Saturday, October 11, 2014

Savings Story

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

Irwin Schiff, father of Peter Schiff, authored one of the best economics books ever written...in the form of a comic book. The book, How an Economy Grows and Why It Doesn't, centers on the role of savings in improving prosperity.


Built around the lives of three boys trying to live on an island, the story is a familiar one to these pages. Saving, a.k.a. abstaining from consumption so that resources can be allocated to productivity improvement projects, is vital to living better. Saved economic resources provide capital. In fact, there is no other way to generate capital. When the boys in the story save, a virtous cycle for prosperity is set in motion.

Schiff also explains how interventionist policies destroy this virtuous cycle. Envy and greed increase when someone takes a risk (less consumption, investing savings) and improves productivty. Greater stock of wealth becomes an opportunity for some to get more for less. Taxes, redistribution, and other forms of legitimized theft rob the system of savings and use it for consumption rather than for investment purposes. When capital is consumed, the virtuous cycle slows to a halt. Plus, legalized theft provides disincentive for savings.

Prosperity is reversible. Without savings, it is possible to return to the hand-to-mouth existence of the three boys in the Schiff's story.

1 comment:

dgeorge12358 said...

The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living.
~Ludwig von Mises