CH. 7 THE MEANING OF SAVING AND INVESTMENT 77

III

We come next to the divergences between Savingand Investment which are due to a special definition ofincome and hence of the excess of income over con-sumption. My own use of terms in my Treatise onMoney is an example of this. For, as I have explainedon p. 60 above, the definition of income, which Ithere employed, differed from my present definitionby reckoning as the income of entrepreneurs not theiractually realised profits but (in some sense) their“normal profit”. Thus by an excess of saving overinvestment I meant that the scale of output was suchthat entrepreneurs were earning a less than normalprofit from their ownership of the capital equipment;and by an increased excess of saving over investmentI meant that a decline was taking place in the actualprofits, so that they would be under a motive to contractoutput.

As I now think, the volume of employment (andconsequently of output and real income) is fixed by theentrepreneur under the motive of seeking to maximisehis present and prospective profits (the allowance foruser cost being determined by his view as to the use ofequipment which will maximise his return from it overits whole life); whilst the volume of employment whichwill maximise his profit depends on the aggregatedemand function given by his expectations of the sumof the proceeds resulting from consumption and in-vestment respectively on various hypotheses. In myTreatise on Money the concept of changes in the excess ofinvestment over saving, as there defined, was a way ofhandling changes in profit, though I did not in thatbook distinguish clearly between expected and realisedresults.1 I there argued that change in the excess of

1 My method there was to regard the current realised profit as determiningthe current expectation of profit.