So I understand that taxes, inflationary monetary policy, etc encourage consumption. I assume that there would be more savings in a free market. Does it follow that there would be more producer’s goods (capital)? Further, woud their be a prevalence of used producer goods much the same way used consumer gods are available in our economy?
I’m trying to put together an explanation of the seeming feast or famine enterprenurial environment in our economy. This may just be an error in perception. It seems that the greater availability of capital would also reduce the number of more hierarchical firms which we see in our economy.
(I realize this depends upon consumer/producer preferences, but I’m trying to get some general ideas.)
Savings is merely deferred spending, so one might assume that greater savings might lead individuals to make larger investments at some point in the future. More people making larger investments would likely lead to greater prosperity.
On the other hand, the more money that’s borrowed, the less ownership stake exists in companies, and hence companies operating with large amounts of borrowed money are willing to take bigger risks with that money. It seems as though when companies are willing to accept great risks due to an artificially low interest rate imposed on the entire marketplace (i.e. easy money), changes in market conditions can have devastating effects (boom-bust).
The free market being free, it’s hard to say what people will decide to do with their money. They may want to spend it all on lavish cocaine parties; they may want to squirrel it away under the mattress for a rainy day; they may want to invest it in creating producer goods.
Historically, there are enough people who want to make money given half a chance [= anything approaching a free market] that they tighten their belts and put their money into growing their business. We all benefit from the existence of such types, because they are responsible for increasing production, meaning getting us all richer.
The feast or famine environment is easily explainable, once you let the elephant in the room show himself.
Say there is a huge pile of apple pies in your house. You made them, but the elephant, being bigger and stronger than you, takes a bite out of the goodies whenever he wants.
If the elephant takes small bites, you feel it’s both possible and also worth the effort to keep making pies, despite him taking a bite from each pie.
If he takes huge gulps, and invites in other animals with big apetites to party on your pies, you won’t want to make so many new ones. You might want to sneak the pile out of the house to keep the animals from eating it. You may not be able to afford to buy more dough and apples for your pies, because you pay for the ingredients by selling the pies. You probably won’t feel like doing with less for a good while to pay for more ovens.