Investment-Saving-Consumption

[mcclintockbrent%faculty%Carthage@xxxxxxxxxxxxxxxx]

Gary Mongiovi raises the question whether welfare programs should be seen as
forms of investment rather as acts of consumption.

At the broadest level, the problem is with mainstream economics' twisted and
arbitrary way of categorizing what is investment and consumption as well as
the role of saving in the capital formation process. Institutionalists from
Thorstein Veblen on have critiqued the neoclassical split between investment
and consumption as well as the notion that savings leads to investment
(Post-Keynesians have been part of this critique too). There is
also the rejection of the neoclassical verity that "consumption is the sole end
and purpose of all production" as Adam Smith put it. Beyond these theoretical
errors, the national income accounting system also has cemented strange ways of looking at consumption, investment, and saving into the collective psyche.
Similarly, the architects of the GNP accounts arbitrarily included market
production and not household production as any principles of econ. student
learns. (Ironically, Simon Kuznets, developer of the accounts in the U.S. was aninstitutionalist!)

Clarence Ayres had much of use to say on the inadequacies of the neoclassical
treatment of saving-investment-consumption concepts -- particularly in _The
Theory of Economic Progress_, [original ed. 1944], Kalamzaoo: New Issues
Press, 1978). Commenting on the "savings drives investment" theory of refrainingfrom current consumption to enjoy future consumption, Ayres wryly observes:
"No one secretes steel rails by going without lunch" (p. 49).
A workable theory of investment has to focus on the interrelated technological
and resource wherewithal of society and not the financial flows that are rather secondary to the real flows. When approached from this perspective, prevailing
notions of investment and consumption are thrown into disarray.

Cheers,
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Brent McClintock                    |                           |
Economics                           |                           |
Carthage College                    |      THERE IS NO WEALTH   |
Kenosha, Wisconsin 53140            |           BUT LIFE        |
USA                                 |                           |
Phone: (414) 551-5852               |         John Ruskin       |
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