§1. The form of wealth has changed as civilization has passed through “revolutions”, from personal ornaments among hunter gatherers, to land and hand tools during the Agricultural Revolution, to expensive machines for creating and moving goods in the Industrial Revolution. These days, wealth is embodied in algorithms, data and other “intangible” capital and intellectual property.
§2. Wealth is possible with savings, and savings (i.e., capital) help generate further wealth:
As civilization has progressed, man has always been developing new wants, and new and more expensive ways of gratifying them…And with the growth of openings for the investment of capital there is a constant increase in that surplus of production over the necessaries of life, which gives the power to save… . After a time civilization became possible in temperate and even in cold climates; the increase of material wealth was possible under conditions* which did not enervate the worker, and did not therefore destroy the foundations on which it rested. p 186
* Marshall’s footnote to “conditions” is fascinating:
For instance, improvements which have recently been made in some American cities indicate that by a sufficient outlay of capital each house could be supplied with what it does require, and relieved of what it does not, much more effectively than now, so as to enable a large part of the population to live in towns and yet be free from many of the present evils of town life. The first step is to make under all the streets large tunnels, in which many pipes and wires can be laid side by side, and repaired when they get out of order, without any interruption of the general traffic and without great expense. Motive power, and possibly even heat, might then be generated at great distances from the towns (in some cases in coal-mines), and laid on wherever wanted. Soft water and spring water, and perhaps even sea water and ozonized air, might be laid on in separate pipes to nearly every house; while steam-pipes might be used for giving warmth in winter, and compressed air for lowering the heat of summer; or the heat might be supplied by gas of great heating power laid on in special pipes, while light was derived from gas specially suited for the purpose or from electricity; and every house might be in electric communication with the rest of the town. All unwholesome vapours, including those given off by any domestic fires which were still used, might be carried away by strong draughts through long conduits, to be purified by passing through large furnaces and thence away through huge chimneys into the higher air… This conjecture as to the ultimate course of town improvement may be wide of the truth; but it serves to indicate one of very many ways in which the experience of the past foreshadows broad openings for investing present effort in providing the means of satisfying our wants in the future.
§3. Marshall points out that it’s important to balance between spending all earnings as a spendthrift and saving too much as a miser. He acknowledges how cultures (as well as classes within cultures) differ on that balance, with this slightly offensive but insightful comment:
In India, and to a less extent in Ireland, we find people who do indeed abstain from immediate enjoyment and save up considerable sums with great self-sacrifice, but spend all their savings in lavish festivities at funerals and marriages. They make intermittent provision for the near future, but scarcely any permanent provision for the distant future: the great engineering works by which their productive resources have been so much increased, have been made chiefly with the capital of the much less self-denying race of Englishmen. p187
These differences would be attributed to discount rates (or time preferences), with savers/lenders possessing lower discount rates and spenders/borrowers higher rates. The poor tend to have high discount rates due to a combination of “live for today” (YOLO), pessimism over life expectancy, and powerlessness (spend it now before it’s stolen) — all problems that the British inflicted on the Indians and Irish. So Marshall’s condescension is perhaps misplaced.
§4. Indeed, he sees the issue (my emphasis):
The thriftlessness of early times was in a great measure due to the want of security that those who made provision for the future would enjoy it: only those who were already wealthy were strong enough to hold what they had saved; the laborious and self-denying peasant who had heaped up a little store of wealth only to see it taken from him by a stronger hand, was a constant warning to his neighbours to enjoy their pleasure and their rest when they could…Insecurity of this kind also is being diminished: the growth of enlightened views as to the duties of the State and of private persons towards the poor, is tending to make it every day more true that those who have helped themselves and endeavoured to provide for their own future will be cared for by society better than the idle and the thoughtless.
§5. New financial and market instruments have made it easier to turn wages into wealth. One can rent housing instead of buying it, buy beer instead of making it, etc. These developments bring greater satisfaction and security from the same base income.
§6. Although some save out of competitive instincts, most save to leave wealth to their families. Some are tempted to consume extravagantly, while those with poor backgrounds are the most thrifty. Those who grew up in the Depression (the Silent Generation) fell into this category, as do many Gen-Zers experiencing both the Great Recession and Covid-shocks.
§7. The rich use their savings to invest in further capital. The working and middle classes invest in their children’s physical and intellectual capital, respectively. Given this, Marshall says it’s perhaps better to tax the rich and use their money to help the lower classes accrue more “human capital” (my words), since the ROI to society is much greater.
§8. Marshall spends a few pages discussing the pros and cons of spending less now (saving) so as to have more later, assuming that the savings can be safely and productively set aside.
§9. Savings rates depend on the rate of interest. Lower interest means more years of work to save more. In 2020, with interest rates near zero, people face the depressing reality of having to work longer and consume far less in their quest to save “enough” for retirement. This situation can be blamed on central banks that are printing so much money — and buying so much debt — that savers (qua investors) faced with miserable returns. And thus do we see the rich get richer as their assets rise in value while the poor (or middle classes) see their savings in a coma 🙁
§10. In summary (p 196):
The accumulation of wealth is governed by a great variety of causes: by custom, by habits of self-control and realizing the future, and above all by the power of family affection. Security is a necessary condition for it, and the progress of knowledge and intelligence furthers it in many ways.
A rise in the rate of interest offered for capital, i.e., in the demand price for saving, tends to increase the volume of saving. For in spite of the fact that a few people who have determined to secure an income of a certain fixed amount for themselves or their family will save less with a high rate of interest than with a low rate, it is a nearly universal rule that a rise in the rate increases the desire to save; and it often increases the power to save, or rather it is often an indication of an increased efficiency of our productive resources: but the older economists went too far in suggesting that a rise of interest (or of profits) at the expense of wages always increased the power of saving: they forgot that from the national point of view the investment of wealth in the child of the working man is as productive as its investment in horses or machinery.
§11. In his “Note on the Statistics of the Growth of Wealth,” Marshall compares the UK to the US and France. He explains that land, houses and livestock constitute wealth, and that the value of land depends on population density. Thus, France is “worth” double the UK or US, but the value of US land will skyrocket as its population increases. That seems to be true, with the exception of prices in pre-Brexit London ;).