Objection 2: The more times a dollar is traded, the
better. When the wealthy invest their money derived from tax
cuts, this reduces the overall velocity of circulation of
Refutation: And good riddance! The quantity theory of
money – developed by John Locke and known since – states
that MV=PQ, where M is the amount of money in a society, V
is the money's velocity of circulation (the number of times
the money changes hands in a given time period), P is the
price level, and Q is the quantity of goods available. If V
rises, other things equal, so will P. Thus, an increased
velocity of circulation of money fuels price inflation.
Americans are already suffering from mild but steady
inflation, and any change that reduces it and stabilizes
prices will be a welcome one; it will prevent Americans'
hard-earned savings from being needlessly eroded.
Objection 3: When there are a lot of tax cuts, it
does not always promote a proportional growth because people
are investing as much or more than they are consuming, and
consumption is what drives the economy. The rich will not
buy anything that really promotes economic growth with the
money they obtained from tax cuts.
Refutation: This is a Keynesian fallacy which
presumes that consumption is responsible for economic growth
and prosperity. Quite the contrary, it is savings and
investment which make possible capital accumulation
and thus more efficient production of goods and services and
research into new methods of production. Capital is the
stock seed of the economy. The more seeds one plants, the
greater a harvest one reaps. If one consumes all or most of
one's stock seed, one's future harvest will be
correspondingly diminished. The more one forgoes present
consumption and invests one's resources into the future, the
greater one's future rewards. The more one consumes of one's
present goods, the less productive capacity is left
for the future. So it is with a whole economy; the more
capital is accumulated now, the higher living standards and
productivity will be in the future.
Thus, let the wealthy
invest the money they receive due to tax cuts; it will
improve everybody's quality of life as a result. Investors
do enable the creation of goods to promote economic
growth; the money they loan to banks, corporations, and
entrepreneurs gets invested into productive equipment which
fuels economic progress. Adam Smith's invisible hand
principle works here as in all economic cases: let people
dispose of their money as they see fit, and universal
benefits will result.