Re: S=I, an old debate.

[Chas Anderson <chasna@xxxxxxxxxxx>]

At 08:15 PM 8/18/98 +1000, you wrote:
>At 00:44 18/08/98 -0700, Chas wrote:
>
>>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.
>
>	No, I am not making any such assumption.  Of course, defining
>dissaving as C-Y when C>Y is the natural consequence of defining saving
>as Y-C when Y>C.
>
>	So instead of calling the negative of saving "dissaving", I will,
>if you prefer, call it negative saving.  Word changes do not change the
>argument.
>
>	Defining addition to cash holding as part of someone's saving, and
>defining addition to other financial assets as part of someone's saving,
>then when someone buys a financial asset out of a hoard, they are not
>changing their savinG one iota.  Neither does someone change their
>savinG one iota when they buy cash with a financial asset (or, if you
>prefer, sell a non-cash financial asset for cash).  Therefore on the
>transaction the change in NET savinG over the two parties to the
>transaction is 0.
>
>	Defining addition to cash holdings as "neither consumption nor
>savinG", and defining drawing down cash holdings as "neither consumption
>nor saving", then when someone buys a financial asset out of a hoard,
>they are shifting from "neither C nor S" to S.  And the person who sold
>the asset is shifting from S to "neither C nor S".  So NET savinG is
>still 0.
>
>	Of course, on this list the presumption is that the label
>savinG applies to cash holdings as well as other financial assets.
>(Keynes, Kalecki, Robinson, et al.)  The question Keynes asked here
>was where does savinG come from when it does *not* come from someone
>else's saving: that is, since the bulk of individual savinG transactions
>are just redistributions of the amount of income received but not
>consumed, and has no impact on NET savinG, what is the source of the
>"new" savinG in the system that *must* take place if the total level of
>savingS is ever going to change.
>Bruce McFarling, Newcastle, NSW
>ecbm@xxxxxxxxxxxxxxxxxxx

Bruce, you're over complicating something with too many undefined
terms, the concept is really much more fundamental:

For example, active money circulates within the period, inactive money
does not. So there are two ways to proceed: 1) we can define the money
supply as only active money, or 2) as both active and inactive. In the first
method, dishoarding would mean an increase in the money supply and
given, say, as constant rate of circulation, and increase in expenditures,
say, a purchase of a new financial asset. With the second method, there
would be a shift from inactive to active balances and, given our second
definition of money, the dishoarding would reveal itself as an increase in
the rate of money circulation. The simple step, then, is to ask,"what
is the increase in circulation against, again let's say, the purchase of a
new financial asset.

In either case, purchases of financial assets have increase, without any
fallacy of composition and with total consistency in an aggregative
sense. In many ways, this definition opens avenues to understanding
economics where the value of unconsumed output concept will not
let us go.

Chas