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Forced or Induced Saving: An Exploration into Its Synonyms and Homonyms Author(s): Fritz Machlup Source: The Review of Economics and Statistics, Vol. 25, No. 1 (Feb., 1943), pp. 26-39 Published by: The MIT Press Stable URL: https://www.jstor.org/stable/1924544 Accessed: 07-03-2019 18:50 UTC

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FORCED OR INDUCED SAVING: AN EXPLORATION

INTO ITS SYNONYMS AND HOMONYMS

FRITZ MACHLUP

University of Buffalo

CONCEPTS AND TERMS IN FLUX

C ONCEPTS and terms, in every-day use as 'A well as in scientific use, have often pecul- iar histories. A "new" concept is usually an adaptation of an old one which suggests itself to observers of a phenomenon as they attempt its interpretation. If the new concept is still unnamed, they name it after some other idea that appears to them as an appropriate simile or metaphor. The chosen name, however, may suggest to others some slightly different asso- ciations and, therefore, altered concepts. More- over, changes of the frame of reference, or of the angle from which the phenomenon is looked upon, may require remodeling of a concept. But the remodeled concept may still pass under the old name. Other observers come along, dis- like the name, and suggest different ones. Syno- nyms develop. Most or all of the terms which are then used for the growing family of con- cepts have had previous uses, and many of the terms are again put to new uses. Homonyms and equivocations grow in number. Makers of dictionaries must list more and more meanings under each name and must give more and more synonyms for each meaning.

To complain about the continuous change of concepts and terms, about the conversion of ideas and names, is to misunderstand the na- ture of growth of a body of knowledge - at least in the social sciences. Attempts to halt the development (for example, through the establishment of "committees on nomenclature and terminology") are in vain and often de- plorable. To be sure, wilful innovators some- times suggest change merely for the sake of change. If concepts and terms shift like wo- men's fashions, the change may confuse dis- cussion and become a nuisance.' But otherwise.

we must accept it as a fact that new problems and new treatments of old problems may re- quire changes in concepts and in terms.

When the family of related concepts - re- lated by meaning or by name or both - is large, an occasional examination of the family record and a probing of the relationships is helpful. Old confusions may be clarified, and new confusions avoided, through such an ex- amination. And better understanding of the concepts usually results in better understand- ing of the phenomena whose explanation they are to serve.

This article will survey and briefly analyze

the various concepts connoted by the term "forced saving," and the various terms as- signed to its basic idea.

THE BASIC IDEA OF FORCED SAVING

Many - though not all of the concepts which passed under the name of forced saving can be reduced to a fairly simple idea. Imagine that the total amount of money spent for goods and services remains absolutely the same from "day" to "day," and that the degree of financial integration (the number of hands or accounts through which money has to pass on its way from income disburser to income recipient) remains also unchanged. Under these circum- stances, total investment outlays can increase if, and only if, income disbursers have decided to increase their savings out of their given money incomes. The condition of the abso- lutely constant income stream implies an equal- ity between saving and investment, an equality in which the saving is the "autonomous" vari- able and investment the "adjusted" one. For, on the one hand, no funds are available for in- vestment outlays other than the moneys made available by savers; and, on the other hand, all these available funds are actually used for in- vestments, or the income flow would not remain

[ 26 ]

1 Jacob Viner once made the accusation that in J. M. Keynes' General Theory "no old term for an old concept is used when a new one can be coined, and if old terms are used new meanings are generally assigned to them." (Jacob Viner, "Mr. Keynes on the Causes of Unemployment," Quar- terly Journal of Economics, LI, I936, p. I47.) However, many of the Keynesian concepts and terms have proved

useful, and current writings on fiscal and monetary economic problems have largely adopted Keynes' conceptual schemes as well as his terms.

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FORCED OR INDUCED SAVING 27

constant. If now, in contradistinction to the described conditions, an increase in the money and income flow is staged-either through creation and disbursement of new money or through activation of idle money-investment outlays are no longer limited by preceding de- cisions of income recipients to save. Invest- ments can now exceed intended saving; that is to say, capital formation can be in excess of what people saved out of their previous in- come; the extra capital formation is "forced," so to speak, upon the community through monetary witchcraft.

This is the basic idea which underlies most of the concepts of forced saving. The basic, simple theme, however, undergoes many com- plicated variations. It is linked up with other themes such as the reallocation of resources, movements of prices, changes in income dis- tribution, reaping of windfall profits, adjust- ments of cash reserves, adaptations of savings to increased incomes, etc. The combination of the basic theme with these supplementary ones is the chief reason for the confusing variety of concepts.

THE ROLE OF FORCED SAVING IN

MODERN THEORY

The history of the idea of forced or unin- tended saving is almost as old as the history of economic doctrines in general; the conception can be traced back at least until I802. But age is not what makes the idea important. What gives it real significance is the role which it plays in the theory of economic fluctuations and in the theory of economic development.

The strictly "Neo-Wicksellian" theorists saw in the phenomenon of forced saving a mechan- ism that explained "over-investment" as well as crisis and contraction (Mises, Strigl, Hayek, Robbins, etc.). In the theories of other writers, forced saving played its role only in the ex- planation of the prosperity phase of the cycle (Schumpeter, Pigou, Robertson, Keynes, etc.). It is interesting to reread in this connection a famous footnote in Lord Keynes' Treatise on Money:

The notion of the distinction which I have made be- tween Savings and Investment has been gradually creep- ing into economic literature in quite recent years. The first author to introduce it was, according to the German

authorities Ludwig Mises in his Theorie des Geldes und

der Umlaufsmittel . . . published in I912. Later on the idea was adopted in a more explicit form by Schumpeter, and "Forced Saving" (i.e. the difference between Sav- ings and Value of Investment as defined by me, though without there being attached to the idea, . . .) has be- come almost a familiar feature of the very newest Ger- man writings on Money. But so far as I am concemed . . .my indebtedness for clues which have set my mind working in the right direction is to Mr. D. H. Robert- son's Banking Policy and the Price Level published in 1926.2

While Professor Mises disclaimed authorship of the term "forced saving" - which actually had been used by Wicksell - he admitted that

he had "described the phenomenon." I The notion, as we said before, was really not so novel as Lord Keynes first believed. But no- where was the idea of forced saving as an ele- ment of expansion more colorfully employed than in the picture which Professor Schumpeter painted of the tides of trade. Professors Ellis,4 Haberler,5 and Marget,6 in the accounts which they give of Professor Schumpeter's theory, all agree that in it forced saving is "given a prom- inent place" as "an essential element."

