From Cambridge to Eternity: “Marginal Propensity to Consume 02”

 

According to Adam Smith (1776, Book II, Chapter I), none but for a perfectly crazy man would waste the “stock.” One who “throw the savings into the sea,” to borrow from Thomas Malthus (1836, p.325), must shock outsiders exogenous to her residence.

             All in all, savings will end up at some useful “stocks” not excluding human assets. Moreover, to the rest of us who generally abide by GAAP, the division between consumption (C) and investment (I≡ S) is more of naming than of reality.

             Now we go over an individual after another to the aggregate economy.  

Case Study 01: Jane D’Introduction. The sources of money are somewhat humble such as going an errand or bussing eatery tables. Her uses of money are partly for maintenance and mostly for growth in the human asset, “physical” and mental. The gap over the defined year of accounting between the two sides of the ledger is filled via selling her credit, or her “human asset,” far forward.

             In essence, she borrows from the future more to invest in the future. Closing the books at the period end, MPC= 10.0, MPS= -9.0 and MPC+ MPS= 1.0.

CS 02: Jack de Growth. He earns substantial money as new-hire to mid-level manger on one hand. He spends even more substantially on the other hand so that he may at the same time (read: period) enjoy a better quality of life and build a household.

             He borrows from the immediate future. Both hands together, MPC= 1.3, MPS= -0.3 and MPC+ MPS= 1.0.  

CS 03: Jill da Maturity. She has good news on one hand and bad news on the other hand. The good news: She is very rich in earnings and consumption; the richest of all people.

             The bad news: She is not as rich she deserves. First, she has to save for the purpose of investing in the assets sold forward when introduced and then growing. In a sense, she retro-invests for the past. Second, she does not want to lose all the conveniences and luxuries even when declining in the not-so-far-away future. Of this motivation, she invests mostly in physical assets, “real” or “nominal” (read: financial).

             Both news together, MPC= 0.4, MPS= 0.6 and MPC+ MPS= 1.0.

CS 04: John von Decline. C’est la vie! He is not physically as strong as mentally is. By nature, by convention, by intention or by all of the three ex ante, his creative power does not meet his consumption wants in one year after another. That might be bad news. The silver lining, nonetheless, is that he when younger saved for rainy years as in the present cycle of life.

             He has been forward-looking, careful, cautious and rational all through. At any rate, he is expected to leave to descendants some assets of a statistically significant amount (to this later). Not to mention, the bequeathed stocks will help increase the gross national income in the years still yet to come post facto. 

             All things considered, MPC= 1.7, MPS= -0.7 and MPC+ MPS= 1.0.      

The Economy. Where there is one hand, there must be another. Where MPC is smaller than naught (0) on one hand, MPC must be bigger than the unity (1) on the other hand. Otherwise, we can never make both  hands meet, until crossing the River (0), so as for the hyper-popular and ultra-shiny MPC to fall between naught (0) and unity (1).  

             Incidentally, some, a macroeconomist or otherwise, have already proven as regards the “magnitude” of MPC. That is, 0< MPC< 1 because otherwise the theory of fiscal multiplier does not hold true (Q.E.D.). The rest of use on Earth can never be sure that Procrustes may envy those “some.”