Keynes's Law That Marginal Propensity to Save Increases with Income Is False, Thus Invalidating the Justification for Highly Progressive Income Taxes

Friedman wasn't the only one who cast doubts on Keynes's theories. He verified Simon Kuznets's studies at NBER denying Keynes's "psychological law" that the "marginal propensity to save" increases with income, at least on a countrywide level. Kuznets, who later won a Nobel Prize, showed that since 1899 the percentage of income saved has remained steady despite a substantial rise in real income. This discovery was all the more important because the Keynesians used the idea of an increasing propensity to save by the wealthy to justify highly progressive income and estate taxes as a way to encourage a high-consumption society and avoid stagnation. According to the Keynesians, consumption was the key stimulant to short-term economic performance and progressive taxation would raise a country's propensity to consume. Now, under the weight of historical evidence, the Keynesian prescription appeared impotent.

--Mark Skousen, Vienna and Chicago: Friends or Foes? A Tale of Two Schools of Free-Market Economics (Washington, DC: Regnery Publishing, 2016), Kobo e-book.