ABCT Question

Reply

miksirhc Posted: Sun, Apr 20 2008 8:19 PM

rated by 0 users

According to ABCT,  investments made will be malinvestments because (correct me if I'm wrong) there are not enough resources to carry the long-term projects through.   Basically, there is investment without the saving necessary to see these investments through.

So my question is, what needs to be saved? Capital? What types of capital? And how is this necessary to make projects profitable? Also, how does the monetary unit represent this type of capital?

Reply

Anonymous Coward replied on Mon, Apr 21 2008 2:37 AM

rated by 0 users

miksirhc:

So my question is, what needs to be saved?

I think it's a lot clearer if you look at 'saving' as 'deferred consumption'.

Oh, and ignore this...etoy.Container

Reply

JAlanKatz replied on Tue, Apr 22 2008 7:41 PM

rated by 0 users

miksirhc:

According to ABCT,  investments made will be malinvestments because (correct me if I'm wrong) there are not enough resources to carry the long-term projects through.   Basically, there is investment without the saving necessary to see these investments through.

So my question is, what needs to be saved? Capital? What types of capital? And how is this necessary to make projects profitable? Also, how does the monetary unit represent this type of capital?

 I've always looked at it (perhaps incorrectly) in terms of money.  When there is inflation, the interest rate falls, and businesses borrow money.  A lower interest rate usually means people are saving money, so that the businesses expect current consumption to fall, but later consumption to increase - and in particular, people to buy things with a longer production cycle.  So, they stop making candy and start making refrigerators.  Obviously this is very oversimplified, but you get the idea.

However, since this is a different situation, what's actually happened is that current consumption is up, and savings are down.  So candy goes up in price, since the supply fell but demand rose - and later, refrigerators come to market and don't find buyers, since savings are down.  Then refrigerator companies are in trouble, so they lay off workers, take losses, etc.