccn.loc.gov/2017053675
1 3 5 7 9 8 6 4 2
Printed by Sheridan Books, Inc., United States of America
CONTENTS
1. Introduction | 1
2. How Would a Benevolent Ruler Combat a Recession? | 7
3. What Is Stimulus without Debt? | 17
4. Do Tax Rebates Work in a Recession? | 58
5. What about Other Kinds of Fiscal Stimulus? | 97
6. Would Stimulus without Debt Be Inflationary? | 127
7. Would Stimulus without Debt Weaken the Fed’s Balance
Sheet? | 137
8. Would Stimulus without Debt Undermine the Fed’s
Independence? | 150
9. Can’t Monetary Stimulus Overcome a Severe
Recession? | 157
10. Can Stimulus without Debt Be Used by Other
Countries? | 173
11. What Have Others Written about Stimulus without
Debt? | 179
v
vi Contents
12. Can Stimulus without Debt Combat Secular

Stagnation? | 195
13. Would Stimulus without Debt Work
in a Plausible Model? | 200
14. Are We Ready for the Next Severe Recession? | 211
R EF E R E NC E S | 221
I NDEX | 227
HOW TO COMBAT
RECES SION
Chapter 1
Introduction
Are we ready to combat the next severe recession? We can be,

but we’re not. A severe recession always involves a plunge in ag-
gregate demand for goods and services that compels producers
to sharply cut back production and employment. To recover
from the recession, aggregate demand must be boosted all the
way back up to normal. Economic analysis and experience shows
that waiting for the free market to reverse the plunge in aggre-
gate demand takes much too long—usually half a decade to a full
decade. Monetary stimulus—cutting interest rates to zero—is
much too weak to induce a huge boost in demand because ex-
perience shows that sensible consumers and business managers
aren’t willing to go deeper in debt by borrowing to spend in a
severe recession. Fortunately, a huge boost in demand can be
achieved by a large fiscal stimulus—a temporary large increase
in tax rebates for households, federal grants to state and local
governments, tax credits to partly reimburse firms for purchases
of capital goods, and government spending on infrastructure
maintenance projects.
1
2 H ow to C ombat R ecession
So why do I say we aren’t ready? Because a large fiscal stim-

ulus has always in the past required large borrowing by the
Treasury and therefore a large increase in government debt.
Experience shows that any policy that requires a large increase
in government debt is strongly opposed by many policymakers
and citizens. This is especially true in a severe recession, because
the recession itself causes a plunge in tax revenue that forces the
Treasury into huge borrowing to avoid large cuts in government
spending, thereby sharply increasing government debt, which
alarms policymakers and citizens. It is hardly surprising, then,
that in a severe recession a proposal for a large fiscal stimulus
that requires even more borrowing would be met with intense
opposition. That, of course, is exactly what happened during the
Great Recession in the United States, when the fiscal stimulus
proposed in early 2009 met stiff resistance. Yes, despite oppo-
sition, a two-year fiscal stimulus was enacted in early 2009 and
was large by historical standards. But simple calculations at the
time showed that the fiscal stimulus needed to be at least twice
as large in 2009 and 2010 to overcome this severe recession,
and later calculations showed that it needed to be three times
as large. Yet even most advocates of fiscal stimulus didn’t dare
propose a larger fiscal stimulus because even they worried about
making the increase in government debt even larger. Despite the
continuing weak recovery, after 2010 fiscal stimulus was made
much smaller, not larger, because of worry about government
debt. So it took until 2016 for the unemployment rate to return
to normal.
The lesson, therefore, is sobering: As long as a large fiscal
stimulus requires a large increase in government debt, Congress
won’t make it large enough to successfully combat a severe reces-
sion. The one policy—large fiscal stimulus—that has the capacity
to overcome a severe recession won’t be used to its full potential
strength. So we are indeed not ready to combat the next severe
Introduction 3
recession as long as it assumed that fiscal stimulus must increase

government debt.
The stimulus-without-debt proposal, however, is not simply a
tactic for getting a large fiscal stimulus enacted in a severe reces-
sion. It is certainly better for stimulus to be implemented without
a large increase in government debt. Large government debt—
that is, government debt that is a large percentage of GDP—may
generate negative economic consequences and risks in the fu-
ture. If government debt becomes a high percentage of GDP, the
government may incur a heavy interest burden if interest rates
rise, forcing cuts in worthwhile government programs or tax
increases. Moreover, as I will explain later, there is a possibility of
an anxious reaction by financial investors around the world to US
government debt that is high and rising as a percentage of GDP,
which may lead to a US recession or a financial crisis. Thus, I have
two reasons for proposing stimulus without debt. The first is po-
litical: a large fiscal stimulus is unlikely to be enacted by Congress
if it causes a large increase in government debt as a percentage
of GDP. The second is economic: government debt that is large
and rising as a percentage of GDP may have negative economic
consequences and risks.
Fortunately, the assumption that fiscal stimulus requires an
increase in government debt is false. In fact, it is astonishingly
easy to implement even a very large fiscal stimulus without any
increase in government debt. All it takes is this: When Congress
enacts fiscal stimulus, the Federal Reserve can decide to make
a transfer (not loan) to the Treasury roughly equal to the fiscal
stimulus so the Treasury doesn’t have to borrow. That’s it.
Moreover, the large stimulus would be phased out as the economy
approaches full employment, so it would not be inflationary.
But isn’t the paper money injected by the Fed also government
debt? The answer is no. Paper money is not counted in official
government debt. Nor should it be. Government paper money
was government debt in the era when the government promised

gold to any holder of government paper money who requested
it. But when the government nearly a century ago removed its
promise to provide gold or anything else to the holders of paper
money, the paper money ceased to be government debt. By con-
trast, government bonds are government debt because the gov-
ernment promises to pay government paper money—principal
plus interest—on schedule to all holders of government bonds.
Another question arises: Does fiscal stimulus really work?
Most empirical studies find that the answer is yes. Moreover, just
think about it using common sense. Suppose Congress decides,
as it should, that the main component of the fiscal stimulus
package will be tax rebates to each household. Suppose that the
US Treasury mails out two rebate checks to each household—
one in June, one in December—each check for $6,000. Is there
anyone who seriously believes that households, in a severe re-
cession when most employees haven’t received a raise and some
have been laid off, would save the $12,000? In a recession,
doesn’t it seem more likely that hard-pressed households would
spend a substantial portion within six months? The best empir-
ical studies support common sense: in a recession households
do indeed spend about two thirds of their tax rebates within six
months.
Similarly, does anyone seriously think that in a severe reces-
sion, when state and local tax revenues plunge, that cash grants
from the federal government would be saved instead of used to
maintain normal state and local government expenditures? If
you managed these governments during a recession, would you
really save the grants, and then do lots of borrowing or slashing
of expenditures? Most empirical studies of state and local gov-
ernment behavior in a recession support common sense: federal
grants are mainly used to keep state and local governments from
Introduction 5
cutting spending or raising taxes, so federal grants prevent a fall

in spending by state and local governments and a fall in spending
by consumers who would not spend as much if their state and
local taxes were raised. So the grants prevent a fall in aggregate
demand for goods and services.
In this book I explain how a temporary large fiscal stimulus
can be implemented without any increase in government debt or
inflation. I also present analysis and evidence that fiscal stimulus
works in a recession—it increases aggregate demand for goods
and services, which in turn leads to an increase in production
and employment.
Stimulus without debt isn’t the only thing that must be done
when a severe recession hits. The Fed, Treasury, and FDIC must
perform financial rescues of key firms and inject funds into fi-
nancial firms to keep credit from freezing up. These essential
interventions are not addressed in this book. Some analysts be-
lieve that these interventions are all that’s needed in a severe
recession. I strongly disagree. A severe recession always involves
a plunge in aggregate demand for goods and services, and once
that plunge occurs, it will not be reversed simply by rescuing key
firms and restoring the flow of credit.
Several things are needed to make us truly ready for the
next severe recession. First, a lot of economists, policymakers,
members of Congress, financial market participants, and others
must learn that it is possible to implement a large fiscal stimulus
without any increase in government debt. Second, they have to
be persuaded that fiscal stimulus—particularly, a tax rebate to
every household—works. Third, they have to be convinced that
a large transfer from the Federal Reserve to the Treasury during
recession won’t be inflationary. Fourth, Congress must enact an
amendment to the Federal Reserve Act empowering the Federal
Reserve’s Open Market Committee to decide whether to make a
large transfer (not a loan) to the Treasury to finance a fiscal stim-

ulus enacted by Congress. If these things happen, we will be truly
ready to combat the next severe recession.
The purpose of this book is to help make all these things
happen.
Chapter 2
How Would a Benevolent Ruler

Combat a Recession?
In this book I will propose “stimulus without debt,” a

policy to combat recession that is designed for our actual
institutions: Congress, the Treasury, and the Federal Reserve.
These institutions impose important constraints on the design
of a practical policy. But before I turn to stimulus without debt
for our actual institutions, I want to set the stage by considering
how a benevolent ruler with complete power, who takes the place
of the Federal Reserve, Congress, and the Treasury, could combat
a recession without increasing government debt. The policy that
is implemented by a benevolent ruler will serve as useful guide
for a stimulus without debt policy that is implemented by the
Federal Reserve, Congress, and the Treasury.
Government Money Held by the Public

Is Not Government Debt
Before I turn to the benevolent ruler, I need to make a funda-

mental point: government paper money held by the public is
7
not government debt. When government paper money was

introduced during the past three centuries, it was usually “backed”
by gold (or silver)—that is, if any holder of paper money wanted
the government to exchange it for gold, the government prom-
ised to make the exchange. Thus, the government owed gold to
any holder of paper money, and the government had to be ready
to provide gold to any holder of paper money who requested it.
Because of this promise, government paper money held by the
public was viewed as government debt and included in the lia-
bility column of the government’s balance sheet. This promise to
pay gold was probably necessary to win the acceptance of govern-
ment paper money by the public.
But in the last century, the public in most economically ad-
vanced countries gradually gained confidence in government
paper money. The governments of these countries gradually
withdrew their promise to provide gold to any holder of paper
money who requested it. Despite the withdrawal of this promise,
most of the public continued to be willing to hold paper money
and use it in transactions. One reason for this public willing-
ness was that the government guaranteed that the public could
use its paper money to pay taxes; another was that the govern-
ment stated that its paper money could be used by the public to
pay off private debts. But it is possible that even without these
guarantees by the government, the public would have been
willing to hold and use government paper money because of con-
fidence gained over decades of use for transactions.
Thus, it is now the case that in most economically advanced
countries, the government does not owe anything to holders
of its paper money. Paper money held by the public is there-
fore no longer government debt. By contrast, each government
bond held by the public is government debt because the gov-
ernment promises to pay its paper money to holders of bonds
according to the schedule of interest and principal on the bonds;
How Would a Benevolent Ruler Combat a Recession? 9
the government therefore owes paper money to the holders of

