AUSTRIAN ECONOMICS ADDICT

CONSUMPTION, PRODUCTION, SAVING

Repetition is the best way to learn something. So lets take another look at consumption, production, and savings. When you consume you destroy, deplete, dissipate, devour, decrease, reduce, exhaust, use up, the supply of. When you produce you create, cause, provide, make, generate, bring forth, the supply of. When you save you accumulate, accrue, invest, reserve, compile, amass, build up the supply of. Production is the creation of wealth which can either be saved and invested for future production, or depleted or destroyed by present consumption.

PRODUCTION PROCESS

We become wealthier when we produce goods at a rate above what we consume. The savings from this higher rate of production, are represented in money which can be invested in many ways (retirement accounts, brokerage accounts, savings accounts, etc.). Money provides the ability to exchange what we produce for what someone else has produced. These exchanges take place in the present, the near future, or the distant future. Savings represents people’s desire to consume at some point in the future. People used to grow food in their gardens, can it, and store it for future consumption. The labor and resources used in this process are the investment, the savings, exchanged for the ability to consume in the future. The money your employer pays you for your labor, represents a portion of the final good that is eventually produced. You are a part of the production process, and are paid according to the value of what your labor contributes to the value of the finished product. You can save part of what you are paid for your future consumption, in the same manner as the labor used to grow, can, and store food was used for future consumption. Put simply, production creates the wealth and savings which provides for a growing economy in the present and the future. Government spending, and especially the Fed’s counterfeiting of money, starts us down the road of consumption without corresponding production. People have been duped into thinking that this will create abundance out of a world ruled by scarcity.

This article, Consumer Taps Out As Income Plunges By Most In 20 Years: Saving’s Rate Crashes To 2007 Levels, at zerohedge.com,talks about the decline in personal income and the decline in the saving rate.

Related article, We Are Reaching The Tipping Point, at austrianaddict.com

This entry was posted on April 26, 2013 at 12:07 am and is filed under Econ. 101. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Capital Consumtion, Consumption, Production, Production Process, Savings, Wealth Creation