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Source link: http://archive.mises.org/12301/paul-krugman-and-the-consumption-myth/

Paul Krugman and the Consumption Myth

March 25, 2010 by

What his argument boils down to, after wading through the myriad of contradictions that make up the majority of his writing, is the belief that our economic woes can be solved through inflation. FULL ARTICLE by Jonathan M. Finegold Catalan

{ 57 comments }

Beefcake the Mighty March 25, 2010 at 9:21 am

How long before Daniel Kuehn comes here and says you ignored the liquidity trap?

Ron Finch March 25, 2010 at 9:41 am

I enjoy bashing Krugman as much as the next guy, maybe more. But we need to spend our time making our ideas in ever clearer and more compelling ways. So that Krugman has to spend more of his time bashing us.

Mattheus March 25, 2010 at 9:58 am

You’re presuming Krugman will put up a fight when he sees arguments of ever-increasing complexity.

He’ll just do what he always does when confronted with Austrians : Misconstrue us as “hangover theorists” and disappear into the darkness.

Wildberry March 25, 2010 at 11:52 am

Jonathan,
As usual, you do a brilliant job of illuminating the difference between strong whiskey and weak tea. Thank you for taking one more swipe at the beast. But can it be stopped?

This is not an academic debate that can be “won”. Krugman will never acknowledge defeat, and he will always have support from the likes of the NY Times and the government de jure because his theory supports the desired outcome: statism. I have read so many debunks of Krugman and Keynes on this website, that after a year I’m beginning to think I could take him on myself. Well, maybe not, but I’m making a point. Maybe my point is the great job LVMI has done with my education. Well, another point is this: Krugman, his Nobel prize notwithstanding (I mean really, who cares anymore who has won one; Gore, Obama and Krugman? Paleeeeese!) is a propaganda machine for statism, nothing more, nothing less. It should not be surprising that his analysis is poor and theories fallacious by academic standards.

But, they SOUND GOOD! They justify the conclusions of the central banking/government agenda. And as was so powerfully demonstrated by the Obama-care fiasco, what is important is to WIN!
“If it’s illegal, change the law. If it’s fallacious, by the time anyone figures it out, we’ll be done and gone. If they figure it out and start explaining it, we drown them out. If we can’t drown them out, we’ll collude with the media and give propagandists like Krugman a column!” It is the same old wine in a recycled bottle, to paraphrase Kenny Loggins. If fact, let’s quote him:
“Well we give them the election
They keep filling our heads full of lies
Can we trust in new directions
When their promises are in disguise
Well someday the truth will catch up
I just hope it don’t catch us all by surprise”

Unless the Austrian theory has a theory of power associated with it, statism will prevail until it fails spectacularly. The question is, when that happens who will be there to pick up the pieces? History has shown us that it is often not those on the side of truth. Is it possible to change that aspect of this contest? I think so, but it will not be by simply making our debates with the Krugmans of the world more effective.

Taylor March 25, 2010 at 12:39 pm

I think it’s important to remember that the “hoarding” of currency under the mattress does fit the Kenyesian idea that savings is destruction, but the Austrian idea is that by putting currency in banks there is an increase in loanable funds. The difference is that the money under the mattress is never used in any transaction of capital goods while the money in the banks contributes to economic growth.

And isn’t the paradox of thrift a paradox in itself as it assumes that *everyone* is saving *everything*?

Lee Kelly March 25, 2010 at 1:02 pm

The paradox of thrift holds true under particular circumstances. However, when those circumstances are analysed, they are revealed to be a product of government intervention–monopolisation of the money supply. The great misunderstanding of the paradox of thrift is that it is an inherent feature of unfettered markets. To resolve the problems it describes does not require further government intervention, but to cease those activities of government which produce its necessary circumstances in the first place.

newson April 9, 2010 at 10:44 am

care to elaborate on the thesis that the paradox of thrift exists at all?

cret March 25, 2010 at 4:39 pm

“….but the Austrian idea is that by putting currency in banks there is an increase in loanable funds.

is it an idea or does it really happen??

