출처: J. M. Keynes, A Treatise on Money (October 31, 1930)
자료: http://catalog.hathitrust.org/Record/007150328 ; 차례
※ 발췌 / excerpts of which: Book Ⅲ, The Fundamental Equations of Money,
* * *
Chapter 12. A Further Elucidation of the Distinction between Savings and Investment [1]
[1] The notion of the distinction which I have made between Savings and Investment has been gradually creeping into economic literature in quite recent years. The first author to introduce it was, according to the German authorities,[*] Ludwig Mises in his ^Theories des Geldes und der Umlaufsmittel^ (1st edition, pp. 227 ff. and 411 ff.) published in 1912. Later on the idea was adopted in a more explicit form by Schumpeter, and "Forced Saving"[**] (i.e. the difference between Savings and Value of Investment as defined by me, though without there being attached to the ideaㅡso far as I am awareㅡanything closely corresponding to the analysis of chapter 10 and 11 above) has become almost a familiar feature of the very newest German writings on Money. But so far as I am concernedㅡand I think the same is true of most other economists of the English-speaking worldㅡmy indebtedness for clues which have set my mind working in the right direction is to Mr. D. H. Robertson's ^Banking Policy and the Price Level^ published in 1926.[***] ( ... ... )[*] See Hahn's article on "Kredit" in ^Handwoerterbuch der Staatswissenshaften^ (4th edition) vol. v. p. 951, and Schumpeter, ^Theorie der wirtschaftlichen Entwicklung^ (2nd edition, 1926), p. 156. These references are given by Mises himself, ^Geldwertstabilisierung und Konjonkturpolitik^ (1928), p. 45.[**] "Erzwungenes Sparen" or "gezwungenes Sparen". I should prefer not to use word "saving" in this connection. See further footnote, p. 172.
(1) Savings and Investment (p. 171)
In the previous chapters we have been dealing on the one hand with the earnings or money-income of the community and its division into two parts, one of which is spent by the recipient on current consumption and the other of which is "saved" ; whilst on the other we have dealt with the community's output of actual goods and services and its division into two parts, one of which is marketed and sold to consumers and the other of which is "invested". Thus "saving" relates to units of money and is the sum of the differences between the money-incomes of individuals and their money-expenditure on current consumption; and "investment" relates to units of goods. The object of this chapter is to illustrate further the significance of the distinction between these two things.
Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption.
Investment, on the other hand, is the act of the entrepreneur whose function it is to make the decisions which determine the amount of the non-available output, and consists in the positive act of starting or maintaining some process of production or of withholding liquid goods. It is measured by the net addition to wealth whether in the form of fixed capital, working capital or liquid capital.
It might be supposedㅡand has frequently been supposedㅡthat the amount of investment is necessarily equal to the amount of saving. But reflection will show that this is not the case, if we exclude from income and from savingㅡas we must for reasons already givenㅡth windfall profits and losses of entrepreneurs.
Let us, for the moment, ignore the possibility of variations in hoarded goods, which as we shall see later are in fact likely to be small compared with the variability of the other factors; which amounts to the same thing as to assume that available output is perishable. In this case the amount of consumption is exactly equal to the amount of the available output. But the proportion of the total output which shall be available has been determined unequivocally by the amount of investment which the entrepreneurs have decided to make. Thus when positive investment is taking place, consumption falls short of output quite irrespective of the volume of saving; and when investment is negative, consumption exceeds output also quite irrespective of the volume of saving. In short, the increase or decrease of capital depends on the amount of investment and not on the amount of saving.
That saving can occur without any corresponding investment is obvious, if we consider what happens when an individual refrains from spending his money-income on consumption. It does not matter what he does with the surplusㅡwhether he deposits it at his bank, pay off a loan or buys a house or a securityㅡprovided itis not accompanied by and additional act of investment by an entrepreneur. There is now in the market one purchaser less for consumption-goods, with the result that their prices fall. This fall of prices increases the purchasing power of the money-incomes of the rest of the community and they are able, therefore, to increase their consumption by the amount which the saver has foregone, whilst spending the same amount of money as before. If, however, these others then proceed to reduce correspondingly their money-expenditure on consumption and, consequently, to increase their savings, this only has the effect of still further increasing the purchasing power of the balance of their income which they do spend.
