8. Income, Saving and Investment

0:00Chapter 8, Income, Saving and Investment Confusing Definitions Chapter 6, The Definition of Income, Saving and Investment and Chapter 7, The Meaning of Saving and Investment Further Considered, are among the most confused that even Keynes ever wrote, and upon their confusions are built some of the major fallacies in the general theory. Let us start with a sentence on page 55.

0:45Furthermore, the effective demand is simply the aggregate income or proceeds which the entrepreneurs expect to receive. This is loose writing, loose thinking, or both. Surely the effective demand cannot be what the entrepreneurs expect to receive, but what they do, in fact, receive. What they expect to receive must be merely what they expect the effective demand to be. This confusion between expectations and realities, as we shall see, runs throughout the general theory. Yet many Keynesians single out his treatment of expectations as Keynes's great contribution to or even revolution in economics.

1:40This process of bringing anticipations out from between the lines, writes Albert G. Hart, is nowhere more dramatically illustrated than in the work of Keynes. Keynes himself confesses that in his treatise on money he did not distinguish clearly between expected and realized results. The Aggregate Demand Function relates various hypothetical quantities of employment to the proceeds which their outputs are expected to yield, and the effective demand is the point on the aggregate demand function which becomes effective because, taken in conjunction Particularly as he has not bothered up to this point to explain some of the leading terms employed, this is as choice a specimen of involution and technical gobbledygook as one is likely to find anywhere.

3:01But the general theory is rich in such jewels, and we shall have occasion to examine the multiple facets of many of them before we are through. I spare the reader footnote 2 on page 55, which weaves mathematical equations into already intricate verbal crochet work, but the curious may wish to consult it. We are now ready to proceed to Keynes's definitions, respectively, of income, saving and investment, and of his reasons for finding saving and investment always equal. But before we do this, I must call attention to Keynes's apology for the considerable confusion, page 61, he caused in his treatise on money by his use of the terms there and and to his confession, page 78, that the exposition in My Treatise on Money is, of course, very confusing and incomplete.

4:08It remains now to examine which is the more confusing, Keynes's exposition and use of the terms in his Treatise on Money or his exposition and use of the terms in the General Theory. If Keynes gives any simple definition of national income in chapters six and seven, I cannot find it. As we shall see, his concept of income seems to be subject to change without notice. I am willing to accept Professor Hanson's word for it that income in the current period is defined by Keynes as equal to current investment plus current consumption expenditures.

4:54Saving in the current period is, moreover, defined as equal to current income minus current consumption. Each of these key words, it will be noticed, is here defined in terms of the others. Such definitions are merely circular, and not in themselves enlightening. If we are told that x equals y plus z, then of course we know that y equals x minus z, and that z equals x minus y. Furthermore, if we know that x equals y plus z, and that x also equals y plus w, we know that w equals z.

5:40But none of these transpositions or deductions can advance us very much until we have further knowledge of W, X, Y or Z. There are two chief questions to be asked concerning the use of terms and their definitions. 1. Is a given term and its definition clear and consistent? 2. Is a given set of terms or definitions more useful or enlightening than a more traditional set or than possible alternatives. Let us now apply these two tests. Amidst the welter of divergent usages of terms, writes Keynes on page 61, it is agreeable to discover one fixed point.

6:31So far as I know, everyone has agreed that saving means the excess of income over expenditure on consumption. This definition, while at first sight apparently both simple and clear, ignores the vagueness in both the terms saving and income. Either of these may be conceived in terms of commodities, or purely in terms of money, Or in terms of a mixture of commodities and money. If an automobile dealer, for example, takes 100 cars from a manufacturer in a given year, and sells only 75 of them, the 25 cars that he has been unable to get rid of may be regarded by some economists as part of his income during that year, and part of his savings during that year.

