Chapter XIV: Saving and Spending

The goal and purpose of all economic activities is the satisfaction of human wants. The object of production is consumption. We work because we desire and need various things which we can get only if we produce them or earn the money to buy them. In this section we take up some 128 of the problems connected with the rational use or consumption of the wealth which is continually being produced. We have seen something of the conditions under which it is produced, and the manner in which it is distributed; we must now study the not less important subject of its application to human needs and desires. The great question is, how can we get the largest and most rational return for a given expenditure? Before trying to answer this question, it will be helpful to present a summary statement of actual expenditures in different places:

Expenditures for Different Purposes.

===============+========+==========+=========+=========+=========
Items | United | New York | Great | Prussia | Average
| States | City | Britain | |
| 1903 | | | |
---------------+--------+----------+---------+---------+---------
Food | 43.1 | 43.4 | 51.4 | 55.0 | 48.2
Clothing | 13.0 | 10.6 | 18.1 | 18.0 | 14.9
Rent | 18.1 | 19.4 | 13.5 | 12.0 | 15.8
Fuel and light | 5.7 | 5.1 | 3.5 | 5.0 | 4.8
Miscellaneous | 20.1 | 21.5 | 13.5 | 10.0 | 16.3
+--------+----------+---------+---------+---------
Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0
---------------+--------+----------+---------+---------+---------

From this table it is seen that practically half of the income of average working-class families is expended for food, and five-sixths of it goes for the bare necessaries. It is therefore of the utmost importance that this be spent wisely. The remaining one-sixth, included here under the head “miscellaneous,” comprises such items as education, care of health, comfort, mental and bodily recreation, etc. It is manifest that this group can be expanded in only one of two ways: either by enlarging the total income, or by economizing on the other items by a wiser and better-ordered expenditure. The former question has already been discussed; here we are concerned only with the latter. Dr. Frederick Engel, a Prussian statistician, laid down certain laws with regard to consumption: as the income of a family increases a smaller percentage is spent for food and a larger 129 percentage for education, health, recreation, etc.; while the percentage spent for clothing, rent, fuel and light remains approximately the same. A higher civilization and culture for the mass of the people can only be secured by expanding the group of culture expenditures. As long as these remain unsatisfied for the ordinary family we cannot claim to have attained our economic goal. The author of a recent study of conditions in New York City, where the cost of living is high, concludes that a “fair living wage for a workingman’s family in New York City should be at least $728 a year, or a steady income of $14 a week.”[44] The actual earnings are certainly below this figure.

One of the problems which has often proved very puzzling is the relation between saving and spending. At what point should one stop spending in order to save? If the satisfaction of our wants is the object of production, why should we save at all? This is the point urged by the author of a specious little book called “The Fallacy of Saving.” The problem can be most easily solved by a more careful analysis of terms. In the popular view, saving involves the withdrawal of goods or money from use, while spending means putting them to immediate use. The spendthrift is proverbially popular. “If the rich do not spend, the poor die of hunger,” said Montesquieu. Saving may take the form of hoarding or withdrawing things from use, but nowadays this is practised only by misers; saving ordinarily takes the form of investment in some productive enterprise, either directly or through a bank. In this way a demand is created for goods just as truly as though the money had been spent for a dinner or a suit of clothes. Saving is spending, but it is spending for the future rather than the present; it usually causes the production of permanent material goods rather than transient or immaterial pleasures. Another cause of the confusion of ideas on this subject is that we always speak of money 130 and thus lose sight of the acts of production and consumption that lie back of the money transfer. We see that money is transferred by spending and think that it increases trade. Consequently, when a prodigal spends his money foolishly, it is excused on the ground that it makes employment and puts money in circulation. We forget that it would have been “put in circulation” just as effectively if he had not spent it, but had placed it in a bank. If we look back of the money transfer, we see that usually there has been a foolish or wasteful expenditure, sometimes an absolute destruction of wealth. A fire which burns down valuable buildings is an absolute social loss, even though employment be given to masons and carpenters in putting them up again.