Meanwhile the savers are individually richer by the amount of their savings, but the producers of consumption-goods, who have sold their current output at a lower price than they would have got if the savings had not taken place, are poorer by an equal amount. Thus in such circumstance the saving, instead of resulting in an increase of aggregate wealth, has merely involved a double transferenceㅡa transference of consumption ^from^ the savers to the general body of ^consumers^, and a transference of wealth ^to^ the savers from the general body of ^producers^, both total consumption and total wealth remaining unchanged. Thus, in Mr. Robertson's language, the saving has been "abortive". There is no increase of wealth in any shape or form corresponding to the increase of saving;ㅡthe saving has resulted in nothing whatever except a change and change-about between those who consume and between those who own titles to wealth. The saving has been balanced by the losses of the entrepreneurs who produce consumption-goods.
If, on the other hand, investment has taken place, ^pari passu^ with saving, the equilibrium of consumers' expenditure and producers' available output will be maintained at the pre-existing price-level. For if the investment takes the form of an increase of fixed capital or of working capital unaccompanied by an increase of employment, balanced by an equal volume of saving, the producers' output of available goods will be reduced by the act of investment to the same extent as the consumer's expenditure on such goods is reduced by the act of saving; and if the investment takes the form of an increase of working capital, accompanied by an increased volume of employment and an increased remuneration of the factors of production, balanced by an equal volume of saving, the reduction of consumers' expenditure by the savers will be exactly balanced by an equal increase of consumers' expenditure from the increased earnings of the factors of production.
Finally, if investment exceeds saving, thenㅡas is easily seen in the light of the preceding argumentㅡconsumers' expenditure will be increased relatively to producers' output of available goods, with the result that the prices of consumption-goods will rise; and the new investment in excess of the volume of saving will be made possible, not by voluntary abstention from consumption by refraining from spending money-income, but by involuntary abstention as the result of money-incomes being worth less (Mr. Robertson's "automatic lacking").
Now if the decisions as to the proportions of the flow of future output to be in available and in non-available form respectively at a given date were to be made by the same people who decide how much is to be "saved" at that date, no trouble would arise. But if they are madeㅡas in fact they areㅡby different people, then (except in so far as relief is obtainable from variations in the amount of hoarded goods) the net increment to the capital wealth of the community as a whole will differ to a certain extent (more or less) from the aggregate of the cash-savings of individuals, meaning by the latter the portions of their cash-incomes which they abstain from spending on consumption.
There need be no feeling of paradox about this when we remember that Income does not include Profit or Losses, ad that it is these which represent the mysterious difference between savings and the value of investment. The vital point to appreciate is this. An act of saving by an individual may result either in increased investment or in increased consumption by the individual who make up the rest of the community. The performance of the act of saving is in itself no guarantee that the stock of capital goods will be correspondingly increased.
(2) An Illustration (p. 176)
A parable or illustration may possibly make the conclusion clearerㅡor at least more vivid. Let us suppose a community owning banana plantations and labouring to cultivate and collect bananas and nothing else; and consuming bananas and nothing else. Let us suppose, further, that there has been an equilibrium between saving and investment in the sense that the money-income of the community, not spent on the consumption of bananas but saved, is equal to the cost of production of new investment in the further development of plantations; and that the selling price of bananas is equal to their cost of production (including in this the normal remuneration of entrepreneurs). Finally, let us suppose, what is plausible, that ripe bananas will not keep for more that a week or two.
Into this Eden there enters a Thrift Campaign, urging the members of the public to abate their improvident practices of devoting nearly all their current incomes to buying bananas for daily food. But at the same time there is no corresponding increase in the development of new plantationsㅡfor one or other of many reasons: it may be that counsels of prudence are influencing entrepreneurs as well as savers, fears of future over-production of bananas and a falling price-level deterring them from new development; or technical reasons may exist which prevent new development at more than a certain pace; or the labour required for such development may be highly specialised and not capable of being drawn from labour ordinarily occupied in harvesting bananas; or they may be a considerable time-lag between the initial preparations required for development and the date of the bulk of the expenditure eventually required by it. What, in such a case, will happen?
The same quantity of bananas as before will continue to be marketed, whilst the amount of current income devoted to their purchase will, by reason of the thrift campaign, be diminished. Since bananas will not keep, their price must fall; and it will fall proportionately to the amount by which saving exceeds investment.[1] Thus, as before, the public will consume the whole crop of bananas, but at a reduced price-level. This is splendid, or seems so. The Thrift Campaign will not only have increased saving; it will have reduced the cost of living. The public will have saved money, without denying themselves anything. They will be consuming just as much as before, and virtue will be sumptuously rewarded.
