Saving does not finance Investment: Accounting as an indispensableguide to economic theory
The paper analyses the accounting relationships between the financial and the real economy. It will be shown that accounting can clarify the nature of economic phenomena and be an important building block for economic theory. The paper will argue that there is much confusion about key macroeconomic concepts like saving, investment and finance. This confusion is best summarised in the statement "saving finances investment". After clearly defining the accounting relationships between lending, financial saving and physical investment it will be shown that this is a nonsense statement. The theory behind it - the loanable funds theory - will be analysed and critiqued. It will be shown that the loanable funds theory confuses the concepts of income and production, lending and saving, and financial saving and non-financial saving. It will further be shown that this has not only theoretical but also important policy implications.
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| Length: | 37pages |
| Date of creation: | 2012 |
| Handle: | RePEc:imk:wpaper:100-2012 |
| Contact details of provider: | Postal: Hans-Böckler-Straße 39, 40476 Düsseldorf Phone: +49 211 7778 234 Fax: +49 211 7778 4234 Web page: https://www.imk-boeckler.de Email: More information through EDIRC
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References listed on IDEAS
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- Bibow, Jorg, 2001. "The Loanable Funds Fallacy: Exercises in the Analysis of Disequilibrium," Cambridge Journal of Economics, Oxford University Press, vol. 25(5), pages 591-616, September.
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996.
"The Financial Accelerator and the Flight to Quality,"
The Review of Economics and Statistics,
MIT Press, vol. 78(1), pages 1-15, February.
- Simon Gilchrist & Ben S. Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994. "The Financial Accelerator and the Flight to Quality," NBER Working Papers 4789, National Bureau of Economic Research, Inc.
- M. G. Hayes, 2010. "The loanable funds fallacy: saving, finance and equilibrium," Cambridge Journal of Economics, Oxford University Press, vol. 34(4), pages 807-820.
- Hansjorg Klausinger, 1999. "German Anticipations of the Keynesian Revolution?: The Case of Lautenbach, Neisser and Ropke," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 6(3), pages 378-403.
- Hans-Werner Sinn, 2010. "Rescuing Europe," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(SPECIALIS), pages 1-22, 08.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. Full references (including those not matched with items on IDEAS)
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