Do People Save Money?
Out of a given money income, an individual can do the following: he can exchange part of the money for consumer goods; he can invest; he can lend out the money (i.e., transfer his money to another party in return for interest); he can also keep some of the money (i.e., exercise a demand for money). At no stage, however, do individuals actually save money. In its capacity as the medium of exchange, money facilitates the flow of real savings. The baker can now exchange his saved bread for money and then exchange the money for final or intermediary goods and services. What is commonly called “saving” is nothing more than exercising demand for the medium of exchange (i.e., money). This means that people don’t actually save money but rather exercise demand for it. And, when an individual likewise exchanges his real savings for money, he in fact only increases demand for money. The money he receives is not income; it is a medium of exchange that enables the individual to secure goods. In the