But the end is not yet reached. Since wages are still unchanged, only the selling price of bananas will have fallen and not their cost of production; so that the entrepreneurs will suffer an abnormal loss. Thus the increased saving has not increased in the least the aggregate wealth of the community; it has simply caused a transfer of wealth from the pockets of the entrepreneurs into the pockets of the general public. The savings of the consumers will be required, either directly or through the intermediary of the banking system, to make good the losses of the entrepreneurs. The continuance of this will cause entrepreneurs to seek to protect themselves by throwing their employees out of work or reducing their wages. But even this will not improve their position, since the spending power of the public will be reduced by just as much as the aggregate costs of production. By however much entrepreneurs reduce wages and however many of their employees they throw out of work, they will continue to make losses so long as the community continues to save in excess of new investment. Thus there will be no position of equilibrium until either (a) all production ceases and the entire population starves to death; or (b) the thrift campaign is called off or peters out as a result of the growing poverty; or (c) investment is stimulated by some means or another so that its cost no longer lags behind the rate of saving.
(3) Theories of Over-Saving (p. 178)
Economists are familiar with a class of theories which attribute the phenomena of the Credit Cycle to what is described as "Over-saving" or "Under-consumption". At bottom these theories have, I think, some affinity to my own. But they are not so close as might be supposed at first sight. The theories of Bouniatian and the European writers influenced by him, of Mr. J.A. Hobson in England and of Messrs. Foster and Catchings in the United States, who are the best-known leaders of this school of thought, are not in fact over-saving or over-investment theories, if these terms be given the same sense that I have given to them. They have, that is to say, nothing to do with saving running ahead of investment or vice versa. They are concerned, not with the equilibrium of saving and investment, but with the equilibrium of the production of instrumental capital-goods and the demand for the use of such goods. They attribute the phenomena of the Credit Cycle to a periodic over-production of instrumental goods, with the result that these instrumental goods facilitate a greater production of consumption-goods than the purchasing power in the hands of the public is capable of absorbing at the existing price-level.
In so far as these theories are capable of any reconciliation with mine, it is at a later stage in the course of events; for in certain cases a tendency for the rate of investment to lag behind the rate of savings might come about as the result of a reaction from over-investment in the above sense. In so far, however, as these theories maintain that the existing distribution of wealth tends to a large volume of saving, which leads in turn to over-investment, which leads to too large a production of consumption-goods, they are occupying an entirely different ^terrain^ from my theory: inasmuch as, on my theory, it is a large volume of saving which does ^not^ lead to a corresponding large volume of investment (not one which ^does^) which is the root of the trouble.
Mr. J. A. Hobson and others deserve recognition for trying to analyse the influence of saving and investment on the price-level and on the Credit-Cycle, at a time when orthodox economists were content to neglect almost entirely thie very real problem. But I do not think they have succeeded in linking up their conclusions with the theory of money or with the part played by the rate of interest.
(4) A Summary of the Argument (p. 179)
It may help the reader if I endeavour at this stage to give a broad summary (with some sacrifice of exact accuracy) of the argument of the preceding chapters.
The price-level of output as a whole during any period is made up of two componentsㅡthe price-level of the goods coming forward for consumption and the price-level of the goods added to the stock of capital.
In conditions of equilibrium both these price-levels are determined by the money-cost of production, or, in other words, by the money-rate of efficiency-earnings of the factors of production.
The question whether the price-level of the goods which are consumed is in fact equal or unequal to their cost of production, depends on whether the proportion of the income of the community which is spent on consumption is or is not the same as the proportion of the output of the community which takes the form of the goods so consumed; in other words, on whether the division of income between savings and expenditure on consumption is or is not the same as the division of the cost of production of output between the cost of the goods which are added to capital and the cost of the goods which are consumed. If the former proportion is greater than the latter, then the producers of the goods which are consumed make a profit; and if the former proportion is less than the latter, then the producers of the goods which are consumed make a loss.