7:25He himself, however, may measure his income and savings purely in terms of his cash position, and regard his unsold cars as a mere misfortune. They will probably be carried on his books at cost or at some other arbitrary valuation, but the dealer will only measure his income and savings in accordance with the money price at which his surplus cars are ultimately unloaded. We shall return to some of these points later. Why Savings Equals Investment Our definition of income, continues Keynes, also leads us at once to the definition of current investment, for we must mean by this the current addition to the value of the capital equipment which has resulted from the productive activity of the period.

8:24This is, clearly, equal to what we have just defined as saving, for it is that part of the income of the period which has not passed into consumption. Page 62 Now, it is to be noticed here that Keynes has not only defined investment so that it is necessarily equal to saving, but he has has also defined it that investment and saving must be identical. He does not admit this clearly, however, until 12 pages later, at the beginning of chapter 7. In the previous chapter, saving and investment have been so defined that they are necessarily equal in amount, being, for the community as a whole, merely different aspects of the same thing.

9:16page 74. But before he gets to this admission of identity, he has already made and expanded upon his contention of equality. Whilst therefore the amount of saving is an outcome of the collective behavior of individual consumers and the amount of investment of the collective behavior of individual entrepreneurs, These two amounts are necessarily equal, since each of them is equal to the excess of income over consumption. Provided it is agreed that income is equal to the value of current output, that current investment is equal to the value of that part of current output which is not consumed, and that saving is equal to the excess of income over consumption, the equality of saving and And investment necessarily follows. In short, income equals value of output equals consumption plus investment. Saving equals income minus consumption. Therefore, saving equals investment.

10:29Page 63 Now, if, following the symbols used by the With Keynesians, we let income be called Y, consumption C, investment I, and saving S. We arrive at the famous formulas. Y equals I plus C. S equals Y minus C. Therefore, I equals S. All this is undeniable, provided we define these terms and symbols as Keynes in this chapter defines them. We cannot say that this use of these terms or these definitions are wrong. If Keynes in fact had explicitly defined both saving and investment as meaning simply, unconsumed and output, which he never did do, then not only the equality but the identity of saving and investment would have been obvious.

11:32But while, to repeat, no usage or definition of words can be arbitrarily dismissed as wrong, we may properly ask some questions of it. Is it in accordance with common usage, or does it depart so much from common usage as Does it help or hinder study of the problems involved? Is it precise or vague? And finally, is it used or applied consistently? We shall find, in fact, that Keynes's definition of saving and investment, which make them necessarily equal and, indeed, merely different aspects Books of the Same Thing, page 74, have created great embarrassments for the Keynesians and confusions and contradictions in the Master.

12:32The embarrassments to the Keynesians come not only from the fact that Keynes had previously so defined saving and investment as to make them usually unequal or occasionally equal only by a sort of happy accident, but from the fact that these general theory definitions create many difficulties in subsequent Keynesian doctrines. In fact, Keynes abandons these definitions without notice to the reader in the latter part of the general theory and returns to his older concepts. I have already referred to the apologies of one or two lines that Keynes makes, pages 74 and 78 in the General Theory, for the very confusing and incomplete definitions and exposition in his treatise on money.

13:28What he fails to point out, however, is that his whole concept of the terms is different, and that his whole theory of the relation of saving and investment has been radically changed. We do not have to do here with any mere differences in definition or in exposition. We have to do with the abandonment and repudiation of one of the major theories presented in the treatise on money. For in that treatise, Keynes explains the whole credit cycle in terms of differences We shall mean by savings, he writes, the sum of the differences between the money incomes of individuals and their money expenditure on current consumption.

14:17It is to be noticed here that he defines savings specifically in terms of money incomes and expenditures. In his general theory definitions, however, money is not explicitly mentioned either in defining savings or in defining investment. Keynes does declare, in defining investment in the general theory, Investment, thus defined, includes, therefore, the increment of capital equipment, whether it consists of fixed capital, working capital, or liquid capital. Page 75. He then adds, The significant differences of definition are due to the exclusion of investment of one or more of these categories.

