Re: S=I, an old debate.

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

At 17:18 20/08/98 -0700, you wrote:
>Bruce McFarling writes:
>http://csf.colorado.edu/mail/pkt/aug98/0207.html
>
>"As income received is spent, any residual remaining is saving."

>This statement is meaningful only at the statistical level of the
>individual consumer or firm, where the spending of less than current
>income NOW allows the spending of more than current income LATER.

>But at the statistical level of the macroeconomy, those who are spending
>LATER will exactly balance the saving by those who are saving NOW, so
>that there is never a break in the flow of funds.

	Since I never claimed, and would not suspect, that there would
be a break in the flow of funds in an economy -- at least as long as
the coutnries financial institutions are not in crisis.  What would
a break in the flow of funds have to do with anything?

	Are you trying to model this by first working through the
diacrhonic, and then turning to the synchronic?  That is (since
these are not GT terms, 8-)#

	Time --------------------------------------------------->

	[ X -------------------------------------------> X' ]
		 \  /    \  /
		interactions
		  /\      /\
              /   \    /  \
	[ Y -------------------------------------------> Y' ]
		 \  /    \  /
		interactions
		  /\      /\
              /   \    /  \
	[ Z -------------------------------------------> Z' ]


Or by establishing syncrhonic relationsionships, and then working
through the diacrhonics?

	_____              _____                  ______
	[   ]              [   ]                  [    ]
	[ X ]              [   ]                  [ X' ]
	[ | ]              [   ]                  [ |  ]
	[ Y ] ----------------------------------->[ Y' ]
	[ | ]              [   ]                  [ |  ]
	[ Z ]              [   ]                  [ Z' ]
	[___]              [___]                  [____]


>If there is growth in population, those who are saving NOW will
>OUTNUMBER those who are spending LATER.  If there is increasing per
>capita income, those who are saving NOW will be saving from a GREATER
>INCOME than the past income of those who are spending LATER.

	But shouldn't the relationships within a period be consistent,
if you hope that your model will be valid over a number of successive
periods?  Is the notion that *instead* of understanding economic
activity in a period, we are going to focus on changes between periods?

>In either case, there would be a "leakage" from the flow of funds if it
>were not the availability of CREDIT, which bridges the gap between the
>PRESENT of those who are saving NOW, and the FUTURE of those who are
>spending LATER.

	You have credit at the wrong point in the relationship.  The credit
is extended *first*, that is *why* it is feasible for the economy to have
a level of activity that include positive net saving.  It is not as if
the saving flows through to investment, except where credit augments it to
permit an increase in investment.  The financing of the investment
expenditure is what generated the income out of which a portion was devoted
to saving.

>It is CREDIT that refutes Say's Law.

	This much seems to be right.


Virtually,

Bruce McFarling, Newcastle, NSW
ecbm@xxxxxxxxxxxxxxxxxxx