Thus the price-level of the goods which are consumed (i.e. the inverse of the Purchasing Power of Money) exceeds or falls short of their cost of production, according as the volume of savings falls short of or exceeds the cost of production of new investment (i.e. of the goods which are added to the stock of capital). Hence, if the volume of savings exceeds the cost of investment, the producers of the goods which are being consumed make a loss; and if the cost of investment exceeds the volume of savings, they make a profit.
What happens to the price-level of new investments, i.e. of the goods which are added to the stock of capital? For a detailed answer to this question I must ask the reader to be patient and to wait for what he will find in later chapters. It is important for him to understand that the account of this matter which I have given in Chapter 10 is not intended to be more than a preliminary treatment of this subject. Broadly speaking, it depends on the anticipated price-level of the utilities which these investments will yield up at some future date and on the rate of interest at which these future utilities are discounted for the purpose of fixing their present capital value. Thus, whether producers of investment-goods make a profit or loss depends on whether the expectations of the market about future prices and the prevailing rate of interest are changing favourably or adversely to such producers. It does ^not^ depend on whether the producers of consumable goods are making a profit or a loss.
Nevertheless, movements in our two types of price-level are connected at one remove and are, generally speaking, in the ^same^ direction. For if producers of investment-goods are making a profit, there will be a tendency for them to endeavour to increase their output, i.e. to increase investment, which will, therefore, tendㅡunless savings happen to be increasing in the same proportionㅡto raise the prices of consumable goods; and vice versa. If, on the other hand, producers of consumable goods are making a profit, bu those of investment-goods are making a loss, then there will be a tendency for output to be changed over from the latter to the former, which willㅡunless savings happens to be decreasing in the same proportionㅡlower the price-level of consumable goods and obliterate the profits of the producers of such goods. Thus, whilst it is not impossible for the two types of price-level to be moving in opposite directions, it is more natural to expect them to move in the same direction.
Let us now move first of all forwards, ad then backwards, in the causal sequence; and for simplicity of statement let us restrict ourselves to the case where the two price-levels are moving in the same direction.
If producers as a whole are making a profit, individual producers will seek to enlarge their output so as to make more profit. They can do this by employing more of the factors of production, either at the old rate of remuneration or at an enhanced rate. We shall find in Book IV that either of these things means an increase in the total cost of investment, so that this effort of the producers to make more profit serves, at first at least, to aggravate the rising tendency of prices and profits. Thus we may conclude that, as a rule, the existence of profit will provoke a tendency towards a higher rate of employment and of remuneration for the factors of production; and vice versa.
Next let us step backwards. In order that producers may be able, as well as willing, to produce at a higher cost of production and to increase their non-available output, they must be able to get command of an appropriate quantity of money and of capital resources; and in order that they may be willing, as well as able, to do this, the rate of interest which command over such resources costs must not be so high as to deter them. How much bank-credit they have to borrow in order to obtain command over a sufficient quantity of money depends on what the public is doing with its savingsㅡon the relative attractions of savings-deposits and of securities respectively. But whatever the public may be doing, and whatever may prove to be the strength or weakness of the motive of producers to increase that proportion of their output which in non-available, the banking system comes in as a balancing factor; and by controlling the price and quantity of bank-credit the banking system necessarily controls the aggregate expenditure on output.
Thus the first link in the causal sequence is the behaviour of the banking system, the second is the cost of investment (so far as the purchasing power of money is concerned) and the value of investment (so far as the price-level of output as a whole is concerned), the third is the emergence of profit and loss, and the fourth is the rate of remuneration offered by the entrepreneurs to the factors of production. By varying the price and quantity of bank-credit the banking system governs the value of investment; upon the value of investment relatively to the volume of savings depend the profits or losses of the producers; the rate of remuneration offered to the factors of production tends to rise or fall according as entrepreneurs are making a profit or a loss; and the price-level of the community's output is the sum of the average rate of efficiency-earnings of the factors of production and the average rate of profit of the entrepreneurs. Thus, to bring first and last together, the price-level of output as a whole oscillates above or below the rate of efficiency-earnings, according as the banking system is causing the ^value^ of investment to exceed or fall short of the volume of savings; and the purchasing power of money oscillates below or above the rate of efficiency-earnings according as the banking system is causing the ^cost^ of investment to exceed or fall short of the volume of savings.
This is not to assert that the banking system is the ^only^ factor in the situation;ㅡthe ^net^ result depends on the policy of the banking system in conjunction with all kind of other factors. But, in so far as the banking system is a free agent acting with design, it can, by coming in as a balancing factor, control the final outcome.
