Full text: Growth and Stagnation

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 
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. 
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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. 
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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

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