Freeman

ARTICLE

Savings, Tools, and Production

JANUARY 01, 1977 by BETTINA BIEN GREAVES

Mrs. Greaves is a member of the senior staff of The Foundation for Economic Education.

Life is uncertain, especially for primitive peoples who have only their own hands, wits and human energy to use in providing for themselves and their families. Sooner or later, if they are able, they will start accumulating some reserves for "rainy days." Prehistoric men who lived in caves must have known from bitter experience that there were times when they would be cold, hungry, sick and helpless. If they could manage in "good" times to consume somewhat less than they produced, then they would have some supplies left to tide them over bad times. Aesop’s story of "The Ant and the Grasshopper" illustrates this point:

 

On a cold frosty day an Ant was dragging out some of the corn which he had laid up in summer time, to dry it. A Grasshopper, half-perished with hunger, besought the Ant to give him a morsel of it to preserve his life. "What were you doing," said the Ant, "this last summer?" "Oh," said the Grasshopper, "I was not idle. I kept singing all the summer long." Said the Ant, laughing and shutting up his granary, "Since you could sing all summer, you may dance all winter."

 

There is a little grasshopper in each of us; we all consume some part of what we produce today—as a matter of fact we must consume something today in order to survive. But most of us also have some of the ant’s "time preference"; we set aside a part of what we have for tomorrow, next week, next winter or next year—for the "rainy days" that are bound to come from time to time. Rainy day savings consist of stocks of consumers’ goods—food, clothing and shelter—that individuals produce, do not consume immediately, but set aside to eat, use and wear later.

 

To survive change and uncertainty may be difficult if one has no surplus stocks of consumers’ goods to fall back on. Therefore, men reasoned, some reserves might be helpful to tide them over difficult times. And they began to make conscious efforts to prepare for "rainy days." Thus, reason and the drive to relieve "felt uneasinesses" and attain ends induce men to adopt the time preference of Aesop’s ant. Rainy-day savings, therefore, are the outcome of conscious, rational and purposive actions. Among rational, thinking human beings, the time preference which leads to restraint in consumption is strengthened by reason, logic and the expectation that saving some things to consume later will enable them to cope more successfully with the uncertainties the future is likely to bring.

 

Those most likely to make the effort to save for "rainy days" are those who have confidence that they and their loved ones will be able to reap the potential advantages of any savings by being better able, as a result, to cope with "rainy days" when they arrive. For the ant-like time preference to exist and have a significant impact on the actions of men, their rights to own private property and to hold, accumulate and dispose of it as they wish must be recognized and safeguarded.

 

On the other hand, the grasshopper-like time preference is bound to prevail among men who have little hope of benefiting from putting forth greater effort to produce and from demonstrating greater restraint in consumption. Had Aesop’s grasshopper succeeded in forcing his demands on the ant, or had the other barnyard creatures ganged up on the Little Red Hen and taken her production by force, neither ant nor Little Red Hen would have been likely to work so hard another time. They would not have postponed consumption in the expectation of reaping later benefits, but would have consumed their entire production "today." People among whom a grasshopper like time preference prevails, therefore, inevitably consume almost immediately practically everything they produce and find themselves poorly provided for later when "rainy days" or "bad times" come.

 

Pure manual labor is hard, tiring and not very productive. Thus men quite logically look around for ways to make their efforts less tiring and more effective. Sooner or later, even among primitive peoples, someone will have an idea for using some object to make hunting, fishing or foraging a bit easier and more efficient. Someone might try using a large stick as a club, a log as a float, a stone as a missile. Once a person recognizes an object to be useful for a purpose, he has a "tool."

 

The starting point of any tool is an idea. But the development of tools also requires the earlier accumulation of "rainy day savings" so that some persons may spend their time and energy to develop the idea into tools. Tools save time and effort. But their main advantage is that they enable the user to increase production. As more is produced more will be available to consume. Also as more is produced, it becomes easier to set aside still more reserves for later "rainy days."

 

If people produce increased reserves of consumers’ goods, large enough not only to tide them over "rainy days" but also to last while they devote more time and energy to implementing new ideas for developing still better tools, their next logical step is to start accumulating reserves of tools. Purposive saving for the production of tools, that is, for the production of producers’ goods or factors of production, is "capitalist saving."

 

These "capitalist savings" may then be employed by producers who specialize in making still more and better tools. Today’s very complex and sophisticated machines and production methods are merely the outcome of this simple sequence. As production increased over the centuries step-by-step improvements were made in tools. With more and better tools available, it became possible to produce even more, permitting the development of still more and better tools. And so the process continued down to modern times.