A third confusion of ideas that exists in the popular mind is due to an over-emphasis of the desirability of work for its own sake. The man who “makes work” is thought to be doing a desirable thing, even though this results from the unnecessary destruction of useful things. Now the real goal of all rational economic endeavor is not production for its own sake, but consumption; not work, but the gratification of wants. Every destruction of durable commodities which lessens the power to gratify wants is a loss to a community and no juggling with words can make it anything else. If it gives employment to labor, that means that the labor has been diverted from the production of other things to which it would have been devoted. Edward Atkinson several years ago calculated that every year fires destroyed property in the United States to the amount $150,000,000.[45] That workmen are employed to reproduce the buildings, etc., can surely not be reckoned as a social gain. There is great danger in a commercial age like ours of forgetting that work is not an end in itself, but simply a means to an end. But it may be argued that unless these men had been given 131 employment of this sort, they would have starved. It is conceivable that during or after a revolution industry would be so interrupted that ordinary employments would not be open. But in ordinary times such a statement is simply an assertion of the fallacious lump-of-labor theory, that there is just so much work to be done and no more. New wants are continually pressing for satisfaction, waiting only for the prior ones to be satisfied before they urge their claims. So soon as the old ones are satisfied, additional employment is provided in meeting the newer desires. The aim of society is to expand continually the circle of gratified desires. As durable goods and agents are accumulated by the process of saving, this becomes increasingly possible in every progressive society. Useless destruction involves sheer waste and cannot be justified on any grounds.

On the other hand, saving is socially necessary in every industrially developed community in order to furnish the requisite capital for the continued production of wealth. Professor Marshall has estimated that every year one-fifth of the wealth of a nation is used up in the processes of manufacture and production; just to keep machines, factories, railroads, and other instruments of production up to the point of efficiency and restore loss and depreciation would therefore require considerable saving. If the nation is to grow wealthier and is to accumulate additional capital, manifestly still more must be saved. This is done in all progressive countries. Saving is carried on by individuals, however, and not by nations, and the motives that lead to it are personal. The most important is probably the desire to provide for wife and children or other relatives; next to that is the wish to lay by sufficient for one’s old age. In our individualistic society, where each family forms an independent unit and is assumed to be self-supporting, it is very desirable that habits of thrift and saving be developed. Both from a social and a personal point of view 132 therefore saving must be approved, though it is undesirable that it should proceed so far as to prevent spending for the gratification of essential present needs.

But what shall we say about expenditures for luxuries? Here the spending is for the gratification of a want, though it may be out of proportion to the results. What shall be our attitude to it? This question is not so easy to answer as the other. Three different schools have given as many answers to the problem of luxury: the first condemns it utterly; the second approves it wholly; and the third takes an intermediate position between the two extremes. Luxury is condemned by the first school from three points of view: as a question of individual morals, it is regarded as debasing and enervating, thus preventing the highest development of the human faculties; as a question of economics it is condemned as wasteful; and as a question of right and justice it is incompatible with an equitable distribution of wealth. It is upon this last point that the opponents of luxury lay the greatest emphasis. As the quantity of existing wealth is insufficient to satisfy even the primal wants of the large majority of our fellow-creatures, we should endeavor to increase this available store as much as we can, and should refrain from drawing upon it in a reckless manner in order to gratify superfluous wants. Furthermore, the productive powers that we can use are, as a matter of fact, limited; and therefore, if the wealthy classes divert a portion of these forces towards the production of articles of luxury, there will be so much the less available for the production of those staple articles that the masses require for their consumption. In the case of a Robinson Crusoe this would be perfectly clear: if he devoted several months to the polishing of a diamond for ornament, he would have to go without a house or other improvements he might have made in that time. Or, if he forced his man Friday to spend half his time polishing 133 diamonds for him, Friday might be compelled to go without sufficient clothing or food or housing. The same thing is true of organized society, only the truth is hidden by the phenomena of exchange. It has been estimated[46] that the annual consumption of wealth in the United States is divided somewhat as follows: necessaries, six billion dollars; luxuries, three and one-half billion (of which $900,000,000 go for liquor and $500,000,000 for tobacco); capitalistic uses, three and three-quarter billion. It is manifest that if the expenditure for luxuries was curtailed or abandoned, there would be more to devote to the other categories.

The opposite school replies to these arguments that luxury is an indispensable stimulus to progress; that really all economic progress is first manifested in the form of a need of luxury, and that luxury therefore is a necessary phase of its development. Since luxury is wholly relative, every want or need is, on its first appearance in the world, regarded as superfluous; first, because no one has hitherto wanted it, and secondly, because its production probably requires a considerable amount of labor, on account of man’s inexperience and the inevitable gropings in the dark that attend all beginnings. The decencies of life today and even the necessities were once regarded as luxuries--chimneys in houses, shoes, forks and knives, linen for the body, bath tubs, etc. If all luxury had always been sternly suppressed when it made its appearance, all the needs that constitute civilization would have been nipped in the bud, and we should still be in the condition of our ancestors of the Stone Age. Civilization depends on the multiplication of wants. Economic progress is a process of converting superfluities into conveniences, and conveniences into necessities.

