but then again, Krugman has been published more than all of us put together- which implies the obvious…
Ouch, seems like a lot of money wasted [:S]
If it is making you more productive in some way it is considered investment for that purpose.
To the original poster,
What I see as a problem with your misunderstanding of the nature of savings is that you haven’t pointed out the important concern of time preference in relation to a person’s act of saving. In this case, an act of saving is an act predicated on an assumed future consumption of what is saved, whether by that person who is saving or by others (as an investment, gift, etc). As such, the idea that savings drives the economy is indeed overly simplified, until you add time preference, which defines the nature of the act of saving, and even hints at the nature of value scales for people as individuals or as members of a firm (venture capital fund or other fancy titles for a group/firm of investors). In this context, savings is merely the act by which a person is conceiving a future where what is saved can be used for a given end since the current state of affairs cannot allow for the given end to be enacted (external and internal factors are included in this concern). Ultimately, this frames the distinction between the Austrian school’s consideration of investment versus that of other schools (such as the classical Keynesian conception of spending as the economic driving force).
You’ve got your definitions mixed up. Buying a computer is not “consumption.” Using a computer is. Buying a car is not “consumption.” Using a car is. Buying spinning jennies (a little dated, I know) for your factory is not “consumption.” Using them is. Buying things which increase productivity are investments, not consumption. Your investments can turn out to be profitable or not at all. Saving in and of itself is not what creates economic growth. Saving makes investment possible, since you need to save money before you invest it. Of course saving can be misallocated, but that is the entire point of the market. A free market guides savings to be allocated in the most profitable ventures that create the most economic growth. Only government tampering can disrupt this process.
Good summary.
Yes, but the inherent feature Capitalism, profit & loss, makes sure that such savings are not squandered. Capital (savings) is allocated to those businesses that best serve the consumer. It makes sure that on net, the gain always exceeds the cost, thus, the emergence of the process of wealth creation.
When this market process is not working, look for the culprit that hampers it!
Capital theory! You have been deprived in Harvard of one of the most important elements of the market economy. Without Capital theory, you can’t see how the economy works. It’s like having a huge blind spot in your vision.
You’re assuming the opposite of rational expectations theory, which is that entrepreneurs are largely stupid - or at least foolish.
I simply disagree with this on a fundamental level. Yes, theoretically, sometimes markets fail, but this is essentially why we need markets because they’re based on the basic presumption that entrepreneurs work to fix problems for a profit.
How do you fix market failure? More markets.
Markets don’t fail, people fail. When an entrepreneur makes a mistake, or mal-invests his capital, the market learns, and his capital is then freed up for other uses. Mistakes are an integral part of the capitalist system.
I disagree, markets do fail. If markets were perfect - didn’t fail - then there would be no reason for entrepreneurship and there would also be no possibility for genuine competition and branding because the market would be horizontally flat.
Maybe this is another distinction between LvMI and GMU though.
I will define markets as a collection of people and therefore attribute failure to it while at the same time disagree with you saying that people fail, I WIN!!!
I may be wrong, but I think that Esuric is speaking of the long-term sucess of the markets, while Wilmot is speaking of the possibility of short-term “market-failures” from the perspective of a group of individuals that creates an incentive from entrepreneurs to invest resources to satiate their demands, and to nudge the market once again into the direction of long-term equilibrium, which I would deem to be the “infallibiity” point. It would seem that by differentiating, and dehomogenizing the long-term, and short-term that these two seemingly at-odds theories can be brought together to explain the market process even better.
Nevertheless, I do believe that Wilmot’s own analysis is still better when we accept the fact that the economy never actually reaches equilibirum, and because of that fact subjective “market-failures” will always spur on entrepreneurship.