Friedrich August von Hayek, A Note on the Development of the Doctrine of “Forced Saving” (1932)

Hayek’s journal note revises the historical account of forced saving given in Prices and Production. Renewed interest in industrial fluctuations had brought earlier discussions to light, prompting him to reconstruct a longer intellectual genealogy. His central claim is that monetary expansion’s capacity to redirect resources from consumption toward capital formation was understood well before its contemporary formulations. The note follows this argument from Bentham and the early nineteenth-century monetary controversies through Mill, Walras, and Wicksell to Austrian and Cambridge economists. Its historical argument is strongest where it establishes conceptual resemblance; the transmission of particular ideas often remains conjectural.

Bentham occupies the opening and most extensively documented portion. Hayek identifies his discussion of “Forced Frugality,” substantially formulated by 1804 but published much later, as an exceptionally clear early statement. He nevertheless distinguishes the dating of an argument from evidence of its circulation:

Altho it is impossible at the present time to show conclusively whether, or in what way Jeremy Bentham's teaching on this point was disseminated at the time when he formulated his opinions, it now appears to me to be practically certain that the earliest — and also the clearest and most elaborate — statement of this theory is to be found in the writings of that author.

Bentham first considers taxation as a means of compelling present sacrifice to increase future wealth. Paper-money creation can produce a comparable effect through indirect taxation: rising prices reduce the purchasing power of fixed incomes. Whether this redistribution increases real wealth depends on where the additional money initially goes. Unproductive expenditure leaves the loss uncompensated; employment as capital can enlarge production, partially offsetting the burden. Accumulation is thus neither a costless consequence of issuing money nor a sufficient justification for doing so:

Here, as in the above case of forced frugality, national wealth is increased at the expense of national comfort and national justice.

This distinction between aggregate wealth and individual welfare gives the doctrine its ethical as well as economic content. Bentham also limits the productive effect temporally: once the additional money passes into consumption expenditure, it continues raising prices without continuing to add to real wealth. He further doubts whether historical increases in wealth can confidently be attributed to monetary expansion, since they might have occurred without it. Hayek’s presentation therefore preserves qualifications that prevent the doctrine from becoming a simple endorsement of inflationary finance.

The chronology becomes more complicated when Bentham acknowledges overlapping ideas in Thornton and Wheatley. Hayek finds no relevant treatment in Wheatley’s Remarks, but quotes Thornton’s Paper Credit as clear evidence of the mechanism. Thornton’s argument depends on goods prices rising without a corresponding rise in wages:

It must also be admitted that, provided we assume an excessive issue of paper to lift up, as it may for a time, the costs of goods tho not the price of labor, some augmentation of stock will be the consequence; for the labourer according to this supposition, may be forced by his necessity to consume fewer articles, tho he may exercise the same industry.

Here the saving is involuntary: workers continue producing while their consumption falls. Thornton’s accompanying emphasis on injustice reinforces the connection between capital accumulation and unequal adjustment to monetary change. Hayek then links Malthus’s discussion of 1811 to Bentham through similarities of phrasing, while introducing Dugald Stewart’s contemporaneous memoranda as further evidence that the problem was widely recognized.

Stewart broadens the inquiry from note issue to credit. Against an oversimplified quantity-theory explanation, he treats enlarged currency as potentially symptomatic of a deeper disturbance in demand caused by credit expansion. The distinction changes the appropriate remedy: restricting currency to constrain credit differs from regulating credit and allowing currency to adjust. His argument explicitly extends beyond paper money:

The same degree of credit, if it could have been given without the intervention of paper currency, would have operated in exactly the same way upon prices, and upon everything else.

Hayek connects Stewart’s criticism of artificially cheap borrowing under usury laws with Thornton’s anticipation of Wicksell’s distinction between monetary and natural interest rates. These passages matter because they locate forced saving within a theory of credit, demand, and interest rather than treating it solely as an effect of increasing the stock of currency.

The later genealogy demonstrates continuity without establishing every connection. Mill’s early account of forced accumulation reappears more clearly in the footnote added to his Principles in 1865. Credit ordinarily transfers capital, but new purchasing power issued to producers can also redirect existing commodities from consumption into productive employment:

The additional bank notes are, in ordinary course, first issued to producers or dealers, to be employed as capital; and tho the stock of commodities in the country is no greater than before, yet as a greater share of that stock now comes by purchase into the hands of producers and dealers, to that extent what would have been unproductively consumed is applied to production, and there is a real increase of capital.

Hayek next credits Walras with a particularly developed analysis: credit creates a demand for capital, not capital itself, and changes the proportions of production devoted to consumable income and new capital. Unlike voluntary saving, it increases demand on one side without initially reducing it elsewhere. Wicksell integrates the mechanism into interest-rate theory; Mises and Schumpeter subsequently elaborate it.

The conclusion brings this history into contemporary terminology. Robertson’s imposed lacking and Pigou’s forced levies describe the same underlying phenomenon as earlier formulations. Hayek grants that Keynes’s language of investment exceeding saving may be preferable, while warning that Keynes’s unusual definitions impede its adoption. The note’s lasting contribution is this historically grounded clarification: monetary credit can induce real accumulation through involuntary redistribution, but its effects depend on the recipients of purchasing power, its productive use, and the burdens imposed on others.