This is part 2 of Hernando de Soto’s enlightening example of the savings process role in a non-State-interventionist’s free market economy. LIFE Leadership has taught, since its inception, the three keys to wealth (1. Long term Vision; 2. Delayed Gratification; 3. Utilize the Power of Compounding). Unfortunately, the State does not follow these concepts and, since 1913, it has rarely attempted to apply these principles. Instead, it chooses inflation, taxation, and debt accumulation, seeking short-term bandaid fixes while the underlying issues become a greater risk to society’s future.
Needless to say, the current lack of long term vision, delayed gratification, and positive power of compounding must be changed. I believe the only way to change the political process is to change the thinking of the populace. Instead of demanding the State take care of everything, what if we put the State on a fixed budget and demanded they balance it? Imagine someone in Washington having to balance the budget like practically every household in the world must.
The State must end the temporary stopgaps (printing money and debt growth) which only mortgage our children’s financial futures to satisfy the State’s financial lunacy.
What can we do? We can start by displaying financial literacy in our own home by applying the principles from the LIFE Leadership Financial Fitness Pack. On a weekly basis, I am receiving letters, emails, and LIFE Lines describing how the Financial Fitness Pack has changed their financial future. Indeed, how can we criticize the financial mess in Washington until we model the proper behavior personally?
Let’s lead our homes first and then find leaders who will do the same in every branch of government.
If you have applied the principles from the Financial Fitness Pack and have achieved progress in your personal financial situation then please share a comment below.
Robinson Crusoe’s production process, like any other, clearly arises from an act of entrepreneurial creativity, the actor’s realization that he stands to benefit, i.e., he can accomplish ends more valuable to him, by employing action processes which require a longer period of time (because they include more stages). Thus action or production processes yield capital goods, which are simply intermediate economic goods in an action process whose aim has not yet been reached. The actor is only willing to sacrifice his immediate consumption (i.e., to save) if he thinks that by doing so he will achieve goals he values more (in this case, the production of ten times more berries than he could gather by hand).
Furthermore Robinson Crusoe must attempt to coordinate as well as possible his present behavior with his foreseeable future behavior. More specifically, he must avoid initiating action processes that are excessively long in relation to his savings: it would be tragic for him to run out of berries (that is, to consume all he has saved) halfway through the process of producing a capital good and without reaching his goal. He must also refrain from saving too much with respect to his future investment needs, since by doing so he would only unnecessarily sacrifice his immediate consumption. Robinson Crusoe’s subjective assessment of his time preference is precisely what enables him to adequately coordinate or adjust his present behavior in relation to his future needs and behavior.
On the one hand, the fact that his time preference is not absolute makes it possible for him to forfeit some of his present consumption over a period of several weeks with the hope of thus being able to produce the stick. On the other hand, the fact that he does have a time preference explains why he only devotes his efforts to creating a capital good he can produce in a limited period of time and which requires sacrificing and saving for a limited number of days.
If Robinson Crusoe had no time preference, nothing would stop him from dedicating all of his efforts to building a hut right away (which, for example, might take him a month minimum), a plan he would not be able to carry out without first having saved a large quantity of berries. Therefore he would either starve to death or the project, out of all proportion to his potential saving, would soon be interrupted and abandoned. At any rate, it is important to understand that the real saved resources (the berries in the basket) are precisely the ones which enable Robinson Crusoe to survive during the time period he spends producing the capital good and during which he ceases to gather berries directly.