Saving does not equal investment
SAVING DOES NOT EQUAL INVESTMENT John Maynard Keynes confused economists and politicians all over the world when he wrote, “Saving is necessary to equal investment” together with a few equations to confirm his idea and finally concluding that S = I. There have been repeated discussions about how saving can equal investment, accidentally or with certainty. We may think that Keynes explained about how saving money is used in the same amount either to invest by savers or by borrowers. But this is not what he meant. Keynes merely wrote that saving is residual. Residual from what? This paper shows that S always equals I in a closed economy. But even as S equals I, saving does not equal investment. Because I is investment but S is not saving.
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