Re: Samuelson, 14th edition, Paradox of Thrift

[David Gleicher <104201.2301@xxxxxxxxxxxxxx>]

Gunnar wrote:

>The appearance of "paradox" enters the picture ONLY when - American
mainstream "keynesian-style" - the economic theorists omit to anchor their
reasoning in foundations (axiomatic premises) that are consistent rather
than inconsistent.

In other words, when they reason AS IF "savings" from factor incomes are a
NECESSARY means of financing entrepreneurial investment in factor inputs
for
the production process - in and of themselves, as indicated by Keynes'
'Treatise' account, such "savings" are always and necessarily
deflationary.<

The conventional paradox of thrift argument does not depend on any
assumption about how investment is financed.  The paradox comes about  when
one includes in the usual Keynesian cross model the (empirically valid)
positive relation between planned investmetn demand and levels of GDP (a
positively sloped ;investment schedule).  It follows then that an exogenous
increase in desired savings (i.e., a decrease in consumption), relative to
income, causes production (and hence national income) to decline, which in
turn causes investment to decline.  It follows then that at the new
equilibrium income, the level of investment-- the equivalent of national
savings--will be less than what it was originally, before there was an
attempt to increase savings.

DG