Economics Dictionary of ArgumentsHome
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| Saving: In economics, saving is defined as the portion of disposable income that is not consumed._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Saving - Dictionary of Arguments
Rothbard III 516 Saving/Rothbard: What happens if, in a certain period, there are now net savings as a result of a lowering of time-preference schedules? Suppose, for example, that consumption decreases from 100 to 80 and that the saved 20 ounces enter the time market. Gross savings have increased by 20 ounces. During the transition period, net saving has changed from zero to 20; after the new level of saving has been reached, however, there will be a new equilibrium with gross savings equalling 338 and net savings equalling zero. To the superficial, it might seem that all is lost. Has not consumption decreased from 100 to 80 ounces? What, then, will happen to the whole complex of productive activities that rest on final consumption sales? Will this not lead to a disastrous depression for all firms? And how can a reduced consumption profitably support an increased volume of expenditures on producers’ goods? The latter has aptly been termed by Hayek the “paradox of saving,” i.e., that saving is the necessary and sufficient condition for increased production, and yet that such investment seems to contain within itself the seeds of financial disaster for the investors.(1) >Production/Hayek, >Production/Rothbard, >Structure of production/Rothbard. Rothbard III 518 Structure of production/saving/Rothbard: (…) it is clear that the volume of money incomes to Capitalists1 will be drastically reduced. Capitalists1 will receive a total of 80 instead of 100 ounces. The amount that they have to apportion to original factors and to Capitalists2 is therefore also considerably decreased. Thus, from the side of final consumers’ spending, an impetus toward declining money incomes and prices is sent along the production structure. In the meanwhile, however, another force has concurrently come into play. The 20 ounces have not been lost to the system. They are in the process of being invested in the economy, their owners ranging throughout the economy looking for maximum interest returns on their investment. The new savings have changed the ratio of gross investment to consumption (…). A „narrower“ consumption base must support a larger amount of producers’ spending. How can this happen, especially since the lower-rank capitalists must also receive a lower aggregate income? The answer is: in only one way - by shifting investment further up the ladder to the higher-order production stages. (…) the only way that so much investment can be shifted from the lower to the higher stages, while preserving uniform (lowered) interest differentials (cumulative price spreads) at each stage, is to increase the number of productive stages in the economy, i.e., to lengthen the structure of production. Rothbard III 523 Production structure: [There is an] impact of new saving, i.e., a shift from consumption to investment, on the prices of goods at various levels. What, however, is the aggregate impact of a change to a higher level of gross savings on the prices of factors? Here we reach a paradoxical situation. Net income is the total amount of money that ultimately goes to factors: land, labor, and time. In any equilibrium situation, net saving is zero by definition (since net saving means a change in the level of gross saving over the previous period of time), and net income equals consumption and consumption alone. Rothbard III 998 Saving/inflation/Rothbard: Some advocates of coercing the market into saving and investing more than it wishes have hailed credit expansion as leading to "forced saving," thereby increasing the capital-goods structure. But this can happen, not as a direct consequence of credit expansion, but only because effective time preferences have changed in that direction (i.e., time-preference schedules have shifted, or relatively more money is now in the hands of those with Iow time preferences). >Time preference/Rothbard, >Credit expansion/Rothbard. Credit expansion may well lead to the opposite effect: the gainers may have higher time preferences, in which case the free-market interest rate will be higher than before. Because these effects of credit expansion are completely uncertain and depend on the concrete data of each particular case, it is clearly far more cogent for advocates of forced saving to use the taxation process to make their redistribution. >Inflation/Rothbard, >Business cycle/Rothbard, >Depression/Rothbard, >Boom/Rothbard. 1. See Hayek, “The ‘Paradox’ of Saving” in Profits, Interest, and Investment, pp. 199–263._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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