The savings which add to the social capital equipment are those which, to use the common term, are "invested." Mere hoarding of money by the individual is from the social viewpoint absolutely meaningless, just as for the isolated individual mere abstention from consumption unaccompanied by positive activity devoted to the production of capital goods adds nothing to capital equipment. Investment in the ordinary sense means to clothe or to embody in some form or other. It may be undertaken directly by the individual himself, as when he uses the saved income in his own business, when he lends it to another or when he purchases with it some form of investment security or income-earning property; or it may be indirectly accomplished as when the individual puts the saved income in a bank or similar savings institution. In either case the point to be emphasized is that the purchasing power represented by the saved income is devoted to the purchase of goods or services which normally leave behind them, after their destruction, a larger sum total of enjoyable goods than would have been available without their use. The business man, for example, who borrows a sum of money on which he agrees to pay interest normally uses the sum borrowed to enlarge his plant, to buy more machines, or in some other way to add to his equipment, and from the use of the enlarged equipment he expects to get, by the time the obligation matures, an increased product out of which he can not only pay the interest and repay the principal but also obtain for himself a sum sufficient to compensate him for his risk and trouble. Unless savings were so "productively" employed the payment of interest would obviously be impossible. In last analysis then, the difference between saving money and spending it is not the difference between holding on to it and parting with it, nor even the difference between preserving it from destruction and destroying it, but simply the difference between spending it for immediately enjoyable goods and spending it for "indirect" or "capital goods." Since spending for capital goods normally increases the demand for such goods, as opposed to consumers' goods, an impetus is given to the creation of capital goods, and the net result of "saving" and "investment" is the creation of such goods and a consequent addition to the social capital equipment.

Abstinence is reflected in saving money

Savings must be invested to benefit society

Under the modern division of labor large numbers devote their entire time to the production of capital goods. Their continuance in business obviously rests on the assumption that each year a considerable part of the money returns going to individuals will, through the purchase of such capital goods in the manner described above, be put back into industry to renew, or to add to, the existing social capital-equipment. Thus it is that "saving" on the one hand and "investment" on the other add to that portion of the social wealth which is collectively spoken of as social capital.

As already stated, the ultimate aim of the accumulation of capital is the increase of goods that human beings can enjoy. This is the aim of all productive effort. Men put forth productive effort in order to gratify their wants, and it is only the effort which results in increased want satisfaction that can be said to be really productive. Moreover, the "value" attached to the result of such effort is intimately connected with the want satisfaction that this result will afford. Thus, the value of all capital goods arises from the fact that they are expected ultimately to make possible a larger supply of consumers' goods. The value of a shoe machine, for example, depends in first instance upon the value of the shoes that it helps to make, and effort is expended in making the machine rather than in directly manufacturing the shoes because it is believed that in the long run the effort thus indirectly applied will yield a greater value in shoes than if equivalent effort were to be directly applied to shoe manufacture. Finally, it may be said that it is the prospect of sharing in this increased production of the future that normally affords one of the strongest incentives to those who through "saving" make possible the creation of capital goods.

From what has just been said it will readily be understood that the social interest is best subserved by having capital that has been embodied or "invested" in a certain form put to productive use as soon as possible. Society gets the benefit from the capital invested in a railroad only when the railroad is operated; or from that in a shoe machine only when the machine is actually being used in the manufacture of shoes. Speaking broadly, idleness of capital is almost as bad as lack of capital. But under a highly complex division of labor whole groups devote their time and energies to the production of capital goods which they do not themselves expect to use, but which they hope to part with through exchange. More simply, they produce capital goods and expect to sell them. In so far as the producer of capital goods thus makes them for sale rather than for personal use, it must be apparent that society gains most when he can sell his product as soon as possible after he has completed it, - in other words, when there is a rapid transfer of such capital goods from the maker to the user. It is capital in rapid flux that spells prosperity for the community.

Modern economic organization assumes considerable saving

The purpose of saving and investment is the increase of want satisfaction

The possibility of selling capital goods depends, however, - as was indicated above - upon the existence of "savings." That is to say, since people do not sell goods for nothing, there must exist somewhere the wherewithal to purchase them. Furthermore, this wherewithal must be available in acceptable form for him who wishes actually to use the capital goods. But here we are confronted by the difficulty that the "savers" and the "users" are not necessarily the same persons. Indeed few business men today depend entirely on their own savings for their capital. Almost all supplement individual savings through borrowing. It follows then that in a society characterized by a complex division of labor it is a matter of great economic importance to provide machinery for putting into the hands of possible users of capital the opportunity for getting control of such capital as may be available.