15:06Page 75. Keynes's definition of investment quoted in the general theory therefore includes liquid capital, by which he apparently means both money and securities. But it surely merely adds confusion to call cash, for example, a part of capital equipment. This confuses Keynes himself as he proceeds. Let us return to his use of the terms saving and investment and the theory he builds around this use in his Treatise on Money. Keynes there explains the whole credit cycle in terms of saving running ahead of investment or vice versa.

15:51On my theory, he writes, it is a large volume of saving which does not lead to a correspondingly large volume of investment, not one which does, which is the root of the trouble. A hundred pages later on, he is even more explicit. It is not surprising that saving and investment should often fail to keep step. In the first place, as we have mentioned already, decisions which determine saving and investment respectively are taken by two different sets of people influenced by different sets of motives, each not paying very much attention to the other.

16:37And he adds, in the same paragraph, There is indeed no possibility of intelligent foresight designed to equate savings and investment unless it is exercised by the banking system. And at the end of the chapter, it gives the reader to understand that this difference in effect describes the genesis and life history of the credit cycle. The distinction between saving and investment is, if anything, even more sharply drawn This saving relates to units of money and is the sum of the differences between the money incomes of individuals and their money expenditure in current consumption, and investment relates to units of goods.

17:31The object of this chapter is to illustrate further the significance of the distinction between these two savings. Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption. Investment, on the other hand, is the act of the entrepreneur whose function it is to make the decisions which determine the amount of the non-available output and consists in the positive act of starting or maintaining some process of production or of withholding liquid goods. It is measured by the net addition to wealth, whether in the form of fixed capital, working capital or liquid capital.

18:20It is significant that though Keynes here defines saving explicitly in terms of units of money and investment explicitly in terms of units of goods, he then surreptitiously or absentmindedly introduces the element of money and investment under the term liquid capital. Small wonder that he himself later found the whole thing very confusing. It may be pointed out here that in the general theory, Keynes constantly uses a word like income without specifying or distinguishing between real income and money income. This leads to constant confusion.

19:07And as we shall see, when we do distinguish constantly and clearly between real income and money income, such plausibility as the Keynesian theories may have begins to wear off. His system needs this ambiguity and confusion. Saving as the Villain It will be noticed also that in the very terms of his definitions in the treatise on money, Keynes manages to disparage saving while commending investment. The truth is that saving has always been the villain in the Keynesian melodrama. As far back as The Economic Consequences of the Peace, 1920, the book that first brought The Railways of the World which the 19th century built as a monument to posterity were, not less than the pyramids of Egypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.

20:18Thus this remarkable system depended for its growth on a double bluff of deception. On the one hand, the laboring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of society into accepting, a situation in which they could call their own very little of the cake that they and nature and the capitalists were cooperating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs, and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice.

21:05The duty of saving became nine-tenths of virtue, and the growth of the cake the object of true religion. There grew round the non-consumption of the cake all those instincts of Puritanism, which which in other ages has withdrawn itself from the world and has neglected the arts of production as well as those of enjoyment. And so the cake increased, but to what end was not clearly contemplated? Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Banking was for old age or for your children, but this was only in theory. The virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.

21:58Pages 19-20 This is a typical example of the satire and prose style of the Bloomsbury School, of which in which Keynes was a prominent member, along with Leiden Strache. But it cannot be taken seriously as economics. Its main purpose is obviously be la parterre les bourgeois. It illustrates the frivolity and irresponsibility which are recurrent in Keynes's work. It is obviously absurd, for example, to say that labor was not free to consume in immediate enjoyment It was the capitalists who were doing the saving. The workers saved only to the extent that their incomes permitted and their own voluntary prudence prescribed.

