/biz/ - Business & Finance

>>1770013

Saving (including hoarding money) does not hurt the economy.

It signals to entrepreneurs that potential investors (savers) are not interested in the current array of investment opportunities. The investment and consumption options available are not desirable. That incentivizes entrepreneurs to try different enterprises that are either merely of a different quality (especially for consumption) OR more likely long-term projects that will have a higher pay-off.

An increase in the average level of savings (assuming a free market, ceteris paribus) will initiate the shift in the structure of production to more "roundabout" production processes and an increase in higher factors of production relative to lower factors of production. The "Hayekian Triangle" lengthens and labor shifts "deeper" into the capital structure away from labor markets closer to end consumption (such as retail).

In other words, saving signals to entrepreneurs that no one wants what they are peddling. They are then incentivized to create investment opportunities more in line with savers time-preferences and forecasts.