Frank Albert Fetter, Lauderdale’s Oversaving Theory (1945)

Fetter’s article critically reconstructs Lauderdale’s argument against saving, concentrating on “Of Parsimony as a Means of Increasing Wealth” in the Inquiry into the Nature and Origin of Public Wealth. It connects conceptual criticism with the politics of British debt repayment, arguing that Lauderdale’s oversaving theory justified opposition to the sinking fund and the retirement of public debt.

From the time of Adam Smith it has been "orthodox" doctrine that thrift is an economic virtue.

This opening establishes the doctrine against which Lauderdale’s intervention is measured. Fetter traces the alternative tradition through Malthus, Chalmers, Sismondi, and later advocates of underconsumption theory. Arguments about deficient purchasing power, excessive production, and capital saturation give the historical inquiry contemporary significance. Without identifying all later theories with Lauderdale’s, Fetter presents his argument as a pioneering exposition whose assumptions require scrutiny.

In view of this situation it seems timely to reëxamine Lauderdale's pioneer exposition of the oversaving doctrine.

The examination first questions the opposition between production and thrift. Smith’s emphasis on saving presupposes that goods have been produced; Lauderdale’s emphasis on production presupposes that some output is preserved. Neither process alone sufficiently explains accumulation. Lauderdale also defines saving narrowly as a reduction below customary consumption, excluding investment financed from additional income without reduced expenditure. Fetter argues that this restriction permits beneficial accumulation while denying it the name of saving.

Lauderdale first denied that parsimony alone can increase either the riches or the wealth of a whole society (implying, however, that it can increase the riches of some individuals).

For Fetter, the distinction between private riches and public wealth does not resolve the problem. Lauderdale moves between the strong claim that saving diminishes both and the weaker claim that it does not increase both proportionately. The latter cannot establish the former. Similarly, praise of prodigality assumes that consumption spending offsets saving’s harmful effects before those effects have been demonstrated.

A further difficulty is the assumption that an economy can employ only a fixed quantity of capital at a given technological level. Lauderdale’s general condemnation of saving repeatedly becomes a narrower objection to accumulating useless productive agents. Fetter substitutes a gradual decline in the advantages of additional capital for this abrupt saturation point. Time preference also matters: accumulation may cease when expected benefits no longer compensate for postponed consumption, before additional capital becomes wholly useless.

The central analytical dispute concerns time. A present reduction in consumable output cannot establish a loss of wealth when resources have been redirected toward productive equipment and future output. Fetter distinguishes the current flow of consumption from the stock of productive agents and their subsequent services. Lauderdale neither adequately credits those future yields nor establishes that diminished demand for consumables destroys more value than investment creates. Comparisons between capital accumulated and revenue sacrificed also risk confusing a single year’s saving with the loss of a continuing income stream.

The fiscal discussion gives these objections practical force. Fetter situates Lauderdale’s arguments amid changing expectations of peace, debt retirement, and interest rates. He challenges the attribution of declining yields primarily to the sinking fund, emphasizing the end of extraordinary wartime borrowing. He interprets opposition to repayment as protective of creditors accustomed to wartime returns, while acknowledging the absence of direct evidence about Lauderdale’s own investments.

Debt redemption cannot be assessed by assuming that taxes reduce consumption by their entire amount: taxpayers may reduce investment instead. Since public debt is a claim on future taxable income, repayment extinguishes a liability as well as requiring present payments. Fetter distinguishes taxpayers according to whether current burdens equal, exceed, or fall below the present value of future tax relief. Distribution and the reduction of liabilities complicate any inference from taxation to diminished wealth.

Finally, disruption from abrupt shifts in demand does not prove permanent damage from saving or gradual debt retirement. Lauderdale anticipates later capital-saturation arguments but, in Fetter’s judgment, supplies no convincing boundary between beneficial and harmful accumulation. The article uses the history of economic thought for contemporary criticism, exposing assumptions behind later defenses of sustained expenditure and permanent public debt.