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‘…there must be prior savings and investment…’

There is no reason to suppose that this process will come to a halt short of reaching the Garden of Eden, where all scarcity has disappeared…
– Hans-Hermann Hoppe

…to sustain a higher standard of living, the production structure—the capital structure—must be permanently “lengthened.” As more and more capital is added and maintained in civilized economies, more and more funds must be used just to maintain and replace the larger structure. This means higher gross savings, savings that must be sustained and invested in each higher stage of production. Thus, the retailers must continue buying from the wholesalers, the wholesalers from the jobbers, etc. Increased savings, then, are not wasted, they are, on the contrary, vital to the maintenance of civilized living standards.”
– Murray Rothbard, The Great Depression, Page 59 (Why I Wrote My Histories of Thought)

Matters become more complex under conditions of uncertainty, when money is actually in use, but the praxeological independence of money and interest remains intact. Under these conditions, man invariably has three instead of two alternative ways to allocate his current income. He must decide not only how much to allocate to the purchase of present goods and how much to future goods (i.e., how much to consume and how much to invest), but also how much to keep in cash. There are no other alternatives.

With the division of labor established and extended via development of a universal medium of exchange, the process of economic development is essentially determined by time preference. To be sure, there are other important factors: the quality and quantity of the population, the endowment with nature-given resources, and the state of technology. Yet of these, the quality of a group of people is largely beyond anyone’s control and must be taken as a given; the size of a population may or may not advance economic development, depending on whether the population is below or above its optimum size for a given-sized territory; and nature-given resources or technological know-how can have an economic impact only if discovered and utilized.

In order to do this, though, there must be prior savings and investment. It is not the availability of resources and technical or scientific knowledge that imposes limits on economic advancement; rather, it is time preference that imposes limits on the exploitation of actually available resources as well as on the utilization of existing knowledge (and also on scientific progress, for that matter, insofar as research activities too must be supported by saved-up funds).

Thus, the only viable path toward economic growth is through savings and investment, governed as they are by time preference. Ultimately, there is no way to prosperity except through an increase in the per-capita quota of invested capital. This is the only way to increase the marginal productivity of labor, and only if this is done can future income rise in turn. With real incomes rising, the effective rate of time preference falls (without, however, reaching zero or becoming negative), adding still further increased doses of investment and setting in motion an upward-spiraling process of economic development.

There is no reason to suppose that this process will come to a halt short of reaching the Garden of Eden, where all scarcity has disappeared — unless people deliberately choose otherwise and begin to value additional leisure more highly than any further increase in real incomes. Nor is there any reason to suppose that the process of capitalist development will be anything but smooth, that is, that the economy will flexibly adjust not only to all monetary changes but to all changes in the social rate of time preference as well. Of course, as long as the future is uncertain, there will be entrepreneurial errors, losses, and bankruptcies. But no systematic reason exists for this to cause more than temporary disruptions or for these disruptions to exceed, or drastically fluctuate around, a “natural rate” of business failures (see Rothbard 1983a: 12–17).
– Hans-Hermann Hoppe, The Misesian Case against Keynes, 1/30/2009

To save also means to not overextend. It disciplines and gives one the opportunity to advance.

It was under Greenspan that the overall artificial low interest rates in the US made sure that to save wasn’t a rewarding investment. The rapid growth of credit wasn’t supported by savings. It is the lack of savings which results in a ‘lack’ distorted sense of time-preference, to give on the opportunity to adapt to a changing market (because time-preference, concerning many individuals, has been severly distorted by central planning in the case of interest rates.)


It is the great merit of the proponents of Austrian theory to have uncovered and shown that the borrowing and spending excesses driving a boom may, with or without inflation, exert harmful economic and financial effects other than just a rising inflation rate - actually, more harmful effects.
– Dr Kurt Richebächer, The Great Depression of today, Wed 01 Mar, 2006