Thankful for the Work and Savings Ethics
In a previous post, I suggested that the problems of our ancestors put our problems in perspective. That's true. But it's also incomplete. Studying economics, and specifically economic history, ought to generate gratitude. To make that point, I reposted an essay I originally published at The Independent Institute. In this post, I offer an economically-informed elaboration on what, specifically, we should be grateful for.
James Buchanan made the following underappreciated point repeatedly and eloquently: A robust "work ethic" and "savings ethic" grow the economic pie.
Here, I want to make a closely related point. Our ancestors' work and savings ethics gave us–their descendants–a boost.
How, exactly?
By adopting a "work ethic," by working longer and harder, our ancestors eased–at least a little–our shackles borne of scarcity.
Some versions of Neoclassical theory had overlooked this point, but Buchanan points out that hard work "expands the extent of the market," to reference Adam Smith's description of the thing that constrains the "division of labor."
By working harder, people make more, all else equal. That new income creates new demands, which enable people to specialize in their true giftings–giftings which weren't profitable to pursue earlier. Increased and better specialization, in turn, lead to more output. Momentum builds.
Thankfully, our great-great-great-grandparents saved some of that extra output. Indeed, there's a compounding effect here. As people's incomes rise, they tend to save not only a larger amount, but also a larger share of their income.
Their savings ethic was good for us, too, because savings are necessary for the capital accumulation that undergirds our modern standard of living. When you bomb a society back to the Stone Age, you're effectively depriving it of the tools that stand between civilization and a "hand-to-mouth" subsistence existence.
As in the case of the work ethic, the savings ethic didn't only benefit our ancestors (though it did). If savings' benefits were confined to the savers, we might admire them for their prudence, but we wouldn't thank them for their help.
But that's not how savings work. The savings ethic generates a massive buildup of capital goods that live on even when the original owner, maker, or saver is gathered to his fathers. Savings are also the necessary lifeblood to keep the capital structure intact. We need savings to replace capital goods that are wearing out or are obsolete. And the savers need not be alive. Savings from long-dead savers can accomplish these important tasks. When people die, their savings don't.*
In other words, the dead generated positive externalities that we and our contemporaries enjoy. As Ludwig von Mises notes in Human Action, markets are chock-full of external benefits, that far from being a reason to decry markets, are an underappreciated element of social cooperation under the division of labor.
That doesn't tell the whole story of economic progress. We have to ask what social conditions reward hard, positive-sum work and which incentivize saving. Capricious taxation or a hyperinflationary environment will dampen the enthusiasm of even the most ardent savers. We must "work on the right things," as Art puts it. We need, in other words, calculation, or we toil in vain.
Moving from theory to history, there are also questions of timing and location. Why the 18th century, why Europe? Even though we don't all agree on the particulars, most economists agree that freedom is a big part of the answer. Freedom is the bedrock that gives birth to the proximate causes of progress–hard work and high savings which in turn beget prosperity.
Urging gratitude of our forebears "ethics" is directly contrary to the zeitgeist. In fact, generalized abhorrence of the past is the norm. The unholy trinity of slavery, imperialism, and colonialism are, in today's reading of the past, repugnant causes of our unprecedented prosperity (when our wealth isn't being outright denied).
Of course, the subjugation of man by man is a monstrous evil–no argument there–but it is not responsible for modern-day living standards. Zero and negative-sum social interaction can't, by definition, give rise to a larger social product. Math is math.
In other words, much of our culture's abhorrence of the past would dissipate in the face of mere economic understanding. Such a perspective bestows a cleaner lens through which to assess our forebears' lives. Basic economic literacy would enable clear-eyed condemnation when and where that is the appropriate response. But it would also spark gratitude for the positive-sum virtues of work and savings which, through largely unseen and misunderstood processes, gave rise to the modern world's cornucopia.
*Unless inheritance taxes take everything they left.