Decisions are to life’s successes or failures what tactics are to a general’s strategy. Getting your strategy clear is necessary in order to design appropriate tactics. So it is with life. Priorities undergird decisions in the same way that strategy undergirds tactics. You can make terrific tactical decisions and lose the war if your strategy is muddled or just plan wrong.
I write this as an introduction to a discussion of a front-page story in USA Today (Oct. 31), a true Halloween horror story. I read USA Today only in hotel rooms, assuming that it’s free at the desk, and airports, assuming that someone has left the paper on a seat. In the Denver airport, someone had. The headline announced: “Welches disclose finances in divorce court.”
Rarely do the details of a divorce’s battle hit the front page. This one did because of the immense sums involved, and because the Welches have not settled this out of court. How the rich and famous handle their marital affairs is their responsibility, not ours. But when the numbers hit the press, I occasionally take interest.
Jack Welch, the former CEO of General Electric, has decided that he wants to change wives for his golden years. His present wife’s lawyer has something to say about this: setting the price tag for the trade-in model. According to Welch’s lawyer, Welch has offered her $45 million. She has refused.
I don’t blame her. Welch is worth $456 million. To get cut off for 10% would make her a K-Mart loss-leader. “Attention, shoppers: On aisle W, you can get a fresh, new squeeze for only ten cents on the dollar.”
I don’t live the way these people do, and if I had their money, I still wouldn’t. My lifestyle models among the rich and famous are Sam Walton and Warren Buffett. “If you’ve got it, don’t flaunt it.” In an age of envy, this is common sense.
There is an old saying: “If you want to know what a man’s priorities are, review his bank statements.” A divorce proceeding allows the public to do this.
Mrs. Welch has a monthly income of $11,000. She just can’t seem to make ends meet. Her monthly expenses are about $141,000. But she is a Salvation Army thrift store shopper compared to her husband. His monthly expenses are $366,114. (I wonder about the $114.)
A free society allows people to spend their money any way they please. This is what drives the free market economy: consumers who have final authority in determining where to spend their money. Capitalism is a consumer-driven system. To become consumers, people who are not on charity must become producers. If someone wants to spend $366,114 a month, he must produce goods and services that in turn produce after-tax income at this level. A person must become very productive to achieve this kind of expenditure pattern. Consumers benefit from his productivity. So do those producers who have this guy as a customer.
Mr. Welch has earned his right to spend $366,114 a month. But he has not earned my respect. As a producer, he did good work. As a consumer, he is in need of psychological counsel. So is his wife.
NOT MY MODEL
I look at the combined budgets of this no longer happy couple, and think: “What can a couple do in a month that costs $500,000?” People like this don’t have mortgages on their mansions. Yes, there is a lot of upkeep. They have to hire servants, but you can hire a whole lot of servants for $500,000 a month. Where does the money go?
In the 1940’s, Dennis O’Keefe starred — to the extent that any movie starring Dennis O’Keefe can be said to have had a star — in “Brewster’s Millions.” I saw it on TV as a teenager. It had a profound influence on me. (I have never seen the re-make with Richard Pryor.) A rich man leaves his fortune to his wastrel nephew. He had feared that the heir would not know the value of a dollar. To teach him this lesson, his will makes the heir spend a million dollars in one month as a condition of inheriting the really big money.
At first, O’Keefe thinks it will be easy. But there are only so many hours in the day. He invests in some turkey of a stock, only to see it shoot up. He is running out of time more rapidly than he is running out of money. With two minutes to go on day 30, he still has a dollar. He is at home: nothing to buy. (This was long before the Home Shopping Network.) He is about to lose the inheritance unless he buys something, fast. A door-to-door salesman knocks at the door, selling can openers for a dollar each. O’Keefe buys one, just in time, but then tells the salesman that someone could buy a perfectly good can opener for half as much downtown. (Note: this was 1945.)
One lesson was clear to me in my teens: the dollar itself was obviously on the road to hell. A can opener delivered to your door for $1? Not in 1958. Second lesson: a dollar is not to be wasted.
My great uncle once used reverse psychology on me. Anyway, I guess that was what he was doing. He was the only rich man in our family. He had married my grandmother’s sister. He had made one wise investment in his life: buying shares in a local bread company. When it was bought out by a national firm, he got rich. He was very frugal. So, he stayed rich. I eventually inherited some of that money through my grandmother. I may still get some more of it when my parents die. (We are talking thousands of 21st century dollars, not 1962 dollars.)