government bonds.
Nevertheless, current central-bank accounting has ignored
the fundamental change that occurred when the government
withdrew its promise to pay gold (or silver) to any holder of its
paper money. Paper money held by the public continues to be
listed in the liability column of the central bank’s balance sheet.
Moreover, when the accountants produce the consolidated
balance sheet of the government and the central bank, paper
money held by the public continues to be included in the liability
column of the consolidated balance sheet. This inclusion causes
the liabilities of the central bank, and of the consolidated gov-
ernment, to be greatly overstated.
By contrast, official government debt correctly includes gov-
ernment bonds held by the public and correctly excludes paper
money held by the public. The official government debt correctly
focuses attention on the government’s obligation to pay money
to bondholders and ignores paper money held by the public be-
cause the government has no obligation to pay anything to the
holders of paper money.
Some economists, however, not just central-bank accountants,
continue to call government paper money held by the public
“government debt,” usually without giving any justification for
using the term “debt.” Why do they do this? One reason may be
inertia: government paper money was indeed government debt
when the government promised to pay gold to anyone holding
the paper money who wanted gold. Another reason may be an in-
tuition that there can’t be a “free lunch.” It seems like a free lunch
when the government writes checks to members of the public
and prints enough paper money to pay check recipients who re-
quest paper money. Surely it must be true, some think, that the
government is incurring a debt when it prints pieces of paper to
give to the public; it can’t really be that easy for the government
to create an asset, paper money, without also creating a debt. But

in a paper money system, it really is that easy.
Although paper money held by the public is not government
debt, injecting too much paper money into an economy that is
already at full employment of resources will make aggregate de-
mand for goods and services exceed potential output and there-
fore generate rising prices—inflation. Injection of money into
the economy should not cause concern about government debt,
but should cause concern about inflation if the economy is al-
ready at full employment. The policy I will call “stimulus without
debt” prescribes injecting money only in a recession when em-
ployment is below its potential, so that, as I’ll explain later, an
increase in demand for goods and services will cause an increase
in output, not an increase in prices.
Stimulus without debt in the Benevolent

Ruler’s Economy
In the benevolent ruler’s economy, money consists of official

paper notes, and all transactions in this economy occur in official
government paper notes. These paper notes were once backed by
gold, but are no longer backed by gold or anything else, so they are
not government debt. Assume the benevolent ruler’s economy is
initially at full employment. Now suppose a recession occurs be-
cause of a fall in aggregate demand for goods and services. There
are several possible causes of a fall in aggregate demand. Consider
a fall caused by a dramatic and sustained plunge in the stock
market. In response, anxious consumers with less stock market
wealth cut their spending, so consumer demand for goods and
services falls. Producers of these goods and services respond by
cutting production and employment. Managers in firms making
consumer goods or providing consumer services react by cutting
their demand for equipment to produce more consumer goods

or services, so producers of equipment—investment goods—
cut production and employment. Thus, in response to the fall in
consumption and investment demand, most firms cut back pro-
duction and employment, so the economy falls into recession.
To combat a recession caused by a fall in aggregate demand for
goods and services, a policy must be implemented that will in-
crease aggregate demand.
To increase aggregate demand for goods and services, the
ruler deposits a specific amount of paper notes in the bank
account of each household. The deposit is a transfer from the
government to the household, not a loan that the household
must repay. The ruler calls the transfer to each household a “tax
rebate” because it gives back some of the tax that the household
paid in the previous year.
The tax rebates are called “fiscal stimulus” because they are a
government expenditure (“fiscal”) that increases (“stimulates”)
consumer demand for goods and services. Households spend a
portion of their tax rebates and save the rest, and the portion
they spend causes producers of consumer goods and services to
increase their production and employment. As managers in firms
making consumer goods or services observe the revival of con-
sumer demand, they spend more to increase their equipment, so
producers of these investment goods raise their production and
employment.
But how does the benevolent ruler obtain the paper notes
needed to give tax rebates to households? Assume that at the
beginning of the year the ruler has no notes on hand. The ruler’s
adviser points out that when other governments have faced a
similar situation, some of these governments have borrowed
from the public by selling government bonds to the public to ob-
tain the paper notes. But the ruler replies that there is no need to
sell bonds and thereby incur government debt. Instead, the ruler
simply orders the printing of the amount of paper notes required

to give the tax rebates. As explained in the previous section,
paper money issued by the government and held by the public is
not government debt. Thus, to combat the recession, the benev-
olent ruler implements “stimulus without debt.” The ruler keeps
paying out tax rebates with new paper money until the economy
approaches full-employment output. As this happens, consumer
and business confidence gradually rises, enabling the ruler to
gradually phase out the tax rebates.
The ruler’s adviser concedes that the ruler’s policy (stim-
ulus without debt) has worked, but points out that when other
governments have faced a similar situation, some have printed
money and used the money not for tax rebates but to buy gov-
ernment bonds from the public in “the open market.” These
are bonds the public previously bought from the government
but which some members of the public now want to sell. These
governments have called this bond buying “open-market opera-
tions” and asked their central bank to carry it out.
The ruler replies that using new money to buy government
bonds in the “open market” is a much less efficient to way to in-
crease aggregate demand for goods and services than using new
money to give tax rebates to households. The reason, says the
ruler, is that in a recession households will very likely spend a
larger share of the tax rebates they receive than bond sellers
would spend. Why? When a household receives a tax rebate, the
household knows it can spend some of it, save some of it, and
use some of it to pay down debt; the household instinctively
realizes that the tax rebate has increased its wealth, enabling it
to do more of all three. By contrast, when someone sells a gov-
ernment bond, the seller instinctively realizes that his wealth
hasn’t changed: the seller knows he now has more cash, but he
also knows he no longer has the government bond. Why did he
sell the government bond? Although his wealth is the same, he
may have wanted to replenish his declining checking or savings

account, or buy a corporate bond, or a corporate stock, or pay
taxes, or pay down debt, or buy goods or services, and he was
willing to give up the bond to do it. The typical bond seller has
much higher wealth and income than the typical tax-rebate re-
cipient. It seems likely that money used to send tax rebates to
households will increase aggregate demand for goods and serv-
ices much more than if that same money were used to buy gov-
ernment bonds from bondholders willing to sell some bonds.
After full-employment output is achieved by the stimulus-
without-debt policy, confidence has returned to normal, and the
tax rebates to households have been phased out, there will be
more money in the economy than before due to the tax rebates.
If the ruler thinks this extra money might cause too much
spending and therefore inflation, the ruler can remove it from
the economy by temporarily cutting government spending so it
is less than tax revenue, or by temporarily raising tax revenue so
it is greater than government spending. Either action results in
more money coming into the government than the government
spends. The government can remove this surplus money from
the economy until money in the economy is back to normal. Then
government spending can be set equal to tax revenue.
Whose Writing Guided the Benevolent Ruler?
When the benevolent ruler was asked whose writing was most
influential, the ruler replied that the greatest influence came
from two economists: John Maynard Keynes and Abba Lerner.
The ruler said Keynes (1936) taught the crucial importance of
aggregate demand for goods and services: if aggregate demand
falls, it causes the economy to go into recession, so demand
must be raised. Keynes warned that in a recession monetary
stimulus—lowering interest rates—would prove too weak to

raise demand up to normal. He therefore recommended that the
government increase its spending.
The ruler said that Lerner specifically recommended printing
money to pay for fiscal stimulus (an increase in government
transfers to households, an increase in government purchases of
goods and services, and/or a decrease in taxes on households) to
combat a recession. Lerner said that government should practice
“functional finance,” not “sound finance,” and explained why in
his “functional finance” chapter in each of his two books (Lerner
1944, 1951). The title of his 1944 book is The Economics of Control,
and the title of his 1951 book is The Economics of Employment.
The ruler also cited chapter 1 of his 1951 book, entitled “The
Economic Steering Wheel,” as particularly clever and insightful.
Lerner wrote that if the unemployment rate is above normal, the
government should decrease taxes so households spend more,
or increase its own spending and pay for the excess of spending
over taxes by printing money instead of borrowing. But won’t
printing money be inflationary? Lerner said it would indeed be
inflationary if it were done when there is already full employ-
ment. Why? Because with full employment each firm can attract
employed workers away from other firms only by raising wages,
which increases costs and compels firms to raise prices. But if
it were done when unemployment is high, firms would be able
to attract unemployed workers without raising wages, so there
would be no cost increases, and no need for firms to raise prices.
Lessons for Combating Recession

with Actual Institutions
It should be possible to implement stimulus without debt under

our actual institutions because the benevolent ruler was able to
do it. Congress and the president should control government

spending, taxes, and fiscal stimulus, with the Treasury as their
administrative agent. The Federal Reserve should control the
printing of money and its injection into or withdrawal from
the economy. With this institutional separation of powers, how
would stimulus without debt be implemented in a recession?
The Federal Reserve would decide whether to give a transfer
(not loan) to the Treasury to be used for fiscal stimulus, and if
so, how much. The Fed would make its decision by estimating
the depth of the recession and the magnitude of the fiscal stim-
ulus needed to combat it. If all transactions were conducted
using Federal Reserve notes (not by writing checks or crediting
bank accounts), the Fed would print new Federal Reserve notes
in the amount it wanted to transfer to the Treasury. In practice,
the Fed would either write a check to the Treasury or credit the
Treasury’s checking account at the Fed, and print the amount
of new Fed notes needed to meet requests for Fed notes from
banks and the public. The Fed would continue to use its standard
instruments of monetary policy such as sales or purchases of
government bonds in the open market, and decide how to ad-
just these sales and purchases in light of the Fed’s transfer to the
Treasury for fiscal stimulus.
Congress and the president would decide how much fiscal
stimulus to enact in light of the magnitude of the transfer the
Fed was willing to give to the Treasury for fiscal stimulus. They
could enact a larger fiscal stimulus than the Fed’s transfer to the
Treasury, but the Treasury would have to borrow the difference.
If they enacted a smaller fiscal stimulus than the Fed’s transfer
to the Treasury for fiscal stimulus, some of the Fed’s transfer
would go unused and be returned to the Fed. Congress and the
president would decide the composition as well as the size of the
fiscal stimulus. As I will explain shortly, I recommend that a large
portion of the fiscal stimulus be tax rebates to households.
Conclusion
The most important point is this: fiscal stimulus does not require
an increase in government debt. To get high unemployment down
to normal, the government should implement fiscal stimulus: in-
crease its spending (mainly tax rebates to households, but also
some purchases of goods and services and other expenditures)
and/or cut taxes. When the government does this, it doesn’t
need to borrow. It can get the money it needs from its printing
press. As long as it does this only when unemployment is high, it
will not be inflationary. Thus, when unemployment is high, fiscal
stimulus can be implemented without debt and without causing
inflation.
Chapter 3
What Is Stimulus without Debt?
“Stimulus without debt” is a policy that would increase aggregate

