Re: General Theory Seminar --Savings and Investment

[Basil Moore <bmoore@xxxxxxxxxxxxxxxxx>]

Bill
I agree completely. You can say Keynes used two words for the same thing.
But you can also say that saving is the accounting record of investment.
That way it doesn't sound so crazy.

The important point is that saving from a macro point of view, for an
economy, unlike saving at the invdiividual or micro level, is not a
volitional behavioural relationship. Individuals can decide how much they
wish to save,  but for the economy as a whole, saving is just the
accounting record of investment. It is a fallacy of composition to regard
total saving as volitional, just because saving implies volition, and it
holds at the individual level.

This offers a major criticism of conventional theory: all the textbooks
happily draw an upward-sloping saving function in interest-saving space.
Look at the Solow growth model, which makes the saving propensity (s) which
is interpreted as representing the thriftiness of the economy, determine
the allocation of output between consumption and investment.

Basil

At 04:50 PM 3/15/00 -0600, you wrote:
>>From djr@xxxxxxxxxx
>"Instantaneously measured, there is a gap between the rate of
>disbursements to consumers and their spending in reflux..."
>
>This doesn't negate the S=Y-C identity, it merely raises the saving
>rate.
>
>Suppose I begin working, and I'll be paid at the end of the week.
>During that week I'm not spending, but I do have an income (though I'm
>not yet paid); i.e. there are wages payable to me, and that's an asset
>which is increasing during the week (hence income).  During the week I
>produce (say) consumption goods, which accumulate in inventory.  So
>during that first week my "income" is completely saved and equals
>inventory investment.  That is, my C is zero, so the identity is
>S=Y-C=I or S=Y-0=I...
>-----------
>
>All this does is emphasize the point I originally made, that Keynes
>assigned two words to the same thing.  Unsold goods of one type or
>another in Keynes' lexicon is "investment."  Income not yet consumed
>is "savings."  Therefore, investment equals savings.  X = X.
>
>These are not the meanings for the words in ordinary language or in
>the sense used by the classical economists.
>
>Now don't get me wrong, I'm not agreeing with the classical economists
>that investment derives from "parsimony."  Smith said that a dollar
>had to be saved before it could be invested.  A further conclusion is
>that since investment derives from parsimony there must be a one to
>one correspondence between savings and investment, what we now call
>the "saving-investment equality postulate."  Keynes rejected Smith's
>parsimony postulate but felt bound to keep its equally fallacious
>corollary.  He thus could not escape the restrictions of the circular
>flow model.
>
>We are speaking of financial circulation for the economy as a whole,
>not individual households.  It is not impossible for individuals
>without access to credit to achieve eventual wealth through initial
>sacrifice.  It is not possible for the community as a whole to do so.
>
>For growing economies, wealth is increasing at the same time that
>consumption is increasing at the same time that savings are
>accumulating.  There is no necessity for the withholding of
>consumption by any member or segment of society.
>
>Bill Ryan william_b_ryan@xxxxxxx
>Internet: http://www.geocities.com/socialcredit
>
>
>
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