972 REPORT— 1898. 



2. Saving and Spending : a Criticism of Recent Theories,^ 

 By A. W. Flux. 



At various times recently an old doctrine has been revived, namely, that the 

 cause of industrial depression is to he found in under-consumption — in excessive 

 saving. The advocates of this view maintain that the volume of current con- 

 sumption strictly determines the extent of useful employment for the instruments 

 of production ; that saving beyond this limit leads, not to an increase of real 

 capital, but merely to a multiplication of forms of capital ; to a struggle between 

 individuals for the ownership of the limited amount of really useful capital ; that 

 one man's saving tends to annul that of some other man. In view of the spread of 

 these beliefs some portions of well-known teachings not destroyed by the contentions 

 referred to, but which conflict directly with them, are again presented. 



The doctrine that the connection between capital and consumption is such that 

 the latter determines the extent of real use of the former is specious but untrue. 

 The extension of consumption is a result of the increased power of production of 

 modern times. The mutual connection between the two is not such as to say that 

 ■one is an independent determining cause of the other. 



The act of saving appears to be viewed by the writers to whom allusion is 

 made as one which aims at creating forms of wealth of indefinite persistence. 

 This is surely a strained view. Indefinite increase of saving is not dependent on 

 the possibility of storing the saving in forms practically imperishable. The diffi- 

 culty of foreseeing what forms of capital will be useful to distant generations is not 

 only not insuperable, it does not at all prevent increase of really useful capital. 

 The perpetuation of productive instruments is not unaccompanied by change in 

 the instruments themselves. 



It might be admitted that the amount of savings which could be invested so as 

 to yield a return of not less than, say, 2^ per cent, net is quite capable of being 

 surpassed. It is surely notorious that enormous fields for investment exist which 

 might be utilised were capital available at a rate of return considerably below 

 current rates, still more if it were available freely. Some part of what appears to 

 be waste of capital may be incidental to the introduction of more efficient methods 

 and more capable management. 



A point urged in favour of spending rather than saving is that, whatever 

 individuals may do, a community can never 'spend too much.' This is so clearly 

 inaccurate as to throw doubt on any proposition logically connected with it. 



It may be true that real wisdom might dictate the investment of savings, not in 

 Oonsols or in shares of industrial companies or the like, but in the fuller develop- 

 ment of the capacities of human beings — in the better preparation of children for 

 the battle of life, for example. 



That investors make mistakes in selecting their investments hardly justifies a 

 crusade against saving and the recommendation of the contrary policy of spending 

 as a means of curing industrial evils. A proper subordination of the desires of the 

 present to the practically certain needs of the future is far from being attained at 

 the present time, and the practical outcome of the doctrines criticised is to recom- 

 mend aiming at present gratification rather than future benefit. For the 

 community as well as for individuals it remains as true <ts ever that ' you cannot 

 both eat your cake and have it.' 



Will be printed in exlenso in the Economic Revien', January 1899. 



