Chapter 3b: Savings and Frugality
13 The proportion between industry and idleness is regulated by the proportion between capital and revenue.
- "Wherever capital predominates, industry prevails."
- "Wherever revenue, idleness."
- Therefore, every increase or reduction of capital naturally increases or reduce the real amount of industry"
- Capital affects the number of productive hands.
- The number of productive hands affects the real wealth and revenue of all its inhabitants.
14 Capitals are increased by parsimony and decreased by prodigality and misconduct.
15"Whatever a person saves from his revenue, he adds to his capital."
- He employs his capital:
- by using it himself to maintain more productive hands, and
- by lending it at an interest to someone else to maintain productive hands.
- The interest is his share in the borrower's profits.
- A society's capital is the same as the total individual capitals which compose it.
- It can only be increased by savings from its annual revenue.
16 "Parsimony, and not industry, is the immediate cause of the increase of capital."
- Industry provides what parsimony accumulates.
- But whatever industry might acquire can never increase if parsimony did not save and store it up.
17 Parsimony increases the fund destined for maintaining productive hands.
- It tends to increase:
- the number of those hands, and
- the real national wealth generated by them.
- It mobilizes more industry, which gives more value to the annual produce.
18 Annual savings are regularly consumed nearly in the same time too.
- But it is consumed by a different set of people.
- In most cases, the part spent by a rich man from his revenue is consumed by idle guests and menial servants.
- They leave nothing in return for their consumption.
- The part which he saves is immediately employed as a capital for the sake of profit.
- It is consumed by labourers, manufacturers, and artificers.
- They reproduce the value of their consumption with a profit.
- Had he spent his whole revenue in food, clothing, and lodging, it would have been distributed among unproductive workers.
- By saving some of his revenue into his capital for profit, that food, clothing, and lodging which it could have bought, would be reserved for productive workers.
- The consumption is the same, but the consumers are different.
The annual savings of a frugal man maintains more productive hands for the current or the ensuing year.
- Like the founder of a public workhouse, he establishes a perpetual fund to maintain workers in the future.
- The perpetual allotment and destination of this fund is not always guarded by any positive law or by any trust-right or deed of mortmain [perpetual ownership].
- It is always guarded by a very powerful principle:
- "The plain and evident interest of every individual to whom any share of it shall ever belong."
- His annual savings can only be used to maintain productive hands.
- If used otherwise, it would create a loss to the person who prevents it from its proper destination.
20 The prodigal perverts it in this way.
- He encroaches on his capital by not confining his expence within his income.
- He pays the wages of idleness with the funds his forefathers had frugally consecrated to maintain industry.
- He is like a person who perverts the revenues of some pious foundation to profane purposes.
- By reducing the funds for productive labour, he reduces the amount of that labour which is supposed to increase the country's real wealth and revenue.
- If the prodigality of some was not compensated by the frugality of others, the country would soon be impoverished.
Even if the prodigal's expences are all in local commodities instead of foreign commodities, its effect on the productivity of society would still be the same.
- Every year, the society's resources would maintain unproductive hands.
- The annual national produce would still decline.
This kind of expence would not cause any exportation of gold and silver.
- The same amount of money would remain in the country.
- But if the food and clothing consumed by unproductive hands were distributed among productive hands, they would have reproduced their full value with a profit.
- The total value of goods in the country would have been increased.
23 The same amount of money cannot long remain in any country where the value of the annual produce diminishes.
- "The sole use of money is to circulate consumable goods."
- "The quantity of money which can be annually employed in any country must be determined by the value of the consumable goods annually circulated within it."
- These must consist in:
- the immediate produce of the land and labour of the country itself, or
- the commodities bought with that produce.
- In this case, the value of money, therefore, must fall with:
- the declining value of that produce, and
- the declining amount of money used to circulate that declining produce.
But the money thrown out of domestic circulation will not be allowed to lie idle.
- "The interest of whoever possesses it requires that it should be employed."
