Re: General Theory Seminar --Savings and Investment

[Basil Moore <bmoore@xxxxxxxxxxxxxxxxx>]

Paul

Coming back to S&I, I do not know if you bought my argument that saving can
be viewed as the accounting record of investment?

Looking at it this way, it is clear that there is not an independent
behavioural saving relationship . Investment cannot be constrained by
insufficient saving, since saving is simply the record of investment.

If savers wish to save more than investors wish to invest, in the short run
inventories will accumulate, which will lead to a reduction in investment
and income. Abstention (saving) will lead to a fall in AD.
This is the Keynesian argument against oversaving: abstention is a social
vice, like hoarding in a fiat or commodity money world.

But, once one realizes that the MS is endogenously demand driven by the
demand for bank credit, and that the CB sets interest rates exogenously,
providing the CB tries to manage AD to keep the economy at full employment,
it will then lower interest rates, leading to an increase in investment,
and continue lowering them until full employment is reached.

So if the CB does its job correctly, higher saving will result in greater
investment and lower interest rates. This is of course the classical
result. But it does not come about as the classicists envisaged it. The CB
can produce classical results, providing it does its job correctly, and
concentrates on targeting full employment,

Instead current CB's  use interest rates as a kind of incomes policy to
target the inflation rate by depressing AD and weakening labor market power.

Any comments?

Basil

The CB can only focus on full employment if, like the Bank of  Japan, or
the Singapore Monetary Authority, it has an incomes policy or social
contract in place, which ensures that money wage growth does not exceed the
rate of average labor productivity growth.



At 12:09 PM 2/20/00 -0500, you wrote:
>At 07:23 PM 02/19/2000 +0900, you wrote:
>>Since I found many people participated in exciting discussions about
>>Savings and Investment, I would like to ask you a
>>question which have bothered me for long time.
>>
>>In General Theory, Keynes have admitted that saving and investment were
>>necessarily equal in amount, as classical
>>economists had argued. But in a case of Keynes, the causality was opposite
>>to classical economics, in other words,
>>saving are an entirely passive variable and always turns out to be equal
>>to investment.
>>
>>Thus, according to Keynes, I seem that saving can't emerge unless
>>investment exists. In other words, saving result from
>>investment. What I can't understand is whether saving at time t can't be
>>funds to invest at time t. I seem that
>>arguments about finance motive may prove my correctness, because finance
>>motive has nothing to do with saving. Thus
>>possible choices to raise funds for investment are (1) bank credit
>>expansion (2) past saving accumulated in the form of
>>bonds or stock and so on.
>
>
>If past savings are in the forms of stocks and bonds-- then they are NOT
>available as money to meet payrolls in the capital goods producing industry.
>
>If past savings is being currently held as "money" then this is available
>to finance new investment -- but only if the public who  holds the money
>changes its liquidity preference and agrees to hold securities rather than
>money at the current rate of interest.
>
>Paul
>Paul Davidson
>Holly Chair of Excellence in Political Economy
>Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
>Economics Department -- 523 SMC
>University of Tennessee
>Knoxville, Tennessee 37996-0550
>email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
>http://econ.bus.utk.edu/Davidson.html
>