Tuesday, October 24, 2006

Saving isn't hoarding

There's a common economic myth that drives a lot of economic policy. Spending is what drives the economy, says this myth, whereas saving is 'hoarding' -- removing money from circulation.

But saving is not hoarding. Saving is simply putting off your own present consumption until some time in the future, and rather than disappearing down a hole in the ground your money is transferred from consumption into production. By foregoing consumption today we make today's production possible, and the goods and services for tomorrow's consumption even greater. And in fact, the only way to increase savings is to increase production...

But don't just believe me: George Reisman makes the point far better than I could here.

LINK: Saving versus hoarding - George Reisman's Blog

RELATED: Economics

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1 Comments:

Anonymous Sam Vilain said...

George writes:

This fallacy is not so difficult to understand when committed by people with limited education, who thus know little beyond their own personal experience.

Again we see the "you're holding a contrary position to me because you're dumb" argument.

But this slur aside, there are some salient points buried within. One is that if you take your money and put it in a bank, it's being invested and so on. It's not really being removed from the economy - though he sure did say "investment comes from saving", without acknowledging it's a (largely) different type of investment - re-investing capital vs saving income.

He also acknowledges that when the cash is transferred into assets other than cash that money is removed from the economy. That is also a good point.

So, while saving in and of itself may not be hoarding, saving so as to purchase "capital assets" is not excluded by his argument.

10/24/2006 06:14:00 pm  

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