Undoubtedly, the forced-saving idea got its greatest boost in Schumpeterian theory, be- cause here it was promoted from the rank of a cyclical phenomenon to the rank of a secular phenomenon. Forced saving - not the term but the concept - became an essential element in Professor Schumpeter's Theory of Economic Development.7 For, according to Schumpeter, only credit expansion can finance on a large scale the "new combinations of productive fac- tors" which constitute "development," while whatever contribution to the financing of inno- vations can be gotten from voluntary saving owes its existence to the high profits derived from previous "development."' Thus, in the end, all economic development must be re- garded as the result of forced saving.

2'J M. Keynes, A Treatise on Money (London, 1930), Vol. I, pp. 171-72.

3'Ludwig v. Mises, Geldwertstabilisierung und Konjunk- tuirpolitik (Jena, 1928), p. 45.

'Howard S. Ellis, German Monetary Theory, 1905-1933 (Cambridge, Mass., 1934), p. 402.

5 Gottfried Haberler, Prosperity and Depression (3rd edition, Geneva and New York, I941), p. 42.

'Arthur W. Marget, The Theory of Prices (New York, I938), Vol. I, p. 498.

'First German edition, Munich, 1912; English edition, Cambridge, Mass., 1934.

8Ibid., English edition, pp. 72 ff.

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28 THE REVIEW OF ECONOMIC STATISTICS

Professor Schumpeter did not use the term, forced saving, in the first edition of his Theory of Economic Development, but only later in a famous German article published in I 9 I 8.9 But the term did not secure permanent favor with Professor Schumpeter. What he once called an "extremely happy expression" 'O he considered later a "misleading phrase" which "it is better to avoid." " In this rejection of the term Pro- fessor Schumpeter is certainly not alone. If a term has come to connote so many different meanings as is the case with "forced saving," it has lost its usefulness. But the usefulness of the concepts need not be affected by the depre- ciation of the term under which they were first introduced.

THE HISTORY OF THE IDEA

Professor Hayek has given us an extremely interesting note on the history of the doctrine of forced saving."2 I may be permitted to pre- sent here a chronological list, based on Professor Hayek's studies, which points to the highlights in this historv.

I802: Henry Thornton (Saving arising from "defalcation of revenue")

I804: Jeremy Bentham ("Forced frugality") i8ii: T. Robert Malthus ("Augmentation of capital through

changed distribution of the circulating medium") i8ii: Dugald Stewart ("Fictitious capital") I823: Thomas Joplin ("Pressure and anti-pressure of capital

upon currency")

I829: John Stuart Mill ("Forced accumulation") I879: Leon Walras ("Increase of capital by the issue of bank

notes")

I898: Knut Wicksell ("Enforced saving") 1912: Ludwig v. Mises (Credit expansion causing "more

capitalistic production" and "increased saving") 1912: Joseph Schumpeter (Credit creation directing re-

sources into "development," generating profits and savings)

1920: Albert Hahn ("Capital formation through credit ex- tension")

1921: Alvin H. Hansen ("Compulsory saving" through "re- ducing real purchasing power of income recipients")

1926: D. H. Robertson ("Automatic stinting," "induced lacking," and "imposed lacking")

1927: A. C. Pigou ("Real levies" and "doctoring of con- tracts")

All the writers included in our brief "history" had the basic idea in common: that investors

were furnished money (credit) which was not actually or virtually transferred from money recipients who refrained from using it, but, in- stead, was additional to the money funds in use; and, thus, that the investment outlays financed by the additional funds were in excess of the investment outlays which could have been made with the funds made available by those who refrained from respending all of their receipts. This is, however, merely the immediate monetary aspect of a phenomenon

whlch inay assume djferent real forms. To the real substance behind the monetary screen we must now turn.

FIVE EXTREME CASES

The "real" situation resulting from the ex- cess of investment outlays over "intended sav- ings out of received income" does not conform to a definite pattern; a variety of patterns is possible, depending on a number of conditions. Even if we consider merely the more "imme- diate" effects of the additional investment out- lays (and disregard what may follow in subse- quent periods), several possibilities can be visualized. I propose to look into some which are extreme in certain respects and which, therefore, cover and limit the more probable possibilities.

(A) To start with a very fantastic case, let us assume complete occupational immobility of all productive resources inclusive of labor, with no unemployed reserves available at places where they are needed. Hence, production can- not be increased in any field. The investment goods which are purchased with the additional investment funds are "bidden away" from other investors. Prices of investment goods and in- comes of their producers are, of course, in- creased. The increase in investment outlays is not materialized in any increase in "real" investment. (Looking some steps ahead, one may observe what will be done with the in- creased incomes of the producers of the higher-priced investment goods. The income

9 "Das Sozialprodukt und die Rechenpfennige," Archiv fur Sozialwissenschaft und Sozialpolitik, XLIV (I9I7-I8), pp. 627-7I5, especially p. 7o6.

10 The Theory of Economic Development, English edition, p. 109.

l'J. A. Schumpeter, Business Cycles (New York, I939), Vol. I, p. 11 2, fn. i.

12F. A. v. Hayek, "A Note on the Development of the Doctrine of Forced Saving," Quarterly Journal of Economics, XLVu (1932-33), pp. 123-33. See also his Prices and Pro- duction (London, 1931), Ch. i.

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FORCED OR INDUCED SAVING 2Q

increments may in part be saved and the rest may bid consumption goods away from other consumers.)

(B) Going to the opposite extreme, let us assume that unemployed reserves of all pro- ductive factors are available in equal efficiency at given prices or wage rates. The investment goods which are purchased with the additional funds are readily produced; the real purchas- ing power of other investors or consumers is not encroached upon. The increased use of re- sources is at the expense of leisure only. With prices unchanged, the additional investment outlays are fully materialized in additional real investment. (Looking some steps ahead, the new incomes of the newly-employed factors will be partly saved and partly spent for con- sumption goods. With all resources available, the production of consumers' goods also can be readily increased to satisfy the new demand.)

(C) Let us assume now that unused re- sources are available for an expansion of the production of investment goods but not for an expansion of the production of consumption goods, mobility of resources being nil. The in- vestment goods demanded by the disbursers of the additional funds are readily produced with resources withdrawn only from idleness. Prices of investment goods remaining unchanged, the investment outlay in excess of voluntary saving is fully materialized in additional real invest- ment. (Looking some steps ahead, the new in- comes of the newly employed factors will in part be saved and in part be spent for con- sumption goods. Since the production of con- sumption goods cannot be expanded, their prices must rise, the recipients of new incomes bidding away consumption goods from those whose incomes are unchanged.)

