is $30,301. Looking out at 2009 assuming the individual’s income continues to be $100,000 each year and the individual saves 10% of it at 10% the total savings in 2009 will be $126,825. Now this individual’s wealth 10 years latter is $126,825 this is the equivalent of economic growth for the economy. The individual’s income is $100,000 plus 10% of that $126,825 so the income including the interest on saving is $111,567. Case in point the individual is now consuming 90% of income instead of 100%; the consumption in 10 years will be higher than it could have been, and would have been if he hadn’t saved at all. Why because the individual’s income is now over $100,000 by $410 dollars, and of course as time goes by this effect just continues to multiply. So you have this same effect of saving for the individual that you have for economic growth for a country. You have increasing wealth, and you have the ability to increase consumption over time. So what! That’s just an exact parallel that doesn’t prove a connection. What’s the actual connection? How does saving cause economic growth for an economy? There are two parts to this answer. According to Hazlitt every dollar saved is a dollar less demand for consumer goods every dollar that is saved is a dollar that wasn’t spend on consumer goods. (179) That means that the productive capacity that would have been necessary to produce those consumer goods is instead available for producing additional capacity. Savings reduces the demand for consumer goods and releases capacity to add to capacity. The way that is brought about in reality is through financial intermediaries. This is because the money saved is not tucked in a mattress not if you’re sane. Money saved is put into a bank, a savings and loan, into an insurance policy, mutual funds and, or pension funds these institutions loan it out to business to invest in their business to add p...
