Savings: Bah-humbug?

‘A Christmas Carol’ is Charles Dickens’ beloved story of an old miser, Ebenezer Scrooge. “Bah! Humbug!” is his attitude to the holidays. During one Christmas, he experiences a change of heart, after seeing the bleakness of his greedy life without family or friends. At the end of the story, we are given the impression that the profession of lending is in itself a dishonorable one, and that spending is a virtue compared to saving (also known as hoarding).

While we appreciate the moral content of the story — indeed, material possessions in themselves are not the be-all-end-all of living — being a saver need not be contrary to good society.

Lending at interest

Lending could not be synonymized with cruelty, of course. The phenomenon of high interest rates is most painful to the poor, yet to prohibit the charging of high interest would be even worse.

High interest rates are a matter of prevailing conditions at a given time. The only reason borrowers resort to lending from those we refer to as usurers is because the borrowers are left with no other options. Everyone else considers them too much of a credit risk. The usurer takes into account the relatively high chance of default when placing such a high price for loans. Taking this into account, we can see how an outright abolition of high interest would deprive the poor of whatever remaining options they have to borrow money.

Inflation means wastage

Neither are low rates via monetary inflation a solution. The interest rate is a market signal, just like the price of any other good. Artificially lowering the interest rate by making paper money less scarce, does not increase economic goods exchanged in the market. As a result, inflation merely depletes resources and encourages consumption to unsustainable levels.

Lowering the interest rate naturally

What we should concern ourselves with is: how can the interest rate be lowered naturally? This involves a stable market environment, where capital is allowed to grow so as to maximize production. Sound money, and a culture of saving and investment means that consumption is foregone only so much as to fund productive enterprise. Sound money would involve gold, which is not subject to an increase in supply as inflationary currencies are.

Conclusion

Helping the less fortunate is not a matter of pouring them with gifts, or squandering in festivities, as is implied at the end of ‘A Christmas Carol.’ Rather, it has to do with providing the conditions for which sustainable employment and production come about. In such a system, there will be less charitable giving to the poor — but only because they will have more job opportunities and be able to afford more things on their own.

Happy Holidays!