Since When Is Saving So Virtuous?

I happen to be watching an episode of Doctor Who set in Victorian England, which features a number of lines about "Victorian values," having already today read a Paul Krugman post that mentioned, in passing, the desire of some people for the economy to be a "morality play" where virtuous, hard-working, thrifty savers are rewarded and those who live beyond their means are punished, both at an individual and a national level. The confluence of the two has me thinking: who said saving money is so virtuous? Obviously there's the actual economic policy question. Under conditions of full employment, saving is good because it leads to investment, and investment drives the course of long-term growth, which is good. But when there's excess capacity in the economy, increased individual savings, which must take the form of decreased individual consumption, reduces overall national income, perhaps quite a lot, and can even end up reducing the amount of investment, all of which is bad.

But what is this sense, this pretty clearly deontological sense, in which people want, viscerally, to insist that saving is virtuous, and that therefore the second half of that policy analysis must be wrong? Maybe it's not so mystifying: after all, saving money means foregoing consumption, and consumption is a form of self-indulgence. Consumption is then un-virtuous for the same basic reason that sex is: it's fun. But here's the thing: you aren't deprived of any asset to have sex. Economic consumption, on the other hand, is a trade of money for something other than money, usually something which you just enjoy for a while and that then disappears into the sands of time. So when I decide to consume something, yes I'm indulging myself but I'm also losing money, and that money goes somewhere. It goes to someone other than me. If instead I decide to save, I just keep the money for myself. In the long run, then, individuals who save more appropriate more of the world's resources for themselves, or more to the point they appropriate a larger share of the power to command the world's resources for themselves, holding employment and income constant. What's so selfless or virtuous about that? It's like a dragon, hoarding gold in its cavern. Now, of course, it isn't like that at all, because you lend the money out to fund investments and the like, but that just takes us back out of the deontology into the policy considerations of my first paragraph.

If, therefore, we forget about secondary economic effects, it's not at all clear why we should think that saving money rather than spending it on consumption is virtuous. If you spend the money you earn, it doesn't stay locked up with you, but rather gets spread back out throughout the economy. Yes, the people who receive your money had to produce something for you to consume to get it, but assuming basic economic principles are right, it cost them less to produce the stuff than you paid them for it, so they come out ahead. Yes, you get to consume the stuff, but at the expense of your own long-term wealth. That sounds like generosity to me, not as much generosity as if you just gave the money away in exchange for nothing more than the satisfaction of improving someone else's life. But in a world of peasants and misers, every peasant would prefer that the misers spend some of their money buying stuff from the peasants. (Again, that's excluding the whole "investment makes everyone better in the long run" thing.) It requires, therefore, the invention of an economic ideology of considerable force in order to make those misers seem like the good guys, the people who morally deserve to be rewarded for their great virtue and self-sacrifice. They're not sacrificing short-term consumption for their own long-term wealth, they're sacrificing it for the long-term good of the whole society.

And in many ways that's true, except that (a) there's just a limit on how much money you can spend on consumption that will actually make your life meaningfully better, so when a rich person saves money they're not really sacrificing much, and (b) as soon as aggregate demand stops meeting aggregate supply, the whole thing falls apart and the virtuous economic effects of saving become vicious instead. The basic point, though, is that we most definitely shouldn't let any notion of "saving = virtue," separate from serious economic analysis about the practical effects of savings on the whole economy, infect our thinking, since that notion can only arise in the first place out of a serious though partial such analysis. Sometimes it is true that lower levels of individual consumption and higher levels of individual savings are a good thing, but this is in a sense the exception, not the rule Consumption is of immediate benefit for both the consumer and the producer. It is not, therefore, perverse for increased consumption and reduced savings to be a good thing; in a sense the opposite is the perverse condition, which only ever attains because of a particular mechanism within a particular economic state of affairs. We should be grateful for that perverse condition, since it has been responsible for much of modern prosperity, but this should not confuse us into forgetting that it is an artificial creation of the modern capitalist economy, not some inherent natural state of the world.