You’ve Been Bamboozled

You’ve Been Bamboozled by Brian Maher – Daily Reckoning

“From time immemorial proverbial wisdom has taught the virtues of saving,” wrote Henry Hazlitt, “and warned against the consequences of prodigality and waste.”

Hazlitt authored his masterly primer on economics, Economics in One Lesson, in 1946.

Yet he etched it in the rock of ages with its insights timeless.

“But there have always been squanderers, and there have apparently always been theorists to rationalize their squandering.”

Today these theorists invade us, batter us and torture us ceaselessly… like a thousand alarm clocks joined in hellacious chorus.

Yesterday we alerted you to the latest assault upon savings — negative interest rates.

During economic stress, negative interest rates would crack open the piggy bank… and spill its contents into the productive economy.

This is the way to recovery, say its drummers. And savings are in the way.

But today we leap to savings’ defense. We illustrate why savings are a blessing at all times, in all seasons…

The Virtue of Savings

Saving is a passable evil in normal times, modern economists allow.

But in dark times saving locks needed capital out of the productive economy.

Investment, meantime, answers a higher calling. It is publicly minded. It pitches in… and expands the economy.

The central bank must therefore suppress savings to increase spending… and investment.

Negative interest rates, they claim, are one solution.

But there can be no investment without savings, say the old economists… as there can be no bread without grain.

Explained the late economist Murray Rothbard:

Savings and investment are indissolubly linked. It is impossible to encourage one and discourage the other. Aside from bank credit, investments can come from no other source than savings… In order to invest resources in the future, he must first restrict his consumption and save funds. This restricting is his savings, and so saving and investment are always equivalent. The two terms may be used almost interchangeably.

The more accumulated savings in the economy… the more potential investment.

An economy built atop a sturdy foundation of savings is a rugged economy, a durable economy.

No passing gale will knock it over.

Consider for example the frugal farmer…

He has deferred present gratification… and stored up a full silo of grain.

There it sits, seemingly idle.

But this silo contains a vast reservoir of capital…

The farmer can afford to sell part of his surplus.

With the proceeds he can purchase more efficient farm equipment, which increases his yield.

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