demand for goods and services in a recession without increasing
government debt. Stimulus without debt consists of a transfer
(not loan) from the central bank to the nation’s treasury so that
the treasury does not have to borrow to finance fiscal stimulus
enacted by the legislature. In most of this book I illustrate stim-
ulus without debt with reference to the United States, but stim-
ulus without debt can be implemented in other countries and in
the eurozone.
The Strategy behind Stimulus without Debt
Most recessions, including the US Great Recession of 2008,

involve a fall in demand for goods and services. When the US
housing bubble burst in 2007, followed by the plunge in the stock
market and the failure of firms like Lehman Brothers in 2008,
consumer wealth and confidence fell sharply. Anxious consumers
cut back their spending, so consumer demand for goods and
17
services fell. Producers of consumer goods and services had no

choice but to cut back production and lay off workers. Business
firms reacted to this fall in consumer demand by cutting their
demand for investment goods—why expand plant and equip-
ment to produce more when consumers won’t buy more? In re-
sponse to the fall in consumption and investment demand, firms
cut back production and employment. To combat a severe reces-
sion involving a sharp fall in aggregate demand for goods and
services, fiscal stimulus (an increase in government transfers
to households, an increase in government purchases or goods
and services, and/or a decrease in taxes on households) must be
enacted to increase aggregate demand for goods and services be-
cause monetary stimulus—lowering interest rates—alone is too
weak to combat a severe recession (Seidman 2001, 2003, 2011,
2012a, 2012b).
Under stimulus without debt, Congress would enact a fiscal
stimulus package that consists mainly of cash transfers (tax
rebates) to households but also other temporary expenditures
and temporary tax cuts; the fiscal stimulus would raise aggre-
gate demand. The Federal Reserve would use new money to give
a large transfer (not loan) to the Treasury equal to the fiscal stim-
ulus package so that the Treasury would not have to borrow to
pay for the package. Hence, there would be no increase in gov-
ernment debt (Seidman 2013). The Fed’s transfer to the Treasury
injects an amount of money into the economy that is equal to the
Fed’s transfer. By contrast, fiscal stimulus alone would require
the Treasury to borrow an amount equal to the fiscal stimulus by
selling new government bonds, thereby significantly increasing
government debt.
Stimulus without debt differs crucially from a standard fiscal-
monetary stimulus. Under a standard fiscal-monetary stimulus,
the Treasury borrows to pay for the fiscal stimulus by selling
new government bonds to the public, and the Federal Reserve
W hat Is Stimulus without Debt? 19
enters the “open market” and buys an equal amount of govern-

ment bonds from the public. Government debt increases by the
amount of the fiscal stimulus, and the Fed increases its holding
of Treasury bonds by the same amount. A crucial point is that
the Fed’s action does not prevent the increase in Treasury debt
outstanding: official Treasury debt increases by an amount equal
to the fiscal stimulus. Money injected into the economy is the
same under stimulus without debt and standard fiscal-monetary
stimulus, but government debt is greater under standard fiscal-
monetary stimulus.
Official government debt includes all Treasury bonds out-
standing whether held by the public or by the Fed. But should it
include Treasury bonds held by the Fed? My answer is yes. It is
true that the Fed returns to the Treasury most of the interest it
receives from the Treasury. But at any moment, the Fed can de-
cide to sell Treasury bonds to the public, and the public will expect
principal and interest to be paid on schedule. Thus, the Treasury
must be ready to pay principal and interest on schedule on all
Treasury bonds outstanding, including bonds held by the Fed.
Congress, the Treasury, and the citizenry are therefore correct to
focus on the official government debt figure that includes bonds
held by the Fed; and they would be correct to oppose excluding
bonds held by the Fed from official government debt. Thus, the
difference between stimulus without debt and standard fiscal-
monetary stimulus is genuine both in theory and in practice.
Government paper money held by the public is not govern-
ment debt. Government paper money was government debt a
century ago when the government promised gold to any holder
of government paper money who requested it. But when the
government removed its promise to provide gold or anything
else to the holders of government paper moneypaper money
ceased to be government debt because the government owes
nothing to holders of its paper money. By contrast, government
bonds are government debt because the government promises

to pay government paper money—principal plus interest—on
schedule to all holders of government bonds; the government
owes government paper money to holders of government bonds.
Fiscal stimulus without debt, therefore, means fiscal stimulus
without an increase in government bonds.
I have two important reasons for proposing fiscal stim-
ulus without debt instead of the standard fiscal stimulus with
debt. The first reason is political and the second reason is eco-
nomic. My political reason comes from facing the fact that many
policymakers, financial investors, citizens, and economists be-
lieve that large government debt will generate negative economic
consequences and risks in the future, so they oppose enactment
of a large fiscal stimulus in a severe recession if it causes a large
increase in government debt. Without the stimulus-without-
debt plan proposed in this book, a fiscal stimulus large enough to
combat a severe recession would cause a large increase in govern-
ment debt—and it is therefore unlikely to be enacted by Congress.
By contrast, with the stimulus plan proposed here, even a large
fiscal stimulus would cause no increase in government debt. The
stimulus-without-debt plan would therefore remove one key ob-
stacle to obtaining the support of policymakers and the general
public for a large fiscal stimulus in a severe recession.
My economic reason is that large government debt—that is,
government debt that is a large percentage of GDP—may gen-
erate negative economic consequences and risks in the future.
Although large government debt may not lead to this negative
scenario, it is a risk that is worth avoiding: (1) If interest rates
rise in the future, large debt will result in large interest payments;
(2) large interest payments will force Congress to raise taxes or
cut spending or borrow more; (3) more government borrowing
and still larger government debt may at some point make finan-
cial investors anxious and cause them to sell corporate stocks,
resulting in a fall in the stock market; (4) a fall in the stock market
would reduce wealth and confidence and cause consumers and
businesses to cut spending, precipitating a recession; (5) the fall
in the stock market and the recession would generate still more
anxiety among financial investors and managers, generating a
financial crisis, worsening the recession. Thus, the public and
Congress are right to be concerned about the possible negative
economic consequences of letting government debt become a
large percentage of GDP.
The phrase “stimulus without debt” also means “without pri-
vate debt.” Standard monetary stimulus reduces interest rates in
order to induce households and/or businesses to borrow more in
order to spend more on goods and services, so standard monetary
stimulus works by inducing households and firms to incur more
private debt in order to spend more on goods and services. By con-
trast, fiscal stimulus in the form of tax rebates (cash transfers) to
households enables recipients to spend more without increasing
their debt; empirical studies that I will review later show that
households spend a significant portion of their tax rebate and use
the remaining portion to pay down debt and save.
Under the stimulus-without-debt policy, the Federal Reserve
would transfer (not lend) X dollars to the Treasury. In turn, the
Treasury, after authorization by Congress, would mail out a large
portion of the X dollars as “tax rebate” checks (cash transfers)
to households (a small portion of the X dollars would be spent
on other kinds of fiscal stimulus such as temporary government
purchases of goods and services or temporary tax cuts). Thus, the
Treasury would not have to borrow to finance X dollars of fiscal
stimulus because of the Fed’s transfer (not loan) of X dollars to
the Treasury. Moreover, households would spend some or most
of their tax rebate without doing any borrowing. Thus, this policy
would increase aggregate demand for goods and services without
increasing government debt or private debt.
The stimulus-without-debt plan is designed to maintain a

separation of powers and checks and balances: both Congress
and the Federal Reserve play crucial independent roles.
Congress sets the size and composition of the fiscal stimulus
package. The Federal Reserve decides the size of the transfer
(not loan) it will make to the Treasury; the Fed therefore sets
the amount of fiscal stimulus that can be implemented without
increasing government debt, but Congress is free to enact a
fiscal stimulus that is larger or smaller than the Fed’s transfer
to the Treasury.
The plan for stimulus without debt in a recession has five
elements:
1. If the Federal Reserve judges that the GDP of the economy

is significantly below the Fed’s estimate of potential GDP,
the Fed would decide whether to give a transfer (not a
loan) to the Treasury, and if so, how much, on the condi-
tion that it be used only for fiscal stimulus. Authority for
the Fed to make this transfer might require an amendment
to the Federal Reserve Act. The Fed could implement its
transfer by writing a check to the Treasury or crediting the
Treasury’s checking account at the Fed.
2. Congress would decide whether to enact fiscal stimulus, and
if so, how much; its main component would be tax rebates
to households, though other components should also be
included in the fiscal stimulus package. The Treasury would
mail tax rebate checks to households in amounts specified
by Congress.
3. If the amount Congress enacts for fiscal stimulus is no
greater than the Fed’s transfer, then the Treasury would
not have to borrow to finance the fiscal stimulus; if the
fiscal stimulus is greater than the Fed’s transfer, the
Treasury would have to borrow the difference.
4. The Fed would decide how much to adjust its bond purchases
or sales to try to keep employment high and inflation low.
It is very likely that the Fed, having injected money into the
economy through its transfer to the Treasury, would de-
cide either to inject less money into the economy through
bond purchases or to withdraw money from the economy
through bond sales.
5. The Fed would order (from the Treasury’s Bureau of
Engraving and Printing) an amount of new Federal Reserve
notes equal to its transfer to the Treasury, and would store
these notes in the Fed’s vault; this Fed vault cash would be
an asset on the Fed’s balance sheet, and as a consequence
of this new vault cash the Fed’s transfer to the Treasury
would not reduce the Fed’s capital (net worth) on its
balance sheet.
Would Stimulus without Debt Be

Temporary or Permanent?
In response to a recession caused by a shock like a plunge in

housing prices or stock prices, stimulus without debt would be a
temporary policy. As the economy recovers toward full employ-
ment and consumer and business confidence returns, stimulus
without debt would be gradually phased out: Congress would
slow the growth of government spending and/or raise taxes,
thereby reducing fiscal stimulus; and the Fed would reduce the
growth of money in the economy, thereby reducing monetary
stimulus; the Fed would do this by buying a smaller amount of
bonds from the public than it otherwise would have bought.
When the economy plunges into recession, surveys confirm
the obvious: consumer and business confidence and expecta-
tions for the economy fall sharply. The fiscal stimulus in stimulus
without debt, primarily tax rebates to households, would ini-

tially be set large enough so that, even with low consumer and
business confidence and expectations, spending on goods and
services would increase enough to launch a strong recovery.
As a solid recovery takes hold, surveys again confirm the ob-
vious: consumer and business confidence and expectations start
rising. This rise in confidence and expectations raises demand
for goods and services. As confidence and expectations return to
normal, stimulus can be gradually phased out.
Some macroeconomists have ignored the role of confidence
and expectations in determining demand for goods and services,
and the role of the state of the economy in determining confi-
dence and expectations. But many economists and laymen rightly
regard the connection, confirmed by surveys and anecdotes, as
obvious. As the economy moves from recession to a strong re-
covery generated by stimulus, confidence and expectations will
rise in step with the economy, thereby enabling the gradual
phasing out of the stimulus.
There is one caveat. Suppose the economy hasn’t plunged into
recession due to a shock like a plunge in housing prices or stock
prices, but has instead experienced a gradual decline in demand
relative to potential output—a “demand-induced secular stagna-
tion.” If demand-induced secular stagnation is really a problem,
could stimulus without debt treat it? Should it? With secular
stagnation, would the treatment have to be permanent rather
than temporary? I will discuss this at the end of this book.
Tax Rebates to Households
The purpose of having the US Treasury mail a tax rebate check

