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While I certainly agree that money provides services to those holding it, I still think that Katelsky is basically correct.
Those who want to hold low risk, short term assets are paying too little. (I don't
endorse a special tax on bank deposit, however.)
Fear of loss has caused a
huge increase in the demand for lower
risk, short term bonds. The one or
two basis points for one month and three month T-bills would be key
evidence. And the huge increase in reserve ratios (greater than one against checkable deposits) and the drop in the money multliplier (less than one now, for M1) is another bit of evidence.
Generally, the market clearing prices of these things is such that the issuers pay people to hold them--positive nominal interest rates. But if demand increases, the normal market clearing process is for the issuers to pay less and increase the quantity issued. Take that to an extreme and you get to a zero nominal interest rate. And a bit futher, and those who want to hold it so bad have to start compensating the issuers.
It is natural for financial intermeidaries to balk a bit at issuing unlimited quantities of short term, low risk liabilities while accumulating long term, high risk, assets.
That financial intermediaries went
"too far" along those lines was the problem. (Overnight commerical paper
being used to finance securities that were claims to subprime mortgages) Doing less would be a decrease in the supply of low risk, short term assets (and a decrease in the demand for high
risk long term assets.)
So increase in demand, decrease in supply, they should get more expensive. That means, lower yieds
for them, but in the extreme, even negative.
In some sense or other, having low risk, short term interest rates fall very low, too zero, or negative does punish savers. But those who are willing to hold, say, baa corporate bonds can earn a good yield. There is a risk of loss, of course.
But, if people don't want this risk of loss (and government isn't going to shelter them from it,) then, more
consumption (or more leisure) is what
they need to do.
If you always remember that currency is an asset too--it all falls into place.
And, the problem is that the entire financial system is based on currency issued by government with a zero nominal interest rate. Usually, this is a source of profit to the goverment. Not so much now.
Anyway, the "piguou" effect that generates to deflationary solution also involves increased consumption.
Katelsky's claim that money is only "productive" when being spent is completely backward. As Austrians (and others) have long argued, the "productivity" of money occurs when we HOLD it and "consume" the service of its availability. Money is just as "productive" sitting in our banks or wallets as when being spent.
Consider the following analogy:
"Firetrucks just sitting in fire-stations are not being used productively. We need to start lighting things on fire in order 'to force those with firetrucks to use them productively.'"
Like money, firetrucks ARE being productive when they are sitting at the station: they are protecting us against the uncertainty of when a fire might start and they might be needed.
As Mark says, the idiocy sees no end.
Will all these folks finally be discredited when it all comes crashing down?