Are savings necessary for economic growth?

Question

So, I've had this confusion for a long time. We all know how spending is absolutely vital for economic growth. However, at the same time, are savings necessary too?My initial opinion was "no". In a very particular argument, someone argued with me that "since the money that goes into the companies as investment is nothing but the savings money,savings are important too"I feel that if companies are getting all they want from direct profits (consumer spending), say with 100% consumer spending, they wouldn't need investments.Would I be right in my argument? Or am I wrong?

Answer 1

Capital tends to depreciate, so there will always be a need for additional investment and that requires money that's not spent by consumers or the gov't. But economic growth tends to be due to an increase in inputs, labor or capital or human capital or "technology". The last tends to be a residual explanation for increases in economic growth that cannot be attributed to changes in aggregate inputs. So I suppose that if technology was improving that additional savings may not be needed, just a change in how capital and labor are distributed to more productive uses.

dlw