Dollars stuffed under the mattress don't compete with other dollars, raising their value and enabling them to buy more of the available goods and services.
Dollars aren't resources. The resources exist and can be invested in different ways regardless of how many dollars there are.
When there is a bubble collapse, like the collapse of housing bubble, demand for the thing that is being overproduced collapses. That has to happen in order for the economy to get back to producing things people value and are willing to buy with their own money.
That collapse is a catastrophe for investors and workers invested in the bubble, but the other industries now can get all their raw inputs for less and can now grow.
Keynesians look at the collapsed industries as if they are the only source of growth for the economy. But those unviable industries have actually been diverting resources away from viable ones. The collapse of the artificial bubble is a much needed correction.
Dollars stuffed under the mattress don't compete with other dollars, raising their value and enabling them to buy more of the available goods and services.
They do when they come out of the mattress. Hoarding money means playing a zero-sum game: "This won't circulate, so the currency won't inflate, but whenever I want, I can selectively release such huge injections of cash as to buy whatever I want at whatever price it's going for."
Of course dollars matter when they come out of the mattress. But the issue was what happens in the short term if they are kept there and not spent.
The amount of resources in the world available for either consumption or investment (future consumption) don't change when a bubble is collapsing. Resources are just more likely to be used to grow sound businesses. And that creates more resources and good jobs in the future.
Consumers curtail their consumption because they are no longer fooled into thinking that their wages and asset rices will be rising fast. They stop loading up on debt. They aren't bidding up prices and the factors of production are cheaper as a result, helping expand businesses that do make sense.
Dollars aren't resources. The resources exist and can be invested in different ways regardless of how many dollars there are.
When there is a bubble collapse, like the collapse of housing bubble, demand for the thing that is being overproduced collapses. That has to happen in order for the economy to get back to producing things people value and are willing to buy with their own money.
That collapse is a catastrophe for investors and workers invested in the bubble, but the other industries now can get all their raw inputs for less and can now grow.
Keynesians look at the collapsed industries as if they are the only source of growth for the economy. But those unviable industries have actually been diverting resources away from viable ones. The collapse of the artificial bubble is a much needed correction.