The Paradox of Thrift Classical economists viewed that

The Paradox of Thrift Classical economists viewed that savings not only a private but also social virtue. More the saving more is the capital accumulation and progressive growth. Whereas Keynes contradicted that saying savings are private virtue and social vice. Savers save for different reason and investor save for different reason.

Realistic view • In mature capitalist economies the investment opportunities tend to become more and more restricted. Such passive savings cannot ensure the continuous growth of economy- but stagnation. • Keynes argued that when all or most households become thrifty, i. e. , they decide to consume less and save more the level of income and savings tends to decline. This is what is ‘Paradox of Thrift’

continuation • Social savings destroy capital. • Keynes argument starts with Mrs. Joan Robnison’s assertion that one man expenditure is another man’s income. The reduced level of expenditure will bring down the income of No. of people who will further be forced to spend less and in this way there will be cumulative decline in income through the reverse operation of investment multiplier/

Diagrammatic representation As the level of income falls, the investment activities will also g down considerable and hence the accumulation of social savings brings about a eventual destruction of capital. S s’’ s’ s e’’ e’ e o y’’ y’ y