(D) For the sake of completeness let us assume now the opposite of the preceding case, namely, that unused resources are available for expanded production of consumers' goods but not for that of producers' goods, mobility still being excluded. The investment goods de- manded by the disbursers of the additional investment funds must be bidden away from other investors. Prices of investment goods are increased, and the additional investment out- lays are not materialized in additional real in- vestment. (Looking some steps ahead, one may see that parts of the increased incomes of the

producers of producers' goods are saved, but other parts spent for consumption goods. With the production of consumers' goods expansible, the "investment in excess of intended saving" would result this time in an increase of real consumption and in no change of real invest- ment.)

(E) Now we come to what was probably the standard case of most writers on forced saving, the case of practically full employment of re- sources, with reasonable mobility of resources between industries. The additional demand for investment goods on the part of the disbursers of new funds leads to higher prices of invest- ment goods. This means that some amounts of investment goods are bidden away from other investors, but also that the production of in- vestment goods is expanded, productive re- sources being withdrawn from the production of consumption goods. The additional invest- ment outlay is thus not fully, but to some ex- tent, materialized in additional real investment. (Looking some steps ahead, one may observe the incremental incomes of producers of invest- ment goods partly saved and partly spent for consumers' goods. Prices of consumers' goods will rise for two reasons: first, because of the increased cost of resources; second, because of the increased consumption demand out of in- creased money incomes. As the consumption demand rises, the competition for resources increases and a retransfer of resources from the production of investment goods to that of con- sumption goods may set in.)

REAL INVESTMENT AND REAL

CONSUMPTION

Summarizing these five cases, all of which started with increased investment outlays and subsequently brought forth increased consump- tion outlays, we find that the effects upon real investment and real consumption were different in each case.

Real Investment Real Consumption

Case (A) unchanged unchanged Case (B) increased increased Case (C) increased unchanged Case (D) unchanged increased Case (E) increased decreased

We must distinguish, however, investment as an accumulated stock from investment as a

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30 THE REVIEW OF ECONOMIC STATISTICS

flow, i.e., as a rate per period of time. This distinction may be of importance in the out- come of case (E). For it is not impossible that, in consequence of the increased consumption

outlays, the retransfer of resources from the production of investment goods to that of con-

sumption goods eventually leaves the flow of real investment below the level at which it was

in the beginning. Nevertheless, in terms of

real resources sunk into construction, accumu- lated investment has increased and, under the particular assumptions, it can have increased only at the expense of consumption. There seems to be little doubt that the writers on forced saving were thinking chiefly of this ac- cumulation of real capital during the transition period.

A few of the writers are anxious to find out at whose expense the real capital was accumu- lated; that is to say, who it was who did ("was

forced to do") the real saving (the "foregoing of consumption") which was embodied in the increased investment. For purposes of such

analyses, the concepts of forced saving had to be particularly refined. Specimens of these re- fined concepts will be discussed after this more

general orientation.

ENCROACHMENT ON POTENTIAL

CONSUMPTION

The conception becomes rather slippery when the implicit assumptions of a given state of the industrial arts and a given supply of productive resources are dropped. If technical progress results in higher efficiencies of produc-

tive factors, or if additional amounts of factors are drawn into the productive system, any re- duction of real consumption, which otherwise might be associated with forced capital accumu- lation, becomes unnecessary. Real consump-

tion may even increase. In this case one may be tempted to speak of the encroachment which the forced capital formation makes upon poten- tial consumption or leisure. An advance in technology or a larger supply of resources, in absence of forced saving, would result in larger consumption or more leisure or both; with in- vestment outlays financed by additional credit, some of the resources that would have gone into the production of consumption goods (or into the "enjoyment" of leisure) can be "directed"

into the production of capital goods. Professor

Schumpeter places much emphasis on this en- croachment upon potential alternatives by in- novations financed through credit creation:

"Even with respect to those quantities of fac- tors which currently accrue . . . and can be used for the new purposes without having pre- viously served any old ones, it is more correct

to say that they are shifted from the uses they would have served had the new purposes not been decided on, than simply to say that they go to the new uses directly." 13

If unemployment is the practical alternative

to investment, and if the additional investment

outlay and the respending of these funds by

the recipients of the additional income resuilt in increased production of investment goods as

well as of consumption goods, it becomes diffi-

cult to insist that the investment constitutes an "encroachment upon potential consumption." Involuntary leisure is not customarily regarded

as a part of consumption; it would be too odd to put the label "forced saving" on the "forced reduction of involuntary leisure." This, how-

ever, does not mean that in this case the label cannot be used at all. For several other things to which the idea of forced saving may apply

are in the picture: that through the additional funds productive resources are "directed" into capital formation; that investment outlays ex- ceed the amounts which voluntary savers in- tended to set aside from their received incomes; that the additional money sums are accepted by the people and absorbed into their cash bal- ances; that incomes rise and are propagated (passed on and on) until their recipients are induced to save enough to match the additional investment outlays; etc. In other words, the idea of an actual or potential reduction of con- sumption forced by the additional capital ac- mumulation is only one of a number of ideas connected with the notion of forced saving.

STINTING, LACKING, AND DOCTORED

CONTRACTS

The sharpest set of tools for the dissection of some sorts of forced saving was prepared by Professor D. H. Robertson."4 Indeed, they are

13 Business Cycles, Vol. i, p. iii, fn. i. "D. H. Robertson, Banking Policy and the Price Level

(Cambridge, England, 1926); "Saving and Hoarding," Eco-

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FORCED OR INDUCED SAVING 3I

so sharp that few writers dare to handle them lest they cut themselves. Therefore, with timid apprehension do I undertake to exhibit the Robertsonian set of concepts.

This set of concepts may be expressed in one sentence, to be explained presently: "Automatic stinting" and "induced saving" will under cer- tain conditions entail "automatic lacking" and "induced lacking," respectively, which together are "imposed lacking"; this, in combination with saving resulting from a "doctoring of past contracts" (a Pigovian creation) and other "windfalls," is what may result from an excess of investment over "spontaneous saving."

Saving, in this conceptual scheme, is the dif- ference between consumption expenditures and "disposable income." Disposable income is the income of the previous "day" (income period). Lacking means consuming less than the value which the disposable income has had at the time of its receipt. Saving refers merely to money amounts; lacking, on the other hand, refers to "real" quantities. I "lack" if I consume today less than yesterday's income was worth yes- terday.

