On the monetary nature of savings: a critical analysis of the Loanable Funds Theory

By Giancarlo Bertocco, Andrea Kalajzić

PKES Working Paper 2206

February 2022

To hypothesize the existence of a relationship between money and savings means questioning a fundamental pillar of the mainstream economic theory: the concept of neutrality of money. According to the traditional theory economic phenomena such as savings can be defined independently from money. The objective of this work is to show that savings cannot be defined independently from money and that savings must be considered as a monetary phenomenon. The paper consists of two parts. Starting from Adam Smith’s analysis and continuing up to the approaches developed by contemporary economists, in the first part we summarize the most significant aspects and the limitations of the mainstream theory. In the second part we specify the reasons of the non-neutrality of money and of the monetary nature of savings.

Keywords: Savings, money, development, Keynes, Schumpeter

JEL classification: B12 B13 B52 E12 E44