(a rebate of a portion of the income, payroll, and sales taxes
paid by the household in the previous year) to every household
in a recession is to increase consumption spending and thereby

stimulate production of goods and services. Strong evidence for
a significant impact of tax rebates on consumption spending
will be presented in depth in the next chapter. A tax rebate to
households is one type of fiscal stimulus (tax cuts and/or gov-
ernment spending).
A tax rebate is a giving back to each taxpayer a portion of the
taxes (income, payroll, and sales) that the taxpayer paid in the
previous year. Congress does this in a recession to help citizens
cope with the recession and to boost their spending on goods
and services, which will stimulate production and employment.
Why focus on tax rebates to households rather than other
kinds of fiscal stimulus? There are at least eight reasons. First,
and most important, as I will document in chapter 4, tax rebates
work: a significant portion of tax rebates are spent within half
a year of being received. This should not be surprising. Both
surveys of recipients and econometric analysis of spending data
following the payment of tax rebates indicate that households
spend a significant portion of it: one-third within three months
and two-thirds within six months. Note: any recession almost al-
ways involves a fall in consumption below its trend growth path.
Second, tax rebates clearly increase household spending on all
goods and services rather just a subset of goods and services, so all
businesses would recognize that rebates boost customer demand
for their goods or services. Third, with tax rebates, there would
be no “shovel-ready” problem that may occur with infrastructure
projects; there is no limit to how much households can spend
promptly on goods and services. Fourth, with tax rebates there
would be no temporary or permanent increase in the size of gov-
ernment: rebates simply give spending power to millions of indi-
vidual consumers, whose spending stimulates the private sector.
Fifth, tax rebates to combat a recession are clearly temporary
and require a new vote by Congress to be continued. Sixth, every
household would receive a rebate check in the mail from the US

Treasury, so every voter would actually see a concrete personal
benefit from this kind of fiscal stimulus. Seventh, the inclusion
of every household would cause most voters to regard tax rebates
as a fair way to implement fiscal stimulus. Eighth, rebates have
been enacted with bipartisan support three times—1975, 2001,
and 2008. Thus, a tax rebate has many important advantages as
an instrument for fiscal stimulus in a recession.
There is a good reason why tax rebates were able to pass
with bipartisan support three times. Conservatives and liberals,
Republicans and Democrats, have differing long-term agendas for
government spending and taxation. For example, conservatives
generally want permanent tax cuts, while liberals want per-
manent increases in social insurance and education programs.
Neither side wants an antirecession stimulus that would advance
the agenda of the other side if it became permanent. Tax rebates
are obviously and inherently temporary. They do not favor the
long-term agenda of either side. This is undoubtedly one reason
that tax rebates were enacted three times with bipartisan support,
whereas most other proposals, such as permanent tax cuts, or
permanent increases in social insurance or education programs,
have generated partisan opposition. The tax rebate does not favor
one side’s long-term agenda over the other. It is neutral toward
long-term agendas. The details of the design of a tax rebate in re-
cession will be discussed in the last section of chapter 4.
A Transfer from the Fed to the Treasury

in a Recession
The purpose of the Fed’s transfer to the Treasury in a recession

is to enable the Treasury to pay tax rebates to households and
undertake other fiscal stimulus without borrowing. The Fed’s
transfer to the Treasury is not a loan; the Fed would not re-
ceive Treasury bonds in return for its funds. If the Federal Open
Market Committee (FOMC) judges that the total amount of tax
rebates chosen by Congress is appropriate to the severity of the
recession, the FOMC would decide to make its transfer roughly
equal to the total amount of the tax rebates so that the rebates
don’t increase the debt of the federal government.
Later in this chapter, I will explain why the Fed should have
transferred $450 billion to the Treasury every six months from
June 2008 through December 2010, six transfers summing to
$2,700 billion, and Congress should have authorized $450 billion
of fiscal stimulus every six months from June 2008 through
December 2010, so each year there would have been $900 billion
of fiscal stimulus—6% of GDP ($15,000 billion). Most of the
fiscal stimulus should have been tax rebates to households. The
fiscal stimulus would not have required any new borrowing by the
Treasury—it would not have required any sale of new Treasury
bonds. Thanks to the Fed’s transfer to the Treasury, the fiscal
stimulus would not have increased federal debt.
What the Federal Reserve Would Do

under Stimulus without Debt
It is important to distinguish between two roles for the Federal

Reserve when the economy suffers a plunge in aggregate demand
resulting in a severe recession: (1) acting aggressively as a lender
of last resort to perform financial rescues and unfreeze credit
markets; (2) cutting interest rates to try to induce households
and firms to maintain borrowing and spending. The Fed should
do both aggressively. The first role can succeed; the second role
can help, but cutting interest rates is not nearly powerful enough
to overcome a severe recession.
The recession began in late 2007 in response to the plunge

in housing prices but proceeded moderately through the first
half of 2008 with below-normal growth in aggregate demand.
In September 2008, however, in part due to the failure of
Lehman Brothers, a financial crisis was triggered as fear swept
over managers of financial institutions and investors that they
might follow Lehman Brothers to a similar fate. Institutions and
investors sought liquidity and sharply cut their lending.
In a financial crisis, the Federal Reserve has a vital role to play
as a lender of last resort, providing emergency loans to financial
institutions and other firms in order to prevent the freezing up
of credit markets and to keep funds flowing to business firms
so that production can continue. The Fed and the Treasury ag-
gressively engaged in financial rescues in the fall of 2008 and the
winter of 2009. In my judgment, these actions were essential to
preventing a full-scale great depression. The Fed must also make
sure that interest rates are cut sharply to zero in order to give
households and firms as much inducement as possible to keep
borrowing and spending. The Fed also performed this task well
in 2008.
But a key question then becomes whether the Fed’s sharp
cut in interest rates is enough to stimulate a sufficiently large
increase in aggregate demand for goods and services in a severe
recession. When the Federal Reserve wants to stimulate demand
for goods and services, its standard method is to lower interest
rates in the hope that consumers and businesses will respond by
borrowing more in order to spend more on goods and services.
The Fed buys US Treasury bonds from financial firms and other
institutions. When the Fed writes checks to buy the bonds, it
is injecting money into the economy. When the sellers of these
bonds receive checks from the Fed, they deposit the checks in
their banks. The banks try to induce households and firms to
borrow by cutting interest rates. But in a severe recession, it is
doubtful that cutting interest rates can induce enough borrowing

and spending to fully reverse a deep plunge in aggregate demand
because in a deep recession people and businesses are pessimistic
and reluctant to take on more debt.
Under the stimulus-without-debt policy, the Fed injects
money into the economy a new way. When the Fed transfers
X dollars to the Treasury, it injects X dollars of high-powered
money into the economy because the Treasury, after authoriza-
tion by Congress, mails out most of the transferred X dollars as
tax rebates to households and spends the rest. The Fed would
decide how much to adjust its bond purchases or sales to try to
keep employment high and inflation low; it is likely that the Fed,
having injected money into the economy through its transfer to
the Treasury, would inject less money into the economy through
bond purchases or would withdraw money from the economy
through bond sales.
Under the stimulus-without-debt policy, the Fed would order
X dollars of new Federal Reserve notes and store these notes in
its vault. This vault cash would be an asset on the Fed’s balance
sheet. As a consequence of this action, the stimulus without
debt would have no effect on the Fed’s net worth (capital) on its
balance sheet.
Money for Tax Rebates versus Money to Buy

Government Bonds
Now let me compare money for tax rebates versus money to buy
government bonds. Under stimulus without debt, the Fed creates
money and uses it to make a large transfer to the Treasury,
which, at Congress’s request, uses the money to pay tax rebates
to households. By contrast, under standard monetary stimulus,
the Fed creates money and uses it to buy government bonds “in
the open market” from members of the public who want to sell
government bonds that they previously bought. Which of these
two uses of new money created by the Fed is likely to cause a
larger increase in aggregate demand for goods and services?
A person who receives a tax rebate realizes she can spend
more, save more, and pay down more debt. The rebate increases
her wealth, enabling her to do all three. But when someone sells
a government bond, the seller realizes her wealth is the same be-
cause the cash replaces her bond. The seller may have sold the
bond to replenish her declining checking or savings account, or
buy a corporate bond, or a corporate stock, or pay taxes, or pay
down debt, or buy goods or services, and was willing to give up
the bond to do it. The typical bond seller has much higher wealth
and income than the typical rebate recipient. It seems likely that
money used for tax rebates will increase aggregate demand for
goods and services more than if that same money were used to
buy government bonds. Thus, to increase aggregate demand,
paying rebates is likely to be a more efficient use of money by the
government than buying bonds.
Debt Worry Prevents Sufficient Stimulus

in a Big Recession
Influential economists have warned against enacting a very large

fiscal stimulus to combat a severe recession because they worry
about the rise in government debt that it will generate (Seidman
2011, 2012a, 2012b, 2013). I believe some economists have
exaggerated the risks of the resulting rise in government debt.
But I will now cite a few economists to show that a very large
fiscal stimulus in a severe recession will be opposed by influential
economists as long as it generates a very large increase in debt.
Olivier Blanchard, for many years a professor of economics

at MIT and then chief economist of the International Monetary
Fund during part of the Great Recession, supported some fiscal
stimulus during the Great Recession but opposed a fiscal stim-
ulus that would have been large enough to overcome that re-
cession. He explained why in a section of his intermediate
macroeconomics textbook entitled “High Debt, Default Risk,
and Vicious Cycles” (2017). If financial investors start worrying
about whether the government can fully pay principal plus in-
terest on schedule for all its bonds held by the public (domestic
and foreign), they will refuse to buy new government bonds
unless the bonds offer high interest rates to compensate for de-
fault risk; but these high interest rates on government bonds
will make it even harder for the government to fully pay prin-
cipal plus interest on schedule. To avoid this scenario, Blanchard
argues that each government must limit its fiscal stimulus in a
recession so that its debt doesn’t get high enough to worry fi-
nancial investors.
Carmen Reinhart and Kenneth Rogoff, the authors of This Time
Is Different: Eight Centuries of Financial Folly (2009), presented a
paper (2010) at the American Economic Association’s annual
conference in which they asserted that their empirical study of
data from many countries over the past two centuries found that
government debt greater than 90% of GDP on average reduces
a country’s annual economic growth rate by one percentage
point—for example, from 3% to 2%—in this example, a 33% re-
duction in the growth rate. Their paper received a lot of attention
and publicity. They said the sharp rise in government debt as a
percentage of GDP during the Great Recession was worrisome
because it might slow future economic growth. They implied that
fiscal stimulus to combat a recession should therefore be limited.
They said that when government debt as a percentage of GDP
rises to a high level, it is likely that financial markets will at some

