Column
2019-1 (1/7/19)
Most
people in our culture are taught from an early age that saving is a
virtue. Some oriental cultures seem to put an even greater emphasis
on saving. Does anyone even ask, What is saving? What can we save?
How can we save?
Many
think of saving in terms of money. Put money in a bank or stuff it
in your mattress and you have saved. Do either, and all you have
saved is money.
Few,
if any, people really want money. You can’t eat money, wear it, or
live in it. Money isn’t real wealth. Money is all but worthless
by itself.
It
is what money represents that has value. One value of money is that
it makes trading easier. If there is nothing to trade money is all
but useless. If you were stranded in the desert thirsty, hungry and
sunburned, How much would you appreciate someone dropping you a plane
load of money?
Saving
money serves little purpose, unless someone makes something for you
to buy with the money. We need to distinguish between saving money
and saving real wealth. All wealth can be divided into two
categories, consumer goods, and resources that can be used to make
consumer goods. Natural resources, factories, railroads, labor, etc.
have value because they can be used to make consumer goods. The term
goods, in its broadest sense includes services. We can save only
those things that can be preserved for future use.
Depositing
money in a bank doesn’t save any real wealth. If that money is
loaned to someone to pay for a vacation, no real wealth is saved.
The real wealth is as consumed and gone as if the depositor had used
his money to pay for his own vacation. All that still exists is a
promise by the borrower to replace the real wealth he has consumed.
If
the money is borrowed by a farmer to pay for a tractor, or by a
plummer to buy tools, real wealth has been saved. The saved wealth
will be useful for production of consumer goods.
Money
savings may be valuable and important to an individual. When it
comes to preserving and increasing our standard of living, only real
savings count. We are more prosperous than our ancestors because,
generation after generation our ancestors invested real savings in
technology and equipment that increased the productivity of workers.
If
we don’t at least maintain the accumulation of real savings,
productivity will decline. Our standard of living will slide back
toward where it used to be. If we are to increase our standard of
living we must add to the accumulation of real savings.
Calling
US government bonds savings bonds is fraudulent. Most spending by
government is for consumption. Only a small fraction of government
spending is for things to be used in future production. Savings
bonds mostly pay for things that are consumed and gone.
The
greatest threat to prosperity is run away government spending. How
government finances that spending is of minor importance. Government
can tax, borrow, or create new money. What ever way government gets
the money, spending it on consumption will reduce the amount of real
wealth available for investment in the means of production.
In
the short term the people who get to spend may benefit. In the long
run everyone will
suffer
from the decreased productivity springing from the consumption of
real savings.
It
took a half century or so of irresponsible government to get
Venezuela where it is now. Do we really want the USA 50 years from
now to be the disaster Venezuela is today? I fear that most people
don’t care, as long as they get their “free” lunch today.
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Copyright
2019
Albert
D. McCallum
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