>
>
> This still seems to be using "saving" to mean that part of current income
> (wages, profits, etc.) that isn't "consumed" (i.e. that part that has its
> counterpart in the current output of investment goods - newly produced
> plant, equipment and inventories).
>
> How can "saving" in this sense "drive up the price of assets, financial and
> otherwise"?
>
> The value of such "saving" must be equal to the value of the current output
> of investment goods. There isn't an additional amount that can be used to
> purchase and drive up the price of financial and non-financial assets
> "beyond their value in terms of capitalised future returns".
Hi Ted,
In your last paragraph you highlight the issue here. These are two quite distinct ways of valuing investment goods. One is their output price, i.e. their cost in the market for newly-produced investment goods. The other is their value in terms of the expected capitalised future returns from employing them. You might call these, as Minsky does, the 'supply price' and the 'demand price' respectively of investment goods. This reflects the fact that the demand for investment goods is based on the expected return from employing them, relative to alternative uses of funds. In both cases they can be thought of as schedules relating the price to the quantity purchased rather than a particular price level. Actual investment expenditure happens when the demand price meets or exceeds the supply price adjusted for the cost of financing the purchase, assuming the purchase can be financed. The flow of funds from such purchases represents investment, which must, as you say, equal saving in any period. (Well, not exactly, since we have to include that 'investment' which is the involuntary accumulation of intermediate physical stocks, but you know what I mean.)
My point is that the demand price can be 'wrong' in the sense that the implicit expected return from employing the assets (or the expected capital gains from their price inflation if that's the attraction) does not eventuate in actual returns. This only has an effect on the short-run investment-savings identity you are talking about down the track. But when the assets are devalued in consequence, earlier saving can be said to have 'failed' in quite a difference sense to the frustration of savings plans resulting from a shortfall in investment.
I sense that one problem you're having with my argument is that you think I am implying that savings must causally lead investment, or that funds that purchase securities somehow subtract from the funds available for 'real' investment. This is not my position. While aggregate investment is subject to a financial constraint, I fully accept that the banking system and changes in the broader systemic demand for liquidity generally fund new investment in excess of prior savings. But I do think that the forms in which saving takes place matters, and that flows of funds into securities markets in excess of planned withdrawals fuel securities price inflation. This is a separate argument from the one above re: the potential for 'real' over-investment, and there might be problems with it, but it is not the naive argument you are taking it for. (For an argument examining asset-price inflation along these lines and put explicitly in terms of the savings-investment identity, see Chapter 2 of Jan Toporowski's 'The End of Finance', Routledge, 2000.)
Cheers, Mike Beggs