 

Entrepreneurs and Property

 

The entrepreneur "gets it all together." As he pays for things in the course of carrying out his project on the market, he acquires ownership, step-by-step, of the factors of production. With the ownership of these factors of production comes also the right of control, i.e. the opportunity to decide how they shall be used. Therefore, the products which are made from an entrepreneur’s resources—with the aid of savings he has assembled or borrowed, the voluntary cooperation of many persons with whom he made arrangements and his ideas and planning—are his and his alone once he has fulfilled all previous commitments.

 

If we consider the products of any specific private enterprise from this angle, it is easy to understand why and how they become the private property of the entrepreneur who took the risk. His right to the output of his project depends, of course, on his having contracted for and paid in advance for all the goods and services which were used in the process. Under capitalism, therefore, the person to whom the final products belong has acquired legal and effective title to them by having previously acquired and paid for everything used in their production.

 

In primitive societies, when individuals were first able to keep for themselves and their families some of their own production, over and above what was needed for immediate consumption, no matter how little that might be, they could feel a bit more free and independent. Without property rights all the material things they have and even their lives are at the mercy not only of nature, but also of the community "strong man," king, ruler, dictator, gangster, or anyone who proves physically more powerful, more ruthless or more persistent in compelling others to do his bidding. The opportunity to own private property and to control its use, therefore, fosters individual freedom and independence even in primitive societies.

 

The right to own and control property is probably even more important in a specialized, division of labor, capitalistic economy. Personal freedom, independence and economic survival depend on that right. If property rights are protected and a person’s private home is "his castle," a place to which he may retire in peace, he may be confident that he, the members of his family, his papers and effects will be safe there from unwelcome intrusions, "from unreasonable searches and seizures."

 

Moreover, the right to own and control private property is important to entrepreneurs and producers in a complex capitalistic market economy. But it is important not only to them. It is perhaps even more important to all the rest of us. As a matter of fact, most of us living today would not even be alive if producers had not been relatively free in the past to use their private property as they chose in the hope of earning profits. It is only because the property rights of producers, would-be producers, savers, investors, entrepreneurs, inventors, innovators, etc., have been respected and protected that they were willing and able to cooperate in expanding production. As a result, life expectancy has lengthened, death rates declined, population increased and people throughout the market economy now live longer, healthier lives and have a much greater quantity and variety of food, clothing, shelter, luxury goods and leisure than ever before.

 

Property owners are interested in using their resources to serve their own ends. They find that the surest way to attain their various ends under capitalism is by providing consumers with the various goods and services they want. As a result, property owners are challenged under capitalism to try to serve consumers. When they succeed in doing this, they can earn not only the psychic profit which comes from knowing they are helping others, but they will also be rewarded with monetary profits for themselves. To use their property to best advantage, property owners must be free to make their own decisions. Flexibility is most important. What kinds of tools are developed, what form capitalist savings will take, and what will be produced will depend on the ideas and actions of specific entrepreneurs in the light of their understanding of conditions and their future expectations.

 

The entrepreneur contemplates an ever-changing "half-baked cake," a smorgasbord of "rainy day" savings, i.e., stores of available consumers’ goods, plus capitalist savings in the form of potentially productive factors of production. He tries to juggle things around, reassemble them, and make them more productive. To do this, he must study consumer purchases and refusals to purchase, analyze available resources, consider market prices of the very recent past and try to anticipate future conditions—all difficult tasks at best. If, as a result of his efforts, he can alter the various factors of production so as to serve consumers better and/or cheaper than before, they will become more valuable on the market.

 

The more freedom and flexibility he has to act in accordance with his own best judgment, the better his chances are. The safer property is expected to be, the more capitalist savings he can expect to attract for investing in his enterprise. The more assurance entrepreneurs and investors have of being able to keep what they earn through the enterprise, the more incentive they will have to continue saving, investing, producing and serving consumers. Any outside interference that deters such enterprises will hamper their plans for production, reduce the amount of goods and services, and so cut down on the number of voluntary transactions possible.

ASSOCIATED ISSUE

January 1977

ABOUT

BETTINA BIEN GREAVES

Contributing editor Bettina Bien Greaves was a longtime FEE staff member, resident scholar, and trustee. She attended Ludwig von Mises’s New York University seminar for many years and is a translator, editor, and bibliographer of his works.

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