(FORTUNE Magazine) – SINCE AT LEAST the Book of Proverbs -- ''A wise man saves for the future, but a foolish man spends whatever he gets'' -- saving has stood as a test of virtue. America looks to be flunking the test these days, gauging by the Commerce Department's personal saving rate, which fell to a 40-year low last year. Now languishing at a still paltry 3.7% of disposable income, the U.S. saving rate remains the lowest of any major industrial nation. Moral fiber aside, persistent undersaving is a ticket to economic oblivion if a nation cannot invest in tomorrow's productive machinery and individuals cannot be sure of a secure future. But how bad is the situation? Always a fractious lot, economists are especially divided about the slump's origins, size, implications, and likely duration. They tend to offer despairing shrugs when they are asked to explain it. Says Laurence J. Kotlikoff of Boston University: ''Anybody who says he knows what's going on is not being sufficiently cautious.'' Most economists do agree on this much: The rate is not as low as it is commonly perceived to be, and it will probably improve in the years to come. But there's little consensus about how much more Americans will save of their own accord, and whether that will be enough to support adequate business investment and safeguard their own futures. The best guess at this point: They will need a bit of encouragement, which can best be supplied with incentives like the old-fashioned IRAs. The confusion begins with measuring the saving rate: Few other statistics are as hazy and ill-defined. The most widely cited yardstick, the Commerce Department's rate, is a leftover -- a residual, in economists' terms -- calculated by subtracting consumption expenditures from personal income. Small errors in the expenditure and income data can inflict disproportionately large changes in the rate. More important, the Commerce Department rate excludes a lot of things many people think should be counted as savings, among them the growing pension funds of federal, state, and local government employees. The Federal Reserve shows a much higher rate. Leaving aside statistical discrepancies, the Fed has a more inclusive measure. Its definition will come as a shock to folk who think of saving as foregone consumption. The Fed broadens the Commerce figures to include government pensions as well as mutual fund capital-gains payouts -- some $22.4 billion last year. The biggest difference is that it also defines savings not just as what is set aside for future production, but also what is allocated to future consumption. So it adds investment in consumer durables -- all the goods, from clocks to cars, that people buy to provide useful services over a period of years. Since the U.S. has gone on a consumer durable binge in the 1980s, the Fed's definition shows a much higher rate than the Commerce Department's. After depreciation, the Fed figures, the durables added $116.5 billion to household saving in 1987, bringing the net total to $311.5 billion -- equal to 9.7% of disposable personal income (see chart). Whose numbers you buy depends on what kind of saving you are trying to measure. The Commerce Department figure reflects money available for investment, while the Fed tally describes capital accumulation. If your concern is the contribution consumers are making to national saving, focus on Commerce. If you're mainly interested in how many assets Americans are building up, the Fed speaks to you. Some economists think even the Fed's measure is too narrow. A few count what people spend on education, research, and job training, arguing that these are really investments in ''human capital'' that will produce more income in the future. Still others add in Social Security contributions. For example, Patric Hendershott, professor of finance at Ohio State University, and Joe Peek, an economist at Boston College, conclude that the personal saving rate has actually held remarkably steady during the Eighties; in 1985, by their calculations, it was somewhere around 12.5%. While technically defensible, these broader definitions make economists uncomfortable because they are hard to measure. It isn't at all clear that a dollar contributed to Social Security today will really yield anything near its historic rate of return when the current working population retires. And who knows how to figure the value of human capital or the depreciation rate on it, especially when the investment consists of, say, a course in Chinese cooking? WHETHER YOU LOOK at the Commerce or Fed figures, one trend is indisputable: Americans are saving less than they did in earlier decades. The recent decline -- from 7.1% in 1978 to the current 3.7%, using the Commerce numbers -- is the * biggest piece of the mystery, and sorting it out is like figuring out how a sailboat tacks upwind. You know if the boat is making progress, but you'd be hard pressed to say exactly why. Is the strongest force the size of the sail or the depth of the keel or the shape of the rudder or the power of the wind? On pure economic theory, Americans should have been saving more, given incentives ranging from IRAs and lower marginal tax rates to high real interest rates. ''It's quite mysterious,'' says Alan Blinder, an economist at Princeton. ''Savers were offered extremely high real rates of return, and they didn't respond.'' But other winds were blowing that made it easy for savers to ignore the inducement. Stock prices and housing values were rising rapidly, and baby- boomers were at the time in their lives when they were eager to spend up a storm. So Americans decided to let the unexpected appreciation of their assets do their saving for them. Corporations took advantage of a similar phenomenon, cutting contributions to pension plans -- and even siphoning some of the equity out -- as higher stock prices lifted portfolio values. Saving may also be down because Americans are coming to rely more on an expanding safety net. Most economists estimate that personal saving declines by about 25 cents to 50 cents for every dollar contributed to Social Security. Thus, even at 25 cents on the dollar, the growth of Social Security contributions over the past decade could have accounted for a percentage point of the decline in saving. And the net increase in pension fund reserves last year was almost $164 billion -- more than half again