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(Praxeology) - Savings - Economic Growth - 'We Need More Wealth, Not Necessarily More Employment' - Entrepreneurship

Posted by ProjectC 
'Savings has nothing to do with money. For instance, if a baker produces ten loaves of bread and consumes one loaf, his savings is nine loaves of bread. In other words, the “savings” in this case is the baker’s real income (his production of bread) minus the amount of bread that the baker consumed. The baker’s savings now permits him to secure other goods and services.

..

We can thus conclude that savings is not about money as such, but about final goods and services that support various individuals that are engaged in various stages of production. It is not money that funds economic activity but the flow of final consumer goods and services. The existence of money only facilitates the flow of the real stuff.

- Frank Shostak, You Can’t Create More Savings by Printing More Money, February 12, 2015


'We can thus conclude that as long as the increase in lending is fully backed by real savings it must be regarded as good news since it promotes the formation of real wealth. False credit, which is generated out of "thin air," is bad news since credit which is unbacked by real savings is an agent of economic destruction.'

- Frank Shostak, Understanding True Credit and False Credit, March 5, 2015


We Need More Wealth, Not Necessarily More Employment

The main driver of economic growth is an expanding pool of real wealth, gained through deferred consumption and increases in worker productivity. Fixing unemployment without addressing the issue of wealth is not going to lift economic growth as such.

It is the pool of real wealth that funds the enhancement and the expansion of the infrastructure, i.e., an expansion in capital goods per individual. An enhanced and expanded infrastructure permits an expansion in the production of the final goods and services required to maintain and promote individuals’ lives and well-being.

- Frank Shostak, Employment Does Not Drive Economic Growth, February 19, 2015


'..An infrastructure, however, cannot maintain itself automatically since if people decide to save less, then less funding will become available. Irrespective of the complexity and sophistication of the production structure, without the expansion in the pool of saved means of sustenance no economic growth can occur..'

'Economists following the writings of Frank Knight hold that savings are of little importance in the modern economy. The modern infrastructure, it is held, automatically generates its own funding, which in turn is employed for its maintenance and expansion (Rothbard 1993, p. 343). An infrastructure, however, cannot maintain itself automatically since if people decide to save less, then less funding will become available. Irrespective of the complexity and sophistication of the production structure, without the expansion in the pool of saved means of sustenance no economic growth can occur. According to Menger, “the process by which goods of higher order are progressively transformed into goods of lower order and by which these are directed finally to the satisfaction of human needs is . . . not irregular but subject, like all other processes of change, to the law of causality” (quoted in Salerno 1999, p. 81). Salerno argues that “by proceeding this way, Menger was able to perceive immediately that the process of want satisfaction is not purely cognitive and internal to the human mind, but depends crucially upon the external world and, therefore, upon the law of cause and effect” (ibid., p. 79).

To convert elements of nature into means of sustenance, people must employ tools that are suitable for this task. According to Holcombe however, what causes the expansion in the means of sustenance is entrepreneurship. However, entrepreneurship cannot fulfill the role of a factor of production as such. For it cannot be employed in the direct process of converting elements of nature into the means of sustenance. This doesn’t mean that entrepreneurship is not important; indeed, it is indispensable in every stage of every production process. According to Rothbard (1993, p. 9) for any action there must be always a plan or idea about how to use things as means to particular ends. Without such ideas there cannot be actions.

Yet, the implementation of entrepreneurial ideas cannot be done in a vacuum. The entrepreneur must mobilize the necessary funding for this task. Only with a pool of funding can entrepreneurship become effective. As Rothbard (1997b, p. 247) writes, “Entrepreneurial ideas without money are mere parlor games until the money is obtained and committed to the project.” Salerno (1999, p. 90) further argues that “Menger states explicitly that command of the services of capital is a ‘necessary prerequisite’ for performing economic activity.” Mises warns that, “Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely employed or invested, do they increase the output per unit of the input of national resources and of labor. If this is not the case, they are dissipated or wasted” (Mises 1972, pp. 84–85). He also writes that the “accumulation of net capital and the utilization of capital for raising the productivity of human effort are the fruits of purposive human action” (ibid.). It follows then that it is not the Kirznerian entrepreneur who contributes to economic growth, but only an entrepreneur who employs funding in accordance with consumers’ most urgent needs.'

- Frank Shostak, Economic Growth and Its Causes: Comment on Holcombe


Context Begin

(Praxeology) - 'Economics .. anyone who seeks to understand the world we live in.'

(Haptopraxeology) - '..We have lost three centuries as a result of ignoring our scholars!'

(Praxeology) - '..Menger’s experience stressed subjective factors..'