Ivan March 25, 2010 at 4:55 pm

Boring and repetitive argument. We’re all aware of Mr. Krugman’s fallacies.

Scott D March 26, 2010 at 12:21 am

Yes, but it doesn’t hurt to define and elaborate on them. That way, if you happen upon someone who believes in Keynesian/Krugmanian fallacies, you might have a shot at convincing them otherwise.

Ivan March 27, 2010 at 12:45 am

But this article is really just a straw man of Krugman’s position. The author doesn’t even really state the New Keynesian position/rationale, and merely recites arguments he doesn’t really understand. For example, he strawman’s Keynes’ argument about thrift, and then says,

“But Keynes’s mistakes are easy to spot. His principle limitation was his obvious lack of understanding of capital theory, which is interesting given that he made frequent references to Austrian theory and Friedrich Hayek.”

Keynes’ argument is much more complicated then this piece of garbage article presents it. Kids who repeat this nonsense in class, or wherever there are knowledgeable new Keynesians, will be embarrassed.

You have to (a) refute the fund theory of capital, (b) defend the time preference theory of interest and the structure of production, (c) defend Say’s law (saying that general gluts don’t exist is not enough), and (d) defend radical subjectivism and uncertainty.

Basically, this article is fodder for a specific group of people, resembling a high school book report more than anything else. it has no academic merit.

Basil Fawlty March 26, 2010 at 2:44 am

Really? Well I am not aware of Mr. Krugman’s fallacies which is why I found the article helpful in trying to understand what Krugman actually believes economically as well as trying to understand a reasoned refutation of his beliefs.

Sally C. March 25, 2010 at 5:23 pm

Interesting article. As you may know, in the UK, we have had a socialist government in place for the last twelve years. Inevitably, they have overspent and last year resorted to printing money via QE. Most British journalists and TV presenters are also socialist (I call it the Robin Hood syndrome). Recently, a Conservative politician said, ‘Too many interviewers conduct interviews from the proposition that all public spending is good and more is better.’ I replied, on his blog, as follows: ‘The question is why do they think this? The easy answer would be to say that they are all Keynesians but I think that is crediting them with too much intelligence. Most journalists, politicians and civil servants have never studied economics, but they do seem to know the GDP equation.’ I went on to explain two fundamental flaws in the GDP equation starting with the Government consumption/spending ( G ) element of the GDP equation, which clearly leads irrational people to think that if G is increased, GDP will rise and everything will be fine, completely ignoring the fact that G has to be financed by subtracting wealth from the private sector which is represented by the rest of the equation. The second flaw is the way the Household consumption ( C ) figure is derived. C is derived as you know from the following equation Y = C + S where Y = Household income and S = Savings ; therefore C = Y – S In other words, the smaller S is, the bigger C will be. This clearly leads irrational people to think that savings are bad.
In fact the GDP equation encapsulates nearly everything that is wrong with Keynesian thought as described in your article. While Krugman, as a professional economist, can be criticised as an irrational Keynesian, I feel that the GDP equation bears a huge responsibility for the out-of-control spending of governments around the world.

Inquisitor March 25, 2010 at 6:37 pm

Not only is G financed that way but there’s also the question of whether economic activities coming under its rubric are even desired by consumers. These high aggregations have so many problems and yet Keynesians still rely on them.

jerry April 8, 2010 at 5:55 pm

Sally C – a woman in the UK arguing about Austrian Economics? Will you marry me?

Eric March 25, 2010 at 5:28 pm

Hoarding money under the mattress means that the hoarder has produced something that was traded for money, but does not then consume anything. If the hoarder then destroys the money (so it can never be spent in the future) then he has benefited society at large – since this is the same as someone creating wealth and simply giving it away.

If one does this, and the money supply remains constant, then that money supply will buy more real stuff, roughly in proportion to the ratio of hoarded money to total money supply. It is also roughly the ratio of the hoarder’s production (used to acquire money) to the total wealth.

What the hoarder does then, is create money deflation by reducing the money supply.

What then happens when the hoarder reverses course and spends his money. It will have the opposite effect and cause money inflation.

