Thrift and Liberty

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At every turn, the state seeks to undermine our thrift. Without thrift, our liberty and property are in jeopardy. We must struggle against the tide of the state's institutions to embrace the age-old virtue of thrift.

First, a review of the problem. Second, a suggested plan for the economist1 hopeful.

According to Samuel Smiles in his book Thrift, Samuel Johnson called Thrift the daughter of Prudence, the sister of Temperance, and the mother of Liberty. Pierre-Joseph Proudhon famously declared that Liberty is the Mother, not the daughter, of Order. So, we have a family tree of virtues: Prudence begets Thrift which begets Liberty which begets Order. Of course, from economics, we also know that Thrift begets Capital which begets Prosperity. Smiles's book Self-Help documents hundreds of cases of people improving their conditions and the conditions of others through thrift. Alas, as far as I know, there is no modern equivalent to the sweeping scope of Self-Help.

Also from Smiles's Thrift: "Some of man’s best qualities depend upon the right use of money – such as his generosity, benevolence, justice, honesty, and forethought. Many of his worst qualities also originate in the bad use of money – such as greed, miserliness, injustice, extravagance, and improvidence." As we know from the doctrine of the unity of the virtues, individual virtue is necessarily connected to political opinions, and so Smiles has perhaps shown us that a man handling his own money well paves the path to political virtue as well. So, this attack on thrift by the state is an attack on virtue generally, and we can expect that it has spillover effects in the adoption of ideologies that apologize for vices.

The state seeks to usurp our liberty and take our property by appeals to disorder and destitution. One way in which we know the state is evil is that it attacks us in a pincer maneuver, undermining our thrift, which results in disorder and destitution, and then from the other flank, using these results to further usurp our liberty and take our property. How does it do this?

Money. The state, having captured the free market institution of money, having destroyed its link to gold and silver, and having centralized and cartelized the supply of money, inflates the money supply to monetize its growing debt and reward elites. This has two primary effects for the individual. First, it has become virtually impossible to use money as a store of value. Its value erodes away if kept for years, so it is necessary to invest any money saved, just to keep pace with inflation. Second, inflation causes investments to be riskier, by causing business cycles. The best explication of this is What Has Government Done to Our Money by Murray Rothbard.

Taxes. Not only is taxation perhaps the most evil institution left on earth, now that chattel slavery is virtually extinct, taxation distorts the individual's finances. We are all familiar with the social engineering in the US Federal Income Tax, with credits and deductions for all manner of activities the state officially encourages or discourages. But much worse is the attack on capital which the tax system represents. Consider: your wages are taxed, with what's left, you invest in stocks of companies, the profits on the companies you invest in are taxed, with what's left of that, the company pays you dividends or increases retained earnings, and then those dividends or capital gains are then taxed.

Social security and "welfare." The cruel hoax of this system is well known. Besides being financially unstable and subject to the whims of Congress, this system encourages people to be dependent upon the state for their financial security in old age, thereby disintegrating traditional intergenerational familial obligations. In the US, we call by the name welfare government programs such as Food Stamps, WIC, and TANF. Again, these programs disintegrate familial obligations and encourage dependence upon the state.

Credit cards. An evil attending monetary expansion is that it often "pays" to buy on credit, when the rate of fall in the purchasing power of money outstrips the rate of interest charged on the credit account. With interest rates artificially depressed by the monetary authorities and banks forced into a fiat monetary regime, they attempt to "loan up," seeking out many high-risk borrowers, which are the cash cow of the credit industry. The otherwise good documentary Maxed Out fails to account for the major role that the state plays in these circumstances.

This is not an exhaustive list of the ways that the state attacks our thrift. Virtually everything the state does, from the FDA, to the War on (some other) Drugs, to the War in Iraq, impoverishes us and makes us less able to exercise our thrift. I only dealt here very briefly with some of the directly relevant institutions.

Not an attack on debt. Also, this is not an attack on debt per se. Gary North's excellent series on debt is well worth the time invested in reading them. That said, every person should strive to reach a point in early adulthood where he becomes free of all debt with a substantial portfolio of assets. This kind of financial independence is a source of strength that the individual, the family, the church, and other institutions can use in their defense against the predations of the state.

