The Meaning of Savings

March 9, 1953

Dozens of different figures are now compiled, officially and unofficially, which purport to represent our personal or national “savings.” A day seldom passes without some discussion of these figures in editorials, speeches or business forecasts. A frequent conclusion is that these savings present “unused purchasing power” which could “cushion’’ a slump. This conclusion is dubious and so are the figures themselves. There are astonishing discrepancies in the estimates, partly because of differences in concept and definition of savings, and partly because of different ways of estimating their amount. The Council of Economic Advisers, on the basis of the Department of Commerce figures, estimates that net personal saving amounted to some $18,800,000,000 for 1952. The Securities and Exchange Commission, on the other hand, estimates that for the third quarter of 1952 total gross savings of individuals were running at an annual rate of $15,000,000,000 (compared with a Department of Commerce estimate of a rate of $20,300,000,000 for net personal saving in the same period). The annual rate of saving must not be confused with cumulative savings, which in turn must not be confused with liquid assets. Even if the layman can keep all these distinctions in mind, he may doubt how much better off he is. He looks up the latest figure of total deposits in savings banks, and finds it to be $22,300,000,000. In addition there are $2,600,000,000 in the postal savings system. He also finds that there are $40,000,000,000 in time deposits in commercial banks. Should he include these in savings? If so, why not add also the $99,400,000,000 in demand deposits in the commercial banks. Surely they are the depositors’ “savings”! And why not go on to the value of life-insurance reserves, the assets of savings and loan associations and of government pension and trust funds, the value of government bonds, and corporation bonds and stocks?

But what the layman has been adding up, the statisticians will now tell him, is the value of “liquid assets.” And he will get different totals for these depending on whether he consults the Federal Reserve Board or the Securities and Exchange Commission. Last year the SEC estimated that at the end of 1951 individuals had accumulated a total of $340,000,000,000 in liquid assets. This specifically did not include corporate securities, which would have raised the figure by $210,000,000,000 more. But this total would come close to equaling the estimates of national wealth! After the layman has collected such figures and (if possible) reconciled them with each other, what practical or predictive use can he make of them? Do savings, for example, provide a “cushion” against depression?

The first thing the layman is forced to recognize is that a “liquid asset” for the individual is not necessarily a liquid asset for the community as a whole. One man’s quick asset is usually somebody else’s quick liability. Considered individually, people have available savings. But collectively they cannot spend their savings—for the simple reason that these have already been spent.

When a man puts $1,000 in a savings-bank deposit, for example, the savings bank buys, say, a newly issued $1,000 bond with it, and the corporation that sells it the bond buys, say, a $1,000 machine tool with the proceeds. The depositor’s $1,000 has been spent on a machine tool. If the depositor later withdraws his $1,000 to spend it on consumption, the savings bank (in the absence of some offsetting deposit) has to sell its bond to someone else. But if this someone else buys the bond, he cannot then spend the same $1,000 on his own consumption. His new saving must compensate for the former depositor’s “dissaving.”

The only way in which savers can collectively spend their savings (except to the small extent that these have consisted merely in hoarded cash) is through new borrowing, direct or indirect, at the banks, against their securities or other assets as collateral. But this means that new money must come into existence. And this is a form of inflation.