Paradox of Thrift

Discipline: Economics

The classical school of economists held the view that since what was saved was later invested, there could not be excessive saving.

Paradox of thrift was revised by English economist John Maynard Keynes (1883-1946) in the 1930s, who asserted that thrift is virtuous only up to a point. If an individual increases the proportion of income he saves, his reduced expenditure on goods will lower total demand in the economy. His thrift is laudable up to the point businessmen in the economy wish to borrow his savings for investment.

Also see: forced saving, life-cycle hypothesis, loanable funds theory of the rate of interest, relative income hypothesis

J M Keynes, The General Theory of Employment, Interest and Money (New York, 1936)


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