If governments fail to fill the gap and meet the demand for assets by issuing an adequate volume of securities, the attempt by individuals to acquire assets by non-spending will cause a reduction in sales, temporary investment in excess inventories, cutbacks in orders, unemployment, and reduced national income and product. There is a serious danger that the bidding up of asset prices could create a bubble of unsustainable values that is likely to collapse disastrously, as occurred in 1929 after the budget surpluses of the preceding years. Sooner or later a reduction in production and national income will set in until the reduction in income reduces the demand for assets to conform to the supply. It makes no distinction between current account and capital account items. Funds are transferred from the bank account of the vendor to the account of the saver, there is no increase in total money in the bank, and no facilitation of investment, while reduced market demand will actually discourage investment.
Savings are neither a prerequisite nor an inducement for investment.
Rather, non-spending by reducing market demand lowers incentives to invest. On the other hand if a businessman can show good prospects for profitable investment he can nearly always get credit and proceed with the investment, which will constitute an increase in someone's wealth which is ipso facto savings. Supply does not create its own demand as soon as some of the income generated is saved, but investment does create its own savings, and more. For the moment, however, that threat seems sufficiently remote that we could proceed with the first steps towards full employment and deal with that bridge when we come to it. There has been no dearth of plans for controlling inflation in ways that preserve the essence of free markets.