On the psychology of saving: An essay on economic behavior

Abstract

Economists used to talk about a characteristic of individuals and nations which they called 'thrift'. Without the help of psychologists, many economists provided psychological concepts so as to explain factors contributing to thrift. This is true for economists from Adam Smith up to Keynes. Keynes (1936) formulated a 'psychological law' which focussed attention on the role of income for saving rather than on psychological factors. Psychological concepts almost disappeared from economic-theoretical discussions of saving. Now the life-cycle model of saving which has hardly any psychological content is the dominant theory. The theory has some inadequacies. It does not explain all saving and, in particular, it seems unable to furnish ideas about how to encourage thrift and stimulate saving. The article reviews the earlier use of psychological concepts in the study of saving and suggests that psychology can now study thrift from new angles and contribute to elucidating the problems of total savings.