Economics in One Lesson

sudden and substantial increase
in savings would unsettle them and leave
them with unsold goods.
But the same unsettlement, as we have already observed, would be
caused in the 
capital
goods industries by a sudden and substantial 
decrease
in savings. If money that would previously have been used for savings
were thrown into the purchase of consumers’ goods, it would not
increase employment but merely lead to an increase in the price of
consumption goods and to a decrease in the price of capital goods. Its
first effect on net balance would be to force shifts in employment and
temporarily to 
decrease
employment by its effect on the capital goods
industries. And its long-run effect would be to reduce production
below the level that would otherwise have been achieved.
3
The enemies of saving are not through. They begin by drawing a
distinction, which is proper enough, between “savings” and “invest-
ment.” But then they start to talk as if the two were independent vari-
ables and as if it were merely an accident that they should ever equal
each other. These writers paint a portentous picture. On the one side
are savers automatically, pointlessly, stupidly continuing to save; on the
other side are limited “investment opportunities” that cannot absorb
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The Assault on Saving
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this saving. The result, alas, is stagnation. The only solution, they
declare, is for the government to expropriate these stupid and harm-
ful savings and to invent its own projects, even if these are only use-
less ditches or pyramids, to use up the money and provide employ-
ment.
There is so much that is false in this picture and “solution” that we
can here point only to some of the main fallacies. “Savings” can
exceed “investment” only by the amounts that are actually 
hoarded in
cash.
4
Few people nowadays, in a modern industrial community like the
United States, hoard coins and bills in stockings or under mattresses.
To the small extent that this may occur, it has already been reflected
in the production plans of business and in the price level. It is not
ordinarily even cumulative: dishoarding, as eccentric recluses die and
their hoards are discovered and dissipated, probably offsets new
hoarding. In fact, the whole amount involved is probably insignificant
in its effect on business activity.
If money is kept either in savings banks or commercial banks, as
we have already seen, the banks are eager to lend and invest it. They
cannot afford to have idle funds. The only thing that will cause peo-
ple generally to increase their holdings of cash, or that will cause
banks to hold funds idle and lose the interest on them, is, as we have
seen, either fear that prices of goods are going to fall or the fear of
banks that they will be taking too great a risk with their principal. But
this means that signs of a depression have already appeared, and have
caused the hoarding, rather than that the hoarding has started the
depression.
Apart from this negligible hoarding of cash, then (and even this
exception might be thought of as a direct “investment” in money
itself) “savings” and “investment” are brought into equilibrium with
4
Many of the differences between economists in the diverse views now expressed on this
subject are merely the result of differences in definition. “Savings” and “investment” may
be so defined as to be identical, and therefore necessarily equal. Here I am choosing to
define “savings” in terms of money and “investment” in terms of goods. This corre-
sponds roughly with the common use of the words, which is, however, not always con-
sistent.
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