22:51Labor then, as now, was getting the full amount of its marginal contribution to the value of the product. There was no bluff and no deception. As a result of this saving, the size of the cake, it is true, was growing practically every year. But more cake was also being consumed practically every year. I have tried to illustrate what was happening in my economics in one lesson. As a result of annual saving and investment, total annual production increased each year. Ignoring the irregularities caused by short-term fluctuations and assuming for the sake of mathematical simplicity, an annual increase in production of 2.5 percentage points, the picture that we would get for an 11-year period, say, would run something like this in terms of index numbers.

23:52In the first year, total production would be 100. Consumers' goods produced would be 80. Capital goods produced would be 20. This, of course, assumed the process of saving and investment to have been already underway at the same rate. In the second year, total production would be 102.5. Consumers' goods produced would be 82. Capital goods produced would be 20.5. In the third year, total production would be 105. Consumers' goods produced would be 84. Capital goods produced would be 21.

24:39In the fourth year, total production would be 107.5. Consumers' goods produced would be 86. Capital goods produced would be 21.5. In the fifth year, total production would be 110. Consumers' goods produced would be 88. Capital goods produced would be 22. In the sixth year, total production would be 112.5. Consumers' goods produced would be 90. Capital goods produced would be 22.5. In the seventh year, total production would be 115.

25:26Consumers' goods produced would be 92. Capital goods produced would be 23. In the eighth year, total production would be 117.5. Consumers' goods produced would be 94. Capital goods produced would be 23.5. In the ninth year, total production would be 120. Consumers' goods produced would be 96. Capital goods produced would be 24. In the 10th year, total production would be 122.5. Consumers' goods produced would be 98.

26:12Capital goods produced would be 24.5. And in the 11th year, total production would be 125. Consumers' goods produced would be 100. Capital goods produced would be 25. What I tried to illustrate by this table is that total production increased each year because of the saving and would not have increased without it. The saving was used year after year to increase the quantity or improve the quality of existing machinery and other capital equipment, and so to increase the output of goods. There was a larger and larger cake each year.

26:59Each year, it is true, not all of the currently produced cake was consumed, but there was no irrational or cumulative consumer constraint. For each year a larger and larger cake was in fact consumed, until at the end of the eleventh year, in our illustration, The annual consumer's cake alone was equal to the combined consumer's and producer's cakes of the first year. Moreover, the capital equipment, the ability to produce goods, was itself 25% greater than in the first year. My illustration, of course, assumed the long-run equality and identity of saving and investment.

27:46Now, it is a notorious fact that in the 19th century, which Keynes is here deriding, there was not only continuous saving and a tremendous increase in capital equipment, but a huge increase in population and a constant increase in the living standards of that population. Keynes himself, in fact, in the succeeding paragraph of the Economic Consequences took the whole thing back. He was just having his little joke. But the problem is to know, even in his treatise on money and in his general theory, when he is just having his little joke and when he is really in earnest.

28:33I suspect that he himself was sometimes a little confused on this point. Benjamin M. Anderson, indeed, has suggested that Keynes's confusion on the whole concept of savings and investment in the general theory could be interpreted as due to an effort to carry out a puckish joke on the Keynesians. He had gotten them excited in his earlier writings about the relation between savings Keynes has certainly given his followers a great deal of embarrassment and trouble.

29:30Alvin H. Hansen, in his Guide to Keynes, tries manfully to save Keynes from himself. One source of confusion arose from the failure of his critics to realize that while investment and saving are always equal, they are not always in equilibrium. All this could have been avoided if Keynes had made it clear from the outset that the The equality of saving an investment does not mean that they are necessarily in equilibrium. Page 59 They can be equal but not in equilibrium, Hansen goes on to suggest, if there is a lag or lagged adjustment of some kind. I confess myself unable to follow this argument.

30:18It seems to me a self-contradiction, for it seems to assume that because of a lag in adjustment Savings and investment are not always equal. Paul A. Samuelson tries to save Keynes from himself by suggesting that the attempt to save may lower income and actually realized saving. On the other hand, a net autonomous increase in investment, foreign bonds, I do not know how far it is intentional and how far unintentional humor when Samuelson suggests that the obscurities and contradictions of the general theory are an embarrassment for the anti-Keynesians rather than for the Keynesians.

