The old economic verities are coming back

Chris M very kindly brought this to my attention on another thread: There’s a theory about what drives the US economy that you hear all the time. This financial expert says it’s completely wrong. And just what is the right theory?

“Consumption is zero percent of our economy.
It’s always production.”

It goes on to say:

If you don’t believe that, decide one day that you’re just going to consume and do nothing else. If so, you will very quickly die an unclothed, unfed death.

You must produce first in order to consume. And so it is production that drives the economy forward. And so, when you think about … economists love to say “We want everyone to consume, consume, consume.”

Well how are we more productive? We’re productive precisely because people save, and their savings flow toward more productive ways to build cars, to manufacture computers.

It is thanks to savings that we enjoy cell phones that we can watch tv on; that we increasingly have a good chance of winning the battle against cancer; that we get to drive cars that will at some point drive us around.

That’s because of savings. Savings are what power the economy forward. Consumption is the easy part. We all want to consume. But saving is what allows us to eventually consume.

It does seem the old verities are coming back, slowly, slowly, but coming back. You still have to understand saving properly, and the nature of value added and a number of other matters that must be very carefully defined and the co-ordination of their actions understood within their logical harmonies. Mises and Hayek, of course, explain it, and there is the impossible-to-read John Stuart Mill, but do not let me fail to mention this, which has the advantage of having it all explained against the backdrop of the Keynesian Revolution.

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