- Having no employment at home, it will be sent abroad in spite of all laws and prohibitions.
- It will be employed to buy goods for the home country.
- Its exportation this way will continue for some time.
- It will add to the country's consumption beyond the value of its own produce.
- What was saved from that annual produce during prosperity will be used to buy gold and silver.
- This gold and silver will support its consumption in adversity.
- In this case, the exportation of gold and silver is the effect of its decline.
- It may even for some little time, alleviate the misery of that decline.
24 On the contrary, the amount of money must naturally increase as the value of the annual produce increases.
- The increasing value of the consumable goods circulated within society will require more money to circulate them.
- A part of the increased produce will naturally be used to buy more gold and silver needed to circulate the rest.
- In this case, the increase of those metals will be the effect, not the cause, of public prosperity.
- The country which can pay for those metals will never be long in want of the metals it needs.
- No country will ever long retain the metals it does not need.
25 Every prodigal is a public enemy of the real wealth and revenue of a country.
- Every frugal man is a public benefactor.
26 "The effects of misconduct are often the same as those of prodigality."
- Every injudicious and unsuccessful project in agriculture, mines, fisheries, trade, or manufactures, reduces the funds for maintaining productive labour.
- In every such project, the injudicious manner in which the productive hands are employed do not reproduce the full value of their consumption.
- There must always be some reduction in the productive funds of society.
27 It can seldom happen that a great nation can be much affected by the prodigality or misconduct of individuals.
- The profusion or imprudence of some are always more than compensated by the frugality and good conduct of others.
The Origin of the Propensity to Save
28 Regarding profusion, the passion for present enjoyment is the principle which prompts to spend.
- It is sometimes violent and very difficult to restrain.
- In general, it is only momentary and occasional.
- The desire of bettering our condition is the principle which prompts to save.
- It is a desire which is generally calm and dispassionate.
- It comes with us from birth and never leaves us until we die.
- Between birth and death, there is scarce perhaps a single instant when any man is so perfectly and completely satisfied with his situation as to be without any wish for any improvement.
- Most men propose and wish to better their condition through the increase of fortune.
- It is the most vulgar and obvious means.
- The most likely way of increasing their fortune is to save and accumulate a part of what they acquire.
- The principle of spending prevails in almost all men sometimes.
- It prevails in some men almost all the time.
- Yet in the lifetime of most men, frugality predominates very greatly.
Regarding misconduct, there are everywhere much more prudent and successful undertakings than injudicious and unsuccessful ones.
- Despite many complaints of the frequency of bankruptcies, only a few businessmen, perhaps not more than one in a thousand. suffer it.
- Bankruptcy is perhaps the greatest and most humiliating calamity for an innocent man.
- Most men are careful to avoid it.
- Some do not avoid it, as some do not avoid the gallows.
Great nations are never impoverished by private prodigality and misconduct.
- They sometimes are impoverished by public prodigality and misconduct.
- In most countries, the whole public revenue is employed in maintaining unproductive hands composed of:
- Splendid courts
- Great ecclesiastical establishments
- Great fleets and armies who produce nothing in peacetime and cannot repay their expenses in wartime
- Such people are all maintained by the produce of other men's labour.
- When multiplied unnecessarily, they may consume so much produce that they leave nothing for maintaining the productive labourers, who should reproduce it next year.
- The next year's produce will be less, and the third year's will be much less.
- Those unproductive hands might consume so great a share of the whole revenue of society, that they encroach upon its capital.
- Those unproductive hands might consume the funds maintaining productive labour.
- All the frugality and good conduct of individuals might not be able to compensate the waste created by this forced encroachment.
This frugality and good conduct is sufficient to compensate private prodigality & misconduct and government extravagance.
- "The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things towards improvement, in spite both of the extravagance of government and of the greatest errors of administration."
- "Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor."
32 The annual produce of the land and labour of any nation can be increased in value only by increasing the number of productive labourers or their productive powers.
