On the mysteries of savings, hoards and investment

One of the more fascinating if arcane topics which Keynes addressed in the run up to the General Theory was the question of what constituted savings as   opposed to investment. His principal debate was with Dennis Robertson the Cambridge economist and monetary expert who was originally very close to Keynes but split with him on these issues as well as on other aspects of the General Theory.The issue revolved around what were savings and did they equal investment and if so how and why.

Keynes originally as far back as his work on Indian currency and finance(1913) had been aware and intrigued by the hoard of gold accumulated in India. This gold hoard one of the largest in the world was in effect demonetized and literally hoarded for the rainy day sometime in the future when it would be useful in a time of financial distress. Hence , it could not be considered savings leading to investment in the normal sense of the terms. Keynes moved a long way away from this concern with hoarding when he argued in the General theory that savings must always equal investment, at least in the Marshallian short period. I once heard A.Asimakopulos at McGill stress this point about Keynes in expressing his rejection of the Stockholm school approach which distinguished between ex ante and ex post.(see also his book Keynes's general theory and accumulation, p.xvi) To me this Swedish approach seems superior to the approach of Keynes because it allows for the production system to adjust to discrepancies in savings and investment expectations by bringing the two into equilibrium by altering the total employment of factors so as to equate savings to investment.

Robertson, on the other hand had developed a cumbersome but rather ingenious approach to savings and investment by explaining that todays savings were the product of yesterday's income.In Robertson's schema which Keynes had originally partly agreed to inflation of prices by reducing consumption led to forced savings or what Robertson called induced lacking. But the policy consequences of Robertson's approach led away from the direction in which Keynes was trying to head. Instead of proposing greater savings to finance needed investment as Robertson appeared to be arguing Keynes wanted to focus on the problem of insufficient aggregate demand.(See Skidelsky, Robertson, Keynes and J.C.Gilbert on these questions)

The contemporary financial derivatives market would seem to display certain aspects of hoarding or savings that are not directly tied to investments in plant and machinary and therefore employment(aside from those employed in the options and derivatives markets themselves) This is why I often refer to these casino like activities as quasi-hoarding for they introduce a time lag between the act of saving and the act of investment that is filled by the intermediary activity of the derivatives market. I believe its a plausible explanation for the destabilizing impact of globalization at least in terms of generating employment. More on these topics later.