point generate a sharp jump in market interest rates, resulting in
slower economic growth.
The Reinhart-Rogoff assertion that debt over 90% of GDP it
likely to result in slower economic growth has been persuasively
challenged by Herndon, Ash, and Pollin (2014) and others. But
the Reinhart and Rogoff paper, especially their 90% threshold,
has received much more publicity and attention than the replies
of critics; I suspect their claim of a 90% threshold has persuaded
some economists and policymakers to oppose fiscal stimulus in
a recession.
My 2013 Article Entitled “Stimulus

without Debt”
In 2013 I proposed and explained “stimulus without debt” in an

article with that title in the economic policy journal Challenge
(Seidman 2013). My article began by noting that a grim lesson
from the Great Recession is that widespread worry about gov-
ernment debt generates strong political resistance to enacting a
fiscal stimulus large enough to overcome a severe recession. But
fortunately there is a way to implement fiscal stimulus in a reces-
sion without increasing government debt. I stated that the pur-
pose of my article was to explain and defend a “stimulus without
debt” plan under which fiscal stimulus enacted by Congress
would be accompanied by a transfer from the Federal Reserve
to the US Treasury of the same magnitude so that the Treasury
would not have to borrow to finance the fiscal stimulus.
I then contrasted stimulus without debt with standard fiscal-
monetary stimulus. Under standard stimulus, Congress cuts
taxes or raises government spending (transfers or purchases)
in order to raise aggregate demand for goods and services, and
the Treasury borrows an amount equal to the fiscal stimulus by

selling US Treasury bonds to the public, thereby increasing gov-
ernment (Treasury) debt held by the public. The Fed then buys
an equal amount of Treasury bonds from the public in the open
market so that the Fed, not the public, ends up holding the in-
crease in Treasury debt. A crucial point is that the Fed’s action
does not reverse the increase in Treasury debt: official Treasury
debt increases by an amount equal to the fiscal stimulus, whether
or not the Fed buys Treasury bonds from the public. Standard
stimulus involves monetizing the debt; it does not prevent debt
from being issued by the Treasury
I set out the two key components of stimulus without debt.
The first component of the stimulus-without-debt plan is fiscal
stimulus (an increase in government spending and/or tax cut)
enacted by Congress. My recommendation for fiscal stimulus is a
tax rebate for households supplemented by other kinds of fiscal
stimulus. A tax rebate was implemented during the US recessions
in 1975, 2001, and 2008. The second component of the stimulus-
without-debt plan is a transfer from the Federal Reserve to
the Treasury. In a severe recession the Federal Open Market
Committee would give a transfer to the Treasury in an amount
decided by the FOMC that, in its judgment, would promote the
Federal Reserve’s dual legislative mandate—enacted years ago
by Congress—of promoting both high employment and low in-
flation. It must be emphasized that the Federal Reserve would
not be buying bonds from the Treasury; the Treasury would not
be incurring a debt—it would be receiving a transfer.
I emphasized that a crucial feature of the stimulus-without-
debt plan is that it preserves the separation of powers and
checks and balances in the implementation of fiscal and mon-
etary policy. The first component—fiscal stimulus—is under
the control of Congress (and the president, whose signature is
required unless Congress can obtain a two-thirds majority to
override the president’s veto) but not the Federal Reserve. The
second component—the transfer from the Federal Reserve to
the Treasury—is under the control of the Federal Reserve but
not Congress.
Stimulus without Debt versus Alternative

Stimulus Plans
I will now contrast stimulus without debt with the following

alternatives: (1) helicopter money; (2) monetizing the debt;
(3) quantitative easing by the Federal Reserve; (4) transfers from
the Federal Reserve to households; (5) money creation by the
Treasury as authorized by Congress; (6) not counting bonds held
by the Federal Reserve as official government debt; (7) having
the Fed burn or shred Treasury bonds equal to the fiscal stim-
ulus. Each alternative will be considered in turn.
Helicopter Money
Stimulus without debt is similar to “helicopter money” in cer-
tain ways but very different in others. The concept of helicopter
money comes from a parable written by Milton Friedman in 1969
in which money is dropped on the population by a helicopter.
Stimulus without debt is a policy in which the Federal Reserve
gives a transfer to the Treasury, and the Treasury, after authori-
zation by Congress, gives transfers (“tax rebates”) to the popula-
tion. Hence, the similarity is that under both the parable and the
policy, new money is given (not loaned) to the population.
In contrast to helicopter money, stimulus without debt
specifies how to achieve a separation of powers by assigning
particular roles to particular institutions in its practical imple-
mentation. In Friedman’s parable, the money in the economy
increases by the amount dropped from the helicopter. By con-

trast, under stimulus without debt, when the Fed injects money
into the economy by giving a transfer to the Treasury, the Fed is
likely to decide to inject less money buying Treasury bonds, so
the increase in money in the economy is likely to be much less
than the Fed’s transfer to the Treasury.
Finally, and most crucially, in Friedman’s parable the heli-
copter drops money on an economy that is at full employment,
whereas the stimulus-without-debt policy should only to be used
when the actual output of the economy is well below potential
output. With the economy at full employment, giving money
to the population would lead to spending that raises prices, not
output. Friedman ignored what would happen if the economy
were in recession. In that important case, giving money to the
population would lead to spending that raises output, not prices.
In chapter 11 I look at recent writing by other economists on
helicopter money.
Monetizing the Debt

The stimulus-without-debt plan proposed in this book does not
involve “monetizing the debt” because it creates no debt to mon-
etize: the Treasury sells no bonds, and no additional Treasury
bonds are held by either the public or the Federal Reserve; the
official federal debt stays constant. By contrast, standard fiscal-
monetary stimulus involves “monetizing the debt”: the Treasury
sells bonds to the public, the Fed buys Treasury bonds from the
public, and official Treasury debt increases.
Quantitative Easing by the Federal Reserve

Under quantitative easing by the Fed, the Fed buys bonds in the
open market and pays bond sellers with checks that the sellers
deposit in their banks, thereby increasing bank reserves, which

is expected to lead to a reduction in the interest rates that banks
offer borrowers, thereby raising borrowing and spending by
households and business firms, resulting in more production
and employment. To work, quantitative easing must therefore
induce households and businesses to incur more debt.
But in a severe recession households and business firms are
usually reluctant to run up more debt. A huge run-up of the
ratio of household debt to household income was one cause of
the Great Recession of 2008 and the Great Depression of 1929
(Mian and Sufi 2014). Just prior to each collapse, heavily in-
debted households became unwilling to borrow more in order to
continue their spending, and spending collapsed. Standard mon-
etary stimulus—lowering interest rates—was unable to stimu-
late a significant increase in consumer spending because deeply
indebted households were trying to pay down some of the debt
they incurred during the run-up.
Under stimulus without debt the Treasury mails tax rebate
checks to households in order to raise households’ ability to
spend more without incurring more household debt. With tax
rebates, households use some of their rebate to pay down debt,
some for saving, and some to increase their spending.
Transfers from the Federal Reserve to Households