I can see that this activity, if done on a large enough scale, and all at once, might causes some sort of business cycle, but all the motivations are different and the hoarder doesn’t gain initially. And clearly, governments wouldn’t benefit.

However, the little guy hoarder would gain a feeling of security in knowing that he could survive longer in uncertain times. Thus hoarding could be considered a net social benefit.

Mattheus March 25, 2010 at 7:12 pm

All you need to know about hoarding

http://mises.org/daily/3707

Mike Sproul March 25, 2010 at 8:38 pm

Actually, when you destroy paper money issued by some bank, it is the bank that gains, not society at large. Similarly, if I buy walmart gift certificates, and burn them, it’s walmart that is richer.

cret March 25, 2010 at 8:11 pm

“Hoarding money under the mattress means that the hoarder has produced something that was traded for money, but does not then consume anything. If the hoarder then destroys the money (so it can never be spent in the future) then he has benefited society at large – since this is the same as someone creating wealth and simply giving it away.”

“….the fact that money is not synonymous with wealth or capital. ”

why is it the same? how would the destroyed money benefit society at large??

P.M.Lawrence March 25, 2010 at 8:37 pm

Cret, you are reading it wrong, in much the same way as those thinking that C = Y – S means that lowering S causally connects to raising C.

“If the hoarder then destroys [present tense] the money (so it can never be spent in the future) then he has benefited society at large [past tense]” is not a causal connection from the destruction in the present to the benefit in the past. The benefit happened in the past; if the money were kept and then spent, the benefit to others would then be clawed back, by the saver getting a later benefit at the expense of others just as though he later counterfeited the money and spent it. By destroying the money, the saver does not create a benefit for others – he already did that, by whatever he did to earn the money he saved – but he does give up the opportunity to get back a benefit later, so he locks in the benefit he gave to others.

Del Lindley March 25, 2010 at 11:18 pm

But can’t we say that the act of “locking-in” a previous benefit (or the revocation of any future material “claw-back”) by the money-destroying saver is in fact a new benefit that is conferred upon the money-holding society? By the money relation, money destruction (or its permanent hoarding) forever reduces its supply and tends to increase the purchasing power of all the remaining money units.

P.M.Lawrence March 26, 2010 at 2:20 am

No, you can’t say that, because the benefit was already taken. When the money is destroyed, there is no change to who has what; that already happened. If it isn’t destroyed but gets spent later, the effect just then is just the same as counterfeiting; it’s ethical, because of the previous wealth generation that led to saving the money, but that generation still occurred at an earlier time.

frank March 26, 2010 at 5:18 am

P.M.Lawrence – Del may have been suggesting that if I hold money and can see you with money under your mattress, I might think “I hope he never spends that”. And maybe you won’t – maybe I will get a benefit. But if I watch you burn it, I can be sure you won’t spend it. I can say my position is better than before the burning. Of course in real life, you wouldn’t know at what point the money was burned – not spending and burning are the same thing. I think you seem to disagree witn Del when in fact you may not.

cret March 26, 2010 at 6:20 pm

maybe they are writing it wrong or you are reading it wrong. i was asking a question about a past post.

“If the hoarder then destroys [present tense] the money (so it can never be spent in the future) then he has benefited society at large [past tense]” is not a causal connection from the destruction in the present to the benefit in the past.”

if i find a cure for cooties presently, once that moment is done its in the past and society begins to benefit form the first innoculation.

get money…destroy money (alleged increase in pp for all other money)…..society benefits now for having stronger money. step 1, step 2 alleged outcome …… thats how i read it.

why is that wrong??

“Hoarding money under the mattress ( an ongoing process over time) means that the hoarder has produced something that WAS traded for money (perhaps) , but does not then consume anything. If the hoarder then destroys (a process occurring over time) the money (so it can never be spent in the future) then he has benefited society at large (during the span of time the hoarding was taking place) – since this is the same as someone creating wealth and simply giving it away (this im not sure if its true or not).”

