I had a question about this difference between Austrian and Keynesian economics:
According to Austrian teaching, saving money, not spending (Keynes) it, leads to increased wealth.
Fine: but money spent will end up as savings in shop-employees (& owners) bankaccounts, so this savings accumulation follows a (wealth increasing) financial transaction.
Makes you woder how the Austrians are right, and the Keynesians are not? Since the Austrians forego a financial transaction, it may seem as if Keynes was right here.
So Ibasked this question in the facebook group “Praxeological science”. The answer I got was very helpful in recognizing the short-coming in my own reasoning. Namely, that the shopkeeper turns into a consumer, and the following shopkeepers also follow this same cycle.
Now, when the interest rate is very low, there’s not much point in saving, so the consumer will simply re-spend the money quickly. Thereby turning the shopkeeper into a future consumer with that money.
He will very likely (at least, if the Keynesians get their way) also not save, but spend. This way money is forever in transit, meaning banks have no idea of the size of the supply of money they can lend out. Money may be in checking accounts in banks (maybe even the same bank), but checking accounts don’t have the most stable balance: they exist for money to be drawn out of frequently, savings accounts yield interest, because the money in them can be lent out with much more comfort: their balances are much more stable/predictable.
Also, the Austrians do not forego a financial transaction, rather they defer (postpone) a consumer transaction to gain a producer one. So suddenly, the Austrian schol is up one transaction!