Saving vs. Spending

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Consider a simple scenario where an individual has some grain. He could either:

Eat all of the grain now and over the course of winter.
Eat the bare minimum of grain to survive and save the remainder to plant next year's crops.

What are the consequences of his actions? In the first scenario the individual enjoyed a higher level of consumption. In the second case, grain was saved for a future purpose that in this case would be additional grain for the subsequent year.

The important consideration here is what will be the individual's required action in the following year.

For the saver, he will tend to his investment, as he believes that it will ultimately reward him greater than what he would have enjoyed if he had eaten all his grain. After all, that was his original motivation for choosing to save.

The spender must secure a source of grain in the second year. He can do this in one of several ways:

1. Taking grain from the saver via means of force or guile.
2. Preying upon the saver's sympathy through begging.
3. Though searching out new land and find natural sources found there.

If we look at history, we can see a divergence between these two styles of thought. Those with a saving attitude formed communities where they established the concepts of personal property and codified laws outlining civil conduct. Necessary conditions for increasing population density associated with a community.

Those who held a spending attitude developed nomadic cultures that focused more upon militaristic ability and means of transportation. The result was a history of flourishing civilizations periodically brought down by lawless nomadic invaders. The introduction of gunpowder blurred the distinction between the two groups but that discussion would take this essay outside the realm of economics.

To go back to original theme of this discussion, we must evaluate the relative successes of the saver and spender. If the saver is only able to farm enough grain to barely feed himself then he may have been better off consuming all the grain and finding another source the following year thereby enjoying the freer life of the spender.

Where the two scenarios really diverge is if the saver can produce a surplus. If he can do this and find someone to trade with, maybe for milk and eggs, we can begin to see the development of a market and recognize its inherent value. Through trading the surpluses we see an overall consistent improvement of quality of life for all. For the spender, its feast or famine.

Published originally on Dollardaze.org - (Nov 14, 2006)