Neither spending nor savings increases the state of trade. It's profit.
Savings are illusory. It's profit that must arise. If profit lays idle, then trade stops.
Whether Austrians, Keynesians or Monetarists, the Neoclassicists get it wrong because economics is fake, a false knowledge. As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, like the Keynesians, the Austrians wrongly believe that the basis of trade, or what they call, "the economy" is scarcity and utility.
Yet, the whole of what humans do, which is trade, can be summed up in two words, property and profit.
The "wealth effect" is badly named. It should be said as the "wealthy people effect." The "wealthy people effect" also is known as "trickle-down" economics.
The "wealthy people effect" is the belief that if street prices rise of extant property (right of ownership) that can be held as collateral, wealthy people will trade that property as wealth held in collateral letting them sell rights of action against themselves to buy bank credits in a purchase and sale. With these bank credits, these wealthy ones then will buy luxury goods (e.g., through HELOCs) or to expand business. In either case, it is believed that employment should rise either to produce more of these goods or to fulfill work in expanding business.
The idea of savings is rather silly. There is no such thing as savings. Beyond break-even, individuals and firms gain profit. In trade, there are only purchases and sales. Individuals for themselves or their firms through purchases and sales buy property in bank credits by selling cash, bank credits or debt, or buy property in other things by selling selling cash, bank credits or debt instruments.
Only through profit for workers (wages less living expenses) or firms (sales less outlays) can individuals and firms call for more goods. It is from confidence in expectation of profit that bankers enter into purchases and sales of bank credits for both cash and debt at discount.
Back in 2010, then chairman of the Federal Reserve, Ben Bernanke said, "Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending." Deciphering, Bernanke said, when stock prices rise, those who hold stock have collateral with increased liquidation prices, which instills confidence in bankers, who will sell bank credits to those seeking it with such collateral.
As I explained in YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE, guys like Bernanke believe prices make people behave rather than increases in their buying power owing to increasing profits, whether by wages less living expenses for individuals or sales less outlays for firms.
Prices aren't wealth, whether rising or not. Only property which can be traded at the moment of trade is wealth. Once trade ceases, that which was traded no longer is wealth, but merely potential wealth. A used bicycle with flat tires and bent handle bars on offer at a garage sale no one buys isn't wealth, yet the seller has property in it.
The foolish believe the key lies in prices. For them, higher prices means worthier collateral. However, ever increasing prices leads to the profit squeeze, when at some point of ever rising prices, outlays outstrip sales and wages fail to rise with living expenses thus pushing people to below break-even loss. It is from then that collapse follows and debt reckoning begins.
The word savings enters English in 1737 meaning "money saved," in turn from the Old French "save" meaning to "keep safe," which came into English around 1200. By 1300 save was being said to mean "keep possession, hold back."
In the days of money, and money only ever can be coined metal by weight and fineness, some would sell their gold or silver to bankers in purchases and sales for shares of future profits of those bankers. The rhetoric around doing such became "Save your money with us," and "We'll keep your money safe with us."
Yet, nothing ever was saved. Bankers didn't keep anyone's money separated from all others in a warehouse, keeping anyone's money for safe. Instead, bankers lent money in which they had property, property acquired in purchases and sales of claims against profit, which gets called interest, for money.
The word thrift is a Middle English word from about 1300 meaning "thriving, prosperity" and comes from the Old Norse meaning the same.
In prosperity, anyone who wants to work can find work. Profit abounds. Wages increase faster than living expenses. Sales increase faster than outlays. The creation of property grows at an increasing rate.
Under false-belief faux prosperity, little creation of property of wealth happens. Instead, increases in the estimates of street prices for extant property of potential wealth swells false beliefs leading to credit inflation and speculative promotion (2002-2008 Residential Realty Bubble, 1997-2000 Dot Com Bubble) .
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