- The number of its productive labourers cannot be increased without an increase of capital in the form of:
- some addition and improvement to those machines and instruments which facilitate and abridge labour, and
- a more proper division and distribution of employment.
- In either case, an additional capital is almost always required.
- Much more capital is required to keep each worker constantly employed when labour is greatly divided, than where labour is not divided.
- When a country's produce is greater in the current year than the year before, we may be assured that:
- its capital must have increased
- the good conduct of some people have added to the national capital than was taken from it by private misconduct or government extravagance
- But this is the case of almost all nations in peactime, even without prudent governments.
- To form a right judgement of it, we must compare the country at distant periods.
- Improvement is not sensible at near periods because progress is frequently very gradual.
- People frequently suspect that the riches and industry of the country are decaying from the decline of certain industries or districts even in prosperous times.
England's national annual produce is certainly greater now than a century ago at the restoration of Charles II.
- However, every five years some authoritative book or pamphlet is published pretending to demonstrate that:
- the national wealth is fast declining,
- the country is being depopulated,
- agriculture is being neglected,
- manufactures are decaying, and
- trade is becoming undone.
- Not all of these publications were party pamphlets.
- Party pamphlets are the wretched offspring of falsehood and venality.
- Many of them were written by very intelligent people who wrote what they believed in.
England's national annual produce was much greater at the Restoration than at the accession of Elizabeth 100 years before.
- The country was much more advanced during the accession of Elizabeth than during the close of the dissensions between the houses of York and Lancaster a century before.
- The country was probably in a better condition during those dissenssions than during the Norman Conquest.
- It was better during the Norman Conquest than during the confusion of the Saxon Heptarchy.
- It was more improved at the Saxon Heptarchy than at the invasion of Julius Cæsar, when its inhabitants were in the same state with the savages in North America.
In each of those periods, there was much private and public profusion.
- There were many expensive and unnecessary wars.
- Such absolute waste and destruction of stock during those times retarded the natural accumulation of riches and even rendered the country poorer than at the beginning.
- Who could have foreseen how many disorders and misfortunes would have occurred from the time of the Restoration that will impoverish and ruin the country?
- The fire and the plague of London in 1666
- The two Dutch wars
- The disorders of the Revolution
- The war in Ireland
- The four expensive French wars of 1688, 1702, 1742, and 1756
- Two rebellions of 1715 and 1745
- During the four French wars, the nation contracted more than a 145 million pounds of debt, above all the other extraordinary annual expence.
- The total cannot be less than 200 million pounds.
- Since the Revolution, so great a share of the national annual produce has been employed in maintaining an extraordinary number of unproductive hands.
- Without those wars, most of the national produce would have been naturally employed in maintaining productive hands.
- The value of the annual produce of the country would have considerably increased every year, in turn, increasing the produce of the following year.
- More houses would have been built.
- More lands would have been improved.
- Improved lands would have been better cultivated.
- More manufactures would have been established.
- Established manufactures would have been more extended.
- It is not easy to imagine to what height of the real wealth and revenue of the country would have reached.
The profusion of government retarded, but was unable to stop, England's natural progress towards wealth and improvement.
- Its national annual produce is currently much greater than it was at the Restoration or at the Revolution.
- Its annual capital must be much greater.
- Despite all the exactions of government, this capital was silently and gradually accumulated by the private frugality and good conduct of individuals from their universal, continual, and uninterrupted effort to better their own condition.
- This effort was:
- protected by law, and
- allowed by liberty to exert itself in the most advantageous way.
- This effort maintained English progress towards opulence and improvement in the past.
- Hopefully, it will do so in the future.
- England was never blessed with a very parsimonious government.
- Parsimony was never the characteristic virtue of the English.
- Kings and ministers are extremely insolent.
- They restrained the expence of private people by:
- sumptuary laws or
- banning the importation of foreign luxuries.
