From this table it is seen that practically half of the income of average working-class families is expended for food, and five-sixths of it goes for the bare necessaries. It is therefore of the utmost importance that this be spent wisely. The remaining one-sixth, included here under the head “miscellaneous,” comprises such items as education, care of health, comfort, mental and bodily recreation, etc. It is manifest that this group can be expanded in only one of two ways: either by enlarging the total income, or by economizing on the other items by a wiser and better-ordered expenditure. The former question has already been discussed; here we are concerned only with the latter. Dr. Frederick Engel, a Prussian statistician, laid down certain laws with regard to consumption: as the income of a family increases a smaller percentage is spent for food
and a larger percentage for education, health, recreation, etc.; while the percentage spent for clothing, rent, fuel and light remains approximately the same. A higher civilization and culture for the mass of the people can only be secured by expanding the group of culture expenditures. As long as these remain unsatisfied for the ordinary family we cannot claim to have attained our economic goal. The author of a recent study of conditions in New York City, where the cost of living is high, concludes that a “fair living wage for a workingman’s family in New York City should be at least $728 a year, or a steady income of $14 a week.”[44] The actual earnings are certainly below this figure.
One of the problems which has often proved very puzzling is the relation between saving and spending. At what point should one stop spending in order to save? If the satisfaction of our wants is the object of production, why should we save at all? This is the point urged by the author of a specious little book called “The Fallacy of Saving.” The problem can be most easily solved by a more careful analysis of terms. In the popular view, saving involves the withdrawal of goods or money from use, while spending means putting them to immediate use. The spendthrift is proverbially popular. “If the rich do not spend, the poor die of hunger,” said Montesquieu. Saving may take the form of hoarding or withdrawing things from use, but nowadays this is practised only by misers; saving ordinarily takes the form of investment in some productive enterprise, either directly or through a bank. In this way a demand is created for goods just as truly as though the money had been spent for a dinner or a suit of clothes. Saving is spending, but it is spending for the future rather than the present; it usually causes the production of permanent material goods rather than transient or immaterial pleasures. Another cause of the confusion
of ideas on this subject is that we always speak of money and thus lose sight of the acts of production and consumption that lie back of the money transfer. We see that money is transferred by spending and think that it increases trade. Consequently, when a prodigal spends his money foolishly, it is excused on the ground that it makes employment and puts money in circulation. We forget that it would have been “put in circulation” just as effectively if he had not spent it, but had placed it in a bank. If we look back of the money transfer, we see that usually there has been a foolish or wasteful expenditure, sometimes an absolute destruction of wealth. A fire which burns down valuable buildings is an absolute social loss, even though employment be given to masons and carpenters in putting them up again.
A third confusion of ideas that exists in the popular mind is due to an over-emphasis of the desirability of work for its own sake. The man who “makes work” is thought to be doing a desirable thing, even though this results from the unnecessary destruction of useful things. Now the real goal of all rational economic endeavor is not production for its own sake, but consumption; not work, but the gratification of wants. Every destruction of durable commodities which lessens the power to gratify wants is a loss to a community and no juggling with words can make it anything else. If it gives employment to labor, that means that the labor has been diverted from the production of other things to which it would have been devoted. Edward Atkinson several years ago calculated that every year fires destroyed property in the United States to the amount $150,000,000.[45] That workmen are employed to reproduce the buildings, etc., can surely not be reckoned as a social gain. There is great danger in a commercial age like ours of forgetting that work is not an end in itself, but simply a means to an end. But it may be argued that
unless these men had been given employment of this sort, they would have starved. It is conceivable that during or after a revolution industry would be so interrupted that ordinary employments would not be open. But in ordinary times such a statement is simply an assertion of the fallacious lump-of-labor theory, that there is just so much work to be done and no more. New wants are continually pressing for satisfaction, waiting only for the prior ones to be satisfied before they urge their claims. So soon as the old ones are satisfied, additional employment is provided in meeting the newer desires. The aim of society is to expand continually the circle of gratified desires. As durable goods and agents are accumulated by the process of saving, this becomes increasingly possible in every progressive society. Useless destruction involves sheer waste and cannot be justified on any grounds.
On the other hand, saving is socially necessary in every industrially developed community in order to furnish the requisite capital for the continued production of wealth. Professor Marshall has estimated that every year one-fifth of the wealth of a nation is used up in the processes of manufacture and production; just to keep machines, factories, railroads, and other instruments of production up to the point of efficiency and restore loss and depreciation would therefore require considerable saving. If the nation is to grow wealthier and is to accumulate additional capital, manifestly still more must be saved. This is done in all progressive countries. Saving is carried on by individuals, however, and not by nations, and the motives that lead to it are personal. The most important is probably the desire to provide for wife and children or other relatives; next to that is the wish to lay by sufficient for one’s old age. In our individualistic society, where each family forms an independent unit and is assumed to be self-supporting, it is very desirable that habits of thrift and saving
be developed. Both from a social and a personal point of view therefore saving must be approved, though it is undesirable that it should proceed so far as to prevent spending for the gratification of essential present needs.
But what shall we say about expenditures for luxuries? Here the spending is for the gratification of a want, though it may be out of proportion to the results. What shall be our attitude to it? This question is not so easy to answer as the other. Three different schools have given as many answers to the problem of luxury: the first condemns it utterly; the second approves it wholly; and the third takes an intermediate position between the two extremes. Luxury is condemned by the first school from three points of view: as a question of individual morals, it is regarded as debasing and enervating, thus preventing the highest development of the human faculties; as a question of economics it is condemned as wasteful; and as a question of right and justice it is incompatible with an equitable distribution of wealth. It is upon this last point that the opponents of luxury lay the greatest emphasis. As the quantity of existing wealth is insufficient to satisfy even the primal wants of the large majority of our fellow-creatures, we should endeavor to increase this available store as much as we can, and should refrain from drawing upon it in a reckless manner in order to gratify superfluous wants. Furthermore, the productive powers that we can use are, as a matter of fact, limited; and therefore, if the wealthy classes divert a portion of these forces towards the production of articles of luxury, there will be so much the less available for the production of those staple articles that the masses require for their consumption. In the case of a Robinson Crusoe this would be perfectly clear: if he devoted several months to the polishing of a diamond for ornament, he would have to go without a house or other improvements he might have made in that time. Or, if he forced his man Friday to spend
half his time polishing diamonds for him, Friday might be compelled to go without sufficient clothing or food or housing. The same thing is true of organized society, only the truth is hidden by the phenomena of exchange. It has been estimated[46] that the annual consumption of wealth in the United States is divided somewhat as follows: necessaries, six billion dollars; luxuries, three and one-half billion (of which $900,000,000 go for liquor and $500,000,000 for tobacco); capitalistic uses, three and three-quarter billion. It is manifest that if the expenditure for luxuries was curtailed or abandoned, there would be more to devote to the other categories.