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NOTE 8.06. The Beneficiaries of Saving-Investment

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6. The Beneficiaries of Saving Investment

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We have seen that an increase in saving and investment causes an increase in the real

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incomes of owners of labor and land factors. The latter is reflected in increases in the

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capital value of ground lands. The benefits to land factors, however, accrue only to particular

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The Theory of Money and Credit

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of others without paying for these benefits.

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What benefits do the investors themselves acquire?

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In the long run, they are not great.

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In fact, their rate of interest return is reduced.

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This is not a loss, however, since it is the outcome of their changed time preferences.

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Their real interest return may well be increased, in fact, since the fall in the interest rate

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may be offset by the rise in the purchasing power of the monetary unit in an expanding

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economy.

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The main benefits gained by the investors, therefore, are short-run entrepreneurial profits.

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These are earned by investors who see a profit to be gained by investing in a certain area.

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After a while, the profits tend to disappear as more investors enter this field, although

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Changing data are always presenting new profit opportunities to enterprising investors.

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But the short-run benefits earned by the workers and landowners are more certain.

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The entrepreneur capitalists take the risks of speculating on the uncertain market.

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Their investment may result in profits, in breaking even with no profits at all, or in

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suffering outright losses.

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No one can guarantee profits to them.

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As will be seen, actuarial risks can be insured against, but not the entrepreneurial uncertainty

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of the market.

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Aggregate new investment will result in aggregate net profits, to be sure.

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But no one can predict with certainty in what areas the profits will appear.

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On the other hand, the workers and landowners in the fields of new investment gain immediately.

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as new investment bids up wages and rents in the longer processes.

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They gain even if the investment turns out to have been uneconomic and unprofitable,

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for in that case the error in satisfying consumers is borne by the heavy losses of the capitalist entrepreneurs.

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In the meanwhile, the workers and landowners have reaped a gain.

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This is hardly a clear gain, however, since consumers have, as a whole, suffered in real

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income through entrepreneurial error in producing the wrong kind of goods.

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Yet it is obvious that the brunt of the loss from making the error is suffered by the entrepreneurs.