We Save for the Future by Building Things

More or less at random I came across an 8-year-old Doug Henwood review of a book I’ve never heard of that ends up making an excellent point about the much-discussed but little-understood subject of saving and investment: “Individuals may be able to set aside money for the future, but not a society as a whole; a society as a whole guarantees its future only by real physical and social investments.”

Let me try to spell this out in a different context from the one that’s strictly relevant to Henwood’s review. As an individual, the way you save for the future is you reduce the dollar value of your consumption to below the dollar value of your income and then you take the difference and invest it in something. That something could be a bank account or a stock index funds or a treasury bond or whatever. But the point is that your saving of money turns into investments in financial instruments. On a social level, what we say is that savings equals investment by definition. In a given quarter the economy as a whole produces a bunch of stuff. That stuff is either exported abroad, consumed by households or the government, or else it’s investment. This is—to repeat—a stipulative definition. If Hostess produces a bunch of Ding Dongs that nobody buys so they sit in a warehouse somewhere that’s counted as inventory building and therefore investment. Now of course on a household level you to can try to save for the future by hoarding goods. My cupboard contains a remarkable quantity of chipotles in adobo sauce, for example. But in practice household level savings overwhelmingly takes the form of holding financial instruments rather than holding stuff. Henwood’s point, however, is that on a social level this only works for a tiny country. The United States of America as a whole has no way of “saving for the future” that doesn’t involve stockpiling of some kind.

The relevant issue then becomes what do we stockpile. A lot of the stuff we make has a pretty short shelf-life. Computer software gets obsolete super fast. Clothing wears out. Food spoils (even Twinkies). Durable goods like cars last longer. Airplanes last even longer. But the real durability is in structures. Houses, office buildings, bridges, tunnels, factories, train tracks. As a society, we save for the future by channeling resources—steel, elecricity, human labor power—into the production of things that last a long time rather than things that are more perishable.