29 Comparison with Classical Economics

In classical macroeconomics applies to the economic savings of S the relation:

    (29.1)

This means that economic savings are equal to the gross investmentless depreciation and any external borrowing. In the case of a balanced foreign trade balance is and accordingly

   and        (29.2)

for the net investment rate.. It equals the gross investment less depreciation of D. In a closed economy savings should be fully absorbed by the net investment.

For the economic savings but are usually set the amount of annual money put aside. So in our notationthus net saved money. It is, however as we have already verified, given the relationship

    (29.3)

(because). That means now that the economic savings at the beginning of development, whereis still relatively low, is actually given by

    (29.4),

So the classical context⁶¹ is given.. At the end of the development but does the termtake over leadership, since the capitalcoefficient, for example in the FRG is then increased by about 1/3 in the beginning to then more than 3. It should therefore apply

    (29.5).

The contradiction is resolved when one recognizes that part of the economic savings are the interestearned by savers of course also:

    (29.6)

This value gets very strong.with time, but no later than the crossing of the 50% mark at the bank corner office by the investment banking business. Thus the capital-output ratio in 1950 was justin th FRG. This means that in a typical savings rate of% and a yield of about 5% brings the second term is just proportional, ie 1.5% of the 10% money put aside added. That may be neglected with a clear conscience. In 2008, however, was the capital coefficient. In 2008, the second term that is brought about, which is more than 16% added to the 10% and thus prevails the typical amount of money put aside clearly. But then the interest rates are no longer macroeconomically negligible. The economic effect is that the economy "saves themselves to death" after all normal. Because the required net rate of investmentis no longer absorbed by the GDP. The result is necessarily that the financial industry can get the required rates of return for its customers no longer in the real economy alone, but has to resort to the so-called bank's own business needs.

Important here is the realization:

In addition to the money put aside are to be counted the investment income from interest to the total economic savings. This difference in common opinion is of only marginal significance at the beginning of an economy. In the much later time of crisis but it is of great influence.