Under Federal Reserve transfers to households, in a reces-
sion the Fed would give each household a transfer—for ex-
ample, $2,000 per adult plus $1,000 per child. To implement
this transfer, the Fed would have to obtain the addresses of
millions of households—presumably from the Internal Revenue
Service—or request that the IRS do the mailing for the Fed; the
IRS would need the approval of Congress either to provide the
Fed with taxpayers’ mailing addresses, or to do the mailing on
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organization: yet you’ve been among them constantly for some two
months, now. I envy you your force of resolution, Harry.”
Poor Harry! this piece of flattery mollified his irritated temper more
easily than anything else could have done. Half conscious that he
had already abandoned this last and most costly toy of his, it salved
his conscience to have his perseverance wondered at. He put his
arm in Gilbert’s, with sudden friendliness.
“I think I shall go, after all,” he said. “Armstrong can manage
everything well enough. He has been accustomed to this sort of
thing all his life; and, to tell the truth, it requires that, I am afraid, to
make a farmer—that is to say, your thorough enthusiastic farmer. But
now that January is over, I think a few weeks’ change would quite set
me up again: besides, spring always reconciles one to the country.
So I fancy we may settle upon going, Gilbert. When shall you be
ready?”
“In a day—any time,” said Mr. Gilbert, shaking the thin, powdery
snow from the hedge, by a blow of his cane. “I haven’t three ladies to
look after me, as you have: the girls have their own affairs to mind,
and so has the mamma. I get my wardrobe to superintend myself—
different from you, Harry.”
And not quite sure whether to be pleased, and accept this as a
token of his superior importance, or to resent it as a check upon his
manliness and independence, Harry began immediately to discuss
the projected journey—how they should go, and when; and it was
soon decided, very much more to Gilbert’s satisfaction, than to the
good pleasure of Agnes and Martha, at home.
For Agnes found out many little objections, and urged them with
some pique and displeasure. Agnes thought she herself, his wife,
would have been a much more suitable companion for Harry than
Gilbert Allenders; and she should have greatly liked to go to London,
even at risk of leaving the baby. Martha said nothing: her hope was
gliding out of her hands again, defying all her eager attempts to hold
it; and steady darkness—darkness as of the Egyptian night, tangible
and positive, was settling down upon Martha’s heart.
“So you have had our Edinburgh friend here again, Miss Rose?”
said Mr. Gilbert. “I suppose he will condescend to be civil to you.
What is the man, Harry? Nothing but a Scotch W. S., I suppose?”
“He is an advocate, and a gentleman,” said Rose, under her breath;
and when she had said this, she turned to the window, fearful of
disclosing the vivid blush which covered her whole face.
“When I called on him with Harry in July—I would not say, in
presence of ladies, what my impulse was,” said Gilbert, lifting his
large bony hand, and displaying his ringed finger in relief against the
black brushwood about his chin. “He looked at me with a malice
which disgusted me. I suppose he thought I was in his way,” added
Mr. Gilbert, complacently, bestowing upon Rose, who had just turned
her head, roused and defiant, a most emphatic look of admiration.
And Harry laughed: Rose turned her eyes to him slowly, and felt her
heart burn—that Harry should think so meanly of her as to fancy
Gilbert Allenders could stand in Cuthbert’s way!
“But when Mr. Charteris looks at you, Rosie,” whispered Violet, “his
lip aye moves, and the lid comes over his eye. Last time, he looked
as if he could greet: what was that for, Rose?”
But Rose made no reply.
There were, as Gilbert prophesied, great preparations in Allenders
for Harry’s departure, and various purchases made, that Harry’s
appearance away from home might be worthy the station which his
little wife thought so exalted. None of them were quite prepared for
the total insignificance which always falls upon a solitary visitor to
London; and when Gilbert, putting up his own little carpet-bag, took
occasion to remark, sneeringly, upon the great, new, shining
portmanteau which Harry carried, neither himself nor Agnes, who
had come to Stirling to see him away, were angry. They said “Poor
Gilbert!” in a sympathetic look, and compassionated him, who had
neither rank to maintain, nor a little wife to help him to maintain it;
and when Agnes, as she went away, casting wistful looks behind her
at Harry, caught a glimpse of Gilbert’s great, sallow, unwholesome
face, surmounted by its little travelling-cap, and encircled by its
coarse, wiry hair, she could almost have been bold enough to turn
back, and follow Harry. She contrasted them in her mind a hundred
times, during her melancholy drive home, and had many a dreary
thought about temptation, and evil company, and Harry “led away.”
Poor Harry! he was always “led away;” for not one of his anxious
watchers, could prevail with herself to speak of his errors in harder
words than these.
As Agnes returned home, she called at Blaelodge to take up the
children; for their holidays were over, and they had returned to
school; and a little cluster of other children, also returning from
school, hung on behind the carriage, and kept up a little quick tramp
of feet behind, tempting John now and then to wave his whip good-
humouredly over their heads, and warn them that he would “come
down the next time.” But John, who came from Maidlin Cross
himself, never came down; and Violet and Katie, peering out of the
window on either side, nodded to the heads of their respective
factions, and whispered to each other, who was at school, and who
was “gathering stanes,” as they passed, band after band—some with
books and slates, some girded with their great work-aprons,
returning from the field.
From the open doors at Maidlin Cross, the pleasant firelight shines
out upon the road, reddening its sprinkled snow; and figures stand in
the doorways, dark against the cheery light within; and voices ring,
clear and sharp, through the air. The carriage, now deserted by its
band of attendants, begins to grow rather dreary as it advances into
the darkness, and Agnes does not speak, and Katie and Violet
cannot see each other’s faces; but they are quite cheered and
revived, so long as they can hear the far-off sound of those voices at
Maidlin Cross.
And by the fireside Martha and Rose sit very silently. A faint sound
comes from the river, and the wind whistles shrill among the leafless
trees; but except these, and now and then an occasional noise from
the kitchen, where Dragon has been summoned in to sit with Mysie
and her companion, that there may be “a man in the house,” there is
perfect stillness within and without. They are both working—you
would think they never do anything but work—and both are absorbed
and lost in their own thoughts. When at rare intervals they speak, it is
to wonder how far Harry will be by this time, and what he will see in
London, and when he will return; but they do not say to each other
that they tremble for Harry, nor tell what distinct remembrances arise
before them both, of the sad scenes of the past; yet now and then a
sudden start, and quick look round this cheerful room, discover to
you that they have forgotten where they are for the moment, and that
the dim walls of Mrs. Rodger’s parlour, the proper background of
many a recalled grief, are more clearly present before them, than
this brighter and more prosperous place.
Yet they are cheered, in spite of themselves, when Agnes and her
little companions come in, dazzled, out of the darkness; and Lettie
volunteers a confession of some fear as they came along that dark
road, close to the Lady’s Well. Silence is not congenial to Agnes,
and the baby cries loudly in the nursery; and little Harry, very sleepy,
rouses himself up to devour cakes, and swallow as much tea as is
permitted. So the night passes away; but a hundred times they fancy
they hear Harry’s summons at the outer-door; and almost believe,
with a thrill between hope and fear, that he has come home.
The days pass, and grow into weeks, and still they sit all the long
evening through, and again and again fancy they hear the sound of
his return, and hold their breath in eager listening. A few letters,
containing long lists of things he has seen, come to them tardily; but
they never think of Harry, in his extreme occupation, carrying these
letters about with him for a day or two, before he recollects to send
them away. The farm-manager comes now and then, anxious to see
Allenders; for now the frost has broken up, and a genial dry season
has succeeded it, and the cautious Armstrong is slow to do anything
without his employer’s approval. Some fertile, well-cultivated land,
for a lease of which Harry was bargaining with Sir John Dunlop’s
factor, as a profitable addition to his own farm, has been secured by
another applicant during Harry’s absence; and the mason who
contracted for Harry’s new byres and stables, after a long delay by
the frost, now refuses to go on, till he has received one of the
payments to which he is entitled. But no answer comes to the letters
in which these matters are spoken of—his short notes only speak of
sights and constant occupation, and he never says when he is to
return.
The cold, mild, early February comes in quietly; and the nightly
rains patter upon the trees, and swell the burn to hoarseness, and
plash in the swollen river. In the morning, when the feeble sunshine
falls dimly upon the lawn, and its flower borders, Violet and Katie
rejoice over, here and there, a golden or purple crocus, and eagerly
point out the buds swelling on the trees; but at night it is always rain,
striking on the bare branches, and filling the whole air with a sound
of mysterious footsteps passing to and fro around the lonely house.
And within the house they all grow very still—they all listen for
Harry’s step, for Harry’s call; and their hearts tremble, and their
frames shiver, as every night they think he will return.
But February is nearly past, and a March gale, impatient of the slow
progress of the year, has sprung up among the hills before his time,
and rends the clouds over Demeyet, tossing them scornfully to the
east and to the west, when at last they hear Harry come home. And
he does not come unexpectedly; but has written before, stating day
and hour, which he religiously keeps. His dress is worn, and out of
order; his shining new portmanteau frayed and dim, some articles of
its contents lost, and almost all injured; but he says nothing of
excuse or apology for his long delay, and is fretted and irritated only
when he hears of its results, liberally blaming everybody concerned.
However, by and bye, everything goes on again—goes on after a
fashion, languidly, and without success; for Harry no longer cares
about his fields.
CHAPTER IV.
... Let them go,

To ear the land that hath some hope to grow,
For I have none.
king richard ii.

It is the seed time—the time of hope. The lawn at Allenders is
traced with an outline of living gold, crocuses clustering up like
children out of the fresh awakened soil; and day by day the brown
husks swell upon the trees, and the fields add pile by pile to their
velvet mantle. Your heart leaps when you stand in the morning
sunshine, and hear the burn call to the river, and the river, with its
happy voice pass on to the great sea. And all along this highway
through which the children pass to school, the hedges put out timid
leaves, venturing upon the chill, which in the morning brightness bid
their lingering neighbours courage; and down among the long dewy
grass, you can find here and there an early primrose, half timid, half
triumphant, holding up its delicate chalice to receive the dew of
heaven. The cows are marching gravely to their sweet pastures, the
little “herds” straying after them, with all the winter’s “schulin” over,
perchance to be dreamt upon through these meditative silent days,
perchance to spring up in songs, like the natural voices of the
springs that run among the hills, perchance to be merrily forgotten;
but cheerful voices ring about the land, and tender sunshine glistens
on Demeyet, and an odour and fragrance of sweet Hope, makes the
wide atmosphere blessed. Sweet Hope! inheritance and portion of
human hearts, which God gives not to his very angels, but only unto
us.
Ah, Hope—good Hope—God’s tenderest angel!—coming back with
the morning light to hearts which believed in the darkness, that thou
wert gone for ever!—opening all doors, however barred, and when
one hides his face from thee, touching him with wonderful touches,
earnest and wistful, so that he cannot choose but look in thy sweet
face again. Not always bright, not always gently pensive—desperate
sometimes, and fearful to look upon, seeing nought before thee but a
possibility; and sometimes looking down, solemn and grave, upon
places which thou hast been constrained to leave, and whence faces
of agony gaze up to thee, clutching at the skirts of thy garments,
hoping against Hope!
The year passed on, the flowers blossomed, the early trees began
to shake out their leaves about the house of Allenders—the odour of
primroses came in at the door, the voices of children made the walls
ring, and youth was with them all, to beguile them into careless faith;
but Hope, hooded and veiled as for a journey, and dwelling no longer
with them in their chambers, stood on the threshold ready to depart.
Again and again the dim face turned, as if to stay, reluctant and loth
to loose her garments from their eager hands; but she never entered
freely to dwell with them again.
The works went on with intermitting energy: now altogether
neglected, now forced forward with spasmodic exertions. The
labourers at Maidlin grew pinched and care-worn, exposed to a
capricious authority, which sometimes left them idle for a week or
two, and then poured upon their hands arrears of labour, which it
was now too late to accomplish well. The wives murmured and
recalled the steady “wage” which the old farmer gave; the men
lounged round the Cross, and shook their heads, and prophesied
ruin; the little shop newly opened, languished, and its keeper vainly
lamented the folly which brought him to Maidlin. Sober agriculturists
looking on, not without a quiet satisfaction in the truth of their own
predictions, settled into their old quietness with a word of pity for
Harry—poor Harry! His new farm buildings, built at great cost, stood
empty and useless; his farm-manager, too cautious to proceed by
himself, wandered about whole days to consult Allenders, and when
he could not find him, or found him indisposed to enter upon
necessary business, went home in irritation and disgust—went home
to find Gilbert Allenders established in his respectable house,
corrupting his young son and offending his daughters; and
Armstrong, like the labourers, shook his head, and sighed a heavy
sigh for poor Harry.
Within the house of Allenders they were all very silent. Martha,
making no comment upon Harry’s life, tried to blind her eyes, and
take out of them the vigilant jealous love which would not be
deluded. Poor little Agnes, dispirited and pale, went about the house
with her baby, forgetting all her girlish songs and laughter. Rose,
wearying and sickened of the dreams which had been her sole
solace, worked on in silence, and never cared to stir abroad; and
merry little Katie Calder, the only free heart among them, could not
comprehend the vague gloom which so often overpowered even
Lettie—for Lettie’s dreary thoughts had returned to her again.
“Lettie, dinna be sae dull,” pleaded Katie Calder; “naebody ever
sings or says a word now—naebody but Allenders, and the doctor,
when he comes; but I dinna like the doctor, Violet, and they canna
bide him at Maidlin Cross.”
“I think he’s a bad man,” said Violet, decidedly—and she clenched
her hand, and stamped her little foot upon Dragon’s stair.
“Ay, bairns,” said Dragon; “and I would like to hear somebody
explain in a sensible way what gies him such a grip o’ Mr. Hairy.
You’ll no ken, Missie; you’re ower wee; but if there was the like of
Boston, or the young lad Livingstone, that converted sae mony
hunder folk on the Monday of the preachings at the kirk of Shotts, or
John Welsh, that wore the very stanes with his praying, to the fore
now, I wouldna care to take my fit in my hand and gang away to ask
their counsel: for, ye see, Mr. Hairy’s a different man from yon—a
very different kind o’ man—and how the like of this chield has gotten
such maistry over him is a miracle to me. I kent within mysel it was
an ill sign when they ca’d him Hairy. There’s ne’er been a Hairy
Allenders from Leddy Violet’s time till now.”
Lettie would not speak of family concerns even to Dragon. She had
already the instinctive pride which hides the wound in its own breast,
and dies rather than complain; so she changed the subject rapidly.
“Dragon, you never told us the story about the laird that planted the
oak; and I thought myself, when I was at the waterside, that I heard it
groan; but how could it groan, Dragon, at the season the man was
killed? How could it ken the seasons, and it only a tree?”
“It’s just because ye have nae knowledge, Missie,” said Dragon.
“There’s me mysel noo, an auld man. I’m aye cauld, and aye
creeping to my bit spunk of fire—ye might say how should I ken the
seasons; but the oak has its fit constant in the earth, and its head to
the sky, and hears the water every day, and feels the rain and the
sun, and kens when to put forth its first leaves, and when to let them
fa’, better than the wisest man that ever lived upon this earth. And
weel may it groan, the auld oak—it’s langer in the service of the
family than me; and do ye think I dinna groan mony a time, to see a
fine lad like Mr. Hairy led away.”
“Dragon, he’s my Harry!” cried little Violet in a sudden passion,
stamping her foot again violently on the stones, while the tears fell
down her cheeks, and quivering lip and dilating nostril bore witness
to the force of her feelings. “He’s our Harry—he’s my Harry, Dragon!
and I wish God would take me—oh, I wish God would put me in a
grave, my lane, and kill me, if He would keep Harry well!”
And the tears poured down over Violet’s cheeks, and she dashed
her hand into the air, and cried aloud.
“Poor little Lettie! many an elder, many a wiser, never a more loving
heart, has lost itself in such another agony, chafing against that
inscrutable providential will, which we call fate.”
Katie Calder looked on with wonder and dismay. Honest little Katie
could not comprehend what this strange emotion was; but with her
natural instinct she made instant endeavours to “divert” her little
friend. And Dragon looked at Violet with his wandering light blue
eyes, like a man half-awakened from a dream; but as the child’s
highly-wrought feelings subsided, and she sat down on the steps
and wept, he fell back into his old torpor. You could almost have
thought that this strange voice of passion in the child had rung back
through the waste of years, and lighted upon the man’s heart which
lay sleeping in Edom Comrie’s breast.
“Eh, Lettie, Willie Paterson’s broken his leg,” said Katie Calder. “It
was on the big slide between Mrs. Cogan’s and Maidlin, and a’ the
boys play at his mother’s window now, to let him hear them when
he’s lying in his bed. It was little Johnnie Paxton that told me,
Dragon, when he came to the kitchen to see Mysie.”
“Willie Paterson’s a fine laddie of himsel,” said Dragon, “and has a
great notion of you, Missie; but mind, he’s only a puir widow’s son,
and besides, he’s gotten in among some muckle ill callants, and
they’re leading him away.”
“Dragon,” said Lettie gravely, “when folk are led away, are they no
doing ill themselves? Is it a’ the blame of the one that leads them
away, and no their ain, Dragon?”
“Weeld, I’ll just tell ye a story, Missie,” said the old man. “When I
was a young lad, I had ance a brother, and he was easy beguiled.
So a sodger out of the town got him, and courted at him, and garred
him drink, and led him into every kind of evil, till the poor callant lost
his employ, and listed, and ga’ed away across the sea to the war. By
a’ accounts he was little steadier when he was away, than he had
been at hame, though he had a guid heart for a’ that, and was aye
kind to his friends; and at the end of the war he came back just as
simple as ever he was, with a sma’ pension, and as many wounds
as might have served a regiment. He wasna weel hame, when up
turned this deevil of a sodger again—where the tane was, ye were
sure to find the tither—and within a year, George Comrie was dead
and buried. Now ye’ve baith guid judgments to be bairns—wha was’t
that should bear the blame?”
“It was the sodger, Dragon,” said Katie Calder, with instant
determination.
Violet said nothing. She was pulling away the withered fibres of ivy
from Dragon’s wall.
“I think folk shouldna be led away,” said Lettie slowly, after a
considerable pause; “and you never say folk are led away when they
do good things, Dragon. I think it was his blame too, as well as the
other man’s.”
“He’s in his grave this forty year,” said Dragon, “but I mind him
better than I mind his nameson, Geordie Paxton, that I saw only
yestreen. Maybe I should have ga’en sooner to my account mysel,
and wan beside a’ my ain friends; but for a’ I’m sae auld, bairns, I
never crave to be away; and mony a young head I’ve seen laid in the
mools, since my ain was as white as it is this day. No that I’m
bragging o’ that, Missie—but I’m auld, and I never feel ony dinnles
noo. I think my heart has slippit down some gate, where trouble can
never get a rug at it; and I’m aye pleased with the light and the guid
day, and wi’ a book whiles, and a crack, and my meat regular, and
naething to fash me; and I see nae reason I have for deeing, though
I am an auld man.”
Strange, broken gleams shone out of Dragon’s wandering eyes as
he spoke, nodding his head feebly with a half-palsied motion—fitful
glances, out of his torpor, of the heart and spirit which long ago
made him a man; but the soul dwelt benumbed in its wintry
habitation, like some forlorn dweller among the hills whose hut the
snow has buried—and resigned itself to the slumbrous spell, without
strength to struggle into consciousness of anything higher than the
warmth and ease in which it lay.
CHAPTER V.
I have heard when one lay dying, after long

