Keynes And The Concept Of Saving

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Dear Gang: 

 

In light of Paul Davidson's recent suggestion that my challenge to his interpretation of key aspects of Keynes' General Theory reflects failure on my part to "understand" relevant "facts" of the matter, I am re-posting to Gang8 the message below which I posted to PKT a few days ago. 

 

The proposition that Keynes was confused on the concept of "saving" is not a new one - if memory serves me right, Pigou made the like point in his review of the General Theory as did Paul Samuelson in two key papers, (a) 'The Rate of Interest Under Ideal Conditions' in 1939, and (b) his July 1947 Econometrica memorial article on Keynes.  And, of course, so has Geoffrey both on and off Gang8.

 

The point is an important one for, if the Pigou-Samuelson-Gardiner-Tomasson critique is justified, then it follows that Keynes' General Theory was infused with conceptual confusion from the very outset - a "fact" which Davidson has yet to "understand". 

 

Gunnar

 

 

My PKT message:

 

In the context of Creditary Economics, there is no question "that the word
'saving' should not be used to describe what is done with the non-consumed
part of current income, since this word has already been reserved for
another category."

Specifically, "saving" denotes the factor content of the economy's Work in
Progress - a proposition which is reflected in those parts of the General
Theory where, as noted by Paul Samuelson in his 1939 paper on 'The Rate of
Interest Under Ideal Conditions', Keynes reasoned (correctly) that the
"value" of the economy's work in progress could ONLY change through Net
Factor Investment therein.

In other parts of the General Theory - specifically in his definition in Ch.
6 of "saving = income - consumption" - Keynes adopted a different concept of
"saving".  In this respect, I construe his introductory comments in Ch. 6 -
"Amidst the welter of divergent usages of terms, it is agreeable to discover
one fixed point.  So far as I know, everyone is agreed that *saving* means
the excess of income over expenditure on consumption." - as clear-cut
evidence of conceptual confusion on his part.

For "saving" in this second sense is part of Factor Income received in
exchange for Supply of Factor Inputs ("saving" in the first sense) to the
economy's Work in Progress.  In the real world, of course, "saving" out of
Factor Income is routinely used to finance NEW Factor Investment as well as
Final Consumption.

The same is true of "bank credit" - a fact which throws a monkey-wrench into
any attempt to formulate a coherent "liquidity-preference" theory of
interest valid for the supply of liquidity to Consumers and Entrepreneurs
alike by BOTH banks and Factor Income Recipients.

Gunnar