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But here's the issue in Keynesian thinking, all savings is investment, it's investment in money. Like any investment, it has a return (which comes from the incr

But here's the issue in Keynesian thinking, all savings is investment, it's investment in money. Like any investment, it has a return (which comes from the increased value of money), and risk (if instead of increase value, the value of money is decreased).

Enginerrrd 6y ago
Yes, but hiding your money in the mattress doesn't create jobs, businesses, innovation, etc. I fail to see the "issue in Keynesian thinking" you're talking about.
- splintercell 6y ago
  It does. When you hide money under your mattress this is equivalent of you giving your money to all the US dollar investors out there in proportion to the amount of investment they're making. So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital. Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time. You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.
  - Enginerrrd 6y ago
    Ah ok I see your angle now, but I think there's a critical flaw. Your investment into the general market is really only the amount of interest earned on deflation of that amount. Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.
    - centimeter 6y ago
      > Compare this with investing the whole amount into a local bakery. The utility difference is dramatic. I do not agree that the utility difference is dramatic. The utility difference is closely proportional to the difference on expected returns.
    - splintercell 6y ago
      > Your investment into the general market is really only the amount of interest earned on deflation of that amount. Your investment is the whole amount which would have purchased the 3 components of production (land/labor/capital), because the price of all these goods have fallen, which have allowed other entrepreneurs to buy them for their own investment. What you're saying is like telling people who invest in index funds only that their investment is only the interest on the yearly return they get from the fund.
  - realcr 6y ago
    I really enjoyed reading this.
    - splintercell 6y ago
      Lol, I should tell you about my thought experiment of capitalist society of perfect inequality (or how it would be an amazing place to live).
- centimeter 6y ago
  Hiding money in the mattress has no net effect on the number of jobs or businesses or innovation. I used to have the same reservations as you - the problem is that I was stuck on a local Keynesian/“Newtonian” view of the problem which makes it hard to predict equilibrium states. You need to switch to a “Lagrangian” view where you don’t have to manually step through all the decomposed effects of a marginal change in the money supply. A key realization is that humanity’s labor capacity at any instant is 100% independent of the number of dollars.
bildung 6y ago
You just redefined what the word "investment" means, this is not a proper argument. Investment is relatively well-defined in ecomomics, see here for an introduction: https://en.wikipedia.org/wiki/Investment_(macroeconomics) https://en.wikipedia.org/wiki/Investment_(macroeconomics)
- splintercell 6y ago
  If you're going to be so specific about the meaning of the term investment than this is equivalent of saying that when you hide money under the mattress it is not outside the mattress. His point was that when money is hidden under the mattress it is not serving an important function which would be if it wasn't under the mattress. I disagreed with that and explained how it worked.
  - bildung 6y ago
    I'm not trying to be pedantic, but saving and investments are two distinct activities with distinct economical outcomes. Fruitfully discussing economics on the internet is hard enough as is, deviating from standard meanings of core terms isn't exactly helpful.
    - splintercell 6y ago
      Yes and I understand, my point is that savings and investment aren't really qualitatively different activities. Savings are investment in money, and 'Investment' is investment in non-money goods.
      - bildung 6y ago
        But there is a qualitative difference! Storing excess capital into money is "saving". Using this saved capital to buy a car for private use, or videogames, is consumption. Using the money to produce more capital, like buying a machine for work, or even "buying" a degree at a university, is investment. The transformation of money into another store of value or physical thing is is not automatically investment, and the economic results are different.

Enginerrrd 6y ago

Yes, but hiding your money in the mattress doesn't create jobs, businesses, innovation, etc. I fail to see the "issue in Keynesian thinking" you're talking about.

splintercell 6y ago
It does. When you hide money under your mattress this is equivalent of you giving your money to all the US dollar investors out there in proportion to the amount of investment they're making. So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital. Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time. You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.
- Enginerrrd 6y ago
  Ah ok I see your angle now, but I think there's a critical flaw. Your investment into the general market is really only the amount of interest earned on deflation of that amount. Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.
  - centimeter 6y ago
    > Compare this with investing the whole amount into a local bakery. The utility difference is dramatic. I do not agree that the utility difference is dramatic. The utility difference is closely proportional to the difference on expected returns.
  - splintercell 6y ago
    > Your investment into the general market is really only the amount of interest earned on deflation of that amount. Your investment is the whole amount which would have purchased the 3 components of production (land/labor/capital), because the price of all these goods have fallen, which have allowed other entrepreneurs to buy them for their own investment. What you're saying is like telling people who invest in index funds only that their investment is only the interest on the yearly return they get from the fund.
- realcr 6y ago
  I really enjoyed reading this.
  - splintercell 6y ago
    Lol, I should tell you about my thought experiment of capitalist society of perfect inequality (or how it would be an amazing place to live).
centimeter 6y ago
Hiding money in the mattress has no net effect on the number of jobs or businesses or innovation. I used to have the same reservations as you - the problem is that I was stuck on a local Keynesian/“Newtonian” view of the problem which makes it hard to predict equilibrium states. You need to switch to a “Lagrangian” view where you don’t have to manually step through all the decomposed effects of a marginal change in the money supply. A key realization is that humanity’s labor capacity at any instant is 100% independent of the number of dollars.

bildung 6y ago

You just redefined what the word "investment" means, this is not a proper argument. Investment is relatively well-defined in ecomomics, see here for an introduction: https://en.wikipedia.org/wiki/Investment_(macroeconomics) https://en.wikipedia.org/wiki/Investment_(macroeconomics)

splintercell 6y ago
If you're going to be so specific about the meaning of the term investment than this is equivalent of saying that when you hide money under the mattress it is not outside the mattress. His point was that when money is hidden under the mattress it is not serving an important function which would be if it wasn't under the mattress. I disagreed with that and explained how it worked.
- bildung 6y ago
  I'm not trying to be pedantic, but saving and investments are two distinct activities with distinct economical outcomes. Fruitfully discussing economics on the internet is hard enough as is, deviating from standard meanings of core terms isn't exactly helpful.
  - splintercell 6y ago
    Yes and I understand, my point is that savings and investment aren't really qualitatively different activities. Savings are investment in money, and 'Investment' is investment in non-money goods.
    - bildung 6y ago
      But there is a qualitative difference! Storing excess capital into money is "saving". Using this saved capital to buy a car for private use, or videogames, is consumption. Using the money to produce more capital, like buying a machine for work, or even "buying" a degree at a university, is investment. The transformation of money into another store of value or physical thing is is not automatically investment, and the economic results are different.