Automatic stinting means "consuming less . . .than one would have done if other people had not altered [increased] their expenditures," e.g., their investment outlays, the encroachment upon one's real consumption being the result of actual price increases or of prevented price reductions. Automatic stinting need not involve lacking. For example, one may have decided to dissave, and the intended "dislacking" may just be offset by the automatic stinting. But, if there was no spontaneous dissaving (and no simultaneous change in productivity), auto- matic stinting entails automatic lacking.

The automatic effects on real consumption through price increases or prevented price

falls - are not the only effects which the in- crease of other people's expenditures has upon consumers. The increase in the rate of expendi- ture by other people is liable to disturb "the proportion of money stock to disposable in- come" of firms and individuals; and they will try to build up their money stocks. This de- signed building-up of cash balances, in conse- quence of higher prices and/or higher incomes.

is indirectly induced by the additional invest-

ment outlays and is, therefore, called induced

saving. The induced saving is likely to involve lacking, lacking which is voluntary rather than

automatic, but certainly not spontaneous: it is induced lacking.'5

Automatic lacking and induced lacking are

the two component parts of imposed lacking, that is, of the lacking which results from the current investment in excess of spontaneous

saving. But if such additional investments

were undertaken not merely today and yester- day but also on preceding days, and have caused certain shifts in relative prices, we must not fail to look into the changes in income distribu- tion which were implied in the price movements and which may have affected the ability and willingness to save. (This is one of the "social consequences of variations in the value of money," which "may well lead to increased saving," as was emphasized by Professor Mises.'6) Since these price movements were probably in favor of wealthier income groups, total savings may thereby be substantially en- hanced.

Of the relative changes in income distribu- tion, two types were singled out because of the major importance they may have in this con- nection: profits due to the fact that past con- tracts fix certain costs while product prices rise - the "doctoring of past contracts" '7 - and profits due to the appreciation of inventories and other assets - capital gains. (The "past contracts" are, of course, merely one particular cause for the much more general fact that prices do not rise simultaneously and proportionately.) Since larger corporate and entrepreneurial sav- ings and investments result from these profits, and since the profits can be attributed to the Drevious excess of investment over spontaneous

nomic Journal, XLIII (I933), pp. 399-4I3. Some of the defi- nitions given in the I926 book were slightly modified in the I933 article. I am using the latter.

" That a man with rising incomes should be said to be "lacking" may appear paradoxical. But since the lacking is not relative to the income he had some day back in the past but merely relative to the real income of "yesterday," he may "lack" when he uses a part of his increased income for building up his cash reserve.

16Ludwig v. Mises, Theory of Money and Credit (Lon- don, I934), pp. I95 ff and 36I. (First German edition, I9I2.)

" In Pigou's phrase, "business men, who are, in the main,

borrowers and wage payers, find themselves in times of prosperity in receipt of a windfall gain, consequent upon

what is, in effect, a doctoring in their favor of past con- tracts. They are thus in a position to add to the stream

of floating capital to be turned into industry." A. C. Pigou, Industrial Fluctuations (London, I927), p. I22.

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32 THE REVIEW OF ECONOMIC STATISTICS

saving, one may detect here another species of secondary (or "forced") savings, quite apart from the imposed lacking which results from the same cause.

AUTOMATIC, INDUCED, AND SECONDARY

At the risk of being quite unprecise, I may attempt to get the three main distinctions of the Robertsonian exhibit into the simplest pos- sible form:

(a) In consequence of the additional invest- ment outlays, prices are increased and the real purchasing power of consumers is re- duced. (Automatic lacking.)

(b) In consequence of the additional invest- ment outlays, transactions, incomes, and prices are increased and consumers feel impelled to use parts of their incomes for building up their cash reserves. (Induced hoarding.)

(c) In consequence of the additional invest- ment outlays, relative prices and the dis- tribution of income are altered in favor of entrepreneurs, who can and will increase their voluntary saving. (Secondary sav- ing.)

It should be understood, however, that these three species of forced saving are interrelated more closely than merely as effects of a com- mon cause. The price increase which is sup- posed to perform the "expropriation" of the

consumer 1 is inversely related to the extent of the induced hoarding. If in the course of an expansion of investment outlays the income recipients allow the real value of their cash reserves to decline and do not withhold income from re-spending, consumers' demand rises more strongly and the ratio of consumers' ex- penditures to investment outlays is less reduced than it would be with large induced hoarding. But the rise of prices of consumers' goods may be greater than it would be with large induced hoarding. The price increase alone is, there- fore, a poor measure of the "expropriation." Even with a more drastic price rise, that is to say, with a larger reduction of the purchasing power of the monetary unit, aggregate real con- sumption during the transition period will be

- if at all - less reduced when induced hoard- ing by income recipients is slight (and, hence, slow).'19

ABSTINENCE, ACCUMULATION, AND

GENERATED SAVINGS

The idea "that the contribution of banks to capital accumulation rests upon expropriation" of the consumer,20 is linked, of course, with the assumption of scarce, or even fully employed, resources. But in fact the forced capital forma- tion, financed through credit expansion, need not at all be at the expense of the consumer.2' In order to comprise more general conditions, the forced saving concept had to be widened, although this widening cannot be traced to any single author. To many writers the forced re- duction of consumption was only one, and per- haps only a secondary, phase of the problem of forced capital formation.

The notion that the extension of bank credit confiscates parts of the consumers' purchasing power was still present in Lord Keynes' Treatise on Money. There it is stated, for example, that "the new investment in excess of the volume of saving will be made possible, not by voluntary abstention from consumption by refraining from spending money-income, but by involuntary abstention as the result of money-incomes be- ing worth less." 22 But, to be sure, this was not a major point in the cycle theory expounded by Lord Keynes in the Treatise.

Forced reduction of real consumption was not the major point either in the theory of Pro- fessor Mises. He placed major emphasis on two other points. One was the change in in- come distribution which accompanies the ex- pansion process and favors the entrepreneurs, who thus can use large parts of their incomes for saving and investment: secondary or gen- erated savings.23 The other point was the en- couragement which artificially low interest rates are apt to give to "more capitalistic" enterprise,

Howard S. Ellis, op. cit., p. 425.

9 Cf. A. C. Pigou, op. cit., Ch. xiIi ("Credit Creations and the Associated Real Levies"), pp. I35-46.

20Howard S. Ellis, Op. cit., p. 425. 21 "An expanding bank currency during periods of busi-

ness recovery will provide funds for new capital formation without a curtailment of consumption." H. G. Moulton, "Commercial Banking and Capital Formation," Journal of Political Economy, xxvi (I9I8), p. 878.