If the banking system controls the terms of credit in such a way that savings are equal to the value of new investment, then the average price-level of output as a whole is stable and corresponds to the average rate of remuneration of the factors of production. If the terms of credit are easier than this equilibrium level, prices will rise, profits will be made, wealth will increase faster than savings as the result of the incomes of the public being worth lessㅡthe difference being transferred into the pockets of entrepreneurs in the shape of the ownership of increased capital; entrepreneurs will bid against one another for the services of the factors of production, and the rate of remuneration of the latter will be increasedㅡuntil something happens to bring the actual terms of credit and their equilibrium level nearer together. And if the terms of credit are stiffer than the equilibrium level, prices will fall, losses will be made, wealth will increase slower than savings by the extent of the losses, unemployment will ensue, and there will be a pressure towards a reduction of the rate of earnings of the factors of productionㅡuntil something happens to bring the actual terms of credit and their equilibrium level nearer together.
Booms and slumps are simply the expression of the results of an oscillation of the terms of credit about their equilibrium position.
When the comparative simplicity of a closed system is replaced by the complexity of an international system, the effect isㅡas we shall seeㅡthat the necessity of preserving international equilibrium may force the domestic banking system to establish terms of credit which diverge from their domestic equilibrium level. Thus the conditions of international equilibrium may be incompatible for a time with the conditions of internal equilibrium; and it is necessary for the restoration or maintenance of complete equilibrium that ^two^ elements in the domestic situation should be mobileㅡnot only the terms of credit, but also the money-rate of efficiency-earnings of the factors of production.
Investment, on the other hand, is the act of the entrepreneur whose function it is to make the decisions which determine the amount of the non-available output, and consists in the positive act of starting or maintaining some process of production or of withholding liquid goods. It is measured by the net addition to wealth whether in the form of fixed capital, working capital or liquid capital.
It might be supposedㅡand has frequently been supposedㅡthat the amount of investment is necessarily equal to the amount of saving. But reflection will show that this is not the case, if we exclude from income and from savingㅡas we must for reasons already givenㅡth windfall profits and losses of entrepreneurs.
Let us, for the moment, ignore the possibility of variations in hoarded goods, which as we shall see later are in fact likely to be small compared with the variability of the other factors; which amounts to the same thing as to assume that available output is perishable. In this case the amount of consumption is exactly equal to the amount of the available output. But the proportion of the total output which shall be available has been determined unequivocally by the amount of investment which the entrepreneurs have decided to make. Thus when positive investment is taking place, consumption falls short of output quite irrespective of the volume of saving; and when investment is negative, consumption exceeds output also quite irrespective of the volume of saving. In short, the increase or decrease of capital depends on the amount of investment and not on the amount of saving.
That saving can occur without any corresponding investment is obvious, if we consider what happens when an individual refrains from spending his money-income on consumption. It does not matter what he does with the surplusㅡwhether he deposits it at his bank, pay off a loan or buys a house or a securityㅡprovided itis not accompanied by and additional act of investment by an entrepreneur. There is now in the market one purchaser less for consumption-goods, with the result that their prices fall. This fall of prices increases the purchasing power of the money-incomes of the rest of the community and they are able, therefore, to increase their consumption by the amount which the saver has foregone, whilst spending the same amount of money as before. If, however, these others then proceed to reduce correspondingly their money-expenditure on consumption and, consequently, to increase their savings, this only has the effect of still further increasing the purchasing power of the balance of their income which they do spend.
Meanwhile the savers are individually richer by the amount of their savings, but the producers of consumption-goods, who have sold their current output at a lower price than they would have got if the savings had not taken place, are poorer by an equal amount. Thus in such circumstance the saving, instead of resulting in an increase of aggregate wealth, has merely involved a double transferenceㅡa transference of consumption ^from^ the savers to the general body of ^consumers^, and a transference of wealth ^to^ the savers from the general body of ^producers^, both total consumption and total wealth remaining unchanged. Thus, in Mr. Robertson's language, the saving has been "abortive". There is no increase of wealth in any shape or form corresponding to the increase of saving;ㅡthe saving has resulted in nothing whatever except a change and change-about between those who consume and between those who own titles to wealth. The saving has been balanced by the losses of the entrepreneurs who produce consumption-goods.
