shape of food or any article capable
of immediate consumption, Adam Smith and J.S. Mill are clearly wrong
when they urge in terms almost identical[158] that what is saved is
necessarily consumed, and consumed as quickly as that which is spent.
The antithesis of saving and spending shows these writers, and the
bulk of English economists who follow them, are misled, because they
regard "saving" as doing something with money, and do not sufficiently
go behind the financial aspect of putting money into a bank.

A closer analysis of saving yields the result that, except in one of
the simple cases taken in our example above, where "saving" implied
withholding consumable goods from present consumption, every act of
saving in a complex industrial society signifies making, or causing to
be made, forms of capital which are essentially incapable of present
consumption--_i.e._, future or productive goods.

Each member of an industrial community receives his money income as
the market equivalent of value created in goods or services by the
requisites of production, land, capital, labour which he owns. For
every L1 paid as income an equivalent quantity of material or
non-material wealth has been already created.

Let A be the owner of a requisite of production, receiving L500 a year
as income in weekly payments of L10. Before receiving each L10 he has
caused to come into existence an amount of wealth which, if material
goods, may or may not be still in existence; if services, has already
been consumed. It is evident that A may each week consume L10 worth of
goods and services without affecting the general condition of public
wealth. A, however, determines to consume only L5 worth of goods and
services each week, and puts the other L5 into the bank. Now what
becomes of the L5 worth of goods and services which A might have
consumed, but refused to consume? Do they necessarily continue to
exist so long as A is credited with the money which represents their
"saving"; if so, in what form? In other words, what actually takes
place in the world of commerce when money income is said to be saved,
what other industrial facts stand behind the financial fact of A
depositing part of his income in the bank as "savings"?

To this question several answers are possible.

(1) B, a spendthrift owner of land or capital, wishing to live beyond
his income, may borrow from the bank each L5 which A puts in,
mortgaging his property. In this case B spend