Thursday, February 28, 2013

Fabian Lindner — Saving does not finance  Investment:  Accounting as an indispensable  guide to economic theory

Abstract 
The paper analyses the accounting relationships between the financial and the real economy. It will be shown that accounting can clarify the nature of economic phenomena and be an important building block for economic theory. The paper will argue that there is much confusion about key macroeconomic concepts like saving, investment and finance. This confusion is best summarised in the statement "saving finances investment". After clearly defining the accounting relationships between lending, financial saving and physical investment it will be shown that this is a nonsense statement. The theory behind it – the loanable funds theory – will be analysed and critiqued. It will be shown that the loanable funds theory confuses the concepts of income and production, lending and saving, and financial saving and non-financial saving. It will further be shown that this has not only theoretical but also important policy implications.
Macroeconomic Policy Institute | Working Paper 100 (Oct 2012)
Saving does not finance Investment: Accounting as an indispensable
guide to economic theory
Fabian Lindner
(h/ t DkN in a comment at Asymptosis)

1 comment:

Roger Erickson said...

Tortured semantics.

No amount of saving static assets can drive evolution - or "growth," as economists like to call that externality.

Accruing dynamic assets is what does the trick.

If he'd come out & say the following, he'd be correct - and useful. "Dynamic assets can't be simply saved, only preserved or grown via practice."

And no, Bob, given zero predictive power, dynamic assets can't be calculated either. Only selected.

The only path to liberty is to give up on the Libertarian myth? There are no libertarians in any social species - only the perennially threatened substrains called hermits.