P.M.Lawrence March 26, 2010 at 2:16 am

“A rise in productivity leads to an increase in the quantity supplied of any given good, allowing for a reduction in price. It is this increase in the quantity supplied that leads to an increase in real wages, and an increase in the general wealth of society.”

Wrong. A rise in productivity leads to either an increase in the quantity supplied of any given good or to the decrease in the quantity of inputs used to make it (or some combination of these). Depending on how things flow around the economy and the elasticities of the various intermediate supply and demand curves involved, it is quite possible (although unusual) for there to be a decrease in the general wealth of society. That, after all, is what happened in the short term with the Enclosure of the Commons in England and the Highland Clearances in Scotland (a better result flowed through later in each case).

“Keynes would have solved the problem by printing money, but he did not realize that what allowed for capital formation was investment made possible through capital accumulation”.

He knew that perfectly well. He was observing a situation in which that capital was already present but unused, along with labour. His advice aimed – whether accurately or not – at bringing the two together in the short term while that situation obtained, and he also recommended not using those methods over the long term precisely in order to allow normal capital accumulation and replacement to occur at other times.

“In fact, the purchasing power of the money in circulation necessarily rises as a result of hoarding”.

No, not necessarily. Again depending on other things, it is quite possible although unusual for the amount of “stuff” available to purchase to drop more than proportionately. For instance, in a siege situation the price signals often lead to even more hoarding of the goods involved.

“As a final comment, it is important to recognize that it does not matter who holds American debt. Whether it is a Chinese saver or an American saver does not matter, as what the debt problem comes down to is the fact that the US government cannot permanently finance growing expenditure.”

Actually, it matters a great deal, because of flow on effects. Payments made within the issuing country generate taxes there that help to pay for them, compounding works at a different (higher) rate because of that, and so on.

Jonathan Finegold Catalan March 26, 2010 at 1:25 pm

P.M. Lawrence,

You write:

Wrong. A rise in productivity leads to either an increase in the quantity supplied of any given good or to the decrease in the quantity of inputs used to make it (or some combination of these).

I’m not sure what the point of splitting hairs was here. The point still stands that real wages rise with increases in productivity. It is also worth mentioning that even if investment leads to a decrease in the “quantity of inputs” it still means that given the reduction in resources needed for production those resources can be used to produce other things, which still leads to an increase in the quantity supplied.

He knew that perfectly well. He was observing a situation in which that capital was already present but unused, along with labour. His advice aimed – whether accurately or not – at bringing the two together in the short term while that situation obtained, and he also recommended not using those methods over the long term precisely in order to allow normal capital accumulation and replacement to occur at other times.

Reading The General Theory that is not how I interpreted Keynes. He clearly states that over the long-run inflation is not particularly harmful to the economy. He even suggests perpetually holding down interest rates as to create a perpetual boom. That is not commenting on the short-term.

For instance, in a siege situation the price signals often lead to even more hoarding of the goods involved.

I apologize for trying to keep my articles relevant. Next time I will talk about economics in a “siege situation”.

Actually, it matters a great deal, because of flow on effects. Payments made within the issuing country generate taxes there that help to pay for them, compounding works at a different (higher) rate because of that, and so on.

This does not address what you quoted. It seems to me that you decided to split hairs as if to prove something, rather than actually provide valuable commentary on the article.

mikey March 27, 2010 at 11:03 am

Jonathan
I am hoping to get a job as a government planner. I have been copy and pasting PM Lawrences’
remarks and putting them on my resume.

Michael A. Clem March 26, 2010 at 10:31 am

No, not necessarily. Again depending on other things, it is quite possible although unusual for the amount of “stuff” available to purchase to drop more than proportionately.
I’m tired by this lack of precision, which just causes more confusion. Yes, other events could offset the hoarder’s actions, but yes, necessarily, the act of hoarding increases the purchasing power of the remaining currency from what it would otherwise be if he had not stuck the money in his mattress. This is the consequence of the hoarder’s actions regardless of any offsetting actions in the economy, although we can muddy the waters plenty by saying, as you do, that the actual purchasing power of money is determined by any number of other factors.