And steadfast contemplation of sure death,
That sudden there would spring delicious hope,
And boastful confidence of health restored,
Into the heart which had not threescore throbs
Of its worn pulse to spend—
There is a madness that besets the verge
Of full destruction—madness that hath wild dreams
Of victory and triumph.
“How’s the farm getting on, Harry? Armstrong doesn’t seem very
jubilant about it. What’s to become of the land?” said Gilbert
Allenders.
They were sitting in the little round turret-room, looking out from the
open door upon the lands of Allenders, and many a fair acre
besides. A dewy May evening was shedding sweetness and peace
over it all, and through the whole wide country before them the
setting sun found out, here and there, a running water, and made all
the hills aware of it with a triumphant gleam. Green corn rustling in
the breeze, and gardens gay with blossoms, with here and there a
red field of new ploughed earth, or a rich luxuriant strip of meadow to
diversify them, spread round on every side; and the hum of animate
life, the indistinct farmyard voice, the din of playing children, came to
them dreamily, upon air which told you in loving whispers, of the
hawthorn trees in those deep lanes below.
In Harry’s eye shines an unusual gaiety; and the confidence which
sometimes deserts him, leaving him in such morose and sullen
melancholy, has returned to-day. Not all natural is this renewal; for
excitement, which makes Martha crush her hands together, and
sends Agnes away secretly to weep, animates him with its passing
gleam; but still he has command of himself, and is above Gilbert’s
sneers.
“What’s to become of the land? It will do famously, of course!” said
Harry; “and it’s only Armstrong’s caution that makes him quiet about
it. If Fairly remains in the market for a year or two, I think I will buy it,
Gilbert. They say it once belonged to the estate of Allenders, and
Hoolie too, which is now Sir John’s. I should like to bring the land up
to what it was in the old times; and I say, Gibbie, man, you shall have
a house, a regular red pill-box, with just such a surgery as will suit
you; and settle down, and have an appointment at once, to doctor all
my tenants. I should have quite a band of retainers if Fairly were
added to Allenders.”
“It’s very well you got the estate, Harry,” said Gilbert, with a sneer,
which poor Harry could not see. “If it had fallen into our hands, it
might have remained as it was, till the end of time, and neither been
improved nor increased. Thank you for the pill-box, Harry; I always
knew you were a warm friend. I’ll depend on getting it, I promise
you.”
“And so you shall, Gilbert,” said Harry; “but I’m not quite prepared to
buy Fairly now. I’ve ordered home a great stock of fine cattle. I don’t
know if we’ll have room for them all; plough horses—magnificent
fellows!—and the finest cows that ever were seen in the respectable
Carse of Stirling; but they take a lot of money, all these things; and I
should be very glad to have the harvest over.”
“The harvest? But this first year, I suppose, you don’t expect very
much from it?” said Gilbert.
“Don’t I? Well, we’ll see,” said Harry, laughing; “but I must be
economical this year, Gilbert—going on at this rate won’t do. I’ve
spent a small fortune this year; to be sure, it was on the land,” said
Harry, musing; “cattle, stables, byres, Armstrong and all his
labourers, not to speak of the plough graith, and the harrows, and
the thrashing-machine, and all the things they have bothered me
about; but we must be thrifty this year.”
“I believe you’ve no memorandum of the money you lent me. I must
make out one for you to-night, Harry,” said Gilbert, carelessly. “Do
you know how much it is?”
“Not I,” said the lofty Harry; “nor do I care to know. Never mind
memorandums—we know each other too well for that.”
And Harry, whose capital had shrunk to the final thousand, and
whose last expensive purchase remained to be paid for, led the way
down stairs in high glee, feeling himself already the second founder
of the family, and rich in patriarchal wealth. At the gate, Agnes and
Rose were looking out eagerly along the road, from which a tramp of
hoofs penetrated into the very drawing-room of Allenders. Little Katie
Calder stood upon the summit of the low wall, with one foot on a
tree, and Martha a little behind them, looked out with much gravity
and concern.
Great work-horses, with ribbons at their ears, and elaborate
decorated tails, were marching with heavy hoofs into Harry’s stables;
and the lowing of Harry’s kine from the fields summoned the new
milkmaids to lead them home. You would have thought it the most
prosperous of homesteads, with its grey, thin house, and abrupt
turret, telling of long descent and elder times; its superannuated
Dragon witnessing to the family kindliness which would not abandon
an ancient servant; its great farm ranges, new and shining, which
testified, or seemed to testify, to present energy and wealth; and its
youthful family crowded about the gate, from pretty little matron
Agnes to the meditative Lettie, standing by Dragon’s side in the road
without. Prosperous, peaceful, full of natural joys and pleasant
progress; but Harry’s flushed, excited face, and the coarse
pretension of Gilbert Allenders came in strangely to break the charm.
“Come along, Agnes, and see them,” said Harry, loudly. “I told you
they were splendid fellows, Gilbert. Come, never mind your bonnet;
and Gilbert will give you his arm, Rosie—come along.”
“Wait till I get a shawl on—for the servants, Harry,” said Agnes,
freeing herself from his grasp.
“What about the servants? it’s only at your own door,” said Harry,
securing her arm in his own; “and the light shines in your hair,
Agnes, very prettily. Come away, little wife.”
And Harry went on singing—
“There’s gowd in your garters, Marion,

