"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

Utility Analysis and the Consumption Function 45
of a need for precautionary assets since, being a better risk, he will he in a better position to borrow,
and may also be able to rely, for emergencies, on his relatives.
58. Cf. Boulding, op. cit., Ch. 3 and Ch. 5 for a novel approach to the choice of asset combinations.
See also J. Marshack, “Money and the Theory of Assets,” Econometrica, Oct. 1938, pp. 311–325.
Because durable goods generally seem more vulnerable to social pressure than the forms of saving
that make up the ordinary (e.g., Department of Commerce) definition, it is easy to see why they have
been thought of as consumption. Keynes enforced the definition only by his interest in the modes of
saving not necessarily matched by investment. However, the idea of ostentatious durables typifying
“conspicuous consumption” preceded the General Theory by many years.
59. See: Dorothy S. Brady, “An Analysis of Saving on the Basis of Consumer Expenditure Data,”
Saving and Capital Market Study, Section 3, R. W. Goldsmith, Director, preliminary; and Fisher, op.
cit., tables 4, 5, and 6, pp. 85–89.
60. Our conclusions are also in complete agreement with B. Ohlin’s brief but illuminating remarks
and criticism of Keynes developed in “Some Notes on the Stockholm Theory of Savings and Investment,”
reprinted in Readings in Business Cycle Theory; see especially pp. 98–100.
61. Modigliani and Brumberg, op. cit.
62. The division by y i creates certain statistical problems in connection with the random term; this
difficulty can be handled by an appropriate modification of equation (A.2) or (A.3) which need not
be discussed here since it would greatly complicate the presentation without basically affecting the
conclusions.
63. p. 220.
64. Figures in parentheses represent the standard errors. The two figures in this column represent the
parameters of the equation for “Home Owners” and “Renters,” respectively (op. cit., p. 221). Since
the completion of this Appendix, Mr. Klein has kindly informed us that the average age for the two
samples combined is 46 years; this implies an average age, since entering the labor force, in the order
of 20 to 25 years, which is within the assumed range.
65. We suspect that expressing income change in terms of y -1 instead of y may also contribute to the
discrepancy.
66. If this explanation is correct, it would also follow that Klein’s coefficient greatly overestimates
the effect on consumption of an increase in assets due, say, to an unanticipated fall in the price level
of consumables. In any event, as already pointed out, the relation between the cross section and the
time-series marginal propensity is a complex one. In the companion paper quoted earlier, we have
shown that the time-series marginal propensity to consume with respect to net worth should be in the
order of 0.1.
67. There is also reason to believe that failure to take into account properly the age variable may
lead to an appreciable upward bias in the asset coefficient if the cross section includes retired people.
Since we do not know whether Klein’s sample does have a significant representation of retired households
we cannot say whether this explanation is relevant.