The equality remains true in the pure, absolute sense. The scenarios you cite are cases where it appears to be violated, but the equality works out anyway.
For starters, money is not investment or savings, it's a way of keeping account. If you create money and nothing else changes, there is implicit inflation as the money supply gets larger and chases the same supply of good and services.
That's really the point of the article: if you understand that the identity is true, you can parse where endogenous money'comes from': how is wealth being transferred (which depends both on the state of the economy and the form of endogenous money).
But the point remains, axiomatically, that money is an accounting unit. Do not confuse it with the goods and services it represents; that's a failure of abstraction and makes it impossible to really understand inflation, financial repression, and endogenous money.
> The equality remains true in the pure, absolute sense. The scenarios you cite are cases where it appears to be violated, but the equality works out anyway.
OK so if I save 5 tons of steel but I don't put it to work, it's savings but not investment, right? Or is that not how it works?
I get that all investment had to at one point have been savings (instead of consumption) but not all savings is investment is it? If I "save" those 5 tons of steel for years but then eventually end up making them into washing machines they were savings, but then they became consumption.
Maybe in these cases the steel isn't "saved" because it isn't "invested" and the only things that can be considered savings are those which are invested. OK, sure. Then what is a bunch of stuff sitting around not being consumed or invested? Is it in purgatory?
No, savings == investment because they're two sides of the same thing, like corresponding entries in two ledgers. If one entity saves (that is, produces more than they consume + invest), those 'savings' are realized elsewhere in the economy where some other entity 'spends' more than it produces. That excess spending is either consumption or investment.
Therefore, net savings == net investment, where net savings means all savings - all consumption.
To engage with your specific example: steel that sits in a warehouse is 'investment' that earns zero return; if it eventually gets thrown away it's either consumption or investment with a loss of principal. If it's turned into washing machines, it's investment that realizes a return (that return could be negative if the price of steel goes down in the interim).
Does that make sense? I'm not really the best person to explain this stuff, since I haven't studied it formally. Much of what I read assumes a working knowledge, which I've cobbled together from mpettis and others.
For starters, money is not investment or savings, it's a way of keeping account. If you create money and nothing else changes, there is implicit inflation as the money supply gets larger and chases the same supply of good and services.
That's really the point of the article: if you understand that the identity is true, you can parse where endogenous money'comes from': how is wealth being transferred (which depends both on the state of the economy and the form of endogenous money).
But the point remains, axiomatically, that money is an accounting unit. Do not confuse it with the goods and services it represents; that's a failure of abstraction and makes it impossible to really understand inflation, financial repression, and endogenous money.