Saving and Investment: Their Nature and Measurement

[Harry Veeder <eo200@xxxxxxxxxxxxxxxxxxx>]

In monetary economics it is necessary to understand what is happening when
money is being saved and invested and to know how to measure these
quantities.


                        . . . . . . . .

In my analysis saving and investing start out as 'joined' endeavours because
they both originate with work. This contrasts with Classical and Keynesian
analysis which both BEGIN by treating saving and investment as 'separate'
endeavours because they originate with money rather than work. (Classical
economics retains the separateness, but Keynes reunites them through logical
argument.)

Savers have the 'aim of not over spending' rather than simply 'not spending'
or 'hoarding' (Keynes). At any point in time a saver is working in order to
retain a certain a portion of their income with the _intention_ of
increasing their prosperity. Bad saving results from working without
consuming.

Investors have 'the aim of not under spending'. At any point in time an
investor is working in order to expend a certain portion of their income
with the _intention_ of increasing their prosperity. Bad investing results
from consuming without working.


                        . . . . . . . .

All consumption takes time. Consumption may extend over nanoseconds,
seconds, days, decades or centuries. The same is true of production.

When we spend money we are demanding time in order to prosper. e.g. The act
of investment is essentially no different from demanding a certain amount of
time to properly enjoy a meal.  Therefore, I define aggregate investment as
the total amount of time demanded for purposes of consumption. The sum of
money invested is a _measure_ of this quantity, but it is not the quantity
itself.

When we save money we are supplying time in order to prosper. e.g. The act
of saving is essentially no different from supplying the right amount of
time to prepare a fine meal. (Keynes had a bleak view of saving because he
likened it to postponing eating a meal.) Therefore, I define aggregate
saving as the total amount of time supplied for purpose of production. The
sum of money saved is  a _measure_ of this quantity, but it is not quantity
itself.

Note: Even though all product is ultimately destined for consumption, it
does not guarantee the quantity of time demanded for consumption will
balance the time supplied for production.


                        . . . . . . . .

To sum up, aggregate saving is the total time supplied and aggregate
investment is the total time demanded  for economic production and
consumption. Also, the sums of money saved and invested are only measures of
these aggregates. They do not represent the composition of these aggregates.

Harry Veeder,  c. April 14, 2002