If, on the other hand, investment has taken place, ^pari passu^ with saving, the equilibrium of consumers' expenditure and producers' available output will be maintained at the pre-existing price-level. For if the investment takes the form of an increase of fixed capital or of working capital unaccompanied by an increase of employment, balanced by an equal volume of saving, the producers' output of available goods will be reduced by the act of investment to the same extent as the consumer's expenditure on such goods is reduced by the act of saving; and if the investment takes the form of an increase of working capital, accompanied by an increased volume of employment and an increased remuneration of the factors of production, balanced by an equal volume of saving, the reduction of consumers' expenditure by the savers will be exactly balanced by an equal increase of consumers' expenditure from the increased earnings of the factors of production.
Finally, if investment exceeds saving, thenㅡas is easily seen in the light of the preceding argumentㅡconsumers' expenditure will be increased relatively to producers' output of available goods, with the result that the prices of consumption-goods will rise; and the new investment in excess of the volume of saving will be made possible, not by voluntary abstention from consumption by refraining from spending money-income, but by involuntary abstention as the result of money-incomes being worth less (Mr. Robertson's "automatic lacking").
Now if the decisions as to the proportions of the flow of future output to be in available and in non-available form respectively at a given date were to be made by the same people who decide how much is to be "saved" at that date, no trouble would arise. But if they are madeㅡas in fact they areㅡby different people, then (except in so far as relief is obtainable from variations in the amount of hoarded goods) the net increment to the capital wealth of the community as a whole will differ to a certain extent (more or less) from the aggregate of the cash-savings of individuals, meaning by the latter the portions of their cash-incomes which they abstain from spending on consumption.
There need be no feeling of paradox about this when we remember that Income does not include Profit or Losses, ad that it is these which represent the mysterious difference between savings and the value of investment. The vital point to appreciate is this. An act of saving by an individual may result either in increased investment or in increased consumption by the individual who make up the rest of the community. The performance of the act of saving is in itself no guarantee that the stock of capital goods will be correspondingly increased.
(2) An Illustration (p. 176)
A parable or illustration may possibly make the conclusion clearerㅡor at least more vivid. Let us suppose a community owning banana plantations and labouring to cultivate and collect bananas and nothing else; and consuming bananas and nothing else. Let us suppose, further, that there has been an equilibrium between saving and investment in the sense that the money-income of the community, not spent on the consumption of bananas but saved, is equal to the cost of production of new investment in the further development of plantations; and that the selling price of bananas is equal to their cost of production (including in this the normal remuneration of entrepreneurs). Finally, let us suppose, what is plausible, that ripe bananas will not keep for more that a week or two.
Into this Eden there enters a Thrift Campaign, urging the members of the public to abate their improvident practices of devoting nearly all their current incomes to buying bananas for daily food. But at the same time there is no corresponding increase in the development of new plantationsㅡfor one or other of many reasons: it may be that counsels of prudence are influencing entrepreneurs as well as savers, fears of future over-production of bananas and a falling price-level deterring them from new development; or technical reasons may exist which prevent new development at more than a certain pace; or the labour required for such development may be highly specialised and not capable of being drawn from labour ordinarily occupied in harvesting bananas; or they may be a considerable time-lag between the initial preparations required for development and the date of the bulk of the expenditure eventually required by it. What, in such a case, will happen?
The same quantity of bananas as before will continue to be marketed, whilst the amount of current income devoted to their purchase will, by reason of the thrift campaign, be diminished. Since bananas will not keep, their price must fall; and it will fall proportionately to the amount by which saving exceeds investment.[1] Thus, as before, the public will consume the whole crop of bananas, but at a reduced price-level. This is splendid, or seems so. The Thrift Campaign will not only have increased saving; it will have reduced the cost of living. The public will have saved money, without denying themselves anything. They will be consuming just as much as before, and virtue will be sumptuously rewarded.
[1] The case where the bananas will keep will be considered in detail in Chapter 19. It will be found not to differ from the above as much as might have been expected.
