(Here's another commentary written by an Idahoan with expertise in economic issues. Craig Boulton has written a number of books on finance, economics and political economy. He has written for Cato, and is a chartered financial analyst with more than 20 years of experience in the investment industry. He's also a combat veteran.)
Leaving aside principles of sweat equity, if investment funding is predicated on the marginal propensity to save and that number amongst most Americans is almost zilch, then where does the money come from to finance the growth of new businesses? Under the Keynesian schematic there isn’t much free capital available for entrepreneurs so obviously it must come from the government because that’s the only factor available for venture capital. If that were true, then the old Soviet Union should have been a blazing success.
Fortunately that’s not been the experience with the American economy because unlike a socialist philosophy designed to equalize outcomes at the lowest common denominator, we’ve had a classical liberal approach which aims merely to achieve a doable equality of opportunities. This allows for private property protected by law and a class of people known as the rich to bail us out of the Keynesian investment dilemma.
It's a fact that the marginal propensity to consume varies according to incomes because each of us can only wear so many sets of clothes and tend to fill up on the same amount of food every day. This means that as our incomes increase, the marginal utility of eating more food daily declines – ie: we reach a point where we just can’t force anymore down. This is even true of an alcoholic and his daily ration of gin. Ergo, more money is left over after spending for perceived necessities as our disposable income (after taxes) grows and thus does our marginal propensity to save increases.
Now, despite liberal propaganda that seems to believe that the rich sit around all day and burn up their surplus money by tossing it into the ‘barbie’, the surplus monies of the rich at least end up in the bank where it can be leant to those willing to take the risk of hiring people and putting capital equipment to work manufacturing new products. It never goes to waste – in one form or another it’s going to be used to create the jobs that come with the production of goods and services.
Often the rich don’t put their surpluses in the bank. Instead they invest in businesses indirectly through the stock market or bypass that intermediary by investing in venture capital projects – businesses just starting out that desperately need capital to meet payroll, et al. There’s even a class of rich investors called ‘angel capitalists’ because they’re the ones ponying the big bucks to turn a nascent idea into something tangible. Without angel investors, Boise’s Micron Technology would never have been started and its 10,000 employees would have been the losers.
Therefore, without the rich and their relatively high marginal propensities to save (something that’s at risk every time liberals mess with the tax code), we’d all be living a rather drab existence just like the average Joe under Communism.