Prosperity and Depression.pdf

Chap. , Under-consumption Theories 12.3The next step in Mr. HOBSON'S analysis is the contention that thecause of over-saving is to be found in the unequal distribution ofincome. Itis principally the recipients oflarg(.. incomes who are responsiblefor most of the saving.! Ifthe wage level could be raisedand the nauonal dividen~ more equally distributed, the proportionof savings would no longer be dangerous. The.demand forequalisation of income as a means of reducing cyclical fluctuations,which is very popular in certain quarters, has one ofits roots here.We shall leave this part of the argument on one side, however,and concentrate on the fundamental proposition that over-savingis the cause of the evil.The activity ofsaving may conceivably exert an adverse influenceon the economic situation in three different ways.(a) Saving may lead to depression becauseSaving savings do not find an outlet in investment. Thereand hoarding. may be an excess of savings over new investmentwhich will be intensified by every additional actof saving, at any rate where saving extends beyond a certain limit.In other words, saving produces a deflation, a decrease in aggregatedemand for goods, because the sums saved are used to liquidatebank credit or are accumulated and hoarded in the shape of cashor idle deposits. There is the further possibility that savings arespent, not in financing new investments, but in buying ptopertyand titles to property sold by people who are forced to sell becausethey have suffered. losses. During the depression, when the spiritofenterprise runs low and pessimism prevails, it is probably trueto a large extent that saving engenders deflation rather than newinvestments, and that the slump is to that extent prolonged andintensified. Butthe breakdown ofthe boom can hardly be explainedin this way. There is no evidence that an absorption of savingsoccurs during the boom or.before the crisis: on the contrary, thereinvariably exists a brisk demand for new capital, signalised by highinterest rates. There is an excess of investment over saving andnot ·the contrary.. The situation changes, of course, completely1 Statistical evidence is to be found, e.g., in America's Capacity toConsume# edited by the Brookings Institution, Wa:shington, 1934.• It should be noted that the terms U savings" and "investment" areused here in the ordinary meaning of the two words. Mr. Keynes, in