ECON 460 Lecture Notes - Lecture 4: Capital Formation, Sinking Fund, Consumption Function
20 Sep 2013
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Chapter 7: the meaning of saving and investment further considered. Past writers, including keynes, have not had s = i. Everyone agrees: saving is the excess of income over what is spent on consumption. Regular people: buying stocks and bonds- buying title to existing asset; Keynes"s talks about newly produced goods and services not being consumed; he is ok with common definition because it all nets out- overall buying and selling cancel out. Austrian intellectually; doesn"t say much about them and dismisses them saying their story doesn"t say much. His argument in the treatise: income of entrepreneurs their normal, not actual profit. S > i means they don"t get normal profit and contraction takes place. But: i did not in that book distinguish clearly between expected and realized results. Expected returns to investment; nothing happens to overall amount that is being produced; demand just changes from one side to another.
