Re: "Is Macroeconomics Believable?"

[jlegge@xxxxxxxxxx]

I seek enlightenment.

In a feudal society there were no markets on the estate, and so investment
consisted in forcing the peasants to strengthen the keep or perform other
works on their lord's behalf.  It is not clear to me that anything is being
saved, apart from time that the peasants would otherwise have spent trying
to grow food to pay their feudal dues and feed their families.

Under Manchester capitalism the mill owner could, indeed, refrain from
consumption and spend the cash saved on new equipment or invest it in the
"funds" to provide for his family; the "funds" included Government consols
at 3 per cent, railway bonds at 4 per cent, or East India Co at 7 per cent;
in each case regular new issues kept the price stable (by modern
considerations) and so after the sort of delay that Trond delights in
modelling the money would find its way into tangible assets of some sort.
Savings, with a possible time lag, equalled investment (the buffer being
cash balances).

Keynes, as I read the GT, argued that there was a necessary ratio between
investment and consumption, such that a deficiency in investment will lead
to deficient demand and unemployment.

Today I am asked to buy shares in a company which has no intention of making
a new issue, but will borrow fixed interest money if it needs cash and buy
back its own shares.  The dividend income is derisory wrt the share price,
and so my expectation of a profit is the speculative one of hoping to sell
the shares at a greater price than I paid.  As far as I can see, the money
that I "saved" has become trapped in the financial system, with no
likelihood of being used to create a productive asset.

Even if I put my money in the bank, it is possible that it will be lent to a
share speculator rather than being put to productive use.

If I took my money to the casino and left it there I am sure that the
national accounts would record this as expenditure on the CONSUMPTION of
gambling services.  If I buy shares (except in a new issue) or deposit money
in a bank am I not consuming gambling services rather than investing?

S still equals I, but is there not a substantial discrepancy between the
real S and the amount recorded as savings in the national accounts?

JML