Increasing government spending or the money supply relieves business, to some extent, the pressures of competition. Competition is supposedly what makes business efficient. The absence of competition allowance inefficiencies to accumulate and fictitious capital to multiply.
The Japanese bubble economy is a perfect, albeit extreme, example of this phenomenon. As the money supply was pumped up, business invested; investments prospered, creating an irrational exuberance that seemed to be validated because of the high-level of demand.
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu