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Profit and Saving

George Reisman

Presented at: TJS 1989

Date: Aug 06, 1989

NOTE:  original lecture title was Profit and Saving. This lecture is now marketed under the title Capital, the Productive Process, and the Rate of Profit

All business activity Is carried on for the purpose of earning a profit. What determines the average rate of profit In the economic system? Do technological progress and Improvements In business efficiency raise the average rate of profit?-or, on the contrary, do they lower it by enlarging the supply of goods and thereby causing falling prices and alleged deflation? Do saving and capital accumulation Imply a falling rate of profit? Does additional saving place business In the contradictory position of having more money available to invest at the very time its sales revenues are reduced because the consumers are saving Instead of spending? Can there be such a thing as too much of an increase In production or too much saving?

This series of lectures will answer these questions and satisfactorily resolve the implied paradoxes. Among other things, It will show how what Is saved is not only spent, but is the source of most spending in the economic system, and that the greater the degree of saving, the higher and more rapidly
rising tend to be both production and total spending as a direct result.


1. Methodological/Epistemological Introduction. Elements of sound economic theorizing: the proper treatment of money; the Aristotelian view of entities held by the British classical economists versus the Platonic-Heraclitean view of entities held by contemporary economists. Implications for the conception of aggregate production, aggregate spending, and the role of saving and productive expenditure versus consumption expenditure. Overthrow of the foundations of Keynesian economics.

2. Capital Accumulation and Its Causes. Saving and the relative demand for and production of capital goods. Technological progress and general economic efficiency as causes of capital accumulation. The fundamental role of economic freedom. Demonstration that in the absence of increases in the quantity of money, national income and capital accumulation are inversely related. Overthrow of the Keynesian doctrines of the balanced budget multiplier and the “conservatives' dilemma.”

3. The Average Rate of Profit and Interest Under a Fixed Quantity of Money. Saving and productive expenditure as the source of equivalent sales revenues and costs deducted from sales revenues. Net consumption—essentially the consumption expenditure of businessmen and capitalists (financed by dividends, draw payments, and interest)—as the source of sales revenues in excess of productive expenditure and costs. The rate of net consumption as a manifestation of time preference.

4. The Average Rate of Profit and Interest Under an Increasing Quantity of Money. The rate of increase in the quantity of money and volume of spending as the source of an equivalent addition to the nominal rate of profit. The rate of increase in the production and supply of goods as the source of an equivalent addition to the real rate of profit. Why capital accumulation does not require a failing rate of profit. Why falling prices caused by increased production do not reduce the rate of profit or constitute deflation. Genuine deflation as a reduction in the quantity of money/volume of spending.

5. Further Applications of Reisman's Theory. Baselessness of the hostility to profits and interest. The fundamental neutrality of technological progress with respect to the average rate of profit. How taxes on profits and interest raise the pre-tax rate of profit and interest and simultaneously undermine capital accumulation and economic progress. How government budget deficits do the same. Mitigation of the harmful effects of government budget deficits by means of foreign investment and an excess of imports over exports. Why large fortunes under capitalism are a reflection of low consumption and high efficiency on the part of their owners.

6. Further Development of the Theory. Net investment and the rate of profit. The relationship between net investment and the increase in the quantity of money. The concept of the average period of production and why it need not go on lengthening as a condition of economic progress. Critique of underconsumptionism—how the demand for capital goods can permanently exceed the demand for consumers' goods and yet business is not in the contradictory position of buying for more at the same time that it sells for less. Why savings cannot outrun the uses for savings. Saving and the process of capital intensification. Depressions not caused by saving but by the need of business firms to increase holdings of money, which they have been led to run down by a government created environment of inflation and credit expansion.


Parts: 6

Handout: none


  • CD, 2018 (En)