Re: S=I, an old debate.

[Chas Anderson <chasna@xxxxxxxxxxx>]

At 03:00 PM 8/18/98 +1000, you wrote:
>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.

Dissaving is consumption in excess of current income. You're incorrectly
assuming I'm dishoarding to consume in excess of income. I'm not. Remember,
the current hoard was purchased by a prior year's income
and is part of my current stock of wealth. I am not changing my current
level of consumption, but I am increasing my current level of spending
by purchasing, say,  a financial asset.


>
>	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

I think you're mixing savings, saving and the rate of saving and, sometimes,
I believe you're defining saving and the change in savings. I'm defining
saving not as a withdrawal from the circular flow, but as a purchase of
an asset.

Chas