Saving is Stimulus
The 19th century political economist Jean-Baptiste Say observed that excessive consumption is the equivalent of capital destruction, because the amount of capital available to new businesses is being reduced...So while it is certainly true that we produce in order to consume, it is pure myth to suggest that parsimony is an act of economic destruction. More realistically, when individuals spend with abandon they're not only depriving themselves of interest and future financial security, they're also depriving industry of the capital necessary to grow...In truth, if we must have the economic retardant that is stimulus foisted on the economy, the single best thing its recipients could do would be to put the money in the bank. At least then money borrowed from the private sector by the government for immediate consumption would potentially be made available to businesses eager to grow.
So despite the conventional wisdom telling us that we must spend irrationally in order to boost the economy, the simple fact remains that individuals can only grow wealthy if they save first. And when people work to enhance their personal financial situations, they're also providing real stimulus to the economy thanks to existing and future businesses having access to capital.
And he has another one here. "Government solutions Are Slowing the Economy"
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4 comments:
Ive been thinking a lot lately about how and when money becomes relevant to an economy. People produce things and trade for money. So money is a claim on economic goods and implies that the person with a claim created something and has not yet consumed it, but wants to consume it in a different form later. Then i think about how perverse it is to sever the link between production and the claim on what is produced, which is essentially what happens under inflation. And to think people think this will "jumpstart" an economy!
Hi z,
Welcome back.
I think the connection between money and production is even tighter than being a "claim." Starting from barter, one commodity--one form of production embodied in a physical substance, i.e.wealth--gradually evolved as the commodity which everyone was willing to accept as the "middle man" for trade. That medium of exchange was gold. Proper money is not just a claim to wealth but actually IS wealth, a commodity with real market value. Wealth is properly a claim only on other wealth. To exchange voluntarily is free trade. To exchange via coercion or fraud (paper unbacked by actual wealth) is theft.
thanks, i never left, but i've been too busy to comment. i see what you're saying but my claim idea is based on the difference between money and wealth. money is wealth, whereas wealth is more general, and money is a kind of wealth, a good that has a specific function. can openers are wealth that do one thing, open cans. money is wealth that does certain specific things, as well. it is a store of value (as i know you know). it is a means of exchange only because it is a store of value. wealth is produced, but before it can be traded, it must be stored. say, wheat. you produce it and then lock the value in some money, and carry it to best buy to trade for an ipod. being that money is useless without a continuous supply of production (have you ever read "alas babylon"?) money qua a means of exchange acts as a claim system under which producers can store their wealth and claim it back in another form (thanks to the division of labor). the irrationality of today thinks that you can produce wealth by giving people claims to take and consume wealth when they have not produced a corresponding wealth. this removes the very substance we're trying to make more of. it is responsible for the mass malinvestment of wealth, as shown by the crisis in housing. a personal anecdote, my friend sells exotic automobiles, the kind that you pay for 3 years before it is made. he said his best customer was typically a real-estate developer and contractor. this is an example of how credit expansion slowly destroys capital accumulation. sorry for the digression. keep up the good work.
z,
Thanks for the elaboration-not at all a digression. i understand better the point you were making and fully agree.
I recently read something which illustrated that it is not debt per se that is the problem, but unbacked debt--uncollateralized or fractionally collateralized. It's not credit but credit expansion that artificially increases the money supply and leads to instability which we experience as boom-bust. Just one more way of comprehending economic cause and effect.
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