Economics in One Lesson

hoarding
of money, and
sometimes to mean 
investment,
with no clear distinction, consistently
maintained, between the two uses.
Mere hoarding of hand-to-hand money, if it takes place irra-
tionally, causelessly, and on a large scale, is in most economic situa-
tions harmful. But this sort of hoarding is extremely rare. Something
that looks like this, but should be carefully distinguished from it, often
occurs 
after
a downturn in business has got under way. Consumptive
spending and investment are then 
both
contracted. Consumers reduce
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The Assault on Saving
163
their buying. They do this partly, indeed, because they fear they may
lose their jobs, and they wish to conserve their resources: they have
contracted their buying not because they wish to consume less but
because they wish to make sure that their power to consume will be
extended over a longer period if they do lose their jobs.
But consumers reduce their buying for another reason. Prices of
goods have probably fallen, and they fear a further fall. If they defer
spending, they believe they will get more for their money. They do not
wish to have their resources in goods that are falling in value, but in
money which they expect (relatively) to rise in value.
The same expectation prevents them from investing. They have
lost their confidence in the profitability of business; or at least they
believe that if they wait a few months they can buy stocks or bonds
cheaper. We may think of them either as refusing to hold goods that
may fall in value on their hands, or as holding money itself for a rise.
It is a misnomer to call this temporary refusal to buy “saving.” It
does not spring from the same motives as normal saving. And it is a
still more serious error to say that this sort of “saving” is the 
cause
of
depressions. It is, on the contrary, the 
consequence
of depressions.
It is true that this refusal to buy may intensify and prolong a depres-
sion once begun. But it does not itself originate the depression. At times
when there is capricious government intervention in business, and when
business does not know what the government is going to do next, uncer-
tainty is created. Profits are not reinvested. Firms and individuals allow
cash balances to accumulate in their banks. They keep larger reserves
against contingencies. This hoarding of cash may seem like the cause of
a subsequent slowdown in business activity. The real cause, however, is
the uncertainty brought about by the government policies. The larger
cash balances of firms and individuals are merely one link in the chain
of consequences from that uncertainty. To blame “excessive saving” for
the business decline would be like blaming a fall in the price of apples
not on a bumper crop but on the people who refuse to pay more for
apples. But once people have decided to deride a practice or an institu-
tion, any argument against it, no matter how illogical, is considered good
enough. It is said that the various consumers’ goods industries are built
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Economics in One Lesson
on the expectation of a certain demand, and that if people take to sav-
ing they will disappoint this expectation and start a depression. This
assertion rests primarily on the error we have already examined—that of
forgetting that what is saved on consumers’ goods is spent on capital
goods, and that “saving” does not necessarily mean even a dollar’s con-
traction in 
total
spending. The only element of truth in the contention is
that 
any
change that is 
sudden
may be unsettling. It would be just as unset-
tling if consumers suddenly switched their demand from one con-
sumers’ good to another. It would be even more unsettling if former
savers suddenly switched their demand from capital goods to con-
sumers’ goods.
Still another objection is made against saving. It is said to be just
downright silly. The nineteenth century is derided for its supposed
inculcation of the doctrine that mankind through saving should go
on making itself a larger and larger cake without ever eating the cake.
This picture of the process is itself naive and childish. It can best be
disposed of, perhaps, by putting before ourselves a somewhat more
realistic picture of what actually takes place.
Let us picture to ourselves, then, a nation that collectively saves every
year about 20 percent of all it produces in that year. This figure greatly
overstates the amount of net saving that has occurred historically in the
United States,
3
but it is a round figure that is easily handled, and it gives
the benefit of every doubt to those who believe that we have been “over-
saving.”
Now as a result of this annual saving and investment, the total
annual production of the country will increase each year. (To isolate the
problem we are ignoring for the moment booms, slumps, or other fluc-
tuations.) Let us say that this annual increase in production is 2