Ass u me

If I understand this [via Zimran] correctly, the Austrian theory is that consumption deferred is an increase in savings, which results in a lower interest rate, which stimulates investment, which results in growth. Meanwhile, the Keynesian theory holds that deferred consumption results in a real loss in wages because sales fall, production declines, businesses collapse, and jobs are lost.

Some questions for Keynes: How does a increase in individual deficit spending (i.e. credit card debt) translate into an increase in real wages? Conversely, how does a reduction in individual deficit spending (i.e. living within one’s means) translate into a reduction in real wages? Is the optimal state one where one has no savings, and where one’s wallet is empty?

A question for Hayek: What if the deferred consumption is saved under my mattress, and therefore does not cause the increase in the supply of savings that lowers the interest rate and stimulates investment?

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