Saving, Education, and Prosperity

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Among the many salient points Mises makes here is the superior position of saving on the road to prosperity.

It is commonly held that formal education is the most important factor in advancing standard of living. But formal education itself requires resources to be set aside (i.e., saved) to feed the teachers and build the school buildings. Moreover, knowledge and skills can often be conveyed in less capital intensive ways such as observational and experiential learning channels.

Mises observes that the binding constraint holding back underdeveloped countries is not education. "Know how" can be transferred. What holds these countries back is insufficient capital. Capital cannot be transferred if nothing has been saved.

The United States was once an underdeveloped nation. What made America the most prosperous country in the world were relatively unhampered market conditions that encouraged voluntary production and trade. People set aside part of their production and invested some of those savings in productivity improvement projects. It was the process of capital formation that made this country wealthy.

As we have discussed many times on these pages, US market conditions no longer favor capital formation. Instead, they encourage capital consumption. Savings rates are negative. People are even borrowing money to go to school. College student loan debt recently crossed $1 trillion and now exceeds credit card debt.

Saving, not education, is the goose that lays the golden eggs. We are eating the goose.