(3) Theories of Over-Saving (p. 178)
Economists are familiar with a class of theories which attribute the phenomena of the Credit Cycle to what is described as "Over-saving" or "Under-consumption". At bottom these theories have, I think, some affinity to my own. But they are not so close as might be supposed at first sight. The theories of Bouniatian and the European writers influenced by him, of Mr. J.A. Hobson in England and of Messrs. Foster and Catchings in the United States, who are the best-known leaders of this school of thought, are not in fact over-saving or over-investment theories, if these terms be given the same sense that I have given to them. They have, that is to say, nothing to do with saving running ahead of investment or vice versa. They are concerned, not with the equilibrium of saving and investment, but with the equilibrium of the production of instrumental capital-goods and the demand for the use of such goods. They attribute the phenomena of the Credit Cycle to a periodic over-production of instrumental goods, with the result that these instrumental goods facilitate a greater production of consumption-goods than the purchasing power in the hands of the public is capable of absorbing at the existing price-level.
In so far as these theories are capable of any reconciliation with mine, it is at a later stage in the course of events; for in certain cases a tendency for the rate of investment to lag behind the rate of savings might come about as the result of a reaction from over-investment in the above sense. In so far, however, as these theories maintain that the existing distribution of wealth tends to a large volume of saving, which leads in turn to over-investment, which leads to too large a production of consumption-goods, they are occupying an entirely different ^terrain^ from my theory: inasmuch as, on my theory, it is a large volume of saving which does ^not^ lead to a corresponding large volume of investment (not one which ^does^) which is the root of the trouble.
Mr. J. A. Hobson and others deserve recognition for trying to analyse the influence of saving and investment on the price-level and on the Credit-Cycle, at a time when orthodox economists were content to neglect almost entirely thie very real problem. But I do not think they have succeeded in linking up their conclusions with the theory of money or with the part played by the rate of interest.
(4) A Summary of the Argument (p. 179)
It may help the reader if I endeavour at this stage to give a broad summary (with some sacrifice of exact accuracy) of the argument of the preceding chapters.
The price-level of output as a whole during any period is made up of two componentsㅡthe price-level of the goods coming forward for consumption and the price-level of the goods added to the stock of capital.
In conditions of equilibrium both these price-levels are determined by the money-cost of production, or, in other words, by the money-rate of efficiency-earnings of the factors of production.
The question whether the price-level of the goods which are consumed is in fact equal or unequal to their cost of production, depends on whether the proportion of the income of the community which is spent on consumption is or is not the same as the proportion of the output of the community which takes the form of the goods so consumed; in other words, on whether the division of income between savings and expenditure on consumption is or is not the same as the division of the cost of production of output between the cost of the goods which are added to capital and the cost of the goods which are consumed. If the former proportion is greater than the latter, then the producers of the goods which are consumed make a profit; and if the former proportion is less than the latter, then the producers of the goods which are consumed make a loss.
Thus the price-level of the goods which are consumed (i.e. the inverse of the Purchasing Power of Money) exceeds or falls short of their cost of production, according as the volume of savings falls short of or exceeds the cost of production of new investment (i.e. of the goods which are added to the stock of capital). Hence, if the volume of savings exceeds the cost of investment, the producers of the goods which are being consumed make a loss; and if the cost of investment exceeds the volume of savings, they make a profit.
What happens to the price-level of new investments, i.e. of the goods which are added to the stock of capital? For a detailed answer to this question I must ask the reader to be patient and to wait for what he will find in later chapters. It is important for him to understand that the account of this matter which I have given in Chapter 10 is not intended to be more than a preliminary treatment of this subject. Broadly speaking, it depends on the anticipated price-level of the utilities which these investments will yield up at some future date and on the rate of interest at which these future utilities are discounted for the purpose of fixing their present capital value. Thus, whether producers of investment-goods make a profit or loss depends on whether the expectations of the market about future prices and the prevailing rate of interest are changing favourably or adversely to such producers. It does ^not^ depend on whether the producers of consumable goods are making a profit or a loss.
Nevertheless, movements in our two types of price-level are connected at one remove and are, generally speaking, in the ^same^ direction. For if producers of investment-goods are making a profit, there will be a tendency for them to endeavour to increase their output, i.e. to increase investment, which will, therefore, tendㅡunless savings happen to be increasing in the same proportionㅡto raise the prices of consumable goods; and vice versa. If, on the other hand, producers of consumable goods are making a profit, bu those of investment-goods are making a loss, then there will be a tendency for output to be changed over from the latter to the former, which willㅡunless savings happens to be decreasing in the same proportionㅡlower the price-level of consumable goods and obliterate the profits of the producers of such goods. Thus, whilst it is not impossible for the two types of price-level to be moving in opposite directions, it is more natural to expect them to move in the same direction.
