people with ample savings can engage the marketplace on their own terms.

guest post by Noni Mausa

Why Save?

We keep hearing about the responsible Americans of bygone days who
saved their money and bought things when they could afford them.
These are distinguished from the careless present-day Americans who
buy things first and then scramble to find the money afterwards.

At this point, we might ask ourselves — why save? After all, if you
can buy now and pay later, why save now and buy later? Another
interesting point would be to ask why business would rather have us
buy now and pay later, rather than avoid risk by getting their cash on
the barrel head?

What nobody has dragged out into the open, at least that I’ve seen on
this blog, is that buying now and paying later is more expensive, in
some cases far more expensive, then saving and buying when you can
afford the item.

As senior tempter Screwtape used to say, “This is so obvious I’m
ashamed to have to say it.” When you save now and buy later, you get
the item without having to pay interest — in fact, while the money is
in the bank you might even earn a little interest.

Secondly, once the consumer has a good cushion of savings in the bank,
he can be choosy about his purchases, and will have a keen awareness
of how long it took to accumulate those hundreds or thousands. He
will think, rather than striking like a hungry trout. He has acquired
the habit of waiting.

He can take advantage of very good bargains when they arise. He can
smooth over rough times in his life, pay bills promptly, and even to
hold a certain amount of leverage with the financial institution to
get better terms in their dealings.

In short, people with ample savings can engage the marketplace on
their own terms.

Shifting from a savings-based society to a credit-based society has
the cumulative effect of maintaining the amount of stuff you can buy,
while increasing the amount of money you pay for money. In some
situations, of course, this bargain is worthwhile. The largest of
these is housing. Only in the case of a generational money pool can
people pay cash for a house. Yet, everyone needs a house to live in,
or a dwelling of some sort.

However, if such a generational pool is available, it cuts the cost of
housing about in half. A $40,000 house, if there is still such a
thing around, would not cause the cumulative $80,000 that you might
pay over the course of a full mortgage. A young Jewish friend of mine
and his new bride received a modest but well located home when they
married, as a gift from both their parents. They began their married
life with a cut to their cost of living of several thousand dollars a
year. This is a huge advantage.

In the absence of widespread savings, more of people’s incomes are
diverted to financial costs like service charges, interest charges,
carrying charges etc. From their point of view this money is wasted.

Another, more subtle effect of widespread non-saving is the loss of
the ability to see the disparity between income and expenditure, in
ones own budget and that of those around you. At the lower end of the
earning slope, people don’t save because they can’t. Imagine them
standing knee-deep in a lake. As one moves up toward the high-tide
mark of solvency, there comes a time when a better-paid person can
stand dry-shod no matter where the tide is – he can become a saver.
But if no one is a saver – if everyone’s shoes might be wet — then
detecting the danger of a rising tide becomes much more difficult.

What are savings? Let’s think of them as the “profit” of the private
citizen. In this case, the lack of savings indicates loss of profit
leverage in American households, and the rising tide of indebtedness a
further encroachment on their profits, for which they receive nothing
but avoidance of financial straits which their loss of private profit
forced upon them.

In an electrical system, this waste would be called line losses, in a
car engine, loss of compression. In a society we call it injustice.
by Noni Mausa