Thrift is far more important than is commonly understood, and I will be explaining why in a future dispatch, but first we need to dispel the guilt many of us feel about the topic. There is actually a very good reason why it’s so hard to save money nowadays.
I think most of my readers will recognize the feeling I’m referring to: You read great books on success, such as The Richest Man in Babylon, you understand that saving at least 10% of your paycheck is necessary for success and you go out to do it… but obstacles keep getting in your way.
And then you feel bad. You feel that you have failed. You really don’t want to think about thrift any more.
I’m here to tell you that you were far too hard on yourself. It wasn’t your fault. (Okay, if you were out knocking back brews at a bar four times every week, that was your fault, but I don’t think many readers fall into that category.)
Thrift has been systematically strangled over the past century; it is now just barely possible. You’ve been blaming yourself for the sins of others. And remember, most of those success books were written before thrift was dead.
The Simple Reason it’s so Hard to Save Money in Today’s World…
When analyzing the economics of civilizations, the big question is this: Where does the surplus go?
In Greece, for example, surplus was generated by the labor of slaves, and went to the citizen (property owner), who tended to be a very good judge of where and how to use it best. In Western civilization, surplus was generally left in the hands of the person who earned it, who also tended to be a good judge of how best to use it.
Through the past hundred years of a declining Western civilization, the movement of surplus was radically transformed… it was skimmed away, in thicker and thicker layers, to growing governments in capital cities.
The result of this is the current situation: Essentially all surplus is skimmed away from the producer. This is accomplished with direct taxes, such as income taxes, as well as with the hidden tax of inflation, real estate taxes, sales taxes, and dozens of others. (On your phone bill, electric bill, gasoline, liquor, etc.)
In other words, it’s so hard to save money because the government takes so much of it away.
We are so used to this situation that we fail to remember that it was not always so. And that is why we feel guilty about not being able to save money. And we shouldn’t – a large army of state employees work every day to remove our surplus from our hands. Aside from acting especially stupidly, it really isn’t our fault.
How it was in 1890
If you’re like most of us, you had great-grandparents worked hard, saved their money, and improved their situation in life. It was normal to do so in the later 19th Century, even until the first World War. Great-grandfather got ahead; you work just as hard, but you don’t make much progress. And there is good reason for this: When Great-gramps worked hard, he kept the money.
In Grandpa’s day there was no income tax and no sales tax. (The government survived anyway.) There was no social security tax either, and – believe it or not – the streets were never full of starving old people. Families were able to take care of their own.
We have forgotten that it was once possible for an average person to accumulate money. Mechanics, carpenters, shop owners and people like them filled their bank accounts with gold and silver. It was common for people like bakers and carriage builders to make serious business loans and to retire comfortably, living off of their investments.
Making a Fortune
In those days before mass-taxation and fiat currency, young men would go out to make their fortune. (“Fortune” didn’t mean multiple-billions, it meant enough capital for the rest of your life.) Young men would go to where money was being made, work hard, cooperate with similar young men, learn everything they could from the older men, save, invest, learn how to succeed, then return home as a prosperous adult.
Not every young man went out to build a fortune, and some certainly failed, but these activities were not punished at the time – which made them much easier than they are today. Gathering a fortune was common enough that it was built into the mating strategy of the time. Many women would agree to marriage only after the young man had “made something of himself.” This mating strategy was legislated out of existence, which is too bad, because it was generally a far healthier strategy than what developed in its wake.
Here is a graph depicting the difference between you and your great-grandfather:
The top line shows how many years of living expenses your great-grandfather would have accumulated as a hard-working young man. The bottom line shows what you can save.
After working for five years, Great-gramps had seven years of living expenses in the bank. Doing the same things, you’d have less than two.
In the modern world, everyone’s fortune is taxed away as it is being formed, and what is saved is eroded by the creation of currency. Very few of us ever get beyond ‘escape velocity’ to accumulate money. In other words, we work all our lives, just to stay more or less even.
With surplus removed from individuals, all investment capital is forced through institutions. Money is not saved, it is obtained from banks. Finance has been centralized and removed from the hands of individuals.
In the 19th Century, productive people made loans; in the 20th Century, their children shuffled into banks and begged for loans.
Grandpa wasn’t really better than you.
The Worst Part
And the worst part of this was mass demoralization: People began to feel morally weak, which generally happened in the name of compassion.
Here’s how the trick worked:
- Your money is taken from you before it can accumulate, leaving you with barely enough to live a reasonable life.
- You have nothing left to help those who suffer unjustly; not because you don’t work, but because your surplus is continuously skimmed away.
- Politicians imply that you are a bad person for not wanting to help the poor.
Not only do the cultural elite make it almost impossible for you to give, but they insult you for it. Then, of course, they spend the money they skimmed from you on armies of government employees, who deliver a small fraction of your money to the poor.
Your great-grandparents were proud to help their friends and neighbors. They felt good about themselves, they felt compassion for others, and they were proud to make the world a better place. Being robbed of this heritage was far worse than the loss of surplus.
So, the question of why money is so hard to save has been answered. Now if only the steps from here were so simple.