4
This brings me to the financial aspects of the problem
of stagnation. According to national accounting saving
equals investment. This identity must be amplified once
we consider the distinction between business saving and
household saving. For didactic purposes let us assume for
the moment a closed private economy without share issues.
In such an economy household saving must beequal to the
amount borrowed by business for the purposes of financing
investmentpecause the amount which business finances
business
from its own saving evidently equals this^/ saving .
Now if there is a recession and decline in effective demand
household income and saving will be much less flexible
(it will decline less) than business profits and-saving.
Therefore in an economy in depression the share of
business savinCwill decline and the share of household
«/
saving will increase; this implies, under the conditions
stated above, that the share of borrowing in business
investment will increase, , this presumably without the
business men intending it - it will happen as a consequence
of the fall in profits and constitute an enforced borijwing.
« if
or enforced indebtedness. IN fact, the more the households
save, the less profits business will be abl/te to make.
Let us now drop some of the narrow assumptions made above.
Vo ^ £
Let us assume there is "big government" - large' spending
and taxation as a share of total incomes. The balance of
government spending will be vary flexible as compared to
household saving, that is the deficit will rise strongly in
a recession ( or the surplus will decrease,as the case may be )
There will thus be an enforced indebtedness of government
as a consequence of a decline in effective demand, and
this will ease the pressure on business profits mentioned above