The dessert was provided by two Treasury economists, Michael Carnahan and Lyn Camilleri, who seem to find that growth and savings were unrelated. According to Toohey, these studies clearly indicate that economists who favour tax breaks for savings need to show how these will benefit the economy by expanding savings. Only the confusion between the alleged differences between saving and investment that Keynes unleashed can account for such bizarre results. Before any article on savings and investment can really make sense it must first define what savings and investment really mean. Saving is the process of transforming present goods into future goods.
Present goods are consumption goods and future goods are capital goods.
When we save, therefore, we tranfer purchasing power from consumption to the production of capital goods to be used in the production of more capital goods. It needs little imagination to realise that taxing savings amounts to taxing future living standards. All of this would be painfully self-evident in a barter economy but, as the classical economists so aptly put it, money is a veil that conceals fundamental economic relations, the nature of saving obviously being one. This is a small price to pay for enjoying the benefits of monetary exchange . This brings us to the egregious fallacy that growth can precede saving, which in turn calls for a definition of growth.