the Commerce Department's personal saving total. Now the first baby-boomers are turning 42 and heading toward the high- savings ages starting at 45, when people normally begin to build up for retirement. If this group follows traditional life-cycle patterns, the savings problem might take care of itself. John Rutledge and Deborah Allen, at the Claremont Economics Institute in California, expect the boomers to push the personal saving rate up to 10% by the year 2000. But Rutledge and Allen foresee a trade-off: The higher saving, they say, will knock annual GNP growth all the way down to 1%. More optimistically, Edward Yardeni, chief economist at Prudential-Bache Securities, thinks that strong growth in manufacturing, led by exports, will keep the economy growing at about a 3% rate even though consumption spending growth will slow to less than 2.5%. BUT WILL the boomers follow the script? Don't bet on it. Michael Boskin of Stanford, an economic adviser to Vice President Bush, and Lawrence Lau, also at Stanford, find that boomers are saving a smaller fraction of their incomes at every age level than their parents did. Boskin and Lau argue that this so- called ''vintage effect'' was undermining savings even during the 1970s. Had this generation emulated their parents, they estimate, the Commerce Department rate might have been as much as twice the actual rate in 1980. Since then, things have only gotten worse. All bets on how the baby-boomers will behave in the future are highly uncertain. Says Boskin: ''If I were to make a prediction, I would say I don't see it changing a whole lot over the next five years.'' Do personal savings matter all that much? After all, they are only a small part of the total national savings available for investment. Last year's personal saving was less than one-fifth of gross business saving, which amounted to $561 billion, and was barely equal to the total government deficit -- or dissaving -- of $105 billion. Reducing that deficit would do more to increase national saving than any imaginable improvement in the personal rate. But it is a mistake to underestimate the role of personal saving. Most business saving consists of depreciation, and is needed simply to replace worn-out plant and equipment. Even today's attenuated personal savings outstrip undistributed profits, the major source of business saving besides depreciation. Last year those profits came to $81.1 billion. Historically, personal savings have been a critical part of investment funds -- in the early Seventies, for example, they were equal to more than half of total business savings. And they protect households from economic downturns, provide funds for retirement -- especially among the 33% of the working population who have no pensions -- and often build up an inheritance for the next generation. Other major industrial countries are more thrifty. By the OECD's calculations, gross national saving -- including depreciation -- averaged 18% a year for the U.S., vs. 18.4% for Britain, 20.8% for Canada, 21.4% for France, 22.2% for West Germany, and a colossal 31.8% for Japan. Not coincidentally, Japan and West Germany have been outperforming the U.S. in international competitiveness. Some economists argue that such comparisons overstate the differences. In studying capital formation in the U.S. and other countries, Robert Lipsey of New York's Queens College and Irving Kravis of the University of Pennsylvania took the broad definition of saving that includes consumer durables and education. They concluded that the U.S. has not been underinvesting as much over the past 15 years as the comparisons with other developed countries suggest. Though few economists buy his argument, Kenichi Ohmae, managing director of McKinsey & Co. in Japan, maintains that when cultural and other differences are taken into account, the Japanese actually save less than Americans. Boosting the personal saving rate is not high on the agenda of either presidential candidate. Vice President Bush gave it no more than a nod with his minimalist proposal to assure tax-free interest on up to $1,000 a year for lower- and middle-income people. But saving deserves a place somewhere on the list. The broad tax cuts favored by supply-siders are not apt to gain much support; whatever their theoretical merits, the risk that they could reduce government revenues makes them too dicey. Some help may come from taxes on consumption, which are likely to be passed to reduce the deficit. The best single spur to saving appears to be narrowly focused tax incentives. Lawrence Summers of Harvard, an economic adviser to Michael Dukakis, and Chris Carroll, an economist at MIT, credit incentives with pushing Canada's personal saving rate ahead of the U.S. rate. Between 1972 and 1976, Canada phased in a series of laws allowing individuals to increase their tax-sheltered retirement contributions. Since then the Canadian personal saving rate, which largely mirrored that of the U.S. for the previous quarter century, has risen from an average of 3.3% of GNP to 7.6% in the early Eighties. THE CLOSEST the U.S. has come to such a policy is the IRA deduction, now phased out for individuals with incomes of over $25,000 a year and families making over $40,000. Most economists have maintained that IRAs did nothing but reshuffle money among consumers' savings accounts, but a recent study suggests otherwise. David Wise, a professor of political economy at Harvard's Kennedy School of Government, and Steven Venti, an economist at Dartmouth, have found that about two-thirds of the increase in IRA saving came from reduced consumption. The problem is that IRAs were too short-lived to prove their value. Says Wise: ''I do think we gave up too soon.'' The 401(k) programs that let employees contribute with pretax income to corporate-sponsored retirement plans offer some of the same benefits, but they can't help people whose employers do not provide them. And the law can make that difficult: Employers may do so only if enough lower-paid workers sign up to ensure that higher-paid people are not disproportionately represented. In the absence of a clear, sustained reversal in America's long savings decline, either the old IRA or something like it is worth trying again.

CHART: NOT AVAILABLE CREDIT:NO CREDIT CAPTION: PERSONAL SAVINGS RATE Commerce counts neither consumer durables nor government pensions.