Forced or Induced Saving: An Exploration into Its Synonyms and Homonyms

Fritz Machlup’s 1943 article is a conceptual survey of “forced saving,” a term that had migrated through monetary theory, cycle theory, development economics, war finance, fiscal policy, socialism, rationing, and corporate finance. His aim is not to impose a single authorized definition, but to show that one phrase had come to cover several distinct causal mechanisms and welfare judgments.

This article will survey and briefly analyze the various concepts connoted by the term "forced saving," and the various terms assigned to its basic idea.

The core case is monetary. If bank credit or newly active money finances investment, capital formation may exceed the saving that income recipients intended out of prior income. In that sense, investment is not fully preceded by voluntary abstinence. Machlup presents this as the common thread linking older writers such as Thornton, Bentham, Malthus, and Wicksell with Mises, Schumpeter, Robertson, Keynes, and wartime policy debates.

Investments can now exceed intended saving; that is to say, capital formation can be in excess of what people saved out of their previous income; the extra capital formation is "forced," so to speak, upon the community through monetary witchcraft.

Machlup’s decisive distinction is between the monetary process and its possible real consequences. Credit-financed investment need not always mean that consumers are literally made worse off. He identifies cases in which no additional real investment occurs; cases in which both investment and consumption rise; cases in which investment rises while consumption remains unchanged; and the full-employment case in which additional capital formation can occur only through reduced consumption. The phrase “forced saving” becomes misleading when it treats all these outcomes as identical.

The historical discussion explains why the term became overloaded. In Schumpeter, credit creation channels purchasing power toward innovation and development. In Mises and Hayek, it figures in cycle theory and overinvestment. In Keynes, the same problem reappears through the equality of saving and investment and the income changes that make that equality hold. Machlup’s conclusion is semantic but also analytical: the phrase has become too capacious to do precise theoretical work.

If a term has come to connote so many different meanings as is the case with “forced saving,” it has lost its usefulness.

Robertson’s terminology receives careful attention because it separates money saving from real deprivation. Machlup stresses the difference between “saving” as an accounting magnitude and “lacking” as a reduction in real command over goods. This allows him to distinguish increased money balances, inflationary loss of purchasing power, profit-generated saving, and genuine consumption sacrifice.

Saving refers merely to money amounts; lacking, on the other hand, refers to “real” quantities.

Keynes is treated as both critic and inheritor of the older doctrine. For Machlup, Keynesian “induced saving” can be read as a generalized form of the same issue: investment raises income until the community saves enough to match it. This saving is not forced by overt coercion, yet it is not simply prior voluntary thrift either. It arises from the income effects of investment itself.

Machlup then broadens the inquiry beyond bank credit. “Forced saving” may also describe compulsory loans, social-security reserves, tax-financed debt retirement, rationing, refundable taxes, undistributed corporate profits, and socialist allocation. The wartime setting gives these distinctions urgency: governments may prevent households from spending or divert purchasing power to public purposes, but whether this is genuine national saving depends on what is produced, not merely on whether civilians consume less.

The final catalogue of meanings is the article’s chief contribution. Machlup replaces a single promiscuous expression with more exact descriptions: involuntary frugality, automatic lacking, induced hoarding, secondary saving, profit-generated saving, income-induced saving, fiscal compulsory saving, rationing-induced saving, and corporate saving. The essay’s lasting point is that disputes over “forced saving” often conflate separate questions: Who saves? Is consumption reduced? Is capital formed? Is the process monetary, fiscal, institutional, or merely definitional? Machlup’s article is therefore both a history of an economic phrase and a warning against hiding macroeconomic identities, monetary mechanisms, and real resource transfers under one inherited name.