Acornomics – Fallacies about Economics and Saving
by Keith Rankin
25 October 2013
Communication about economics has a number of blind spots. As a result, most people who have learnt a little economics
tend to subscribe to a form of popular economics that I call 'acornomics'. And that understanding tends to rub off onto
those who have no formal knowledge of economics.
We see this in particular when journalists, politicians and finance sector professionals discuss topics that use the
words 'saving' and/or 'investment'. For example, acornomic thinking – or 'nest-egg syndrome' – completely dominates the
debates about retirement provision.
One of the universal icons of the saving industry is the squirrel. When I was at primary school we had a school savings
scheme, run by the Post Office Savings Bank (Kiwibank's precursor), called Squirrel Savings Accounts (see http://www.kiwifamilies.co.nz/articles/childrens-savings-accounts/
British squirrels save by collecting acorns, their main food source. They're making provision for their futures. The
more correct word for this activity, however, is 'hoarding', not 'saving'. Hoarding can never generate interest
payments. Indeed hoarded goods, such as acorns, depreciate, implying a negative rate of interest. Yet, somehow, I still
got my three percent interest on my Squirrel Savings Account. (What were those stashed acorn-coins getting up to!? From
ancient history, the concept 'interest' derives from animal reproduction.)
Essentially squirrels acquire goods with a long lifespan, rather than foods that must be consumed immediately. They
enhance their security by choosing to abstain from immediate consumption, 'buying' more preserved food and less fresh
food. The equivalent in human behaviour would be buying and stashing canned food and spare consumer goods, much as
survivalists and doomsday preppers do. Or preserving peaches, as our grandmothers or great-grandmothers did.
I have visions of prudent retired persons today eating their 30-year-old baked beans, and wearing, as new, that spare
pair of trousers bought in the 1970s. Cool.
Hoarding behaviour is like saving in the sense that it is giving up present consumption in favour of future consumption.
And it's like investment in the sense that the hoarder is investing in inventories, much as antiquarian bookshop
proprietors might invest in stock that they don't expect to shift anytime soon. (Certainly I have books bought last
century that I have yet to read, but would still like to!)
Saving, by definition, is simply non-spending. Buying cans of baked beans instead of fresh vegetables would not normally
be classed as saving by a modern economist.
However, saving is closely related to investment, a form of spending. Investment is essentially planting for the future,
rather than hoarding for the future. (Hence the machinery in factories is often called 'plant'.) In a one-man "Robinson
Crusoe" economy, saving is equal to investment, by definition. For example, if Crusoe has a potato crop, he can save
some of his potatoes and plant them, thereby giving himself a source of fresh food in the future.
In simple economics, the presumption continues of this equality of saving and investment. All unconsumed goods are
planted, as capital, assuring a supply of new goods in the future. If we choose to save more, and therefore plant (ie
invest) more, we can have more new goods tomorrow than we have today. Economic growth in a nutshell.
That growth dividend forms the basis of the modern concept of 'interest'. Thus interest is a reward for both present
abstinence and risk-taking. Planting (contrast with hoarding) is always a risky activity, be it planting new trees from
acorns, or building factories.
The problem that arises is that we get in the habit of thinking about money in the same way that we imagine squirrels
Money is not wealth, whereas acorns are wealth. Money is a claim on wealth.
If we don't use the money we earn this year to buy all of the goods and services that our income entitles us to buy,
then someone else must consume or invest those goods and services which represent our saving. Otherwise our saving goes
to waste. Money under the bed is not like a stash of acorns, or eggs in a nest. Rather, unspent income today is both
someone else's debt today and a claim on somebody else's income tomorrow.
Thus, with unspent money, we enter a credit-debt relationship; something neither the squirrel nor Robinson Crusoe did
when they saved. Whoever consumes the goods and services that you did not purchase becomes a debtor, and you become a
Usually, when we save money, we lend it to the bank or to some other financial intermediary, such as a Kiwisaver
provider. Frequently, that intermediary (or we ourselves) buys some existing asset (rather than creating a new asset).
That's not investment; it's simply putting part (principal) of our income into somebody else's hands (as debt), with the
expectation that those somebodies, will on future dates put even more (principal plus interest) of their income into our
hands (debt service).
We know, deep down, that the sum total of all the world's monetary nest eggs vastly exceed any capacity of present or
future productive communities to service. These financial quasi-acorns, and the attached compound interest that our
human squirrels expect as an entitlement, represent largely unsatisfyable claims hanging over future producers.
From the point of view of acornomics, these financial assets are called 'wealth'. In reality they are no such thing.
They are neither present wealth nor future wealth. Rather, they are claims on goods and services that may or may not be
produced in the future. Such claims can be realised as actual wealth – that is, as goods and services – so long as only
a small proportion of claimants actually exercise their claims.
What will happen in the second quarter of this century when we actually try, en masse, to spend these retirement
'savings' that turn out not to be like eggs in a nest, acorns in a stash, or baked beans in a bunker? The risk is that
these pieces of paper – or their electronic equivalents – will be as worthless as most US shares were in 1932, or
Russian bonds were in 1918.
Keith Rankin teaches economics at Unitec Institute of Technology.