22 A Treatise on Money, Vol. I, p. I 75. ' This point was also stressed by Hawtrey.

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FORCED OR INDUCED SAVING 33

resulting in a formation of capital which may involve excessively long periods of produc- tion.24

The forced compression of consumers' pur- chasing power was no more than a side-line in Professor Schumpeter's theory. Only in a few places did he refer to this idea, as, for example, in the following statement: "The price-boosting effects of bank money give rise to the phenome- non of 'forced saving.' People, without intend- ing to save, are forced to do so by having their real incomes reduced because of increased prices. In this way the means of production and the stocks of goods which are disposable for productive purposes in the economy are in- creased, and the fund available for immediate consumption is diminished." 25 In most other places, Professor Schumpeter relegated the com- petition between capital formation and con- sumption to second place, assigning primary importance to the competition between inno- vation and "static" production. The innovating entrepreneur is furnished purchasing power, enabling him to carry out his new combinations, and if he draws productive resources away from other uses, it is the less "dynamic" pro- ducer who is chiefly affected.26

What I have called before "secondary" or "generated" savings, that is, the saving on the part of the recipients of increased incomes, par- ticularly profits, is also featured in Professor Schumpeter's theory. The idea is advanced that the additional investments generate profits, out of which emerge the savings which eventually pay for the enterprises first financed by "bank- ing resources." According to Schumpeter's I9I2 version, the "shares and bonds" of the new enterprises "gradually are paid for" out of these generated savings, thus "are resorbed by the community's savings." 27 Although these sav- ings are voluntary, the significant fact is that

they are themselves a result of the expansionary investment, and thus, in a sense, forced into be-

ing by the credit expansion.

SAVINGS MUST EQUAL INVESTMENT

The most general forced saving theory is that of Lord Keynes. Although he insists that all

saving is "equally genuine" and "voluntary," he chooses to define it so that it can never devi-

ate from investment. Without anybody chang- ing his wishes and desires, every increase in investment makes people save more. Invest-

ment is the determining variable, saving is "necessarily" equal to it.

In Keynesian theory, however, saving is

equal to investment in at least four different senses. (i) If one accepts the Keynesian defi-

nitions, he need not ask what makes saving equal to investment, because the two are merely

different terms for one identical concept (viz., the difference between current income and cur- rent consumption). On the other hand, if one takes the act of saving and the act of invest- ment as two different things, so that saving and investment are no longer identical by definition

but merely equal by means of some reliable mechanism, then one must ask just what this mechanism is. The different answers that one can get to this question suggest the three other senses in which saving is equal to investment.28 (2) The money disbursed today as additional

investment outlay must be held by somebody to whom it is income. Even if the income re- cipient intends to spend all his income tomor- row, as soon as the stores open, he has not spent

it today; hence, today he has "saved." (3) If the funds disbursed in one single dose of addi- tional investment outlay are observed on their course through the economy, passing from hand to hand (account to account), one will see them appear again and again as income of different people, each probably saving a part of the funds and spending another part for consumption. If you follow the chain of spending and re- spending long enough, the savings of the con- secutive income recipients will eventually add up to the original investment outlay; hence, saving (the sum of the series) will have become

'See The Theory of Money and Credit, pp. 360 ff., and Geldwertstabilisierung und Konjunkturpolitik, p. 45.

25 "Das Sozialprodukt und die Rechenpfennige," op. cit.,

p. 706. 26In his most recent exposition (Business Cycles, p. II2,

fn. i), Professor Schumpeter restates "that it is primarily the purchasing power of other firms that is reduced in order to make room for the requirements of entrepreneurs, and that the reduction of the 'real' purchasing power of some households is a secondary phenomenon which, moreover, is compensated in part by the increase in the real purchasing power of others."

' Theory of Economic Development, p. iii.

' One other sense of equality was refuted by Keynes: the "classical" theory that investment becomes equal to sav- ing through the functioning of the interest rate mechanism in the capital markets.

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34 THE REVIEW OF ECONOMIC STATISTICS

equal to investment (the single dose). (4) If the additional investment is not a single dose but a rate per period, that is to say, if the ad- ditional investment is repeated period after period, aggregate incomes per period will rise. and will continue to rise until the income re- cipients increase their rate of saving enough to offset fully the rate of additional investment, In other words, investments generate income and, under the influence of increased incomes. people are induced to higher savings; hence saving (the eventually reached and then main- tained level) becomes equal to investment (the initially started and then maintained level).

In none of these senses is saving the result of spontaneous decisions on the part of savers. In one case, (2), we did not give the alleged "saver") enough time to go shopping. In an- other case, (3), we simply waited long enough until a series of consecutive acts of saving added up to the sum of an original investment outlay. In the last case, (4), we saw the level of additional investment force the level of in- come up to a point where people felt induced to save enough. This last sense is the really essential one for Keynesian theory; and in this sense, the "forced" or "generated" character of the saving is most apparent.29

INCOME-INDUCED SAVING

The nature of this saving as "forced," or not spontaneous, is fairly explicitly stated by Lord Keynes in several places. "It is the increased output which produces the increased saving." 30 And "it is . . . impossible for the community as a whole to save less than the amount of cur- rent investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of in- vestment." 31 The Robertsonian "induced sav- ing" is reformulated by Lord Keynes in the following proposition: "No one can be com- pelled to own the additional money corre- sponding to the new bank-credit, unless he

deliberately prefers to hold more money rather than some other form of wealth. Yet employ- ment, incomes and prices cannot help moving in such a way that in the new situation someone does choose to hold the additional money."7 32

Now, the forced saving in Keynesian theory is, of course, not the same as the forced saving in the theories which elaborated upon forced reductions of consumption. The very essence of the Keynesian theory is to show how addi- tional investment, as a rule, is associated with increased, rather than reduced, consumption. And as he took "forced saving" as equivalent to "forced frugality," Lord Keynes was justi- fiably critical of the concept. His criticism, however, went further than that. According to him, " 'forced saving' has no meaning until we have specified some standard rate of saving. If we select (as might be reasonable) the rate of saving which corresponds to an established state of full employment the definition would become: 'Forced saving is the excess of actual saving [read: investment] over what would be saved if there were full employment in a posi- tion of long-period equilibrium.' 33 And he concludes that "an attempt to extend this per- fectly clear notion to conditions of less than full employment involves difficulties." 3'

This conclusion is not justified. For, cer- tainly, full employment is not the only "reason- able standard" for the rate of saving. It is just as reasonable to take for the analysis of any given situation the current income level as the standard and, thus, to take as the standard rate of saving that which corresponds to a given level of income. The definition, formulated after the above pattern, would then become "Forced saving is the excess of actual saving [read: investment] over what would be saved if the level of income were unchanged." This definition tallies well with what many writers have in mind when they speak of forced or unintended (unintentional) saving. "Excess of ex post over ex ante saving," or "Excess of re- alized over expected saving," is another term in use for this concept of forced saving.

