Economics in One Lesson

Overproduction and Crises
(1850), p. 51.
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The Assault on Saving
161
to friends in need. The families who are helped by these funds in turn
spend them on groceries or clothing or living quarters. So the funds cre-
ate as much employment as if Benjamin had spent them directly on him-
self. The difference is that more people are made happy as consumers,
and that production is going more into essential goods and less into lux-
uries and superfluities.
This last point is one that often gives Benjamin concern. His con-
science sometimes troubles him even about the $25,000 he spends.
The kind of vulgar display and reckless spending that Alvin indulges
in, he thinks, not only helps to breed dissatisfaction and envy in those
who find it hard to make a decent living, but actually increases their
difficulties. At any given moment, as Benjamin sees it, the actual pro-
ducing power of the nation is limited. The more of it that is diverted
to producing frivolities and luxuries, the less there is left for produc-
ing the essentials of life for those who are in need of them.
2
The less
he withdraws from the existing stock of wealth for his own use, the
more he leaves for others. Prudence in consumptive spending, he
feels, mitigates the problems raised by the inequalities of wealth and
income. He realizes that this consumptive restraint can be carried too
far; but there ought to be some of it, he feels, in everyone whose
income is substantially above the average.
Now let us see, apart from Benjamin’s ideas, what happens to the
$20,000 that he neither spends nor gives away. He does not let it pile
up in his pocketbook, his bureau drawers, or in his safe. He either
deposits it in a bank or he invests it. If he puts it either into a com-
mercial or a savings bank, the bank either lends it to going businesses
on short term for working capital, or uses it to buy securities. In other
words, Benjamin invests his money either directly or indirectly. But
when money is invested it is used to buy capital goods—houses or
office buildings or factories or ships or motor trucks or machines. Any
one of these projects puts as much money into circulation and gives
as much employment as the same amount of money spent directly on
consumption.
2 
Cf. Hartley Withers,
Poverty and Waste
(1914).
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162
Economics in One Lesson
“Saving,” in short, in the modern world, is only another form of spending.
The
usual difference is that the money is turned over to someone else to
spend on means to increase production. So far as giving employment is
concerned, Benjamin’s “saving” and spending combined give as much
as Alvin’s spending alone, and put as much money in circulation. The
chief difference is that the employment provided by Alvin’s spending
can be seen by anyone with one eye; but it is necessary to look a little
more carefully, and to think a moment, to recognize that every dollar of
Benjamin’s saving gives as much employment as every dollar that Alvin
throws around.
A dozen years roll by. Alvin is broke. He is no longer seen in the
nightclubs and at the fashionable shops; and those whom he formerly
patronized, when they speak of him, refer to him as something of a
fool. He writes begging letters to Benjamin. And Benjamin, who con-
tinues about the same ratio of spending to saving, provides more jobs
than ever, because his income, through investment, has grown. His
capital wealth is greater also. Moreover, because of his investments,
the national wealth and income are greater; there are more factories
and more production.
2
So many fallacies have grown up about saving in recent years that
they cannot all be answered by our example of the two brothers. It is
necessary to devote some further space to them. Many stem from
confusions so elementary as to seem incredible, particularly when
found in economic writers of wide repute. The word “saving,” for
example, is used sometimes to mean mere