The attitude taken by practically all economists today is intermediate between these two extremes. Moderate luxury is justified, but lavish 134 and indiscriminate luxury is disapproved of. This justification of luxury rests upon purely economic grounds. In so far as personal consumption is the objective point of production, the prohibition of luxury would act as an impediment to enterprise. If the desire to enjoy luxuries stimulates the productive powers of economically important members of society, it is justifiable as a necessary motive force. The introduction of luxuries and the consequent raising of the standard of living seems often the only way to secure progress. If the mass of the people live on the minimum of cheap food, multiply as long as cheap food is to be had, and spend little for comforts and luxuries, then most of the labor of such a community must be spent in obtaining food for the masses. Such is the condition in India and China. But if a large part of the community has a higher standard of living, it will exercise self-restraint in the increase of its numbers, and the whole level of intelligence and comfort will be raised, as in France or Switzerland or New England. On the other hand, it is urged that “failure on the part of any family to secure the necessaries of life is injurious, not only to it, but to the whole community. Under-consumption means under-nutrition and loss in industrial efficiency. If permitted to continue it must inevitably undermine the standards which make a family self-supporting and self-sufficient and reduce its members to dependency. The general interest requires, therefore, acceptance of the maxim: the consumption of luxuries should be deferred until all are provided with necessaries…. This suggests that no one is justified in spending income for a luxury for himself or his family that will afford less happiness than would the same income spent for someone else.”[47]

But the difficult question at once suggests itself: How can the surplus incomes of the rich be used so as to provide for the needs 135 of the poor, without undermining their independence or permanently lowering their earning power? It has been suggested that there should be a socialization of luxury; that the rich should use their wealth for the construction of public art galleries, libraries, parks, baths, etc., which would thus gratify as great a number as possible. The feeling is growing in the United States and in the world that wealth is a social trust, and that the ownership of wealth imposes upon a person certain moral obligations. While every man has a legal right to spend his surplus income as he pleases, he is morally bound to spend it in such a way as to increase the welfare of the whole community.

Let us now finally take up the problem of economy in consumption. It is said that an American family will waste enough food for a French family to live on. The farmer who leaves his implements out in the rain or his cattle without proper shelter, is guilty of waste. We all waste clothing by frequent changes in fashion. Such waste is as much due to a lack of knowledge and training as to carelessness. The single example of the consumption of food will illustrate this point. “If we place the average income of an American family at $500--and it will not greatly exceed that figure--then nearly $250 of this amount is expended each year for food. Waste occurs in any or all of the following ways: (1) needlessly expensive foods containing little real nutriment are used; (2) there is a failure to select the foods best suited to the needs of the family; (3) a great deal is thrown away which ought to be utilized; (4) bad preparation of the food causes it to lose much of the nutriment which it does contain; (5) badly constructed ovens diffuse heat, instead of confining it, and cause enormous loss of fuel. We shall state less than the truth if we estimate that fully one-fifth of the money expended for food is absolutely wasted, while the excessive expenditure often fails to 136 provide adequate nutrition.”[48] The remedy for such a waste as this clearly lies in the teaching of domestic science in our public schools to the daughters and future wives of the workingmen. As the ordinary household expenses, as shown above, absorb from 80 to 90 per cent of the ordinary income, the training of the housewife, under whose control they fall, is almost as imperative as that of the wage-earner.

The economic evils of intemperance have already been partially stated in the objections to luxury. There is, however, one additional objection to the excessive use of intoxicating liquor which is not true of most indulgences: it diminishes a man’s productive powers. It is harmful in its effects upon both consumption and production. Other items of consumption appear, however, not so clearly under the immediate control of the consumer. The housing accommodations in many of our large cities have often been unsanitary and unworthy of being called homes. Legislation has been necessary to compel the erection of better tenements and prevent the exploitation of helpless people. So too it has been found necessary to legislate against loan-sharks, in order to protect people against their own improvidence and ignorance. In addition to legislation against positive evils, we must of course look to education as the great remedy of waste in consumption.

There is one other phase of the subject of consumption that may well be mentioned before leaving this subject. Owing to the constant pressure of the consuming public for cheap goods, many articles are produced under conditions dangerous to the health, morality and well-being of the operatives, as in the case of the “sweated trades.” To remedy these evils consumers’ leagues have been started in many places, the members of which pledge themselves not to buy goods or to trade in stores where the conditions of work are not up to certain prescribed standards.

They realize that as consumers they owe a duty to other members of 137 society not to exploit them. While this method has proven a fairly effective method of protest in some cases, it cannot be looked to as a solution of this evil. But it emphasizes the fact that the interests of all members of society as producers and consumers are closely interdependent, and that the progress of society requires the improvement of the condition of all.