CH. 12

SAYINGS AND INVESTMENT

173

Let us, for the moment, ignore the possibility ofvariations in hoarded goods, which as we shall seelater are in fact likely to be small compared withthe variability of the other factors ; which amountsto the same thing as to assume that available outputis perishable. In this case the amount of consumptionis exactly equal to the amount of the available output.But the proportion of the total output which shall beavailable has been determined unequivocally by theamount of investment which the entrepreneurs havedecided to make. Thus when positive investment istaking place, consumption falls short of output quiteirrespective of the volume of saving ; and when in-vestment is negative, consumption exceeds outputalso quite irrespective of the volume of saving. Inshort, the increase or decrease of capital depends on theamount of investment and not on the amount of saving.

That saving can occur without any correspondinginvestment is obvious, if we consider what happenswhen an individual refrains from spending his money-income on consumption. It does not matter whathe does with the surplus—whether he deposits it athis bank, pays off a loan or buys a house or a security—provided it is not accompanied by an additionalact of investment by an entrepreneur. There is nowin the market one purchaser less for consumption-goods, with the result that their prices fall. This fallof prices increases the purchasing power of themoney-incomes of the rest of the community andthey are able, therefore, to increase their consumptionby the amount which the saver has foregone, whilstspending the same amount of money as before. If,however, these others then proceed to reduce corre-spondingly their money-expenditure on consumptionand, consequently, to increase their savings, this onlyhas the effect of still further increasing the purchasingpower of the balance of their income which they dospend.