Yes, but hiding your money in the mattress doesn't create jobs, businesses, innovation, etc. I fail to see the "issue in Keynesian thinking" you're talking about.
It does. When you hide money under your mattress this is equivalent of you giving your money to all the US dollar investors out there in proportion to the amount of investment they're making.
So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital.
Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time.
You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.
> Your investment into the general market is really only the amount of interest earned on deflation of that amount.
Your investment is the whole amount which would have purchased the 3 components of production (land/labor/capital), because the price of all these goods have fallen, which have allowed other entrepreneurs to buy them for their own investment.
What you're saying is like telling people who invest in index funds only that their investment is only the interest on the yearly return they get from the fund.
Hiding money in the mattress has no net effect on the number of jobs or businesses or innovation. I used to have the same reservations as you - the problem is that I was stuck on a local Keynesian/“Newtonian” view of the problem which makes it hard to predict equilibrium states. You need to switch to a “Lagrangian” view where you don’t have to manually step through all the decomposed effects of a marginal change in the money supply. A key realization is that humanity’s labor capacity at any instant is 100% independent of the number of dollars.
So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital.
Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time.
You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.