Economics Reading Assignment

Saving, according to Henry Hazlitt, is simply another form of spending in the modern world. In truth, sending is just as satisfying as saving. Nothing is achieved with the money saved, and what remains after investing is the same as what will remain after spending. In this sense, investing is a form of investment. Furthermore, Hazlitt claims that saving leads to a rise in the capital. The amount of production generated is determined by the capital invested. If savings are improved, productivity per worker can rise faster. Increased saving leads to increased economic growth and real incomes. This is because it helps in the production of capital goods; which in turn raises the living standards of people. Worker productivity is increased by the introduction of better tools and machinery. In addition, the saved money can be borrowed by businesses that spend it in capital goods thereby increasing their production capability. Saving leads to a growth in the capital stock and the rate of economic growth is hugely dependent on capital. Inflation is like tax because when an individual holds money, he or she loses the purchasing power. It is the cruelest tax as it is hidden. In this way, inflation serves to reduce the economic growth. This is because inflation adversely affects savings. For saved money to be actually growing, the rate of inflation must be lower than the rate of interest earned on savings after tax. Inflation lowers the rate of interest on savings. In this way, economic growth will be reduced since inflation lowers the value of money making it difficult to save, not forgetting that savings serve to increase the economic growth.