Gerry Flaychy March 26, 2010 at 11:01 am

Hoarding is necessarily a factor of increase, but it is not the only factor, of increase or decrease, acting on the purchasing power of the remaining currency. This is necessarily a gross effect but not necessarily a net effect.

Michael A. Clem March 26, 2010 at 1:50 pm

How about this: the purchasing power of the remaining currency is higher than it would have been if the hoarder had not stuffed his money in a mattress? Whether or not that is higher than the purchasing power just before he hoarded the money is dependent upon all the other factors.

Stephen Grossman March 26, 2010 at 4:03 pm

I must confess that I cannot untangle stupidity, ignorance and dishonesty in Keynes and Krugman. What a bizarre culture we have.

cret March 26, 2010 at 4:24 pm

“Yes, other events could offset the hoarder’s actions, but yes, necessarily, the act of hoarding increases the purchasing power of the remaining currency from what it would otherwise be if he had not stuck the money in his mattress.”

this seems to make sense.

i guess hoarding (otherwise it would seem to be destroying) would imply a future use of money at some point.
and i dont see the act of destroying money as widespread – and probably happened in such a minute amount as to have a negligible effect on any economy.

i dont fully understand what krugman and keynes before him were claiming as economic problems – problems that required some type of elastic money when it seem that it was already elastic to some extent.

elastic in supply or elastic in getting money to places faster??

cret March 26, 2010 at 10:03 pm

does placing dollars in a savings account create more dollars than if one put them under a mattress??

cret March 26, 2010 at 10:07 pm

“Savings, or capital accumulation, is the most important direct factor in wealth creation.”

has wealth been created ever without savings or capital accumulation?

does the current currency system operate in a different way???

“As opposed to being a source of capital, money is a common and widely-accepted good that represents the flow of capital in a common standard. ”

is capital accumulation/savings mentioned above something other than currency, or money??

cret March 26, 2010 at 10:16 pm

“By consuming capital, an individual necessarily reduces the total volume of capital available, and so over the long-run this is self-defeating in nature. Who will pay for wages when all the capital has been consumed?”

does this have any relavance or meaning today?

total volume of capital? such as what?? will anyone be alive if all capital is consumed?? is this pson referring to capital as saved money or currency??

if say petroleum is a capital good an consumed to return as sometign other than petroleum, woudl natural gas or something else work in its place?? is that wha tthe pson means byt consumign capital??

Jonathan Finegold Catalan March 26, 2010 at 10:33 pm

Cret,

I’ll do my best to answer all of your questions in one post.

does placing dollars in a savings account create more dollars than if one put them under a mattress??

Neither action “creates” dollars. You can only create a dollar by printing it.

has wealth been created ever without savings or capital accumulation?

Theoretically, no. The “current currency system” does not operate in a different way. The Austrian business cycle theory explains what occurs when inflation, rather than capital accumulation, drives investment.

is capital accumulation/savings mentioned above something other than currency, or money??

When dollars are saved in banks, they are representing real capital. Money is used to simplify transactions, although it makes difficult the concept of exchange of capital and whatnot since all you see is “money”.

is that wha tthe pson means byt consumign capital??

“Consumption” is when a good is consumed, and so ceases to exist as a good which can be invested as a capital-good. For example, a nail is a capital-good and invested when it’s used to build some type of contraction. It is consumed when I decide to destroy it with a hammer on a concrete floor for fun. When it comes to “capital” the definitions of consumption and investment remain the same.

cret March 27, 2010 at 5:16 pm

“For example, a nail is a capital-good and invested when it’s used to build some type of contraction.”
did you mean something other than a contraction??

“Money is used to simplify transactions, although it makes difficult the concept of exchange of capital and whatnot since all you see is “money”.”

this doesnt make much sense. would more money mean greater simplicity of transactions??

Jonathan Finegold Catalan March 27, 2010 at 5:20 pm

Sorry, “contraption”.

this doesnt make much sense. would more money mean greater simplicity of transactions??

What? No. Money is used as a means of exchange, because it simplifies transactions. Instead of having to trade bread for wood, so that one can exchange wood for apples, one can change bread for money so that that individual could purchase whatever he or she wanted.

