The “Ex Post” Situation of “Forced Saving” Is the Discrepancy between Actual and Planned Saving, (I₁ — S₁)

A single concept dominates virtually all discussions of forced saving. Entrepreneurs have an increased command over the scarce resources as the result of an increase in the quantity of money, which enters the system as an increase in credit. The prices of capital goods are bid up, and the production of capital goods is stimulated. Factor incomes are bid up; eventually, the demand for consumption goods increases. But only by this process and in this sequence, do changes in the quantity of money affect prices. That these changes eventually affect all prices was not in dispute; the issue was the mechanism by which money affects prices.

Forced saving obviously refers to an ex post situation [ex post means based on what actually happened and not based on forecasts]. Consumers find that they must consume less than they had planned at each level of income. Consumer goods are not being produced at the rate at which consumers intend to consume them.

The schedules in figure 3.1 refer to planned magnitudes. Ex post, investment (I) = I₁ and saving (S) is equal in value to investment, I₁. Thus the forced saving is equal to the discrepancy between actual and planned saving (I₁ —S₁). Forced saving occurs during each period (in which the quantity of money increases) because of the nonneutral effects of the monetary disturbance. The assumption is that monetary expansion is primarily an increase in the amount of credit available to business.

—Gerald P. O’Driscoll Jr., Economics as a Coordination Problem: The Contributions of Friedrich A. Hayek, Studies in Economic Theory (Kansas City: Sheed Andrews and McMeel, 1977), 53-54.