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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)

Chapter 9
Are Savings Too Low?

One strong recent trend among economists, businessmen, and politicians, has been to lament the amount of savings and investment in the United States as being far too low. It is pointed out that the American percentage of savings to national income is far lower than among the West Germans, or among our feared competitors, the Japanese. Recently, Secretary of the Treasury Nicholas Brady sternly warned of the low savings and investment levels in the United States.

This sort of argument should be considered on many levels. First, and least important, the statistics are usually manipulated to exaggerate the extent of the problem. Thus, the scariest figures (e.g., U.S. savings as only 1.5 % of national income) only mention personal savings, and omit business savings; also, capital gains are almost always omitted as a source of savings and investment.

But these are minor matters. The most vital question is: even conceding that U.S. savings are 1.5% of national income and Japanese savings are 15%, what, if anything, is the proper amount or percentage of savings?

Consumers voluntarily decide to divide their income into spending on consumer goods, as against saving and investment for future income. If Mr. Jones invests x percent of his income for future use, by what standard, either moral or economic, does some outside person come along and denounce him for being wrong or immoral for not investing X+l percent? Everyone knows that if they consume less now, and save and invest more, they will be able to earn a higher income at some point in the future. But which they choose depends on the rate of their time preferences: how much they prefer consuming now to consuming later. Since everyone makes this decision on the basis of his own life, his particular situation, and his own value-scales, to denounce his decision requires some extra-individual criterion, some criterion outside the person with which to override his preferences.

That criterion cannot be economic, since what is efficient and economic can only be decided within a frame-work of voluntary decisions made by individuals. For the criterion to be moral would be extraordinarily shaky, since moral truths, like economic laws, are not quantitative but qualitative. Moral laws, such as "thou shalt not kill" or "thou shalt not steal," are qualitative; there is no moral law which says that "thou shalt not steal more than 62% of the time." So, if people are being exhorted to save more and consume less as a moral doctrine, the moralist is required to come up with some quantitative optimum, such as: when specifically, is saving too low, and when is it too high? Vague exhortations to save more make little moral or economic sense.

But the lamenters do have an important point. For there are an enormous number of government measures which cripple and greatly lower savings, and add to consumption in society. In many ways, government steps in, employs many instruments of coercion, and skews the voluntary choices of society away from saving and investment and toward consumption. 

Our complainers about saving don't always say what, beyond exhortation, they think should be done about the situation. Left-liberals call for more governmental "investment" or higher taxes so as to reduce the government deficit, which they assert is "dissaving." But one thing which the government can legitimately do is simply get rid of its own coercive influence in favor of consumption and against saving and investment. In this way, the voluntary time preferences and choices of individuals would be liberated, instead of overridden, by government.

The Bush administration began eliminating some of the coercive anti-saving measures that had been imposed by the so-called Tax Reform Act of 1986. One was the abolition of tax-deduction for IRAs, which wiped out an important category of middle-class saving and investment; another was the steep increase in the capital gains tax, which is a confiscation of savings, and to the extent that capital gains are not indexed for inflation--a direct confiscation of accumulated wealth.

But this is only the tip of the iceberg. To say that only government deficits are "dis-saving" is to imply that higher taxes increase social savings and investment. Actually, while the national income statistics assume that all government spending except welfare payments are "investment," the truth is precisely the opposite.

All business spending is investment because it goes toward increasing the production of goods that will eventually be sold to consumers. But government spending is simply consumer spending for the benefit of the income, and for the whims and values, of government's politicians and bureaucrats. Taxation and government spending siphon social resources away from productive consumers who earn the money they receive, and away from their private consumption and saving, and toward consumption expenditure by unproductive politicians, bureaucrats, and their followers and subsidies.

Yes, there is certainly too little saving and investment in the United States, as a result of which the U.S. standard of living per person is scarcely higher than it was in the early 1970s. But the problem is not that individuals and families are somehow failing their responsibilities by consuming too much and saving too little, as most of the complainers contend. The problem is not in ourselves the American public, but in our overlords.

All government taxation and spending diminishes saving and consumption by genuine producers, for the benefit of a parasitic burden of consumption spending by non-producers. Restoring tax deductions and repealing--not just lowering--the capital gains tax, would be most welcome, but they would only scratch the surface.

What is really needed is a drastic reduction of all government taxation and spending, state, local, and federal, across the board. The lifting of that enormous parasitic burden would bring about great increases in the standard of living of all productive Americans, in the short-run as well as in the future.

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