31:15But he actually writes, as I have previously quoted, It bears repeating that the general theory is an obscure book, so that would-be anti-Keynesians must assume their position largely on credit, unless they are willing to put in a great deal of work, and run the risk of seduction in the process. Keynesian Paradoxes As we shall now see, however, Samuelson's suggested escape from the Keynesian saving investment dilemma corresponds closely with the exit that Keynes himself tries to take. But this only lands Keynes into more confusions and contradictions. There are so many of these, in fact, that it would be tedious and unprofitable to attempt to point out more than a few.

32:09Mises argues at times, as we have seen, that saving and investment are not always equal, but merely different aspects of the same thing, yet he still keeps to his old habit of deploring saving while approving investment. So he must argue that saving reduces income and investment increases income, though they They Are Necessarily Equal in Amount, and Merely Different Aspects of the Same Thing, page 74. From here on I find it impossible to follow his distinctions, oscillations, reverses, and contradictions. In a long section, pages 81 through 85, we are told The prevalence of the idea that saving Having an investment taken in their straightforward sense can differ from one another is to be explained I think by an optical illusion.

33:09Page 81 There follows a long explanation of the two-sided nature of an individual depositor's relation to his bank. Then, the newfangled view that there can be saving without investment or investment without Without Genuine Saving, page 83, is described as erroneous. The error lies in proceeding to the plausible inference that when an individual saves he will increase aggregate investment by an equal amount. It is true that when an individual saves he increases his own wealth, but the conclusion that he also increases aggregate wealth fails to allow for the possibility that an act of If individual saving may react on someone else's savings and hence on someone else's wealth – pages 83 through 84.

34:07From this it somehow follows that it is impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the The Attempt Necessarily Defeats Itself, page 84. In sum, we are apparently to understand that while saving and investment are necessarily equal and merely different aspects of the same thing, yet saving reduces employment and incomes, and investment increases employment and incomes. There is still another Keynesian paradox of savings, though they are necessarily equal to investment and merely different aspects of the same thing.

35:00Though an individual whose transactions are small in relation to the market can safely neglect the fact that demand is not a one-sided transaction, it makes nonsense to neglect it when we come to aggregate demand. This is the vital difference between the theory of the economic behavior of the aggregate and the theory of the behavior of the individual unit, in which we assume that changes in the individual's own demand do not affect his income. Page 85 The only way in which we can make any sense whatever of this whole otherwise baffling passage is to assume that when Keynes uses When he uses the word saving, he is thinking merely of the negative act of not buying consumption goods.

35:51But when he uses the word investment, he is thinking merely of the positive act of buying capital goods. And he falls into this primary error because he forgets his own previous insistence that saving and investment are necessarily equal and merely different aspects of the same thing. He is in fact thinking in each case of only one side of the transaction. Saving equals merely the negative act of not buying consumption goods. Investment equals merely the positive act of buying or making capital goods. Yet, these two acts are both parts of the same act. The first is necessary for the second.

36:41An analogous thing happens in the realm of consumption goods alone. A man's tastes change, and he switches from chicken to lamb. We don't scold him at one moment for hurting the poultry-raisers, and praise him at the next for aiding the sheep-raisers. We recognize that his purchasing power has gone in one direction rather than another, and that if he had not given up the chicken, he would not have had the money to buy the lamb. Unless a man refrains from spending all his money on consumption goods, i.e., unless he saves, he will not have the funds to buy investment goods, or to lend to others to buy investment goods.

37:29If I may anticipate here my own later argument and conclusions, there cannot be a given amount of real net investment in a community without an equal amount of real net saving. When we are talking in real terms, net saving and net investment are not only equal, but saving is investment. When we are talking in monetary terms, however, the problem is more complicated. In monetary terms, today's saving is not necessarily tomorrow's investment, and today's investment is not necessarily yesterday's saving. But this is because the money supply may have contracted or expanded in the meanwhile.

