In this first part of the article the author begins by isolating Ricardo’s position within the classical school as defined by Keynes. This position is shown to be, not the result of an analysis of the saving-investment process, but a consequence of equating the decision to save with the decision to invest; this in turn is a view which Ricardo inherited from Smith and which also Malthus shared, without however drawing the necessary conclusions from it. The author then turns to the later marginalist theories, which Keynes really had in mind, and points out that all that can be discovered in them, with the idea of demand and supply functions for saving, is an analysis supporting traditional theory. The core of this analysis is the concept that the demand schedule for capital (or investment) is elastic with respect to the rate of interest; this concept in turn derives from capital being regarded as a factor of production, of which a relatively larger amount, in comparison with other factors of production, would be employed in the economy when the rate at which it is rewarded goes down. The author discusses this hypothesis in the light of the afore-mentioned criticisms, and sets forth the reasons why it is inacceptable, and why, therefore, the traditional concept of the investment demand schedule is also inacceptable. He concludes that even within the framework of real or static analysis (that is, abstraction made of the obstacles which the monetary system or the state of expectations may put in the way of the equilibrating process), there seems to be no reason to suppose that the market forces are capable of making investment equal saving in the full-employment situation.
