CHAPTER 16

Sundry Observations on the Nature ofCapital

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An act of individual saving means—so to speak—adecision not to have dinner to-day. But it does notnecessitate a decision to have dinner or to buy a pairof boots a week hence or a year hence or to consumeany specified thing at any specified date. Thus itdepresses the business of preparing to-day’s dinnerwithout stimulating the business of making ready forsome future act of consumption. It is not a substitutionof future consumption-demand for present consumption-demand,—it is a net diminution of such demand.Moreover, the expectation of future consumption is solargely based on current experience of present con-sumption that a reduction in the latter is likely todepress the former, with the result that the act of savingwill not merely depress the price of consumption-goodsand leave the marginal efficiency of existing capitalunaffected, but may actually tend to depress the latteralso. In this event it may reduce present investment-demand as well as present consumption-demand.

If saving consisted not merely in abstaining frompresent consumption but in placing simultaneously aspecific order for future consumption, the effect mightindeed be different. For in that case the expectation ofsome future yield from investment would be improved,and the resources released from preparing for present