38:18To return to Keynes's reasoning, Keynes has himself become entangled in the sort of naive and one-sided interpretation of the two terms, saving and investment, that so often trips up the man in the street when he talks of economic problems. We get some confirmation of this when Keynes writes, In the aggregate, the excess of income over consumption, which we call saving, cannot differ from the addition to capital equipment, which we call investment. Saving in fact is a mere residual. The decisions to consume and the decisions to invest between them determines incomes. Page 64 Why savings should be a mere residual, whatever that may mean, I cannot say. But the sentence I have put in italics reveals the undercurrent of Keynes's thinking. It is not production that determines incomes, it is not work that determines incomes, it is the decisions to consume and the decisions to invest.

39:32It may be hard to imagine Robinson Crusoe as a Keynesian, but if he had been when he returned to England and the reporters had interviewed him at the pier, the results might have run something like this. How do you account for your big income when on the island? the reporters might have asked. Very simple, Crusoe would have replied. I decided to consume an awful lot. And what I didn't consume, I decided to invest. And as a result, of course, my income grew and grew. Wasn't your income determined by what you produced? one puzzled reporter might have would have asked. Produced?

40:17Worked? Robinson Crusoe Keynes would have replied. What nonsense! We have changed all that. What we have in this sentence, the decisions to consume and the decisions to invest between them determine income, is in fact a typical example of Keynes's inveterate habit of describing causation not only from an arbitrary point, but rear-end foremost. It is true, of course, that in economic life, cause and effect are continuous and endlessly recurrent as in the chain of life. This is the truth expressed paradoxically in Samuel Butler's definition. A hen is only an egg's way of making another egg.

41:05Now this statement is not untrue, philosophically speaking, but it is confusing to common sense. For practical purposes, say for a poultry-raiser or someone in the egg business, it is more useful to look at the subject from the hen's point of view. So while Keynes's method of treating consumption as a cause of production and income cannot may not be called entirely erroneous, it is certainly misleading and in fact disastrous as the major premise for public policy. The orthodox and perhaps stodgy view that work and production are the primary cause of incomes and make consumption possible can be found far more useful in the long run, and far less likely to lead to the intoxicating assumption that prosperity and full employment can be made perpetual through government spending and the printing press.

42:11Before leaving this subject, it may be useful to explore a little further the possible sources of Keynes's confusions. He has told us that saving and investment are necessarily equal in amount, being, for the community as a whole, merely different aspects of the same thing. Page 74. Eleven pages later, he tells us that certain propositions follow merely from the fact that there cannot be a buyer without a seller, or a seller without a buyer. Page 85. This is a truism. Yet, Keynes does well to state it explicitly, for it is astonishing how often it is forgotten by economists, by journalists and by practical men.

43:01On a day when the stock market has had an unusual rise, one will see such headlines as, two million shares bought. When it has had an unusual fall, the headlines are likely to read instead, three million shares sold. In the first case, 2 million shares must have been sold, and in the second case, 3 million shares must have been bought. In the first case, public attention was fixed by the rise on the buying, whereas in the second case, public attention was fixed by the fall on the selling. The difference is not, as journalists often carelessly or foolishly imply or state, that in the first case there was more buying than selling, or in the second, more selling than buying.

43:55In both cases, buying and selling had to be equal. No doubt there was a difference in the relative urgency of the buying and selling. To put the matter in another and more generalized form, there was a change in the valuation that both buyers and sellers put on shares. A rising market, in other words, is a sign not only that buyers are willing to bid more than on the day before, but that sellers insist on getting more. The converse is true as regards a falling market. If we assume that, in the general theory, Keynes is trying to apply the analogy of selling and buying to saving and investment, the saver being the one who puts aside the cash and the investor the one who borrows it or uses it to buy raw materials or capital equipment, we encounter certain difficulties.

