> However, an economist might believe this is suboptimal because the $100 is just sitting there doing nothing rather than "circulating in the economy".
A short-sighted economist, maybe. What needs to circulate is goods and services, not money. If you have $100 in the bank (or stuffed in your mattress), that means you produced stuff worth $100 more in total than what you consumed. Those extra goods are already being put to productive use. If your savings stay safely locked away and out of circulation that just means prices will be a bit lower due to the decrease in the money supply, which benefits everyone else. And when you take that saved money and spend it later your prices will be a bit lower, too, which is your reward (interest) for basically letting everyone else borrow the value of your money for the time you had it out of circulation.
If you can take your savings and invest them in some venture likely to provide a real return—after factoring in inflation and overhead—that would obviously be better than just stuffing the money in your mattress. However, taking money out of circulation is still better for the economy as a whole than "investing" it in something that can be expected to lose value, because that would divert goods and services away from better investments. If the money supply were held constant than you could treat price inflation or deflation as indications that we need more or less targeted investment, respectively. Unfortunately that isn't the case, so we're missing a key economic signal.
A short-sighted economist, maybe. What needs to circulate is goods and services, not money. If you have $100 in the bank (or stuffed in your mattress), that means you produced stuff worth $100 more in total than what you consumed. Those extra goods are already being put to productive use. If your savings stay safely locked away and out of circulation that just means prices will be a bit lower due to the decrease in the money supply, which benefits everyone else. And when you take that saved money and spend it later your prices will be a bit lower, too, which is your reward (interest) for basically letting everyone else borrow the value of your money for the time you had it out of circulation.
If you can take your savings and invest them in some venture likely to provide a real return—after factoring in inflation and overhead—that would obviously be better than just stuffing the money in your mattress. However, taking money out of circulation is still better for the economy as a whole than "investing" it in something that can be expected to lose value, because that would divert goods and services away from better investments. If the money supply were held constant than you could treat price inflation or deflation as indications that we need more or less targeted investment, respectively. Unfortunately that isn't the case, so we're missing a key economic signal.