8/9/2019 1932 Hayek vs. Keynes on saving or spending

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'PRIVATE SPENDnLti I~~~':;;O:~~ ~ ~ ~ ~ lV EINVESTMENT- ~ r ' "

A COMMENT BY ECONOMISTS ITO THE EDITOR OF THE TIMESSir.-On October 10 you gave prominence inyour evlumris to a letter in,(iting the--Opirlion of

economists on the problem "of private spend ing.Tbere an: a large number of economists in Ibiscountry.' and nobody can claim to speak fo~ a IIofthem. The signatories of this letter have. how-ever. in various capacities. devoted many y~ar.l to, the' consideration of economic problems. Wedo not think that many of our colleagues woulddisagree with what we arc about to say.In tbe period of the War it was a patriotic dutyfor private citizens to cut their expenditure rn thepurchase of consumable goods and servkes ,to thelimit of their 'power. Some sorts of J!rivateeconomy were. indeed . more in' the nationalinterest than others. But. in some degree, allsorts of economy set free resources-man-power,machine-power. shipping-power-for use by (he IGovernment directly or indirectly in the conduct Iof the War. Private economy implied the hand.i ing over of these resources for a vital nationalpurpose. At the present time. the conditions areentirely different. If a person with on ine~ of1,000. the whole of which he would normallyIspend. decides instead to 5QVC ~ bf ill. thelabour and capital that he sets free are not ~lover to an insatiable war machine. Nor is.there. any assurance that they will find their wa>t intoinvestment in O J: W capital construction by publico~. private concerns. In certain cases. of course.they will do this. A landowner who spends 500less than usual in festivities and devotes the S O Oto building a bam or a cottage. or a business man ,who stints himself of luxuries so that Ife con putnew machinery into his mill. is simply transferringproductive resources .from one use to another.But, when a man economizes in consumption. and, lets the fruit of his' economy pile up in bankbalances or even in the: purchase of existins secu-rities. the released reaIresources do not find. anew home waiting for them. In present eondi-tion.~ their entry into investment is blocked bylad of confidence. Moreover. private economyintensifies the block. For it further discouragesall those forms of investment-factories.machinery. and so on-whose ultimate purpose isto make consumption goods. Consequently, inpresent conditions, private economy does nottransfer from consumption to investment part ofan unchanged national real iocome. On the con-trary. it cut5 down the national income by nearlyas much as it cuts down consumption. Insteadof enablina labour-power, machine-!'2,",'Cr andIhipping-JlOwer, to be turned 10 a different and Imore important use, it throws them into idleness. ,Conduct in the matter of economy. as of mosvother thinas. is 80vemed by a complex of motiveSome people. no doubt. are stinting their con-lsurnpticn because their incomes have diminishedand theycannot spend so much as usual; others Ibecause their incomes are expected to diminish Iand they dare not do so. What it is in anyindividual's private in,tercst to do and whatweight he ought to assign to that private interestas aplnst the public interest. when the tWoftict. it is not for us to judBf. But one thingis, in our opinion, clear. The public interestin present conditions does not point towardsprivate economy; to spend less money than weshould like to do is not patriotic.Moreover. what is true of individuals actingsingly is equally true of groups of individualsaclina throua/t local authorities. If the citittnsof a town wish, to build a swimming-bath. or alibrary, or a museum, they will not, by refrainingfrom doing this, promote a wider nationalinterest. They will be martyrs by mistake,"and. in their martyrdom. wiU1Je injurina othen11 5 well as themselves. Through their misdirectedgood will the mounting wove of unemploymentwill be lifted atill higher.We are your obedient servants.

D. H. MACGREGOR (Professor ofPolitical Economy in the 'Universityof Oxford).A, C, PIGOU (ProfeSsor of PoliticalEconomy In tho University of Cltm-brldao)J. M. KEYNES.WALTeR LAYTON.-ARTHUR SALTER.I. c. STAMP.