It would make an otherwise complicated series of exchanges to finally buy what you wanted a simpler series of exchanges. It makes investment faster and simpler.

cret March 27, 2010 at 5:07 pm

“I’ll do my best to answer all of your questions in one post.

does placing dollars in a savings account create more dollars than if one put them under a mattress??

Neither action “creates” dollars. You can only create a dollar by printing it.”

i was told that if you placed paper dollars in a savings account that the paper dollars in some way were loaned and bank-credit dollars were then issued to the depositor. is that incorrect???

in a sense the deposited paper dollars circulated and an newly created bank-credit dollar could circulate????

is that not the case???

cret March 27, 2010 at 5:09 pm

“The Austrian business cycle theory explains what occurs when inflation, rather than capital accumulation, drives investment.”

if you mean inflation to be an increase in dollars do they not go into invenstments to create and secure capital goods???

cret March 27, 2010 at 5:11 pm

“When dollars are saved in banks, they are representing real capital.” unless its an inflated dollar????

so i ask again, is there no difference between putting paper dollars under a mattress or putting paper dollars in savings account??

does placing dollars in a savings account create more dollars as i described above???

Jonathan Finegold Catalan March 27, 2010 at 5:25 pm

Cret,

I would suggest reading some type of introduction to economics. Just as well, if you could condense your questions into one post, that would be great. Thank you. Now, to answer your questions:

i was told that if you placed paper dollars in a savings account that the paper dollars in some way were loaned and bank-credit dollars were then issued to the depositor. is that incorrect???

in a sense the deposited paper dollars circulated and an newly created bank-credit dollar could circulate????

is that not the case???

In the truest sense of a savings account, this would not be the case. In a savings account, the saver would temporarily surrender ownership of capital so that the bank could loan said capital to an entrepreneur. At a certain point in time, the saver could redeem his capital plus whatever interest the bank promised to pay him. There are not multiple claims on that money. Money creation occurs when the bank loans money that is already being put in use by another individual, or when money is loaned from a checkings account, and then that money is put in a checkings account and re-loaned, et cetera.

I suggest reading Jesus Herta de Soto’s Money, Bank Credit and Economic Cycles. This book will answer your other questions, as well.

cret March 27, 2010 at 8:11 pm

“Money creation occurs when the bank loans money that is already being put in use by another individual, or when money is loaned from a checkings account, and then that money is put in a checkings account and re-loaned, et cetera.”

does the current savings account products from banks operate differently than the current checking account?

if money was simply loaned i dont see where money creation would occur. if money is loaned and something else such as a spendable bank credit dollar was created that would seem like money creation?? is that what happens with both checking and savings acounts now???

Jonathan Finegold Catalan March 27, 2010 at 9:54 pm

Cret,

I can’t speak for all banks, but in those which I hold money “savings accounts” are not really savings account. A true savings account would be created by a contract which denoted the amount of time an individual surrendered the right to use said savings, allowing the bank to loan the capital out within that time with the promise of returning the deposit + interest at the end of the time specified on the contract. Current “savings accounts” are checking deposits where you can’t use the money as debit, but you can transfer from “savings” to “checkings” at any time without suffering consequences.

Simply loaning money does not cause credit expansion. Credit expansion occurs when money is loaned from checkings, because checkings accounts are usually used for present consumption, not future consumption. So, extending one note to one customer while extending another, based on the same account, is credit expansion.

cret March 28, 2010 at 5:57 am

“A true savings account would be created by a contract which denoted the amount of time an individual surrendered the right to use said savings, allowing the bank to loan the capital out within that time with the promise of returning the deposit + interest at the end of the time specified on the contract.”

does this function near describe the certificate of deposit offered at many banks now??

cret March 28, 2010 at 10:39 pm

“Krugman makes the following three assertions:

1. Given the “paradox of thrift,” all types of savings are bad for the economy.
2. Government must make up for a loss in private investment.
3. The United States’ economy would grow if China were to sell its US treasury bills.”

i assume the krugman to be a real economist???? a degree, etc?? i have never paid any attention to him.

if as he and others say all types of savings are bad for the current economy

and if this is true

” Current “savings accounts” are checking deposits where you can’t use the money as debit, but you can transfer from “savings” to “checkings” at any time without suffering consequences.