Investment which equals intended saving leaves money income unchanged.35 Increased

'The Keynesian definition of saving is not needed for the proof of this equality of saving to investment. See my International Trade and the National Income Multiplier (Philadelphia, 1943).

' J. M. Keynes, The General Theory of Employment, Interest and Money (London and New York, 1938), p. 328.

3'Ibid., p. 84. (Italics in the original.)

2 Ibid., p. 83. (Italics are mine.)

'3Ibid., p. 80- 34 Ibid., p. 8I. I This is not an empirical statement but follows from

the definitions of the terms involved.

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FORCED OR INDUCED SAVING 35

investment outlays with unchanged money in- come obviously imply reduced consumption outlays. To distinguish such a situation from another one, where an increase in investment outlays is not offset by a decrease in consump- tion expenditures, is perfectly good sense; whether one refers to the latter situation by speaking of an excess of investment over in- tended saving, or by speaking of forced saving, or money-income-increasing investment, or sim- ply expansionary disbursement, is not of great importance.

TEMPORARY ABNORMAL SAVINGS

The concept of forced saving puts in an incognito appearance at the Keynesian exposi- tion under a very strange disguise. Professor Robertson was the first to discover 36 it there: it was called "temporary reduction of the mar- ginal propensity to consume." 37

A reduction of the marginal propensity to consume is obviously an increase in the mar- ginal propensity to save. But an increased ''propensity" to save sounds very much like something spontaneous and not at all like some- thing induced or even forced. But we know that "propensity," in Lord Keynes' theory, does not always mean propensity - the psy- chological concept - but means in some places a ratio between ex post (realized) quantities- the tautological concept.38 Thus we can under- stand that the "temporary increase of the marginal propensity to save" need not mean that people wish or desire or are inclined to save more; it may simply mean that the ratio between actual investment and income rises for a while. Additional investment creates ad- ditional income, and additional income gen- erates more income as well as savings out of income in the course of time rather than at a stroke. He who understands this will be clear about the fact that, with an unchanged desire to save a certain portion out of received in- come, the ratio of investment to income must

appear temporarily increased and will go back to "normal" only when income and savings have adjusted themselves to the increased level of investment. In the meantime, that is to say, during the transition to the new equilibrium levels, investment exceeds the rate of saving which would correspond to the "normal mar- ginal propensity to save."

The words "normal savings" and "abnormal savings" were used by Professor Arthur Smith- ies in an article in which he explicitly adopts the "Keynesian method" of analysis.39 Dis- cussing a particular kind of investment expen- ditures, viz. war expenditures, he speaks of a "gap between war expenditure and normal savings, which must be bridged by abnormal savings induced by" the higher rate of war ex- penditures.40 Clearly, this "abnormal saving" is the I942 Model of forced saving.

SOCIALISTIC SAVING

When Professor Schumpeter explained how with the newly created bank-credit productive resources could be "directed" into new uses, withdrawn from the "static" circular flow and "allotted" to new enterprise, he made his pic- ture of this forced capital formation clearer by pointing, as an analogy, to capital formation in a socialistic community. New credits, issued by the banking system, do, in a capitalistic economy, what new orders, issued by the cen- tral planning authority, would do in a socialistic economy.

Professor R6pke, comparing the types of "coercion" which are employed "to free the tempo and extent of investment from the limita- tions imposed by the rate of [voluntary] sav-

" D. H. Robertson, "Some Notes on Mr. Keynes' General Theory of Employment," Quarterly Journal of Economics, LI (1936-37), p. I78.

7J. M. Keynes, op. Cit. p. 123. 3 See Gottfried Haberler, "Mr. Keynes' Theory of the

'Multiplier': A Methodological Criticism," Zeitschrift fur Nationalokonomie, VII (I936), pp. 299-305; or Fritz Mach- lup, "Period Analysis and Multiplier Theory," Quarterly Journal of Economics, LIv (1939-40), p. 14.

3 Arthur Smithies, "The Behavior of Money National

Income under Inflationary Conditions," Quarterly Journal

of Economics, LVII (1942-43), p. 115. 40Ibid., p. ii7. On p. ii6 we read "that under the

impact of additional war expenditure the marginal propen- sity to save is temporarily increased, and it is only after time has been allowed for the multiplier effect to work itself out fully that the marginal propensity to save returns to its normal level. In fact, it is this distortion of the marginal propensity to save that, if nothing else does, will ensure the

identity of war expenditure and saving at every point of time." It is, in fact, not a distortion of real propensities but only a distortion of concepts which becomes manifest at this point. An "identity" -established by definition-need

not be "ensured" by anything. But if "normal saving" is less than investment or war expenditures, and saving is defined as identical with investment or war expenditures, the difference must be "abnormal" or "forced" saving.

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36 THE REVIEW OF ECONOMIC STATISTICS

ings," stated: "The difference may perhaps be expressed by saying that in our economic sys- tem it is monetary 'forced saving' which sets the wheels of over-investment in motion, while in Soviet Russia it is authoritarian 'forced saving.' Whereas in Russia the coercive machinery is represented by the G.P.U. . . . , in capitalism it is represented by the banking system...." 41

Incidentally, the technique of socialistic "forced saving" need not be that of direct commandeering of resources, but may also be monetary in character. If a socialistic com- monwealth were organized in conformance with the blueprint of Professor Lange,42 the alloca- tion of resources would not be planned by the authorities and executed upon their direct orders, but would instead be left to the working of the money mechanism, just as in a capitalist system. But, since the voluntary saving on the part of income recipients would be fairly slim under a system without large private incomes from capital, the bulk of the saving would have to be "forced saving." It would be done either through planned additions to the money flow or, more commonly, through planned distribu- tion of the state income (from profits, rent, interest, and taxes) between capital formation and "social dividend." 43

