Abba Lerner on the S = I identity

FLORENCIA SEMBER

Toronto

Congreso; History of economic Society (HES) Annual Conference; 2017

History of Economics Society

In the years following the publication ofKeynes? General Theory of Employment,Interest and Money, Abba Lerner got involved in many discussions about differentaspects of Keynesian theory. One of these was the savings-investment identity. Evenif this could seem a narrow subject, in these discussions Lerner touched anastounding variety of topics that would be essential in his subsequentwritings. Lerner tried first to explain why the S º I identity appeared paradoxical: whileeach individual is free to save more or less than he invests, aggregate savingsmust equal investment. To think that what is true for the individual must betrue for the whole economy was a fallacy of composition. The problem ofaggregation would also be addressed in Lerner?s writings about the differencebetween microeconomics and macroeconomics. But aggregation was not the only difficultyfaced in the understanding of this apparent paradox. Lerner dealt with adiversity of issues such as the confusion between stocks and flows, theinadequacy of the idea of forced saving, the irrelevancy of the concept of velocityof circulation and the utilization of exante and ex post analysis. Lerner?s discussion on the savings-investmentidentity also sheds light on his interpretation of the Keynesian multiplier andhis skepticism about the usefulness of the period analysis proposed byRobertson. Lastly, Lerner stressed the fact that S º I was an analytical proposition andnot about the real world did not make it useless: even it did not add newinformation, it led economists to see some implications previously overlooked.