He improves his own welfare because savings implies the transfer of means of consumption from the present, where his earnings are ample, to the future where his earnings may become scarce through old age and sickness. Furthermore, savings will increase his means through the interest he receives. The nation as a whole, on the other hand, benefits from savings since these savings are paid into a bank or some other reservoir of money from which an employer may borrow for productive purposes, for instance to buy machinery. This means a change in the direction of productive activity. Through saving, production is diverted from goods for immediate consumption to goods which cannot themselves be consumed but with which consumer goods can be produced.
Production is diverted, as one puts it, from a direct to a roundabout way of production.
The roundabout way of production has the advantage of greater productivity. The high productivity of the more capitalistic production methods has further favorable effects. The standard of living of the nation rises. This process is renewed over and over again, because increased savings permit primitive direct methods of production requiring small amounts of capital to be replaced by roundabout indirect methods requiring large amounts of capital. The answer to this Keynesian argument, as we saw, was given by the Austrian economist Eugen von B hm-Bawerk 35 years before Keynes wrote The General Theory.