How to Acquire the Virtue of Thrift

To acquire a virtue, as Aristotle explained, is to acquire the habit of exercising the virtue. Most of us know what is right. It's the doing that dogs us. Comte-Sponville is wrong when he says "I believe [virtue can be taught]" and that the chief work to do is "to try to understand what we should do, what we should be, and how we should live." No – we mostly know what we should do. The best books for improving your virtue are ones such as those by Benjamin Franklin, Samuel Smiles, and Napoleon Hill. They give us inspiration and practical advice. Here is what I've learned about cultivating thrift:

Budgeting as prudence. Contra personal finance writer David Bach, a written budget is absolutely essential to thrift. It is the beginning of the whole enterprise. Each month gets its budget. To be clear, you will not have 12 budgets. You will have a budget for every month you live from now on. It must be agreed to by your spouse. You must not spend any money unless authorized by the budget – if you need to spend money not on the budget, agree to change the budget first, then spend the money. If you want to read a budgeting book, I recommend this one, though you probably don't need to. Once you have a written budget, you must discipline yourself to live below your means. The reason that a written budget helps you impose this discipline upon yourself is that you can actually see where all your money goes, instead of guessing; and, you can make considered choices about trading money among budget categories. Also, a written budget helps elucidate this reality: you tell your money where to go, it doesn't tell you where it "needs" to go. This is a key psychological change that is empowering and comforting.

So, if you don't live by a written budget, get off your duff and go write one! This will improve your thrift! Do it! A quick way to start is with utilities. Go grab the last year's worth of utility bills and see what the average payment is. Sign up for balanced billing for electricity and gas. It will help.

Keep your old, actual budgets for reference. Your budget should have an "actual" column to show where you came in. You should also have a place on your budget to list your major liquid assets (401-k, IRA, savings) and debts. All this will show you where you've been, where you're going, and provide guidance for future budgets. And, like Franklin's virtue tally, they will serve as a reminder of what needs improvement.

The Latte Factor. Both Smiles and Bach spend considerable time in their books discussing what Bach calls the "latte factor." If you don't think you can live beneath your means, or squeeze your budget to pay down those debts faster, you're not looking hard enough! Do you brown bag it to work every day? Do you ever buy anything from Starbucks? Do you subscribe to cable or satellite TV or radio? It's not that these luxuries should not be enjoyed – it's that when your budget needs squeezing, be merciless. You will miss your beer after work less than you think.

Use cash. Suze Orman has a technique she uses in her seminars. She has all the participants rip a dollar and then report on their psychological reactions. They report that it is a little painful. Try it yourself. Get a $1 bill and rip it in half. Not at all like ripping a piece of paper, is it? This psychological connection to "real money" is an important reason to use cash as much as possible. Another reason is that you can't overspend cash. A third reason is that having cash on hand and exercising your will – resisting a purchase – builds your ability to do so.

How to use cash. The time-tested envelope method is what to use. For each budgeted category, put cash in an envelope when you get paid. Write the budget category on the outside of the envelope. Keep track of expenses by writing on the envelope and keeping receipts in the envelope. This will allow you to improve your budgeting over time.

Giving or tithing. Every personal finance author I've surveyed – David Bach, Richard Paul Evans, Suze Orman, Dave Ramsey – recommend giving or tithing a portion of your income. Christian scripture commands it. They all claim, with the weight of their experience and the experience of others they have helped, that giving or tithing paradoxically helps one's financial position. I cannot subscribe to the notion of God showering blessings upon the thrifty, but I think there is something to this. Periodic donations develop the virtue of magnanimity, and build community relationships. This impacts all of your virtues, and raises your self-esteem as someone who is a benevolent and magnanimous person. It stretches you to develop your virtues even more, and this often results in a more productive home and business life. And the fact of giving creates a psychological sense of abundance, which undoubtedly has an influence upon your subconscious which can deeply influence your behavior.

Single-mindedness. TV, radio, and billboards are filled with exhortations to buy on credit, go to the movies, go out to eat, order food in, and get the latest electronic gadget. To steel yourself against this onslaught, review your budget, talk to your spouse about how great it will be to become debt free and financially secure, read or listen to books on personal finance (check them out from the library!), and/or listen to radio shows like Dave Ramsey's. Share your financial goals with your extended family. It may seem weird to them at first, but they will sense the virtue in it and communicate that to you. It is family and community that help you to be strong against temptations.

Affirmations. Develop an affirmation such as I will be debt free by March 2011 by budgeting every month and living frugally. Repeat it to yourself daily, aloud and loud, with emotion and conviction, at least 5 times daily for 1 month. Develop within your mind a vision of what debt free will look like, feel like. What will be some of the things you'll do? Now, work these visions and the emotions they create into your daily affirmation. The point of an affirmation is to convince your subconscious that this will happen. The subconscious responds well to emotion, visualization, and repetition. Once your subconscious is "on your side," then it will be your greatest ally.

A detailed plan. For specific guidance beyond this foundation of thrift, I'm a fan of Dave Ramsey's baby step plan, and I recommend his book The Total Money Makeover (check it out from the library!). The plan is simple and straightforward. It's nothing new. Our own Mark Thornton's advice is quite similar.

But what about everyone else? Let us follow Albert Jay Nock's advice: "The only thing that the psychically human being can do to improve society is to present society with one improved unit."

Onward thrifty libertarians!

  1. I happily use the term "economist" as Samuel Smiles did in his book Thrift. Here, an economist is one who practices economy; one who is frugal, thrifty.

July 28, 2007