ȁȀȃ Partʺ: Economicswould make land values extremely high. As landed wealth grew from the
private point of view, it would deter saving through a positive effect on the
propensity to consume. Ļus the tentatively supposed great saving, capital
accumulation, and reduction of the marginal productivity of investment
and the interest rate would not go to such an extreme in the first place. An
increase in wealth from the private though not from the social point of
view does tend to check saving and real capital formation. Ļat particular
check would be absent if savers were denied the opportunity to acquire
land.
ŏŔōŚœőş ঠŠōşŠőş śŞ ŜśŘŕŏŕőş
Some examples of change may reinforce the analysis. Suppose that people
become more thrifty and that they initially direct their increased propen-
sity to wait to landownership. Land rises in price, making more mone-
tary wealth available to be accumulated as land. From the social point of
view, however, this increase in opportunities for waiting is spurious. Ļe
increased propensity to wait will go partly into holding an unaugmented
physical amount of land at higher prices rather than predominantly into
holding an increased amount of capital goods.
Suppose that although the overall degree of thrift has not changed,
wealth-owners’ preferences about the kindof wealth they hold does
shift—toward land and away from capital goods and securities issued to
finance them. Ļe bid-up level of land prices increases the amount of
landed wealth from the private point of view—this is a matter of arith-
metic—but not from the social point of view.Ȃ Ļis socially fictitious
wealth helps satisfy its owners’ desire for accumulated savings and thus
competes with satisfying that desire through financing the construction of
new real wealth with resources diverted from current consumption. Ļis
is not to say that the fictitious landed wealth reduces the willingness to
save or wait as described by a schedule or function. Instead, landed wealth
from the private point of view forms part of the wealth argument in the
saving function. Ļe more wealth people already hold, the weaker is their
incentive to accumulate still more. Ļe effect in question is the so-called
wealth or Pigou or real-balance effect (an effect reviewed below in connec-
tion with how the existence ofmoneyalso affects the interest rate, saving,
and real capital formation).
ȂAssets from which demand has shifted away presumably decline in price, but they
areof kinds associated with capital formation.