This is an absolutely must-read if you haven't been following the comments on Steve Roth's post, How Accounting “Constrains” Economics, at Asymptosis, to which I had pointed to earlier.
JKH illuminates the saving-investment controversy and resolves it clearly with basic algebra using transformations familiar to anyone who reads Bill Mitchell's blog. Definitely elegant.
Mike gives the essentials if you don't have time to read the original historic discussion. However, I recommend reading the whole thing at Steve's after reading Mike's summary.
Read it at Modern Monetary Realism
S = I + (S – I) : The Most Important Equation in Economics
by Mike Sankowski
I am not sure it deserves the title, "the most important equation in economics," since it is derived from Y = C + I + G + (X-M).
Mike responds to my questioning the relative importance of the macro identities:
It’s the most important (sorry Tom H!) because this is where sovereign nations control the money in the system. It’s the most important because this is where Godley’s Theorem about the necessity of Deficit Spending hits domestic citizens.Based on that reasoning, I agree.
Excellent comments there. JKH is participating.