44:54In the first place, the saver and the investor on these definitions may often be the same person. This is not true, except perhaps occasionally for certain technical bookkeeping purposes of the buyer and seller. It may often be difficult even for an individual entrepreneur Nor, when he uses part of his net income to buy additional raw materials or capital equipment, to distinguish between his saving and his investment. They are both part of the same act. They are the same act. For he cannot buy the raw materials unless he has the money to buy them.

45:40And if he does buy them, he does not have that money to buy goods for his own consumption. But we get very little help from Keynes, even in the Treatise on Money, and learning precisely where to draw the line between savings and investment. If the reader will turn back, for example, to page 84 and to the quotation there from chapter 12 of the Treatise on Money, he will find that the respective definitions are at once nebulous and biased. Saving, we are told, is the act of the individual consumer, whereas investment is the act of the entrepreneur. Now the definition of an act, one would suppose, would be expressed solely in terms of the act itself, without the irrelevant introduction of who does it.

46:33When an individual consumer saves, we are apparently to understand, he merely negatively refrains from spending. Yet it should be obvious that he also, necessarily, invests in cash or bank deposits. When an entrepreneur invests, he is, according to Keynes, doing something positive, even if it is only adding to his liquid capital, i.e. doing precisely the same thing as the naughty consumer who is merely refraining from spending all his income. It is impossible to make sense of the Keynesian definitions, But let us, in spite of Keynes's own confusions, persist with his apparently intended analogy of the relationship of saving and investment to that of selling and buying.

47:27If buying and selling are merely two sides of the same act, then it is obviously silly to treat buying as virtuous and selling as wicked. It is no less silly to treat investing as virtuous and saving as sinful, or to argue, as Keynes does, that saving reduces income and employment, while investing increases them. If everybody tried to sell something and nobody bought it, there would simply be no sales. If there were suddenly greater urgency to sell than to buy, the practical result would be either an un-reduced volume of sales at lower prices, or a somewhat reduced volume of sales at lower prices, depending on the relative willingness to buy and on other factors.

48:21Similarly with saving and investment. When there is greater relative urgency to save than to invest, then the volume of saving and investment may be lower than formerly. In any case, interest rates will tend to fall. But it does not follow that the decline of the urgency to invest in anything other than cash or short-term securities is wicked, or itself the basic cause of unemployment and depression. It is much more profitable to ask what it is that has caused the decreased urgency to invest. But we are getting ahead of our present point, which has to do chiefly with the conception and definition respectively of saving and investment.

49:13What are the most useful definitions of saving and investment respectively? The answer will depend largely on the particular problem which we are trying to clarify or to solve. In certain contexts, there will be no need for distinguishing between them. We may treat them as interchangeable terms, meaning the same thing. This is what Keynes really does in parts of the general theory. Saving and investment are equal there, not by some sort of continuous miracle. They are equal because they are so defined as to mean precisely the same thing. In other contexts, it may be useful to treat savings as referring merely to cash and investment as referring to goods.

50:04And in still other contexts, more important than the distinction between savings and investment will be the distinction between money savings and real savings, money investment and real investment. Keynes, as we shall see, only seldom and haphazardly makes these latter distinctions. On the contrary, he often works very hard to argue them away. The savings, which result merely from increased bank credit, or for that matter, from the mere printing of more fiat money, he argues, are just as genuine as any other savings. Page 83. Of course, if this were so, the problem of a community's acquiring sufficient savings would never exist. It could simply print them.

50:57It is not hard to understand why Keynes disapproves of the newfangled view that there can be investment without genuine saving. page 83, for this newfangled view, properly interpreted, exposes the whole set of Keynesian full-employment card tricks. I have said that we may legitimately use saving and investment with different meanings in different contexts. We must be careful, however, of course, that our meanings are always unequivocal and our definitions explicit. Above all, we must not shift meanings or definitions without explicit notice in the course of dealing with a particular problem.