When I was about 11 or 12, I stayed at their home overnight. At some point, I left a light on in my room. He told me, “That wastes money.” I knew he was right. “Maybe I should charge you a dollar.” I knew that was too much. “But I’ll give you one instead.” He did. Over four decades later, that incident remains clear in my mind. And ever since, I have tended to flip off the light when I leave a room — not always, but more often than if he had not given me that dollar. He was tight-fisted, which enabled him to make his point. A tightwad had given me a 1953 dollar. I had gone from a potential fine of one dollar to an equally big windfall. Why that reverse psychology worked, I don’t know, but it did. I did not know the old man well. That is the only event that I recall about him, other than his death. But it was a great lesson: don’t waste money. Money is to be taken seriously.
This doesn’t mean that we should never sacrifice money in exchange for time, or money for some other priority. It does mean that we should take care to make our decisions in terms of systematic priorities. There should be consistency between our priorities and our spending pattern. Our bank statements reveal our priorities.
Back to the Welches. Their spending habits reflect a serious misunderstanding of life’s priorities. Their bank statements are like the shoe closets of Imelda Marcos and Tammy Faye Bakker: testimonies against them. Anyone who spends $500,000 a month on personal expenses is suffering from a serious debilitating addiction. There are too many causes worthy of support, and too few hours in a day. To spend that much money, you have to invest too many hours either managing servants or going shopping. Time races by us relentlessly. To spend that much money in a month, you have to waste too much time. It’s better to invest the money and reinvest the earnings automatically.
GIVING IT AWAY
In 1905, one of the most influential unknown men in history, Frederick Gates, wrote a memo to his employer, John D. Rockefeller, Sr. I have seen the original document in the archives of the Rockefeller Archives in Tarreytown, New York, which scholars are allowed to use for free. It was one of the most important letters in history. It was a call for Rockefeller to set up charitable foundations.
Gates gave this reason:
Your wealth is rolling up, rolling up like an avalanche! You must keep up with it! If you do not, it will crush you and your children and your children’s children.
The old man was already giving away lots of money. He had set up the General Education Board in 1902, which I regard as the most important unknown organization in American history. It was the first academic accrediting agency. It gave away big money to select colleges, but only if they added men holding the Ph.D. to the faculty. Through endowed chairs in education in colleges, it promoted public education, especially high school, especially in the South. Through it, the Rockefellers re-structured American education, from graduate school to kindergarten. A century later, there is still no comprehensive, academic history of academic accreditation, which is how the Establishment has gained almost complete control over higher education in America, including private colleges. But I digress.
It was through Gates’ influence that John D., Sr., along with the various Carnegie organizations, spent tens of millions to re-shape America, back when a million dollars was big money. For two decades, Gates was Rockefeller’s director of charities. I refer to him as the bag man. Those millions bought a lot of silence from potential Rockefeller critics in the middle class. Gates was replaced in 1921 by Raymond Fosdick, brother of the famous minister, Harry Emerson Fosdick. Raymond helped direct the spending of John D., Jr. over the next four decades. Among their “gifts” to America was Federal income tax withholding, which raised revenues from $3.2 billion in 1942 to $19.7 billion in 1944. This program was proposed by Beardsley Ruml, who had been hired by Fosdick in 1922. (The academic economist who helped design the original program was Milton Friedman.)
http://www-hoover.stanford.edu/publications/digest/993/shlaes.html
When we trace the history of the big family foundations — Rockefeller, Carnegie, Ford, Guggenheim, Pew — we discover the truth of economist Ben Rogge’s observation: “Rich men know how to make money, but they don’t know how to give it away.”
It takes a life of dedication and practice in giving away minor sums to be able to give away big money without causing great harm. The rich man’s chief priorities may or may not be tied to amassing a fortune. Maybe the person is a pure entrepreneur or innovator, like Bill Gates is. But as soon as the avalanche of money starts to roll up behind him, his moral proprieties must guide him, not his ability to make money. The two skills are very different. Rich men don’t do very well, once the avalanche begins.
I wrote about this dilemma in 1995. I have just discovered that someone has posted the essay on the Web. I sent it to donors to my Institute for Christian Economics, whose assets the ICE board transferred to another ministry late last year. My topic in 1995 was the Sugar Daddy: the megabuck donor to causes. My advice: never become dependent on the good will of a Sugar Daddy. I wrote:
A million people giving away $100 every year can do more good than one man giving away $100 million once. His yes-men will guide him into very large mistakes. Our decentralized mistakes are spread over many projects. The best projects will survive. We can fund more of them.
http://reformed-theology.org/ice/newslet/coverletters/cover95.07.htm
A Sugar Daddy can pull the plug at any time. If your organization has become dependent on him, this can sink it. Sugar Daddies are eccentric. Their replacements after he dies are bureaucrats, and they seldom share his either eccentricities or his vision. You are seen by them as his eccentricity. They will then pull the plug.
