[splintercell]

But here's the issue in Keynesian thinking, all savings is investment, it's investment in money. Like any investment, it has a return (which comes from the increased value of money), and risk (if instead of increase value, the value of money is decreased).

[Enginerrrd]

Yes, but hiding your money in the mattress doesn't create jobs, businesses, innovation, etc. I fail to see the "issue in Keynesian thinking" you're talking about.

[splintercell]

It does. When you hide money under your mattress this is equivalent of you giving your money to all the US dollar investors out there in proportion to the amount of investment they're making.

So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital.

Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time.

You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.

[Enginerrrd]

Ah ok I see your angle now, but I think there's a critical flaw.

Your investment into the general market is really only the amount of interest earned on deflation of that amount.

Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.

[splintercell]

> Your investment into the general market is really only the amount of interest earned on deflation of that amount.

Your investment is the whole amount which would have purchased the 3 components of production (land/labor/capital), because the price of all these goods have fallen, which have allowed other entrepreneurs to buy them for their own investment.

What you're saying is like telling people who invest in index funds only that their investment is only the interest on the yearly return they get from the fund.

[centimeter]

> Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.

I do not agree that the utility difference is dramatic. The utility difference is closely proportional to the difference on expected returns.

[realcr]

I really enjoyed reading this.

[splintercell]

Lol, I should tell you about my thought experiment of capitalist society of perfect inequality (or how it would be an amazing place to live).

[centimeter]

Hiding money in the mattress has no net effect on the number of jobs or businesses or innovation. I used to have the same reservations as you - the problem is that I was stuck on a local Keynesian/“Newtonian” view of the problem which makes it hard to predict equilibrium states. You need to switch to a “Lagrangian” view where you don’t have to manually step through all the decomposed effects of a marginal change in the money supply. A key realization is that humanity’s labor capacity at any instant is 100% independent of the number of dollars.

[bildung]

You just redefined what the word "investment" means, this is not a proper argument. Investment is relatively well-defined in ecomomics, see here for an introduction: https://en.wikipedia.org/wiki/Investment_(macroeconomics)

[splintercell]

If you're going to be so specific about the meaning of the term investment than this is equivalent of saying that when you hide money under the mattress it is not outside the mattress.

His point was that when money is hidden under the mattress it is not serving an important function which would be if it wasn't under the mattress. I disagreed with that and explained how it worked.

[bildung]

I'm not trying to be pedantic, but saving and investments are two distinct activities with distinct economical outcomes. Fruitfully discussing economics on the internet is hard enough as is, deviating from standard meanings of core terms isn't exactly helpful.

[splintercell]

Yes and I understand, my point is that savings and investment aren't really qualitatively different activities. Savings are investment in money, and 'Investment' is investment in non-money goods.

[bildung]

But there is a qualitative difference! Storing excess capital into money is "saving". Using this saved capital to buy a car for private use, or videogames, is consumption. Using the money to produce more capital, like buying a machine for work, or even "buying" a degree at a university, is investment. The transformation of money into another store of value or physical thing is is not automatically investment, and the economic results are different.

[splintercell]

You can also check this thread: https://news.ycombinator.com/item?id=23452897

The fundamental idea is that if you store your money under the mattress then this is equivalent of investing in the most diversified index fund out there, you invest in EVERY business and CEO out there who operates in the USD economy.

This generally is a bad idea because the Federal Reserve produces more money which results in reduced returns, BUT, this effect is really visible in fixed money supply economies such as Bitcoin. By hodling bitcoin you invest in every bitcoin business out there (including the scams) because by not competing with other investors for the same resources, you allow them to operate at a bigger scale.