about me
game theory
... more
Subscribe Weblog


"The notion of saving as "postponed consumption" is common in economic literature, yet it seems to embody a profound misconception of the nature both of saving and consumption. The difficulty seems to arise because of a confusion between the idea of consumption as we have used it in this work, and as it is also used by the classical economists, as the "using up" or the destruction of stocks of goods, and the idea of consumption as the source of satisfactions or enjoyments. In fact these are two quite distinct ideas. Enjoyment or satisfaction is normally derived not from the using up but from the use of a good. This is obvious in the case of durable goods. When I go for a ride in my car the fact that the car is being consumed--i.e., is wearing out--in no way contributes to my satisfaction; indeed, quite the reverse. What I get satisfaction from is the use of the stock of goods, not from their consumption. It is the size of the house we live in, the elegance of the clothes we wear, that give us satisfactions, not the incidental and regrettable fact that in the course of yielding these satisfactions, or even when they are not yielding satisfactions, they happen to be afflicted by decay and consumption.

The reader may object that this argument does not apply to non-durables, or "one-use goods," such as food, which are destroyed in the very act of enjoying them. It is only because consumption and satisfaction are close together in time, however, that we tend to identify them; analytically they must be kept separate. Even in the case of none-use goods economy in consumption is always desirable, and if we examine the use of these goods closely we will always find that they are consumed in the maintenance of some desired but depreciating state. Thus we burn fuel because the warmth of our houses "depreciates" in cold climate. The less fuel we can burn to maintain a given temperature, the better off we are. We need food similarly to maintain certain bodily states which likewise depreciate. The less food we need to keep us from being hungry and to maintain our bodily temperature and energy, the better off we are. Similarly we need entertainment to maintain certain mental or emotional states. It should be observed that the depreciation of goods (i.e., of desirable states) frequently involves their physical growth. Thus a shaved chin, a clipped head, or a mowed lawn depreciates by the process of growth of a "discommodity" (whiskers, hair, grass) and needs to be restored by periodic shaving, haircutting, or mowing. In this case it is the growth of the discommodity which constitutes "consumption" in the economic sense, and its removal which constitutes production.

In the light of these considerations, then, what is the significance of "saving"? Saving is the process by which goods are accumulated--i.e., by which the total stock of goods is increased. This can only be done by producing more than is consumed. If society is producing at capacity, saving does imply a certain "sacrifice" of consumption, in the sense that consumption would be greater if there were no saving. The sacrifice of consumption is also likely to lead to a sacrifice of satisfactions, unless there is at the same time an economizing of consumption--i.e., a decline in the amount of consumption which is necessary to maintain given states of satisfaction. Because of these sacrifices, however, the total stock of goods (desirable states) is increased, and the total future flow of satisfactions is presumably increased also. In this sense saving does involve the sacrifice of present satisfaction in order to increase satisfaction in the future. It does not, however, necessarily involve the sacrifice of present consumption in order to increase future consumption. It is true that future consumption may be increased as a result of saving, both because a larger stock of goods in itself implies a higher rate of consumption and because the accumulation of the larger stock may permit higher rates of production. We do not generally, however, accumulate now in order that we may decumulate in the future; we do not build up a stock of goods in order to tear it down in the future, but in order to be able to maintain and increase this stock in the future. We have not built up all this apparatus of houses, farms, roads, machines harbors, and factories in order that some day we may allow them to fall down and so return to living in holes in the ground and to grubbing our food from berry bushes!

An illustration may clarify these principles. Suppose that we have a society which is living just above the edge of subsistence, with its productive activities just sufficient to maintain the bodily strength of its people, to reproduce the generations as they die off, and to maintain the miserable huts in which the people live and the scanty clothes which they wear. How does such a society progress to a better state? If it is to improve, it is clear that it must build up its stock of capital: it must have more implements, more machines, more live-stock, better houses, and so on. In order to do this (without aid from outside) it must withdraw resources from maintaining the existing fabric of the society in order to devote them to making the increased stock of implements, etc. This means that some of its existing states cannot be maintained as well as before; people may have to go a little hungry in order that the implement makers can be spared from food-production, leisure time and ceremonial activities may have to be skimped in order to release time for building, and so on. All this involves curtailment of satisfactions as well as of consumption. If, now, the result of this process is simply a larger stock of things--bigger houses, better clothes, and so on--without any improvement in the productivity of the society, as measured in some sense by output per man-hour, the society may be no better off than before. In order to maintain its bigger houses and finer clothes the society may still have to withdraw resources from previously enjoyed occupations, though not so much as in the period of building up the stock. If, however, the increase stock is at least partly in the form of instruments and implements which incerease output per man-hour, the society is permanently richer as a result of the accumulation; and if the improvement is sufficient it will not only be able to maintain its increased stock with no more effort than it previously took to maintain its smaller stock, but may even be able to maintain the larger stock with less effort than it took to maintain the smaller one. In that happy event the society will not only be richer, but will find it easier to get still richer, as it will be able to devote further accumulation in the resources released from maintenance by its increased productivity."[1]

[1] Boulding, K. E. (1955), Economic Analysis, 3 edn, Harper & Row, New York, pp. 363-366



Remember my settings?



JCaptcha - you have to read this picture in order to proceed
Change Picture