FISCAL SAVING

The term "authoritarian forced saving" was used also for certain fiscal policies in capitalis- tic economies. If the government raised funds from would-be consumers and then allocated these funds to the construction of capital, the case would be one of involuntary abstinence and capital accumulation. Professor R6pke

himself, who had first used the term authori- tarian forced saving with reference to the method of direct commandeering of resources (and in contradistinction to "monetary forced saving"), used it later for what might be called "fiscal forced saving." Discussing the case where government trust funds (social security reserves, which are raised at the expense of consumption expenditures) are used for invest- ment purposes during a boom period, he said that "this sort of budget policy might make things even worse by adding to the monetary forced saving, which is the concomitant of the boom, the additional investment facilities of authoritarian forced savings." 44

Fiscal saving, however, may again mean sev- eral things. First of all, it may be thought of in the sense in which it has just been used, namely in the sense that the government raises funds from consumers -reducing their consumption expenditures - and puts these funds to real investment purposes. But, secondly, one may think of fiscal saving in the sense that the gov- ernment uses funds, raised at the expense of consumption outlays, for the retirement (re- duction) of the public debt. The effects of these two types of "fiscal saving" may certainly be different. But there is still a third sense: the "government net saving," as it is listed in na- tional income statistics. This refers to the use of ordinary government revenue for debt reduc- tion, irrespective of whether the revenue (taxa- tion) was at the expense of consumption or at the expense of private saving. Of course, only in the former, not in the latter, case would ''government net saving" really constitute forced saving.

FORCED LOANS, TAXES, RATIONING

In the set of concepts reviewed in the pre- ceding two sections, the phenomenon of forced saving was seen either in the character of the government expenditure (capital construction) or in the double condition of consumption- reducing revenue and asset-increasing (or debt- reducing) disbursement. In recent discussions of war finance, however, the term forced sav- ing has been used with no reference to the char- acter of the government expenditure and ex-

4' Wilhelm R6pke, Crises and Cycles (London, I936), p. I07. (Italics are in the original.)

42 Oscar Lange and F. M. Taylor, On the Economic Theory of Socialism (Minnesota, I939).

4' In a review of H. D. Dickinson's Economics of Social- ism by Lange in the Journal of Political Economy, L (I942), pp. 299-303, Lange revised his previous statement about the government controlled rate of capital accumulation in the socialistic state. He now considers it possible to adjust the rate of investment to the "ex-ante saving" of the con- sumers; and he states that it is thus "possible, in theory, to remove from the socialist economy the 'arbitrariness' in the determination of the rate of capital accumulation." But, still, "through 'corporate' saving or dissaving done by the Social Fund the rate of capital accumulation can be made, as a piece of deliberate planning by the authorities, to di- verge from that set by consumers' preferences." (Ibid.,

P. 303.) ' R6pke, Op. Cit., p. I58.

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FORCED OR INDUCED SAVING 37

clusively with reference to the way in which funds were raised.

The term has again been used rather indis-

criminately, though some attempts have been made to distinguish between "compulsory loans" and "refundable taxes." 4 These words

are not self-explanatory, but the idea is to apply the former to forced loans out of saved funds and the latter to post-war credits for taxes paid by low-income groups. A more thorough dis- tinction would separate loans out of "past sav- ings," i.e., out of inactive funds; refundable taxes out of "current savings," i.e., out of cur- rent income which would have been saved had it not been taxed away; and refundable taxes cutting into consumers' expenditures, i.e., out of current income which would have been con- sumed had ic not been taxed away.

Only the last of these forced loans could really be called forced saving, and even then the transaction should be understood to consti- tute forced saving only from the individual's point of view - because he gets a claim against the government - but hardly from the point of view of society - unless one wishes to regard war expenditures as capital formation.

Forced saving in the sense of individual con- sumers' involuntary abstinence may also be seen in the proposed system of general expendi- ture rationing. In order to "control" war-time inflation, governments may resort to general expenditure rationing, making it impossible for consumers to spend more than certain amounts, fixed either absolutely or in some relation to income or to expenditures in the past. If this rationing makes it impossible for consumers to spend as much as they otherwise would, the resulting saving is certainly a type of forced saving from the point of view of the individual. The saving may take the form of hoarded cash or deposits, or of securities purchased, espe- cially government bonds. Whether or not any "national saving," i.e., capital formation, is as- sociated with the forced individual saving is again a matter of appraising the nature of the government expenditure.

Even ordinary commodity rationing may re-

sult in induced saving if the rationing is very comprehensive. If the greater part of the neces- sities and semi-luxuries is rationed, consumers will hardly spend on non-rationed luxuries all the additional money with which they would have liked to buy more of the rationed articles if they could get them. If the consumers are prevented from spending as much as they wish on food and clothing, they may decide not to invest all the spare money in liquor and movies but instead to put a part of it in government bonds or to leave it idle. These savings of the individual consumers are "forced" by the ra- tioning of the desired commodities. (Without rationing and price fixing, consumers would spend the money sums in question in higher prices of the scarce goods. The aggregate ab- stinence of the consumers in real terms would be the same under inflated prices as it would be under rationing and saving; but the distribu- tion of the abstinence would be different and the abstinence would not be rewarded by the claims on future real income which the indi- vidual saver has embodied in the savings- provided prices do not rise after all, cheating the saver of some portion of his savings.)

CORPORATE SAVING

Another saver against his will may be found in the stockholder of a corporation. The stock- holder may like to receive his share in all the net earnings of the firm in the form of cash divi- dends and to use them for consumption. If the corporation decides not to distribute all its net earnings, the stockholder is forced to save against his will unless he is willing to sell some of his stocks.

The practice of "ploughing back" parts of corporate profits has become almost universal in the United States. Undistributed profits are used to finance plant expansions, to pay off funded or unfunded debts, or to accumulate liquid assets (securities) or even idle cash bal- ances. This practice of "self-financing" de- prives the stockholders of the free choice to consume their earnings or to save them, and, in the latter case, to invest them in the same enterprise or elsewhere. A number of evil con- sequences are attributed to this type of "forced saving": that investible funds are misallocated, because the self-financing corporation avoids

'This distinction was made, for example, in the "Memo- randum on Adequate War Taxation," prepared by econo- mists of Iowa State College, and signed by many prominent members of the profession, to be submitted to administra- tion agencies and congressional committees.

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38 THE REVIEW OF ECONOMIC STATISTICS

the probing by the capital market and the selec-

tive test of the interest rate; that the directors, disposing of this easy money, put prestige con- siderations ahead of profit calculations; that the corporations hoard the undistributed funds and thus may aggravate a depression; that the corporations invest the funds and thus may cause overinvestment booms which are apt to be followed by crises and depressions.