- Kings and ministers are always the greatest prodigals in society.
- Let them look well after their own expence.
- Let them safely trust private people with their own expence.
- "If their own extravagance does not ruin the state, that of their subjects never will."
Frugality and Government Spending
37 Frugality increases the public capital and prodigality reduces it.
- Capitals neither increase nor diminish when revenues match expenses.
- Some modes of expence contribute more to the growth of public opulence than others.
38 The person's revenue may be spent in either:
- non-durable things which are consumed immediately, or
- The revenue spent this way daily can neither alleviate nor support the next day's expence.
- durable things which can be accumulated.
- The revenue spent this way daily may support and heighten the effect of the next day's expence.
For example, a rich man may spend his revenue either in:
- a profuse and sumptuous table while maintaining many menial servants, dogs and horses, or
- contenting himself with a frugal table and few attendants, but spend most of it in:
- adorning his house in:
- useful or ornamental buildings,
- in useful or ornamental furniture,
- in collecting books, statues, pictures; or
- more frivolous things like jewels, baubles, ingenious trinkets, or
- in amassing a great wardrobe of fine clothes.
- This is most trifling of all.
- Heinrich von Brühl did this.
- The man who spends chiefly in durable commodities, would find his magnificence continually increasing.
- Every day's expence would support and heighten the effect of the next day.
- He would have goods worth something.
- The man who spends on unproductive things would not increase his own magnificence.
- He would be the poorer of the two.
- He would have nothing left.
- His 10-20 years of profusion would be as completely annihilated.
Heinrich von Bruhl
This way of spending by an individual is the same as that of a nation.
- The houses, furniture, and clothing of the rich become useful to the inferior and middling ranks of people.
- They can buy them when their superiors grow weary of them.
- When this mode of spending becomes universal among the rich, the society's general accommodation is thus gradually improved.
- In rich countries, the inferior ranks have good houses and furniture which:
- they themselves could not have built, or
- were not originally built for them
- The house of the family of Seymour is now an inn on the Bath road.
- The marriage-bed of James I of Great Britain was brought by his queen from Denmark as a present.
- A few years ago, it was the ornament of an ale-house at Dunfermline.
- In some ancient cities which have been long stationary or have gone to decay, almost all houses are not occupied by the original inhabitants.
- Those houses have many excellent antiquated furniture which are still fit for use, not all made for the current inhabitants.
- Noble palaces, magnificent villas, great collections of books, statues, pictures, and other curiosities, are frequently an ornament and an honour to the neighbourhood and to its country.
- Versailles is an ornament and an honour to France.
- Stowe and Wilton to England.
- Italy still continues to be venerated because of its monuments.
- Even though the wealth which produced them has decayed and the genius which planned them has been extinguished, perhaps from not having the same employment.
The spending for durable commodities maintains more people than the spending for the most profuse hospitality.
- Perhaps half of two or three hundredweight of provisions served up at a great festival is wasted.
- It would maintain unproductive hands.
- It would increase prices or the exchangeable value of the national annual produce.
- If those provisions were employed instead in employing masons, carpenters, upholsterers, mechanics, etc. those provisions would be repaid in pennyworths and pound weights without losing a single ounce.
- It would maintain productive hands.
- It would not increase prices.
However, this does not mean that spending on durable goods always indicates more generosity than spending on hospitality.
- When a rich man spends his revenue chiefly in hospitality, he shares most of it with his friends.
- When he employs it in buying durable commodities, he spends it on his own person.
- He gives nothing to others without an equivalent.
- A person is trifling, base, and selfish when he uses his revenue to buy frivolous objects such as ornaments of dress, furniture, jewels, trinkets, and gewgaws for himself.
- All that I mean is, that buying durable commodities:
- causes some accumulation of valuable commodities and
- is more favourable to private frugality.
- Private frugality increases the public capital.
- The public capital maintains productive hands which leads to the growth of public opulence.
Next: Chapter 4: Interest