Re: S=I, an old debate.

["Bruce R. McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>]

At 01:12 17/08/98 -0700, Chas wrote:
>No, you forgot the distinction between savings and saving. Saving
>is with respect to a given time period. Savings is an accumulation,
>a stock. I'm changing the composition of my stock, so to speak. I'm
>now holding a financial asset and less money, say, pari passu, but the
>purchase of the asset increased my rate of saving, ceteris paribus,
>while the reduction in my cash holdings (stock) did not affect
>the current flow of saving.

	No, rather you have forgotten to beware the fallacy of composition.

	Defining saving as the acquisition of financial assets means that
when you "dishoard" to "save" by buying a financial asset, you have changed
the composition of your savingS without engaging in any savinG.  Spending
cash
from your cash holdings is dissavinG.

	However, EVEN IF you redefine savinG so that spending down your
cash holdings is excluded, you STILL haven't changed NET savinG by purchasing
an existing financial asset, because your savinG is matched by an equal
amount of dissavinG by someone else!  Now someone else has an increase
in their cash hoard -- which for consistency must also be considered as
no change in their "rate of savinG", and has sold an asset, which decreased
*their* rate of savinG.  Defining the spending out of cash hoarded from
a previous term as saving means that the transaction is a shift in
composition of savings, with 0 savinG for both sides and therefore net
savinG of 0.  Defining the spending out of cash hoarded and the accumulation
of cash hoards as NOT savinG means that the transaction is positive for
one side and negative by an equal amount for the other, and net savinG
is *STILL* 0.


Virtually,

Bruce McFarling, Newcastle, NSW
ecbm@xxxxxxxxxxxxxxxxxxx