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Saving Is Never A Constraint On Investment

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  • Basil Moore

Abstract

Saving is regarded in mainstream macroeconomics as a volitional relationship, like consumption. This paper argues that this view is incorrect. There is no independent volitional saving function. Since all goods produced are either consumption goods or investment goods, saving, defined as "income not consumed", is the accounting record of investment spending. Changes in the definition of investment produce identical changes in saving, with no accompanying volitional change in saving behavior. "Saving" in economics should properly be termed "abstention" since it does not constitute transitive behavior. To understand saving behavior a Hicksian definition of income must be used, and capital gains and losses must be included in the definition of income. In modern capitalist economies most saving undertaken by agents is non-volitional, and takes the form of permitting the market value of total net wealth to increase. Copyright (c) 2006 The Author. Journal compilation (c) 2006 Economic Society of South Africa.

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Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 74 (2006)
Issue (Month): 1 (03)
Pages: 1-5

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Handle: RePEc:bla:sajeco:v:74:y:2006:i:1:p:1-5

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