Good question. Let's see:
how people are able to spend their savings if all the money is still invested in these projects?
They don't spend the money that is saved, of course. They spend new money that they did not save. Let's not forget that we are talking over a long period of time, a few years at least, during which time everyone has been productive, meaning made new money to spend.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
people don't want to spend their money now but in the future.
This isn't precisely true. It's not that people do not want to spend their money now, it's that they discount the value of future goods. The interest rate helps to induce them to save because, though the future goods are discounted, you can buy more of them because of accumulated savings.
is how people are able to spend their savings if all the money is still invested in these projects?
They can't. While they are saving their money they are, by definition, not spending it.
I figured that not everybody will want to collect their savings and start spending at the same time, but is that enough to solve this issue?
In a free market, what solves the issue are the terms of the saving. You can have demand deposits, and you can have time deposits. The latter deny you access to your money for a period of time.
Every decent man is ashamed of the government he lives under - Mencken
accumultaed savings = accumulted interest
gocrew:They don't spend the money that is saved, of course. They spend new money that they did not save.
Ok, but look at it from a situation of artificial (low) interest rates. This is what I always seem to get from talks from Bob Murphy, Tom Woods, etc: Artificially low interest rates start up long term projects, that tend to fail because people simply don't have the money to buy the new products.
Because dispite what the interest rates tell us (and businessmen), people actually didn't save enough money (or maybe they did, but that couldn't be derived from the interest rates).
Am I just completely of base here?
Let's not forget that we are talking over a long period of time, a few years at least, during which time everyone has been productive, meaning made new money to spend.
Well sure, I didn't mean to suggest that there isn't a dime to be spent anymore because all money has gone into savings.
Would you be inclined to say that people will buy the new product with their new money, because they know they still have savings left?
I guess that would be a possible answer to my question.
Ok, so they spend new money. But this new money has to be enough to be able to buy the new products. I always thought there would be mismatch here. I thought the bulk of savings that was being used for investing, would be much larger than what people would have on their checking accounts. But I guess that doesn't have to be the case.
Anyway, thanks for your input!
This is what I always seem to get from talks from Bob Murphy, Tom Woods, etc: Artificially low interest rates start up long term projects, that tend to fail because people simply don't have the money to buy the new products.
The part in bold seems problematic to me, since it violates Say's Law. What I have always heard is that there is malinvestment, meaning that the money acquired at an artificially low interest rate is wasted, meaning it buys resources that are wasted. Projects are started that assume a low interest rate for ten years, say, but the low rate only lasts for five, or the pool of resources vailable is depleted after five years and prices for the resources shoot up, making it impossible to complete the projects. The projects have to be stopped in the middle, causing a waste of labor and resources used to half complete the project and then abandon it.
This may start a downward spiral of people not having money as well, because they lose their jobs, but that is an effect of the recession, not the cause.
You might want to see these articles from my humble blog:
http://smilingdavesblog.wordpress.com/2012/09/16/say-and-keynes-compared/
http://smilingdavesblog.wordpress.com/2011/09/09/j-b-say-explains-why-we-are-in-a-recession-part-one/
It's not that they don't have the money to byu the new products, it's that there's a misalignement with what's being produced, the resources available for longer term projects, and what people actually want.
But aren't we talking about interest rates here? Interest rates don't convey information about what people want, do they? I guess what people want, can be somewhat be prodicted by smart enterpreneurs based on current market prices, but it still seems to be a difficult task to do this for a period of ten years. And I don't understand how interest rates can help here in any way.
Projects are started that assume a low interest rate for ten years, say, but the low rate only lasts for five, or the pool of resources vailable is depleted after five years and prices for the resources shoot up, making it impossible to complete the projects"
I guess I just find it hard to see the whole picture, in proportion. In general it seems basic common sense to me that someone needs to save first in order to invest. Simply 'printing' money to pay for these long term projects seems unwise on an intuitive level, but I'm unable to understand yet what actually will make the whole thing go wrong. Sure, the printing of money will cause inflation, etc., but there would be a constant flow of money for the whole ten years, right? And yes, maybe prices of resources may have risen because of the expansion of the money-supply, so maybe a little extra money is needed.
I'm wondering if it could work on a small scale en with a central bank that actually destroys money after a period of monetary expansion.
Thanks for the links, I will read them!
"But aren't we talking about interest rates here? Interest rates don't convey information about what people want, do they?"
Not directly, but if you make the entrepreneurial judgement that people want yo-yos, you then have to make the capitalist judgement as to whether or not you can manufacture and sell them at a profit. Interest rates affect the second decision, and enable the entrepreneurial judgement to go be exercised when it otherwise wouldn't have been possible.