Let us now move first of all forwards, ad then backwards, in the causal sequence; and for simplicity of statement let us restrict ourselves to the case where the two price-levels are moving in the same direction.
If producers as a whole are making a profit, individual producers will seek to enlarge their output so as to make more profit. They can do this by employing more of the factors of production, either at the old rate of remuneration or at an enhanced rate. We shall find in Book IV that either of these things means an increase in the total cost of investment, so that this effort of the producers to make more profit serves, at first at least, to aggravate the rising tendency of prices and profits. Thus we may conclude that, as a rule, the existence of profit will provoke a tendency towards a higher rate of employment and of remuneration for the factors of production; and vice versa.
Next let us step backwards. In order that producers may be able, as well as willing, to produce at a higher cost of production and to increase their non-available output, they must be able to get command of an appropriate quantity of money and of capital resources; and in order that they may be willing, as well as able, to do this, the rate of interest which command over such resources costs must not be so high as to deter them. How much bank-credit they have to borrow in order to obtain command over a sufficient quantity of money depends on what the public is doing with its savingsㅡon the relative attractions of savings-deposits and of securities respectively. But whatever the public may be doing, and whatever may prove to be the strength or weakness of the motive of producers to increase that proportion of their output which in non-available, the banking system comes in as a balancing factor; and by controlling the price and quantity of bank-credit the banking system necessarily controls the aggregate expenditure on output.
Thus the first link in the causal sequence is the behaviour of the banking system, the second is the cost of investment (so far as the purchasing power of money is concerned) and the value of investment (so far as the price-level of output as a whole is concerned), the third is the emergence of profit and loss, and the fourth is the rate of remuneration offered by the entrepreneurs to the factors of production. By varying the price and quantity of bank-credit the banking system governs the value of investment; upon the value of investment relatively to the volume of savings depend the profits or losses of the producers; the rate of remuneration offered to the factors of production tends to rise or fall according as entrepreneurs are making a profit or a loss; and the price-level of the community's output is the sum of the average rate of efficiency-earnings of the factors of production and the average rate of profit of the entrepreneurs. Thus, to bring first and last together, the price-level of output as a whole oscillates above or below the rate of efficiency-earnings, according as the banking system is causing the ^value^ of investment to exceed or fall short of the volume of savings; and the purchasing power of money oscillates below or above the rate of efficiency-earnings according as the banking system is causing the ^cost^ of investment to exceed or fall short of the volume of savings.
This is not to assert that the banking system is the ^only^ factor in the situation;ㅡthe ^net^ result depends on the policy of the banking system in conjunction with all kind of other factors. But, in so far as the banking system is a free agent acting with design, it can, by coming in as a balancing factor, control the final outcome.
If the banking system controls the terms of credit in such a way that savings are equal to the value of new investment, then the average price-level of output as a whole is stable and corresponds to the average rate of remuneration of the factors of production. If the terms of credit are easier than this equilibrium level, prices will rise, profits will be made, wealth will increase faster than savings as the result of the incomes of the public being worth lessㅡthe difference being transferred into the pockets of entrepreneurs in the shape of the ownership of increased capital; entrepreneurs will bid against one another for the services of the factors of production, and the rate of remuneration of the latter will be increasedㅡuntil something happens to bring the actual terms of credit and their equilibrium level nearer together. And if the terms of credit are stiffer than the equilibrium level, prices will fall, losses will be made, wealth will increase slower than savings by the extent of the losses, unemployment will ensue, and there will be a pressure towards a reduction of the rate of earnings of the factors of productionㅡuntil something happens to bring the actual terms of credit and their equilibrium level nearer together.
Booms and slumps are simply the expression of the results of an oscillation of the terms of credit about their equilibrium position.
When the comparative simplicity of a closed system is replaced by the complexity of an international system, the effect isㅡas we shall seeㅡthat the necessity of preserving international equilibrium may force the domestic banking system to establish terms of credit which diverge from their domestic equilibrium level. Thus the conditions of international equilibrium may be incompatible for a time with the conditions of internal equilibrium; and it is necessary for the restoration or maintenance of complete equilibrium that ^two^ elements in the domestic situation should be mobileㅡnot only the terms of credit, but also the money-rate of efficiency-earnings of the factors of production.
※ Chapter 12 ends here on p. 184
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