SAVINGS AND INVESTMENT

In the previous chapters we have been dealing on the one hand with the earnings or money income of the community and its division into two parts, one of which is spent by the recipient on current consumption and the other of which is ‘saved’; whilst on the other we have dealt with the community's output of actual goods and services and its division into two parts, one of which is marketed and sold to consumers and the other of which is ‘invested’. Thus ‘saving’ relates to units of money and is the sum of the differences between the money incomes of individuals and their money-expenditure on current consumption; and ‘investment’ relates to units of goods. The object of this chapter is to illustrate further the significance of the distinction between these two things.

Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption.

Investment, on the other hand, is the act of the entrepreneur whose function it is to make the decisions which determine the amount of the non-available output, and consists in the positive act of starting or maintaining some process of production or of withholding liquid goods. It is measured by the net addition to wealth whether in the form of fixed capital, working capital or liquid capital.