Fantasy of the magic money tree

“THERE IS NO SUCH thing as a free lunch.” Or so Milton Friedman assured us in the title of a 1975 collection of his newspaper articles. However, economies are complicated mechanisms and Friedman’s dictum is not entirely true.

The state has the undoubted ability to create money, nowadays usually delegated to central banks. In a depressed economy — where output is a few per cent beneath its trend level — a sudden injection of extra money balances boosts economic activity, and so increases output and employment. Money injections