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Of course, saving in debt based instruments (aka money) might pose a problem (because it means somebody else is accruing debt).

Precisely.

The problem with "savings" is that the everyday understanding of the term is "to hoard money." Hoarding money does not create investment, or accumulate capital. It merely enables you to lay claim to a larger share of whatever plant and labour exists when you move to spend the money.

Hoarding physical resources solves that problem, because you can now spend those resources directly. But hoarding physical resources is not without problems either - because now you're hoarding (that is, making unavailable) physical resources that someone else might have a productive use for. In an era of scarce physical resources, this may not be wholly appropriate.

In the end, the problem is that there is a relationship between productivity (how many hours, raw materials, etc. we must spend in order to obtain the finished goods we want) and the extent of the capital plant. In turn, there is a relationship between the extent of the capital plant and the rate of investment. And the rate of investment is driven by the state of demand.

So the answer to the question "why don't we just cut production and work hours in half?" is that this would not work under a market economy, where investments are determined by what manufacturers believe that they can sell. Because manufacturers would then allow their plant to deteriorate. In the standard growth theory models, cutting output in half would only, in the long run, cut work hours by a little under 40 %.

This may not seem like such a problem - after all, working 60 % of the time for 50 % of the goods isn't an atrocious deal. But during the time (a decade and a half or so) that plant is deteriorating, you'd have to work longer hours to obtain the same production (on average you'd have to work something like 1 % longer every year - minus any advances in total factor productivity). Again, in real terms this may not seem like a big deal, but it becomes politically untenable very quickly (I'm betting that people will forget how much they used to work fast enough that they will complain about increased work hours before the capital plant has fully deteriorated).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 07:15:54 AM EST
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The problem with "savings" is that the everyday understanding of the term is "to hoard money." Hoarding money does not create investment, or accumulate capital. It merely enables you to lay claim to a larger share of whatever plant and labour exists when you move to spend the money.

I think the fallacy here is the idea that money always represents the same thing. It does not. Imagine: 1 million people are expropriated of their savings which they planned to use to buy a (imported) car and that capital accumulation is used to say, build a dam?

As a layman, it strikes me that you are being too theoretical. For me it depends on how capital accumulation is used. Politics can help there.

This may not seem like such a problem - after all, working 60 % of the time for 50 % of the goods isn't an atrocious deal. But during the time (a decade and a half or so) that plant is deteriorating, you'd have to work longer hours to obtain the same production (on average you'd have to work something like 1 % longer every year - minus any advances in total factor productivity)

My impression again is that you are over-theorizing (and over-simplifying). Interestingly I think the seeds of an answer are in your own words: "minus any advances in total factor productivity".

I would really like to continue this discussion, but this is above my paygrade and I do not have the time (the deadline to submit my PhD is looming)

by cagatacos on Mon May 9th, 2011 at 08:32:36 AM EST
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I think the fallacy here is the idea that money always represents the same thing. It does not.

Exactly. Economics is politics. It has no independent existence.

Economics is a political tool used to manage the activities of populations.

Money is a whip. Occasionally it's a carrot. It isn't a commodity, it isn't limited, and it doesn't follow quasi-scientific laws.

It would be possible - with some effort - to imagine different accounting systems with different inherent priorities. But currently, as soon as you start thinking about concepts like profit/loss, interest, ROI, GDP and the rest, you're already trapped inside a world of conceptual newspeak where certain thoughts become impossible, and only certain types of relationships between actors are acceptable.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 9th, 2011 at 09:00:16 AM EST
[ Parent ]
I quite like this way of putting it:

(via).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:54:32 PM EST
[ Parent ]
Imagine: 1 million people are expropriated of their savings which they planned to use to buy a (imported) car and that capital accumulation is used to say, build a dam?

Money is not capital.

If the government wanted to build a dam, the government could always build that dam, provided that it can mobilise the manpower, cement, turbines and rivers required. The reason that you take money from the people who wanted to buy cars is in order to free up man-hours otherwise spent selling the cars, and hard currency otherwise spent importing the cars, for use on your dam project. It is not because the money is necessary or sufficient in itself: The government can always print more money in any amount it wants (except if it's in the €-zone, since the BuBa is staffed by gold bugs).

Interestingly I think the seeds of an answer are in your own words: "minus any advances in total factor productivity".

Yes, if you can increase TFP faster than the capital plant deteriorates from lack of maintenance, then you're golden.

Unfortunately, increasing TFP is hard. Only roughly half our GDP growth in the industrial age has been from TFP increase (the other half from a combination of higher labour force participation, greater raw material use and greater capital intensity). And most of the industrial age's TFP increase is from economies of scale, which would presumably reverse if we went back to small-scale, local production.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 01:33:50 PM EST
[ Parent ]
JangoSierra has pithily captured the history of western civilization in one phrase.

"the government could always build that dam, provided that it can mobilise the... rivers required."

Suweet.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Mon May 9th, 2011 at 03:15:57 PM EST
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