Re: Definition of Savings

Spideynw — Sun, 07 Mar 2010 16:34:49 GMT

yoshimura:

I'm studying accounting and investing and stumbled on this:

"According to Keynesian economics, the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time."

Is the Austrian definition the same?

Seems fine to me.

Re: Definition of Savings

Spideynw — Sun, 07 Mar 2010 16:32:04 GMT

Jeremiah Dyke:

http://mises.org/daily/3640

Do People Save Money?

He is asking about savings, not saving money.

Re: Definition of Savings

DBratton — Mon, 22 Feb 2010 11:50:35 GMT

Esuric:
Savings is differed consumption.

Deferred.

Re: Definition of Savings

Esuric — Mon, 22 Feb 2010 06:11:05 GMT

Yes, but they define consumption in different ways. Savings is differed consumption.

Re: Definition of Savings

Jeremiah Dyke — Mon, 22 Feb 2010 06:03:14 GMT

http://mises.org/daily/3640

Do People Save Money?

Is it true that individuals are saving a portion of their money income? Do people save money?

Out of a given money income, an individual can do the following: he can exchange part of the money for consumer goods; he can invest; he can lend out the money (i.e., transfer his money to another party in return for interest); he can also keep some of the money (i.e., exercise a demand for money).

At no stage, however, do individuals actually save money.

In its capacity as the medium of exchange, money facilitates the flow of real savings. The baker can now exchange his saved bread for money and then exchange the money for final or intermediary goods and services.

What is commonly called "saving" is nothing more than exercising demand for the medium of exchange (i.e., money). This means that people don't actually save money but rather exercise demand for it. And, when an individual likewise exchanges his real savings for money, he in fact only increases demand for money. The money he receives is not income; it is a medium of exchange that enables the individual to secure goods. In the absence of final consumer goods, all of the money in the world would be of little help to anyone.

Consider the so-called helicopter money case: the Fed sends every individual a check for one thousand dollars. According to the NIPA accounting, this would be classified as a tremendous increase in personal income. It is commonly held that, for a given consumption expenditure, this would also increase personal savings.

However, we maintain that this has nothing to do with real income and thus with saving. The new money didn't increase total real income.

What the new money has done is set in motion the diversion of real income from wealth generators to the holders of new money. The new money that the Fed has created out of thin air prompts exchanges of nothing for something. Consequently, wealth generators have less real wealth at their disposal — which means that the process of real wealth and savings formation has weakened.

In the helicopter example we have a situation in which, for a given pool of real savings, an increase in nonproductive consumption took place. (By nonproductive consumption we mean consumption that is not backed up by the production of real wealth.) This means that the real savings of wealth generators, rather than being employed in wealth generation, is now being squandered by nonproductive consumption.

From this, we can also infer that the policies aimed at boosting consumer spending do not produce real economic growth, but in fact weaken the bottom line of the economy.

In the NIPA framework, which is designed according to Keynesian economics, the more money people spend, all else being equal, the greater total income will be. Conversely, the less money is spent (which is labeled as savings), the lower the income is going to be. This means that savings is bad news for an economy.

We have, however, seen that it is precisely real savings that pays — i.e., that which supports the production of real wealth. Hence, the greater the real savings in an economy, the more are the activities that can be supported.

What keeps the real economic growth going, then, is not merely more money, but wealth generators — those who invest a part of their wealth in the expansion and the maintenance of the production structure. It is this that permits the increase in the production of consumer goods, which in turn makes it possible to increase the consumption of these goods.

Only out of a greater production can more be consumed.

Definition of Savings

yoshimura — Mon, 22 Feb 2010 02:39:56 GMT

I'm studying accounting and investing and stumbled on this:

"According to Keynesian economics, the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time."

Is the Austrian definition the same?

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Definition of Savings