NOT IN THEIR LEAGUE
We are not in the Welches’ league, obviously. We don’t mix with their set socially. We rarely meet them. The only ones I ever knew were Texas oil barons, who went bust in the 1980’s. Socially, they were on the outside looking in, even in the 1970’s.
Be thankful for large favors. To spend your life mixing with people who spend $500,000 a month is not my idea of a fun time. Keeping up with these Joneses would take out all but the richest of the rich.
Maybe that’s why they do it. Maybe spending money at rates like this is how they buy themselves social isolation. They don’t need to hire guards to keep us away.
They just spend great wads of money, knowing that the rest of us would be bankrupt in a brief time if we tried to keep up. You know: the way Mexican immigrants could not keep up with us. When was the last time any of us had dinner with a Mexican immigrant? Yet Jesus warned,
Then said he also to him that bade him, When thou makest a dinner or a supper, call not thy friends, nor thy brethren, neither thy kinsmen, nor thy rich neighbours; lest they also bid thee again, and a recompence be made thee. But when thou makest a feast, call the poor, the maimed, the lame, the blind: And thou shalt be blessed; for they cannot recompense thee: for thou shalt be recompensed at the resurrection of the just (Luke 14:12-14).
I have done this, but not on my own or in my own home. I have worked with a highly successful interdenominational prison ministry, called Kairos. The initial reason why this program works to change lives is because freeworlders, as we’re called, come in and eat with the inmates for three days, side by side. They aren’t buddy-buddy with us initially. They are mainly interested in the cookies and the hamburgers and the ice cream. But, after three days of sharing meals, some of them respond personally.
It takes a lot of cookies to break down their suspicion. I mean, a whole lot of cookies! For one weekend meeting of 42 inmates and maybe 30 freeworlders, the ministry’s supporters bake — you will not believe this — about 4,000 dozen cookies. They are asked to bake 6,000 dozen, but they rarely meet the goal. At the end of the three-day meeting, there is not one bag of cookies remaining. The guards get cookies, the inmates’ cellmates get cookies, and (in our session, anyway) every inmate we can locate in the prison gets several dozen cookies. The normal black market price per cookie behind bars — $1 — briefly falls. Believe me, it is a strange experience to stand with ten plastic bags of cookies at the foot of a six-story sharpshooters’ tower, and watch a basket being lowered from the top by a rope, like Rapunzel’s hair. Everyone loves cookies.
If you want to bake two dozen cookies for the next weekend meeting in your state, find out the details here:
http://www.kairosprisonministry.org
So, you and I are not in the Welches’ league, and approximately four billion people are not in ours. Yet you and I probably give more thought to our inability to mix with the Welches than we devote to the inability of four billion hard-working, undercapitalized others to mix with us. We watch “Lifestyles of the Rich and Famous.” The more affluent among the masses watch satellite TV re-runs of dubbed versions of “Friends.”
We, too, have problems with priorities.
On my trip, I was revising the text of my book, Treasure and Dominion: An Economic Commentary on Luke.
Luke’s Gospel emphasizes the moral risks of great wealth. I had extracted quite a bit of this book from my earlier book, Priorities and Dominion, my commentary on Matthew.
Both are free on the Web: http://www.freebooks.com
To read the account of the Welches’ level of spending immediately after reading my commentary on Luke was a jarring experience for me. It influenced me sufficiently to write this report. What Welch is to me, I am to Mr. Patel, who lives in some village. The main difference is, I can read about Welch. Patel doesn’t know about me. Lucky me.
We don’t travel in the Welches’ circuit. This is good news for us. While it would be nice to possess the organizational skills of a Jack Welch, enabling us to serve consumers better, it would not be nice to live with the responsibility of a Jack Welch. There are no free lunches in life. Ownership is a social function. We legally own our wealth, but always as economic agents of society and agents of God. When you can do one thing with $500 or do something else, you must please a few people and displease a lot of people. It is never a question of “To spend or not to spend.” It is a question of “on what to spend.” Investment goods are expenditures, just as consumer goods are. Once the money is in your possession, you become responsible.
I would hate to be Oprah Winfrey, Warren Buffett, or a Walton. The avalanche of responsibility would crush me.
You, too. Never forget this.
CONCLUSION
Spend a lot of time on your priorities before you spend any more time on how to increase your cash flow. You may not be facing an avalanche, but you could get a stone-filled snowball in the back of your head when you least expect it.
When it costs at least 45 million after-tax dollars to get a new wife, that’s an expensive new wife. Personally, I prefer to keep my existing wife and buy a used Lexus. I’ll invest the difference.
November 11, 2002
Gary North is the author of Mises on Money. Visit http://www.freebooks.com. For a free subscription to Gary North’s twice-weekly economics newsletter, click here.
