Corvinus
Corvinus

Savings and investment equality does not prevail according to Keynesian definitions

Bánfi, Tamás (2019) Savings and investment equality does not prevail according to Keynesian definitions. Archives of Business Research, 7 (9). pp. 97-105. DOI https://doi.org/10.14738/abr.79.7064

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Official URL: https://doi.org/10.14738/abr.79.7064


Abstract

Aside from the general government and the non-resident sector, textbooks on macroeconomics uniformly define the following correlation under the terms investment and saving: I = S. The I = S equality is naturally and legitimately interpreted by macroeconomic textbooks almost without exception as the equality between intended investments and intended savings, because the equality ‒ if we accept it ‒ is not only a definitive identity, but generally the outcome of market mechanisms that take time. Keynes’s first critic was Robertson who claimed that “his analysis corresponded to <<what common-sense proclaims (even to the simple-minded) to be the essence of the matter; namely, the power possessed by the public and by the monetary authority to alter the rates of income flow – the former by putting money into and out of store, the latter by putting it into and out of existence.<< Thus, in his definition, I = S + (A + B), in which A is new money and B is reactivated idle balances. ” Robertson's comment could have been addressed with a simple correction, and the tool used for funding the expansion of state (public) investments, i.e. the government deficit financed by the creation of new money, is a consistent element of the theoretical framework.

Item Type:Article
Uncontrolled Keywords:investment, saving, Keynes, Robertson
Subjects:Economic development
Economics
Finance
DOI:https://doi.org/10.14738/abr.79.7064
ID Code:4244
Deposited By: Veronika Vitéz
Deposited On:19 Sep 2019 15:34
Last Modified:19 Sep 2019 15:34

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