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A Comparison of Direct Investment of Savings and Cash Building of Savings: A Response to Alexandru Pătruți

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Tags Austrian Economics OverviewCapital and Interest TheoryProduction Theory

03/02/2017Philipp Bagus

 

Quarterly Journal of Austrian Economics 19, no. 4 (Winter 2016)

ABSTRACT: When individuals save more and invest directly in projects there results capital accumulation and growth. When individuals save more in order to add to their cash holdings, consumer goods are liberated that can be used for capital accumulation causing also economic growth. At first sight, the processes seem similar. But are there differences? And if so, what are they? In this article and responding to Pătruți (2016), we will first emphasize that cash building does not necessarily stem from saving. Second, we will argue that cash building by saving does not necessarily imply a longer time period for capital accumulation to materialize. Third, we will criticize the argument that hoarding would be suboptimal vis-à-vis direct investment. Finally, we will analyze the differences between cash building by saving and saving through investing.

KEYWORDS: Austrian school, capital theory, structure of production, investment, interest, hoarding
JEL CLASSIFICATION: B13, B53, E14, E22, E31, E41, E43, O40
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Cite This Article

Bagus, Philipp, "A Comparison of Direct Investment of Savings and Cash Building of Savings: A Response to Alexandru Pătruți," Quarterly Journal of Austrian Economics 19, no. 4 (Winter 2016): 359–375

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