Saving

To increase production, man must form capital. To create it, he must restrict his consumption and transfer his labor for that period from producing immediately satisfying con­sumers’ goods.

The restriction of con­sumption is called saving, and the transfer of labor and land to the formation of capital goods is called investment.

Saving and Capital

It is evident that, for any formation of capital, there must be saving — a restriction of the enjoyment of consumers’ goods in the present — and the investment of the equivalent resources in the production of capital goods. This enjoyment of consumers’ goods — the satisfaction of wants — is called consumption. The saving may result from an increase in the available sup­ply of consumers’ goods. Saving involves the restriction of consumption compared to the amount that could be consumed; it does not always involve an actual reduction in the amount consumed over the previous level of consumption.

Because capital is perishable, it must be renewed, if man wishes to enjoy the fruits of higher production. Saving must be done over and over.