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6. The Beneficiaries of Saving-Investment
We have seen that an increase in saving and investment causes an increase in the real incomes of owners of labor and land factors. The latter is reflected in increases in the capital value of ground lands. The benefits to land factors, however, accrue only to particular lands. Other lands may lose in value, although there is an aggregate gain. This is so because usually lands are relatively specific factors. For the nonspecific factor par excellence, namely, labor, there is, on the contrary, a very general rise in real wages. These laborers are “external beneficiaries” of increased investment, i.e., they are beneficiaries of the actions of others without paying for these benefits. What benefits do the investors themselves acquire? In the long run, they are not great. In fact, their rate of interest return is reduced. This is not a loss, however, since it is the outcome of their changed time preferences. Their real interest return may well be increased, in fact, since the fall in the interest rate may be offset by the rise in the purchasing power of the monetary unit in an expanding economy.
The main benefits gained by the investors, therefore, are short-run entrepreneurial profits. These are earned by investors who see a profit to be gained by investing in a certain area. After a while, the profits tend to disappear as more investors enter this field, although changing data are always presenting new profit opportunities to enterprising investors. But the short-run benefits earned by the workers and landowners are more certain. The entrepreneur-capitalists take the risks of speculating on the uncertain market; their investment may result in profits, in breaking even with no profits at all, or in suffering outright losses. No one can guarantee profits to them.36 Aggregate new investment will result in aggregate net profits, to be sure, but no one can predict with certainty in what areas the profits will appear. On the other hand, the workers and landowners in the fields of new investment gain immediately, as new investment bids up wages and rents in the longer processes. They gain even if the investment turns out to have been uneconomic and unprofitable. For in that case, the error in satisfying consumers is borne by the heavy losses of the capitalist-entrepreneurs. In the meanwhile, the workers and landowners have reaped a gain. This is hardly a clear gain, however, since consumers have, as a whole, suffered in real income through entrepreneurial error in producing the wrong kind of goods. Yet it is obvious that the brunt of the loss from making the error is suffered by the entrepreneurs.
- 36. As will be seen below, actuarial risks can be “insured” against, but not the entrepreneurial uncertainty of the market.