And siller on your white hause bane.”
to the secret misery of Lettie, who thought he was humiliating

himself, and to the great wonder and astonishment of Katie Calder.
But Rose drew firmly back, and would not go. Rose was very near
hating Gilbert Allenders; so he went to the other side of Agnes, and
they walked to the stables together—poor little Agnes, nearly
choking all the way with wounded pride, and shame, and fear, lest
Harry might be offended in spite of her compliance.
“Why has Lady Dunlop never called on you again? and what has
become of that pedantic son of hers?” said Harry, when they had
returned, and were taking the tea which Agnes hoped would subdue
him. “It’s three or four months now since you called on them, Agnes
—why does not her ladyship return your visit? and I should just like
to know what’s become of young Dunlop.”
“Hush, Harry!—I don’t know—I can’t tell,” said Agnes, very humbly.
“Young Mr. Dunlop has never been here since that time—you mind,
Martha—after Harry came back from London.”
“And why doesn’t the fellow come again?” said Harry. “A pretty man
he is, to think we’re to keep on good terms with him, when he never
does anything to keep it up himself. And what’s become of these
Nettlehaugh people, and Haigh of Foggo Barns? I suppose it’s your
fault, Agnes; you’ve been neglecting the proper forms—you’ve never
called on them, I suppose?”
“Yes, Harry,” said again the very low, timid voice of Agnes, “you
have forgotten—you went with me once to both Foggo and
Nettlehaugh, and Martha and I went another time, and they have
never called since.”
“I should like to know what they mean,” said Harry loudly, his face
flushing to a deep crimson. “I suppose they think we’re not so good
as them. Never mind, Agnes; never mind, my little wife—you’ll be a
richer woman yet, and see your son a greater man than any half-
dozen of these little lairdies. I’ll have all the work, you know, and I’ll
take it gladly; but little Harry shall be heir to better land than young
Dunlop will ever see. A set of nobodies setting up for something! I
should like to know what they mean.”
“They were very kind at first,” murmured Agnes, scarcely able to
restrain the tears with which her eyes were weighed down.
“They were very kind at first,” repeated Martha distinctly, as she
rose to leave the room; “and to-morrow, when you are alone, Harry, I
will tell you what they mean.”
Never since she entered Allenders had Martha’s voice had this tone
before. Her brother started and turned to look after her, with
something of the mingled look—defiance, reverence, respect and
pain—which they all knew on his face long ago; but Martha was
gone without another word. It had a singular effect on Harry. He sat
down at the table, leaned his head upon his hand, and gazed with
fixed eyes on the vacant space before him; but he scarcely spoke
again that night.
CHAPTER VI.
Nor can thy shame give physic to my grief,

Tho’ thou repent; yet I have still the loss.
The offender’s sorrow lends but weak relief
To him that bears the strong offence’s cross.
────
As a decrepit father takes delight

To see his active child do deeds of youth,
So I, made lame by fortune’s dearest spite,
Take all my comfort of thy worth and truth.
shakspeare—(sonnets).
The next morning Harry sat in sullen silence at the breakfast-table,
scarcely raising his head. Agnes and Rose, with faltering, timid
voices, never ceased addressing him. They pressed upon him the
food which he could not taste, they asked his opinion with tearful
eyes and a visible tremor on the most trifling matters, they laid
caressing hands upon his shoulders when they passed behind his
chair; but these affectionate acts were very visible. They could not
conceal the suppressed excitement of their great anxiety, nor their
consciousness that another crisis had come in Harry’s fate.
And even little Lettie stirred on her chair restlessly, like a startled
bird, and felt her heart leaping at her very throat, and scarcely could
speak for her parched lips and the strong beating of this same little
anxious heart. And no one knew what heavy throbs beat against
Martha’s breast—no longer fluttering and tremulous, but heavy as a
death-knell. She said little, it is true, but still she addressed Harry
sometimes as usual—as usual—perhaps with a tenderer tone—
though Harry made no answer, save in monosyllables, to any of
them all; and Martha very speedily rose from her place, and left the
room.
Another spasmodic attempt at conversation was made by Agnes
and Rose, but their own hearts beat so loudly in their ears, that they
trembled for Harry hearing them. Poor Harry! through those long
slow moments which were hours to them, he hung idly over the
table, trifling with his baby’s coral—and it was not until all
endeavours at speech had failed, and a total silence—a silence of
the most intense and painful excitement to his companions—had
fallen upon them, that rousing himself with an effort, and putting back
the hair from his damp forehead, he slowly rose and went away.
Katie Calder, not understanding all this, and slightly depressed by it,
had just stolen out of the room to gather up their books for school; so
no one, save the wistful Lettie, was left with the young wife and
Rose. They sat still for a short time in silence, eagerly listening to
Harry’s footsteps as he passed through the hall to his little library,
and closed the door; and then Agnes clasped her hands upon her
side, and gasped for breath, and said in a voice between a cry and a
whisper:
“What will she say to him? Oh, what will Martha say to Harry,
Rose?”
“I cannot tell—I cannot tell,” said Rose, wringing her hands. “Oh, if it
were only over! I could break my heart when I look at Harry—I could
break my heart!” And Rose put her hands over her face in just such
a passionate burst of restrained sobbing as had come upon Violet
before.
After some time, they heard the slow footstep of Martha coming
down the stairs, and both of them ran to the door to whisper an
entreaty to her to “be gentle with Harry. Poor Harry!” They could
scarcely say it for tears.
When Martha entered the library, Harry lounging in the window-
seat, was languidly turning over a paper. He, poor Harry! was little
less excited than they were, and heats and chills came over him, and
his eye fell under Martha’s mother eye; but the second nature which
had risen like a cloud over that boy’s heart which still moved within
him, made him stubborn and defiant still. When she came in, he
threw down his paper with a slight start, as of impatience; and
turning to her, rapidly asked: “Well, Martha, what have you to say to
me?”
“Am I to have liberty to say it, Harry?”
“What folly to ask me such a question,” said Harry, angrily. “Does
my sister need to make a formal affair of it, like this, when she has
anything to say to me? Sit down, Martha, and don’t look as if you
came to school me; I may not be able to bear that very patiently, and
I should be sorry to hurt you. Sit down, and tell me what it is?”
Martha sat down with gathering coldness upon her face—coldness
of the face alone, a mask to hide very different emotions.
“I come to-day while you are full master of yourself, and are alone,”
she said, with slow and deliberate emphasis—Harry did not know
that she compelled herself to speak so, lest the burning tide of other
words should pour forth against her will—“to answer a question you
asked yesterday. You desired to know what your neighbours meant
by ceasing to seek you; Harry, I wish to tell you what they mean.”
Harry looked at her for a moment, as if about to speak, but rapidly
turning away eyes which could not meet the steady gravity of hers,
he took up his paper, and without looking at it, played with it in his
hand.
“They mean,” proceeded Martha, slowly, “that they do not choose to
extend the courtesies of ordinary life to one who scorns and never
seeks, the ordinary respect which is every man’s right who lives
without outward offence against God or man; they mean that they
cannot pretend to honour what you have set yourself to disgrace;
they mean that the name, the house, the family, which you can
resign for the meanest of earthly pleasures, have no claim of special
regard upon them. Your life is known in every peasant’s house; they
talk of you at the firesides of your labourers: they say, poor
Allenders, and tell each other how you are led away—Harry! I ask
you what right you have to be led away? You tell me you are not a
child, and will not bear to be schooled by me. What right have you, a
man—a man, Harry—to suffer any other man to lead you into evil?
And this is what your neighbours mean.”
Harry dashed the paper from him in sudden passion. “And what
right have you—what right have you? Martha, I have borne much:
what right have you to speak to me in such words as these?”
“God help me! the dearest right that ever mother had,” exclaimed
Martha, no longer slowly; “because my soul has travailed and
agonized; because I put my hopes upon you, Harry—my hopes that
were once shipwrecked, to be cast away again! Look at me, mind
me all your life, boy, before you defy me! Night and day, sleeping
and waking, I have carried you on my heart. When I was in my first
youth, I cried with strong crying, and pangs such as you never knew,
for power and wealth, and to win it with my hands. Who was it for,
but you? Then I came to a dearer hope. I thought you would win it,
Harry; and I would eat bread out of your hands, and exult in you, and
call upon the heavens and the earth to see that you were mine. What
of my hopes? They are ill to slay, but God has touched them, and
they have died out of my heart. I have failed, and you have failed,
and there is no more expectation under the sun. But I call you to
witness you are mine—bought with the blood of my tears and my
travail—my son, Harry—my son!”
He did not answer, he did not look at her, but only covered his face
with his hands.
“We are worsted, but we need not be destroyed,” continued Martha.
“I accept the failure that is past, and acquiesce in it, because it has
been God’s will—but God never wills that we should fail in the future,
Harry. God be thanked that it lies continually before us, free of stain.
And hope is hard to me—maybe it is because my tribulations have
not wrought patience, that experience does not bring me hope. But I
will hope again—I will make another venture, and look for another
harvest, Harry, if you will bid me! Not like the last—God forbid that it
should be like the last! I will turn my face towards the needful
conquest we have to make—you and me—and hope for that, though
it is greater than taking a city. But Harry, Harry, I cannot bear to see

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How to Combat Recession: Stimulus

Without Debt Laurence S. Seidman

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Stimulus without Debt

Published in the United States of America by Oxford University Press

© Oxford University Press 2018

All rights reserved. No part of this publication may be reproduced, stored in

You must not circulate this work in any other form

Library of Congress Cataloging-​in-​Publication Data

12. Can Stimulus without Debt Combat Secular

Are we ready to combat the next severe recession? We can be,

So why do I say we aren’t ready? Because a large fiscal stim-

recession as long as it assumed that fiscal stimulus must increase

was government debt in the era when the government promised

cutting spending or raising taxes, so federal grants prevent a fall

large transfer (not a loan) to the Treasury to finance a fiscal stim-

How Would a Benevolent Ruler

In this book I will propose “stimulus without debt,” a

Government Money Held by the Public

Before I turn to the benevolent ruler, I need to make a funda-

not government debt. When government paper money was

the government therefore owes paper money to the holders of

to create an asset, paper money, without also creating a debt. But

Stimulus without debt in the Benevolent

In the benevolent ruler’s economy, money consists of official

their demand for equipment to produce more consumer goods

simply orders the printing of the amount of paper notes required

may have wanted to replenish his declining checking or savings

Whose Writing Guided the Benevolent Ruler?

stimulus—​lowering interest rates—​would prove too weak to

Lessons for Combating Recession

It should be possible to implement stimulus without debt under

do it. Congress and the president should control government

What Is Stimulus without Debt?

“Stimulus without debt” is a policy that would increase aggregate

The Strategy behind Stimulus without Debt

Most recessions, including the US Great Recession of 2008,

services fell. Producers of consumer goods and services had no

enters the “open market” and buys an equal amount of govern-

bonds are government debt because the government promises

The stimulus-​without-​debt plan is designed to maintain a

1. If the Federal Reserve judges that the GDP of the economy

Would Stimulus without Debt Be

In response to a recession caused by a shock like a plunge in

without debt, primarily tax rebates to households, would ini-

Tax Rebates to Households

The purpose of having the US Treasury mail a tax rebate check

in a recession is to increase consumption spending and thereby

household would receive a rebate check in the mail from the US

A Transfer from the Fed to the Treasury

The purpose of the Fed’s transfer to the Treasury in a recession

What the Federal Reserve Would Do

Library of Congress Cataloging-in-Publication Data

stimulus—lowering interest rates—would prove too weak to

The stimulus-without-debt plan is designed to maintain a