The productive role of financial institutions is to promote the investment of savings, and the efficiency of the investment of savings, as well as the overall degree of saving, and thereby, to raise the demand for and productivity of labor and the general standard of living.
The absence of the security of savings in financial institutions would mean that to an important extent individuals who have extra funds would lose the incentive to put those funds into the bank as savings, which would decrease investment. Instead, individuals in such a position, would thus have no alternative but to hold their savings in the form of hoards of money or accumulations of consumers' goods, such as jewelry, housing, and works of art. The consequence would be that their savings would not serve to make possible a demand for capital goods or for labor, The result of the lesser demand for capital goods would be that the extent to which the economic system concentrated on the production of capital goods would be correspondingly less. And thus, the ability to achieve a production of capital goods sufficient to make possible capital accumulation would be correspondingly less. The effect would almost certainly be economic stagnation at an extemely low level of productivity of labor.
The standard of living of the average worker would also suffer from the fact that savings that are hoarded or held in the form of accumulations of personal consumers' goods do not contribute to the demand for labor and the payment of wages, as do saving that are invested
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