This has been done successfully but without the burning. Just keep the price stables buying when the price fall and selling when the price goes up.
The idea of a buffer should be easy to understand here in HN. It can be done with all kind of things: http://bilbo.economicoutlook.net/blog/?p=23578
This "creative destruction" doesn't look very rational, don't you think? Is it not the goal of an economy to provide a good life for the human beings in that economy?
We should be able to do better than destroy capital in order to start again the game, but this time with less people owning more of the pie.
And there is no need for the government to be involved in that either. If there was really predictable price fluctuations between years, investors could make money buying up commodities on good years and selling during bad years (and they do.)
I just said that it have been used successfully as a way of buffering prices, without the need of burning anything, in comparison to this "creative destruction" that he sees as necessary.
The comment I was answering, talked about a government buffering mechanism as something wrong and destructive (burning real wealth). I just pointed that this kind of mechanism is not necessarily destructive.
In the next paragraph he proposes that the only way to go out of recessions is the "creative destruction" of capitalism. This is effective destruction of real wealth. It seems, that if the markets decide to destroy real wealth, then it's OK.
My answer was only about that and I was not saying that the buffering mechanism created demand.
Interestingly enough, even if I was not claiming anything about that before, there is a buffering mechanism that would create demand, and keep inflation in check: Job Guarantee as a buffer mechanism of jobs.
http://www.epicoalition.org/docs/buffer_stock_employment_mod...
I am not totally convinced about the idea myself, but I think it deserves more attention
China has for years done intense injections into its economy (both top and bottom down), with worker training programs, state owned enterprises, etc; and now they became so reliant on the artificial demand created by their own government that they have huge slack in inventories. There's a reason why copper/steel/oil are plunging.
There aren't many, if any, examples of "demand drives growth" working in a long term situation. In the short run economies simply need to work out their gluts, and slack. Famously coined "creative destruction," the unhealthy aspect (especially after Keynes) is that growth become a policy goal rather than sustainability in that growth. To this Keynes said "in the long run we're all dead," putting short term growth into focus of government policy makers rather than long term growth which often requires negative GDP growth and recessions.
Anyhow, you're also mischaracterizing the Chicago School and Milton Friedman. There is no claim that you can "never run out of demand." And the "freshwater school" is about discretionary policy of government policy, not whatever you just tried to say. This is one reason why Friedman was fond of the "Friedman rule" or the "K% Rule," because it took discretionary powers away from the Federal Reserve. The idea is that with rational expectation of monetary growth the market can set its expectations to not be prone to monetary policy failures. The same is true of government failures. The idea of "market failure" is a criticism, but the Chicago School doesn't deny market failure exists, only that the government should have a limited discretionary role involved in picking up any demand slack.
If the government bought wheat, for instance, to keep its price high and keep farmers employed; then burns it, this creates asset misallocations, though it is technically creating demand (this still happens to this day.) A policy measure is put into place to address a problem, but instead of the market correcting to shift to different types of production it continues its course and creates slack in other areas (such as too little corn, or soy.)