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Dirk Ehnts — Keynes on Savings and Investment

Summary:
Geoff Tily in his paper on Keynes (pdf) has this quote (from the Collected Writings): S = I at all rates of investment. Y either definable as C+S or as C+I. S and I were opposite facets of the same phenomenon they did not need a rate of interest to bring them into equilibrium for they were at all times and in all conditions in equilibrium. (CW XXVII, pp 388–9) This is very enlightening. The “General Theory” also contained the issue of savings and investment, but the quote above nails it. There is no “supply” and “demand” for capital, hence savings and investment do not need anything to move so that there can be equilibrium. From my point of view, this is one of the strongest rejections of neoclassical macroeconomics and it stands until this day. In a monetary economy, there is no

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Geoff Tily in his paper on Keynes (pdf) has this quote (from the Collected Writings):
S = I at all rates of investment. Y either definable as C+S or as C+I. S and I were opposite facets of the same phenomenon they did not need a rate of interest to bring them into equilibrium for they were at all times and in all conditions in equilibrium. (CW XXVII, pp 388–9)
This is very enlightening. The “General Theory” also contained the issue of savings and investment, but the quote above nails it. There is no “supply” and “demand” for capital, hence savings and investment do not need anything to move so that there can be equilibrium.
From my point of view, this is one of the strongest rejections of neoclassical macroeconomics and it stands until this day. In a monetary economy, there is no “savings good” that needs to be produced before it can be “invested”. I = S “at all times” – there cannot be a disequilibrium between saving and investment....
In the income equals expenditure model based on accounting, saving and investment are residuals that must always equal each other by identity in a double entry system when consumption is subtracted from each side. If they don't equal each other, check the accounting for a mistake. Income must be equal to expenditure by identity in double entry, since they are opposite entries in recording transactions and must always balance as confirmation that the accounting is correct.

econoblog 101
Keynes on Savings and Investment
Dirk Ehnts | Lecturer at Bard College Berlin

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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