by Hayek
[Publication Metadata and Title Page]: Bibliographic information for the article 'Gibt es einen Widersinn des Sparens' by Friedrich A. Hayek, published in the Zeitschrift für Nationalökonomie in 1929. [Introduction: The History of Underconsumption Theories]: Hayek introduces the long-standing debate regarding the 'paradox of saving,' tracing the idea that saving reduces consumer purchasing power from mercantilism through Malthus to modern underconsumptionists. He explains that while these theories are popular, they have historically been rejected by academic economists, but he now finds it necessary to critique the new, influential version promoted by Foster and Catchings. [The Rise of the Pollak Foundation and Foster & Catchings]: Hayek describes the background of Waddil Catchings and William Trufant Foster, the establishment of the Pollak Foundation for Economic Research, and their successful propaganda efforts. He outlines their early work in 'Money,' which emphasizes the circuit flow of money from production to consumption as the central problem of the business cycle. [Analysis of the Foster-Catchings Crisis Theory]: Hayek provides a detailed summary of the underconsumptionist argument presented in the book 'Profits.' The theory posits that saving (both individual and corporate) creates a gap between the total price of goods produced and the income available to consumers. Foster and Catchings argue that investing savings into new production increases the supply of goods while simultaneously failing to provide consumers with the additional money needed to buy that increased output, leading to a 'dilemma of thrift.' [The Pollak Prize and the Failure of Previous Critiques]: Hayek reviews the results of the $5,000 prize offered by the Pollak Foundation for the best critique of 'Profits.' He argues that despite hundreds of entries, the fundamental fallacy of Foster and Catchings remained unrefuted because most critics accepted their basic premises regarding the need for price stability. He also details their policy proposal: a 'Federal Budget Board' to manage consumer demand through government spending and credit expansion. [Hayek's Theoretical Critique: Capital and Production Stages]: Hayek presents his core rebuttal, utilizing the Austrian theory of capital. He argues that Foster and Catchings fail to understand that saving leads to a lengthening of the production process (roundaboutness). Using schematic models, Hayek demonstrates that in a healthy economy, the total money spent on intermediate production stages naturally exceeds the money spent on final consumption. He asserts that if the money supply is constant, prices must fall as productivity increases, and that this price decline is necessary for maintaining economic equilibrium. [The Dangers of Monetary Intervention and Conclusion]: In the final section, Hayek analyzes the consequences of the proposed 'remedy' of consumer financing. He argues that injecting money to stabilize prices during a period of capital growth actually causes a crisis by distorting the ratio between production and consumption. He concludes that Foster and Catchings' plan would punish capital formation and exacerbate business cycles. He also critiques the general trend toward using public works and credit expansion to fight unemployment, suggesting these measures may hinder the necessary structural adjustments of the economy.
Bibliographic information for the article 'Gibt es einen Widersinn des Sparens' by Friedrich A. Hayek, published in the Zeitschrift für Nationalökonomie in 1929.
Read full textHayek introduces the long-standing debate regarding the 'paradox of saving,' tracing the idea that saving reduces consumer purchasing power from mercantilism through Malthus to modern underconsumptionists. He explains that while these theories are popular, they have historically been rejected by academic economists, but he now finds it necessary to critique the new, influential version promoted by Foster and Catchings.
Read full textHayek describes the background of Waddil Catchings and William Trufant Foster, the establishment of the Pollak Foundation for Economic Research, and their successful propaganda efforts. He outlines their early work in 'Money,' which emphasizes the circuit flow of money from production to consumption as the central problem of the business cycle.
Read full textHayek provides a detailed summary of the underconsumptionist argument presented in the book 'Profits.' The theory posits that saving (both individual and corporate) creates a gap between the total price of goods produced and the income available to consumers. Foster and Catchings argue that investing savings into new production increases the supply of goods while simultaneously failing to provide consumers with the additional money needed to buy that increased output, leading to a 'dilemma of thrift.'
Read full textHayek reviews the results of the $5,000 prize offered by the Pollak Foundation for the best critique of 'Profits.' He argues that despite hundreds of entries, the fundamental fallacy of Foster and Catchings remained unrefuted because most critics accepted their basic premises regarding the need for price stability. He also details their policy proposal: a 'Federal Budget Board' to manage consumer demand through government spending and credit expansion.
Read full textHayek presents his core rebuttal, utilizing the Austrian theory of capital. He argues that Foster and Catchings fail to understand that saving leads to a lengthening of the production process (roundaboutness). Using schematic models, Hayek demonstrates that in a healthy economy, the total money spent on intermediate production stages naturally exceeds the money spent on final consumption. He asserts that if the money supply is constant, prices must fall as productivity increases, and that this price decline is necessary for maintaining economic equilibrium.
Read full textIn the final section, Hayek analyzes the consequences of the proposed 'remedy' of consumer financing. He argues that injecting money to stabilize prices during a period of capital growth actually causes a crisis by distorting the ratio between production and consumption. He concludes that Foster and Catchings' plan would punish capital formation and exacerbate business cycles. He also critiques the general trend toward using public works and credit expansion to fight unemployment, suggesting these measures may hinder the necessary structural adjustments of the economy.
Read full text