By the last-mentioned theory of overinvest- ment, which was advanced by Professor Vito,46 the concept of forced saving through corporate saving is merged with the original concept of forced saving through credit expansion. For, according to this theory, forced saving in the sense of undistributed profits of corporations and forced saving in the sense of credit expan- sions are jointly and severally held responsible for financing business upswings and creating unhealthy booms.

SUMMARY

Our survey of concepts connected with the term forced saving, and of terms connected with the main concepts of forced saving, may be conveniently concluded with a list of all these related concepts and terms. In this list, how- ever, the promiscuous expression forced saving itself shall be avoided and shall be replaced by synonyms or circumscriptions.

i. Involuntary absolute frugality-or ab- solute reduction of the real purchasing power of the consumers - in consequence of increased prices of consumers' goods, the price increase being the result of additional investment out- lays, which are financed through newly created or activated funds and compete for intermedi- ate goods and services.

2. Involuntary relative frugality - or pre- vented increase of the real purchasing power of the consumers - in consequence of the avoid- ance of an otherwise occurring decline in prices of consumers' goods; this decline in prices would have come about through technical im- provements or a more plentiful supply of pro- ductive resources, but is prevented from taking its (full) course, because additional investment outlays, financed through newly created or ac- tivated funds, compete for intermediate goods and servires.

3. Involuntary abstinence of groups of con-

sumers with fixed or insufficiently rising money incomes- but not a reduction of total real consumption - in consequence of higher prices of consumers' goods, this price rise being the result of expansionary investment outlays and

of expanded incomes of other consumer groups. 4. Automatic stinting, or consuming less

than one would have done if other people had not increased their expenditure, the encroach- ment upon one's real consumption being the automatic result of actual price increases or prevented price reductions.

5. Automatic lacking, or uncompensated au- tomatic stinting, being the automatic (price- effected) reduction of one's consumption below the value which the disposable income had at the time of its receipt.

6. Induced hoarding, or the building up of one's cash reserves in order to adjust them to the increase in prices or income or transactions which was caused by the increased disburse- ments by others.

7. Induced lacking, or the voluntary, but not spontaneous, reduction of one's consump- tion below the value which the disposable in- come had at the time of its receipt, the reduc- tion being the "real" counterpart of the induced hoarding (mentioned under 6).

8. Imposed lacking, or the sum of automatic lacking (mentioned under 5) and of induced lacking (mentioned under 7).

9. Secondary saving due to the doctoring of past contracts; that is to say, saving by those - usually enterpreneurs - who have gained by having to pay contractually fixed rates and prices wlhile they receive prices which have increased in consequence of (previous) expan- sionary investment.

io. Secondary saving due to windfall profits through asset appreciation; that is to say, sav- ing by those who have gained through appreci- ated inventories, and who receive for their products, made on existing equipment, prices which have increased in consequence of (previ- ous) expansionary investment.

II. Secondary saving due to the shifts in income distribution which, as a rule, accom- pany expansionary investments and favor groups-usually entrepreneurs -with higher ability and willingness to save. (This concept includes those mentioned under 9 and io.)

" Francesco Vito, "II risparmio forzato e la teoria di cicli economici," Rivista Internazionale de Scienze Sociali (I934).

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FORCED OR INDUCED SAVING 39

I 2. Profit-generated saving by the recipients of profits which arise from economic develop- ment initiated by innovators and financed by credit creation.

I3. Automatic increase in money-holding by the recipients of income disbursed through ex- pansionary investment, this "saving" or cash accumulation not being the result of thriftiness (mentioned under I5 and i6) or of induced hoarding (mentioned under 6) but simply the inevitable consequence of the fact that one can- not spend money before he receives it. (This is one sense in which "saving" always equals investment.)

I4. Unintentional corporate saving, in the form of increased cash, inventories, and other assets, or reduced debts, subsequent to the re- ceipt of increased net profits and prior to their distribution as dividends.

I5. Successive income-induced saving out of an additional income stream which was created through a single dose of additional investment, the series of savings by successive income re- cipients eventually adding up to the amount of initial investment, and the additional income thus dwindling down to zero because of the "leakages" through saving. (This is another sense in which saving must equal investment.)

I6. Income-induced saving by the recipients of additional income which is created through a continuous or periodic outlay of additional investment, the income-induced saving per pe- riod eventually reaching the level of the invest- ment per period. (This is probably the most significant sense in which the rate of saving is equal - forced up - to the rate of investment.)

17. Excess of investment over what would be saved if there were full employment in a position of long-period equilibrium.

i8. Excess of investment over "saving," saving being defined as the difference between current "normal" income and current consump- tion, thus "creating" "windfall profits" in the amount of the excessive investment.

I9. Excess of investment over saving out of disposable income, or over what would be saved if the level of income remained unchanged.

20. Excess of realized saving over antici- pated (expected, intentional) saving.

2I. Excess of ex post over ex ante saving.

22. Temporary reduction of the marginal propensity to consume during the transition period before income and consumption adjust themselves to an increased investment level.

23. Abnormal saving, or the excess of in- vestment over what would be saved on the basis of the normal marginal propensity to save.

24. Directing productive resources into the production of more capital goods, the directing achieved through the disbursement of addi- tional credit.

25. Directing productive resources into the production of more capital goods, the directing achieved through direct allocation or com- mandeering.

26. Socialistic compulsory saving, achieved through disbursement of additional money (mentioned under 22) or through the planned distribution of the "social fund" between "divi- dend" and capital formation or through direct allocation of resources (mentioned under 23).

27. Fiscal compulsory saving, or spending on real investment purposes the proceeds from taxes that reduce consumption expenditures.

28. Fiscal saving through reducing the gov- ernment debt out of taxes which reduce con- sumption expenditures.

29. Compulsory old-age insurance, forcing individuals to pay premiums that they would not have paid otherwise.

3o. Refundable taxes. 3I. Refundable taxes that reduce consump-

tion expenditures. 32. Expenditure rationing, making it im-

possible for the income recipient to spend more than a permitted amount.

33. Rationing-induced saving, or the reduc- tion of consumption expenditures which results from the fact that most of the desired commodi- ties are rationed.

34. Corporate saving, or the non-distribution of corporate profits which, if distributed to the shareholders, would be used for consumption purposes.

This list of related concepts and terms is probably far from complete. There is little doubt that it will be still more incomplete in a few years, when the family of concepts and terms will have grown further.

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