The middle classes save through such institutions, and also through insurance companies and, to a lesser extent, through investment in their own enterprises or in bonds and shares. It is also possible that the organization of a stock market, where the business is potentially large enough, might stimulate a little more middle-class saving.
The higher income classes probably save as much as they intend to do and are probably not handicapped for lack of institutions It is possible that they might save a little more voluntarily if were better opportunities for making profitable investments. The main problems presented by these classes are rather how to divert their savings from less to more useful purposes and how to compel them to reduce consumption.
Too much saving tends to go either into hoards of gold or foreign exchange, or else into a limited range of investments. Hoarding we have already discussed. The investments tend to be limited to land ownership, to real estate, and to well-established lines of commerce. An excessive preference for purchasing land leads merely to its over-valuation; it does not absorb any resources that could otherwise be used elsewhere for capital formation. Over-investment in buildings in metropolitan cities is a feature of some
Under-deve1oped countries, especially if inflation is taking place. Possibly the simplest way of preventing it is to control new building restrictive licensing. Some mal-investment of savings may also occur where large corporations plough back undistributed profits into extending their own concerns, and where a more diffused investment through the economy would bring larger returns to the economy as a whole.
Mal-investment of savings is an important problem in under-developed countries. It is especially acute where inflation is place, but is a problem at all times. It can be tackled in three ways. One way to divert savings from less to more desirable purposes is to make the latter as safe and as profitable as the former, e.g., by government guarantee, or by franchise. A second way is to license new investment, either by control of building, or by control of the import or installation of new machinery. A third way is to tax savings away and to feed the proceeds into more desirable investments through the channel of public financial institutions, such as agricultural or industrial banks, which lend to private enterprise.
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