Thrift—Prerequisite of Economic Progress

Some 200 years ago the English writer, John Hawkesworth, praised thrift in words that have long been forgotten by most of our contemporaries. "Economy," he wrote, "is the parent of integrity, of liberty, and of ease; and the beauteous sister of temperance, of cheerfulness, and health; and pro­fuseness is a cruel and crafty de­mon, that gradually involves her followers in dependence and debts, and so fetters them with irons that enter into their inmost souls."

Today's prevailing thoughts on thrift are expressed concisely by C. L. Allen, professor of econom­ics at North Carolina State Col­lege. According to Allen, "the less individuals save out of their in­ comes, the more they spend and the greater total (national ) in­ come will be. Conversely, the more people save out of a given income the smaller total (national) in­ come will be." It is obvious that the eighteenth century English writer and the modern American economist are worlds apart in economic understanding and phi­losophy.

To our forebears, saving was a virtue that had its own rewards. Saving afforded provision for emergencies and old age. It en­sured the education of children and support of needy parents. Saving created supplementary income from investments and supplied the initial capital for business ventures and business growth.

Since the beginning of man, his thrif t gave birth to his tools of hunting and production. To be sure, saving does not suffice for the production of tools and equip­ment. They must also be produced. But before they can be produced, the means of support needed dur­ing the time of tool production must be saved. This is why sav­ing is the most important pre­ requisite of economic progress.

No matter what the Keynesians and other statists may contend, the people's savings are invested. Very few eccentrics accumulate money for the love of money. It is true, people may vary their cash holdings, increase or decrease them in accordance with their best inter­ests. People with more than aver­age cash holdings may be de­nounced as hoarders by others who have less. Especially are spendthrifts quick to decry the thrifty and endeavor to find some ill effects of thrift which they call "hoarding."

People who save usually buy securities, deposit their money in banks and savings and loan as­sociations, put it out on loan, buy life insurance policies, or contrib­ute to pension funds. Their sav­ings appear on the capital market where they are distributed to business through the operation of the interest rate. They are made available to producers for produc­tive purposes.

Saving need not imply any sac­rificial or morally meritorious be­havior. To save at the enjoyment of the moment need not entail outright privation. Saving can in­ volve personal sacrifice, but it does not necessarily do so. The man with only a modest income cannot lay aside something of the little he earns without consider­ able deprivation and vigorous self-control. The man with an income of $1 million a year who saves half of this amount performs no heroic act of renunciation. But he supplies the needed capital. For most of us, saving requires a measure of sacrifice and self-control.

Socialists Assault Saving

Socialists generally find fault with individual thrift and private capital formation. Their hostility flows from a theory that pro­nounces all goods the product of human labor exclusively. Accord­ing to the socialists, the workers do not receive the entire product which they alone have produced; capitalists control the indispens­ able means of production through the institution of private property, and use this control to obtain for themselves a part of the worker's product; their method is the wage contract which permits them to purchase the labor of the true pro­ducers, who are forced by hunger to accept the contract; the capi­talists pay only a fraction of what the workers prod uce for them, pocketing the rest at the cost of no exertion to themselves; capital and its income therefore consist of the product of the exploited labor of workers who are placed under coercion by the institution of private property.

Although this "exploitation the­ ory" was originally developed by a few socialist thinkers such as Rodbertus and Marx, it is now widely believed. To many labor union officials in particular, capi­tal income is "unjustly withheld" from the working men for whom they endeavor to secure all in­ creases in labor productivity. Pro­ponents of greater government in­tervention view capital income as an "unearned income,'' an easy prey for progressive taxation. They would have the government either expropriate such capital in­ come for its own use or dissipate it by raising labor costs through social labor legislation.

The socialist assault on capital and its inconie has had its inevi­table effect on capital supply. Cap­ital formation has been greatly impeded and economic and technological progress has become painfully slow. Individual econom­ic advancement has become very difficult. At the same time the power of government over the peo­ple has grown ominously, and economic and political freedom has declined.

The Keynesian Assault

Today's hostility against sav­ing and capital mainly flows from the doctrines of Keynes that have conquered the world since the ap­pearance of his General Theory of Employment, Interest, and M oney, in 1936. His attack differs little from that of the socialists. Sav­ing and capital accumulation in private hands are the villains that are blamed for depression and un­employment. Keynes and his nu­merous followers hate and fear thrift, and this permeates their theoretical system as well as their fiscal and monetary policies.

The following passage written in bitter irony and scorn at the capitalist system may illustrate the point:

This remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ig­ norance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of Society into accepting a situation in which they could call their own very little of the cake that they and Nature and the capitalists were cooperating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theo1'etically free to consume it, on the tacit underlying condi­ tion that they consumed very little of it in practice. The duty of "saving" became nine-tenths of virtue and the growth of the cake the object of true religion. There grew round the non-consumption of the cake all those instincts of puritanism which in other ages has withdrawn itself from the world and has neglected the arts of production as well as those of enjoyment. And so the cake in­ creased but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to culti­vate the pleasures of security and anticipation. Saving was for old age or for you r children; but this was only in theory, - the virtue of the cake was that it was never to be consumed, neither by you nor by you r children af ter you. (John Maynard Keynes, The Economic Consequences of the Peace, pp. 10-20.)

To spend, or not to spend, that is the Keynesian question. In or­der to assure the proper spending and thus restore or maintain a generally desirable condition in the economy, the Keynesians consider comprehensive government con­trol beneficial and necessary. They evidence no concern about the fact that this control over the people's economic actions deprives them of their freedoms and simultaneously enhances the power of government officials and bureaucrats over them. Keynes' theory prepares the ground for socialism. It resembles Marx's thought in many respects.

The Doctrine of National Growth

According to this doctrine espoused by many radical writers and politicians, economic growth is a spontaneous natural process that is fostered and guided by government. Individual saving and capital accumulation are said to exert little or no influence on na­tional economic development. It is the concern of government, and the subject of heated political de­bates, to determine through cour­ageous government action the most desirable rate of economic growth.

This growth doctrine, which takes its terminology and analogy from biology, effectively hides the fact that economic improvements result from individual saving and capital accumulation. Indeed, if growth actually is a spontaneous process, the government may con­tinue to expropriate savings and capital while enjoying the benefits of growth. In order to keep pace with the infant's growth, the gov­ernment merely needs to provide the economic and social adjustments in the form of labor legislation and monetary circulation. The growth apostles therefore demand an annual increase of the money supply and, above all, more social labor laws that are to distribute the benefits of growth.

The doctrine of spontaneous growth also tends to render more difficult our understanding of the economic problems of underdevel­oped countries. Under its sway, we are inclined to believe preten­tious growth reports from com­munist and socialist countries al­though we hear of spending and inflation, confiscatory taxation, and capital expropriation. Our own government officials may even urge underdeveloped countries to adopt such policies in order to provide the social climate of growth.

All over the world people are hoping and longing for economic development and improvement. But their hopes must remain wish­ful thinking as long as spend­ thrift governments enforce poli­cies that prevent capital forma­tion. Only individual savings and reinvested profits can create the capital goods that render human labor more productive.