Constructive Saving

[Harry Veeder <eo200@xxxxxxxxxxxxxxxxxxx>]

Saving is usually defined to be S = Y - C.
And income Y = C + I, so S = I


This notion of saving involves the tacit assumption that saving does not
(and cannot) independently affect Y.  However, suppose for the moment, we
leave saving as an undefined variable S* so that saving and investment both
affect Y independently:

1) Y = I + S*

Now define saving as spending less investment:

2) S* = C - I

This implies:

   Y = I + (C - I)
3) Y = C

In this system of definitions, investment is the price of all goods
and services. Saving is constructive when S* > 0, or when C > I and it is
unconstructive when S* < 0, or when C < I.

When investment exceeds spending, saving becomes unconstructive, and
investment should be taxed. When spending exceeds investment, saving
is constructive and investment should not be taxed.

Harry Veeder