I’ve been adding a introductory notes to my 4/1/10 post on Keynes’ “Widow’s Cruse” that seems to have grown into something I should post on its own too.

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The corresponding natural phenomenon he described is much more aptly termed “the youthful novice challenge” than by “the widow’s cup”.

Was Keynes ignored because he chose an odd name for the parable?

It’s really not a “bitter pill” for growth systems finding themselves in unexpected unfamiliar environments, to discover their own objectives at that point, and a way to mature and thrive as part of a stable world. Every youthful novice goes through that basic life challenge in some way, and a great many live up to it.

Keynes noticed that debt growing faster than earnings is a natural phenomenon that is avoidable only one way for a healthy economy, by creditors becoming the spenders of last resort so debt stops growing. There is a natural conflict between ever growing savings from unearned income as growth of earned incomes naturally slows due to the complications of physical systems.

Investors would normally continue to add financial earnings to their savings. That makes the question of ending that spiral of accumulating unearned income not one of whether, but one of when.

The question of how to do it is then whether it is done intentionally before or done unintentionallybecause real earnings shrink till the economy stops producing net positive financial returns.

From a borrower’s view, as earned incomes grow more slowly than unearned incomes, what lenders or investors owe you is for the gains you pay them from your earnings to be returned to the economy as spending. That stops unearned incomes from growing too, in direct response.

Doing that recycles your payments to become someone else’s earnings, completing the earnings circle. It’s a elemental principle of natural balance. If investors just add the gains to their pile, restricted to uses assuring returns of more, it creates an endless spiral of unearned income that rapidly depletes the economy of earned income.

To some, of course, it seems to violate the basic rights of private property, to no longer be able to continually multiply your money in an ever richer society. Nature makes that complicated, however, calling “time outs” for that and providing examples for how other kinds of natural free market growth systems handle them smoothly, and get real rewards for doing so.

You could also think of it as a way to relieve growing systemic risks in a smooth and orderly way, a “gradual bankruptcy”, or way for the system to “deflate it’s own bubble”, providing a sure method for preventing the otherwise hight threat of another disastrous attack of investor flight and systemic credit failure.

….Enough people need to understand that we all need to understand it, in time to respond and relieve the growing strain that would trigger a deeper collapse.

pfh