Keynes's viewpoint has been widely recognized in modern western economics, and many different versions of western economics textbooks have introduced and expounded this idea to readers quite conspicuously and solemnly.
Keynes's above viewpoint can also be deduced mathematically. Take the simplest two-sector economy as an example:
The condition of its national income balance is I=S, that is, investment = savings.
Where S=Y-C, that is, savings = national income-consumption.
The consumption hypothesis is a linear function: c = c. +cY, where c is the marginal propensity to consume for spontaneous consumption that is not affected by income, that is, the proportion of consumption increase to income increase. Because assuming that the marginal propensity to consume remains unchanged, C is also the average propensity to consume, that is, the proportion of consumption to income.
So there is: s =-C.+(1-C) y.
It is also assumed that the investment is fixed, that is, I = I
Then the national income determination equation of the two-sector economy is obtained:
Me. =-C .+( 1-c)Y
Solution:
Balance national income y * = (c. +I .)/( 1-c)
In this formula, as the marginal propensity to consume, C is a number less than 1. When c becomes larger, the value of 1/( 1-c) becomes larger, and the national income Y* increases. When c becomes smaller, the value of 1/( 1-c) becomes smaller, and the national income Y* becomes smaller. This means that when citizens increase the proportion of consumption in income, it will lead to more national income and make the whole economy prosperous; When citizens reduce the proportion of consumption in income, it will cause the decline of national income and make the whole economy fall into recession. In a word, profligacy leads to prosperity and thrift leads to depression, which is the paradox of thrift mentioned at the beginning of this paper.
After the "savings paradox" is put forward, it is often confusing. According to the common sense of ordinary people, a family, an enterprise and a country, if everyone splurges, will soon eat and drink, go bankrupt and decline. Han Yu, a famous writer in the Tang Dynasty, put it well in two poems: looking at the sages and the country from afar, from thrift to extravagance.
So, how did Keynes explain the above view?
Personally, the key to understanding this problem is to note that Keynes's analysis of national income determination is a short-term static analysis under the premise of involuntary unemployment. Generally speaking, the economy has fallen into a serious depression, and a large number of products on the market are overstocked in warehouses, which cannot be included in the national income statistics. Obviously, if citizens increase consumption, the backlog of products can realize their market value, thus increasing the national income figure; On the other hand, if citizens reduce consumption and the backlog of products increases, the national income figure will decline. This is the practical significance of Keynes's national income determination analysis. To put it bluntly, Keynes put forward the "paradox of savings"
Actually, it's just selling overstocked products.
But the real economy is not static, but a dynamic process. From a long-term and dynamic point of view, people will invest the saved money in improving production capacity and making the economy more prosperous. On the contrary, if we only seek immediate prosperity and squander money, it will affect the future economic development and even lead to economic stagnation and collapse. It is in this sense that people generally emphasize economy and oppose extravagance and waste.
Readers need to be reminded here: never confuse dynamic analysis with static analysis. Generally speaking, the conclusion of static analysis is often inconsistent with that of dynamic analysis, or even completely opposite. For example, statically, when the price of a commodity falls, the demand for the commodity will increase, but dynamically, there is a saying called "buy up and not buy down", that is, when the price of a commodity falls dynamically over time, consumers will hold money for purchase, leading to a decline in market demand.
Another example is the famous "mystery of consumption function" in western economics, which is actually the result of confusing static analysis and dynamic analysis. Statically, the higher a person's income, the lower the proportion of consumption, but dynamically, while people's income increases with time, people's consumption demand also develops with time. As a result, the proportion of consumption in income does not decline. Therefore, when Kuznets tries to verify Keynes's theorem of diminishing marginal propensity to consume with dynamic statistics, it will be chaotic.
In addition, it should be noted that Keynes's analysis is a total analysis, and there is no specific analysis of consumption structure and income structure. Keynes believed that as long as the proportion of consumption in income is increased, the national income can be increased. Actually, it is not.
In the abstract, part of personal income will be used for consumption, and the other part will be used for savings, which will be transferred to manufacturers through financial institutions to increase investment. In this way, all the products produced by manufacturers are sold, some of which are bought for consumers' consumption, and the other part is bought for other manufacturers' investment, so that the whole national income is balanced with full employment.
But in fact, the products produced by manufacturers will not be completely sold because the product structure is inconsistent with the demand structure. For example, around 2000, there was a large backlog of domestic color TV sets. Although the price of color TV sets has dropped again and again, the market response is very cold. Why? Because consumer families have generally bought color TVs, the entire color TV market is saturated. Although consumers have money, they will not use it to buy color TV sets. Therefore, it will further affect color TV manufacturers and will not further increase investment in color TV production. In this way, the market is weak. In this case, simply stimulating consumption or stimulating investment is bound to be futile.
So what should we do? The only way out is to adjust the product structure to make it consistent with the demand structure. More specifically, it is necessary to develop new substitute products to meet the potential market demand structure of consumers. For example, when the analog signal color TV market is saturated, digital LCD color TV or equipotential ion color TV should be developed, so that the money in consumers' hands can be converted into real purchasing power, and the market can get out of the depression, gradually recover and enter a new round of prosperity. To develop new substitute products, there must be a lot of investment support, so there must be a lot of residents' savings. From this perspective, thrift will not lead to economic depression, but will promote economic growth, so it is still a
A virtue worth promoting.
In short, when studying Keynes's "savings paradox", we must make clear the premise of Keynes's viewpoint, the analytical methods used by Keynes and the essential connotation of Keynes's viewpoint. Never apply it everywhere without asking the premise or the conditions. In particular, as a developing country, China has just entered a well-off stage, and the economic strength of the whole country is still quite weak, and it is even more impossible to advocate stimulating consumption according to the Keynesian viewpoint. Let's jump out of Keynes's short-term, static and total analytical thinking, focus on real economic life, switch to long-term, dynamic and structural analytical thinking, think about tomorrow's economic development, and continue to maintain and carry forward the virtue of saving. As long as the saved money is used for investment and new product development to meet the needs of consumers, our life will become more and more beautiful.
When Keynes was advised to think in the long run, he said impatiently, "In the long run, we are all dead." Keynes is dead. He can ignore tomorrow, but we are still alive. We can't ignore tomorrow.