Re: S=I, an old debate.

["John B. O'Donnell" <jackodonnell@xxxxxxxx>]

Chas Anderson wrote:
>
> At 02:16 PM 8/15/98 -0700, you wrote:
> >Louis-Philippe Rochon had written:
> >http://csf.colorado.edu/mail/pkt/nov97/0113.html
> >
> >"Saving must always follow investment.  It is the sine qua non of the
> >system.  Money is introduced through bank loans used to finance
> >investment...Moreover, S is not brought into equality through changes in
> >income, as is explained in the theory of effective demand.  Rather, S is
> >always equal to I, in all periods and at all times.  Surely, this is an
> >old debate."
> >
> >Leigh Harkness commented:
> >http://csf.colorado.edu/mail/pkt/nov97/0196.html
> >
> >"Rather than looking at saving and investment, let us ask the question
> >whether expenditure can exist before income (production).  That appears
> >to be a bit like asking: which came first, the chicken or the egg."
> >
> >Paul Davidson then responded:
> >http://csf.colorado.edu/mail/pkt/nov97/0206.html
> >
> >"Which came first is a rather silly dispute.  Current saving (as opposed
> >to savings, i.e., the accumulation of past saving) is a flow out of
> >current income and income is a flow--hence both current saving and
> >current income are simultaneous flows.  Neither comes first."
> >
> >Davidson is correct.
>
> Davidson side-steps the priority problem by using a definition of saving
> that doesn't really tell us "what it is," only that it is part of something
> else, which he also doesn't define.

And the entire economic elite side-steps reality by defining one thing
and then measuring something else they call that which they have
defined. Saving and investment are conventionally defined in one form or
another as "production that is set aside to aide production" and are
then measured by equating them with net money spent on production
equipment or something similarly distinct from the defined tautology of
savings and investment. None of which is of any particular use other
than to create simplified models that do not reflect reality.

When economists get off their silly attachment to unrealistic models and
simply address the attainment of particular goals by -- (1) determining
a useful end; (2) finding a relevant measure to gauge that end; and, (3)
selecting a suitable control that can be shown to reliably affect the
desired end -- perhaps then the nonsense of chasing definitions can be
set aside for useful tasks like finding relevant answers.

			-- jbod

		Tax Privilege, Not People
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