ABSTRACT
Introduction John Rae’s New Principles (1834) contained much analysis of the savings motive in its relation to capital accumulation. In fact, Rae looked at savings on two levels: the personal and the social2 or national. The first part of this book criticized The Wealth of Nations and its rationalization of free trade for putting too much emphasis on the importance of the individual in both the choice of work and consumption/savings decisions. Rae wanted to emphasize instead that the “social entity” or nation’s goals were sometimes quite different from the individual’s. Furthermore, the former has what really mattered for capital accumulation and growth. If a correct social prescription for national growth were followed, individuals would also be much better off in the future, rather than if personal initiative was given the highest priority. These ideas led Rae off the beaten early-nineteenth-century track so much that his ideas were neglected until the early 1900s, when they were revived by Mixter (1897, 1902) and Böhm-Bawerk ([1884] 1921: ch. 11). Yet, especially the latter neglected Rae’s main focus on what economic policies a nation should follow to become and remain strong, and focused instead on the discussion of Rae’s theory of capital and how it differed from his own. In this chapter I will attempt to rationalize Rae’s emphasis on the “social” sector, the “community” or “nation,” and show how it related to his ideas on business and personal savings.
