Back to Homepage Income Measures Income: Saving and Investment Methods of Buying That Save Money The Choice of Goods Methods of Buying That Reduce Mistakes In Selection Methods of Securing Information Concerning Goods Plans and Motives of Consumers Consuming the Product Who Is the Consumer? The Consumer in the Market Priorities and Preferences in Consuming Decisions The Consumer as User of Wealth The Consumer as a Buyer Consumers as Self-Conscious Agents Criteria of a Good Market Information Versus Persuasion of the Buyer The Rate of Interest Interest Rates and Economic Activity Saving, Investment, and Income Saving Motives Saving Plans and their Realization Total Spending Is the Key to Prosperity The More We Spend, The More We Have Spending by Private Enterprise

Saving Plans and their Realization Any analysis of estimates of saving of the type on which this study is based must distinguish between planned and realized saving. All available data refer to the results of the saving process as observed when the process is completed. They show, more specifically, which economic units increased their holdings of a particular asset or liability during a given year, disregarding changes in holdings which reflect valuation changes rather than acquisitions or dispositions of assets. Not all of these changes can be termed "planned," either in the strict sense that they were provided for in a deliberate and articulated schedule of income and expenditures made before the beginning of the year or even in the more restricted sense that they were made consciously at the time they occurred. Realized, or observed, saving thus does not permit direct and unequivocal inferences regarding planned or spontaneous saving, i.e. regarding the character of saving decisions. The possible discrepancies between planned and realized saving (between expected and actual results of saving decisions) would be of no great importance from the point of view of the nation if they were random, i.e. if the discrepancies, while occurring in the case of many individual households or other economic units, were of a nonsystematic nature and thus had a tendency to cancel out for larger groups of units. Many of the discrepancies between planned and actual saving undoubtedly are of this character. For many units the problem will not arise at all, because they do not have specific saving plans, and saving is simply the undesignated residual between actual income and customary expenditures. Nevertheless, there are cases, and for large groups of savers, in which actual saving differs significantly from what savers had intended it to be. Such cases are essentially limited to periods when current income or taxes change sharply and unexpectedly, or when current expenditures are increased or reduced unexpectedly to a marked extent by force majeure. Practically speaking, planned and realized saving will differ significantly during periods of sharp inflation and deflation; and the discrepancy will be most pronounced during wars, when income is affected simultaneously by unexpected increases in nominal receipts and by limitations on expenditures in many directions imposed by government. Sharp rises in nominal or real income are almost always accompanied--and indeed partly caused--by large increases in the volume of liquid assets, particularly bank deposits, increases that must, of course, appear as components of saving for some of the economic units. These increases occur, without being planned or even desired by any group of savers, simply as the result of lending operations of the banking system and the Treasury. Sharp declines in income have similar effects in the opposite direction. Individual savers, or even groups of savers, cannot easily undo these additions to or reductions in liquid assets, though their reactions may offset them in part or may aggravate them, and may influence saving and dissaving in other forms. The often very involved chains of actions and reactions form a major subject of monetary theory and are much too complicated to be discussed here. All that is required is the realization that at times a considerable part of saving or dissaving is unplanned and may thus be regarded as involuntary from the point of view of the community of savers though not of an individual, who remains in a position to decide whether to spend or to save. If the volume and distribution of saving were uniquely determined by the volume and distribution of investment there would be no point in inquiring into the determinants of saving or in tracing the effects of structural changes in saving. All explanations and interpretations would then have to be expressed in terms of investment and the factors that influence it. For any economy--though, of course, not for every economic unit or every group--a period's actual saving is numerically equal to its investment. The question, however, is whether it is investment that determines saving; or whether it is saving that determines investment; or whether both are simultaneously determined by other factors. The answer to this question, unfortunately, is not subject to direct empirical proof, but depends essentially on the assumptions made regarding the form and stability of certain relations in the economic system, particularly the reactions of individual economic units regarding their saving and investment to changes in certain economic variables. Up to the last generation the theory that the volume of national investment depends upon national saving was hardly challenged. Under the influence of Lord Keynes the opposite view that it is national investment that determines both national income and national saving has gained ascendancy among theoretical economists, possibly only for a time. As so often, the truth seems to lie between the two extreme positions. The relations among saving, investment, and income are so intricate and many-sided that it is impossible to regard the one as the cause and the other as the effect; and, what is equally important, the relations depend on the length of the period taken into account. The subject is altogether too complex to be adequately discussed here. Suffice it to say that the more rigid, regular, and complete the reaction of individual units' saving to changes in their income, the more reason there is to regard saving as dependent on investment; and that the looser, slower, and more variable the reaction the more reason to look upon saving as the determinant of investment. This statement is based on the assumption, which is not yet proven, that changes in income are determined primarily by autonomous variations in investment expenditures. The more we doubt that assumption, the less the reason to accept the theory of the causal primacy of investment in relation to saving. The question of the primacy of investment or of saving thus brings us back to the problem of the existence and character of a stable saving function for the nation and for significant groups of economic units. The time is certainly not ripe for a confident answer. The possibility cannot be ruled out that further analysis may yield formulas for the saving function of the nation and for major components in which saving as the dependent variable is so closely determined, or statistically speaking so completely explained, by income and possibly by a few other independent variables that theoretical and observed values of saving for any year, or shorter period, differ only randomly by insignificant amounts, and that the differences are small and random not only in years of wide swings in income but also in periods of mild changes, and not only for the period to which the function is fitted but also for years before the period starts and after it ends. Thus far, however, such functions have not been found. The variations in observed saving from calculated values are still so large, particularly if long periods are considered, that considerable doubt is cast on the primacy of investment or the purely passive, self-adaptive nature of saving postulated or implied by that point of view. The doubts concerning the stability of the saving function, particularly in the short run, which are suggested by an analysis of time series of saving are reinforced by the investigations into the behavior of samples of households. These investigations seem to have led to the conclusion that there is a considerable degree of autonomy, i.e. of independence from close adaptation to changes in income or other economic variables, in saving decisions and in actual saving, not only for individual households, but also for all households taken together.   Home