Simply loaning money does not cause credit expansion. Credit expansion occurs when money is loaned from checkings, because checkings accounts are usually used for present consumption, not future consumption. So, extending one note to one customer while extending another, based on the same account, is credit expansion.” ( DOES THIS ACTUALLY TAKE PLACE NOW??????)

by what mechanism would current day saving take place???? is krugman referring to putting dollars under a mattress?? if krugman is referring to placing dollars in a savings account as is described above where is the savings account money going to??? a loan??? isnt a loan used for consumption????

btw, every savings account i have ever had allowed debits.

cret March 28, 2010 at 10:41 pm

why is a true savings account as you call it loaned out money???

wouldnt a true savings account just be a money hoard and a loan be a surrendering of money for a given time with a hoped for interest return…risk lending, iow???

cret March 28, 2010 at 11:48 pm

“Credit expansion occurs when money is loaned from checkings, because checkings accounts….”

do you refer to checking accounts as checkings or is that a typo?

cret March 29, 2010 at 12:00 am

http://www.economagic.com shows m1 at the beginning of 2005 to be at about 1.36 trillion dollars and and at the beginning of 2006 to be at 1.375 trillion. in late 2005 it got as high as 1.395 trillion.

for the same time period economagic.com shows savings accounts to start at 3.5 trillion and and in early 2006 to be at 3.6 trillion. if true????

is there some overlap between m1 and the savings account figures?? if not??????, what would krugman-like economists say about the 100 billion dollar increase in saving from 2005 to 2006?

is krugman calling a savings account not true savings????

if a new dollar was printed that made its way into a checking account…is it likely that dollar would be loaned and an instant credit-dollar created to enable check writing?? if the loaned paper dollar made its way to a savings account would there then be that same paper dollar loaned, a possible debit-dollar from a savings account and the earlier spent checking account dollar??

does this make sense???

Daniel March 29, 2010 at 12:10 am

cretin, chill tfo.

Slow down. Read the replies. Take your time.

Structure your own replies. It’s hard to tell questions from affirmations in your posts.

cret March 29, 2010 at 2:55 am

read the screen name. its cret.

i usually place several question marks after something im not sure about or if i am asking a question.

Gerry Flaychy April 6, 2010 at 8:14 pm

Thing to think.

Saving money for future consumption is one thing,
saving money to buy capital goods is another thing.

Jonathan Finegold Catalán April 8, 2010 at 11:41 am

Gerry Flaychy,

Individuals who save for future consumption are accumulating capital which in the meantime will be borrowed by entrepreneurs interested in buying capital-goods.

Gerry Flaychy April 8, 2010 at 5:36 pm

Jonathan Finegold Catalán,

in your article you wrote that
“money is not synonymous with wealth or capital “, and now in your reply you seem to use the word “capital” as synonymous of money. Can you clear my confusion ?

Gerry Flaychy April 10, 2010 at 11:21 am

Mises wrote: ” Money is part of the private capital of an individual only if and so far as it constitutes a means by which the individual in question can obtain other capital goods. “

Source (end of part 2)

Thus, if money constitutes a means by which the individual in question can obtain consumption goods, than accumulation of that money by an individual is not accumulation of capital.

So, saving money for future consumption is one thing,
saving money to buy capital goods is another thing.

Jonathan Finegold Catalán April 12, 2010 at 11:35 am

Gerry,

I think you are missing my point. An individual who saves for future consumption is setting aside money that can be used in the present to buy capital-goods, through the form of a loan. So, any form of capital accumulation—or the accumulation of money that can be used to buy capital-goods, if you will—is useful, even if the intent of the saver is to consume in the future.

Gerry Flaychy April 13, 2010 at 7:42 pm

I was just trying to better understand the subject. Thank you for your answers.

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