Robinson Crusoe the Capitalist?
Posted by Orrin Woodward on April 14, 2014
Jesus Huerta de Soto
In Hernando de Soto’s fantastic book Money, Bank Credit, and Economic Cycles, he uses a simple example from Robinson Crusoe to explain how savings is essential for the free enterprise process. Understanding these concepts at the simplest levels helps one decipher the more complicated cases in today’s modern economies. I have spent the last year really studying the fractional reserve banking (FRB) methods and now realize the highly inflationary nature of this process.
Unfortunately, the modern State’s marriage to the banking system has only exacerbated the ill effects of FRB by juicing the whole process with fiat money created through the central banks. Thus, the money supply grows precipitously during the Boom process and banks enjoy massive profits until the borrowers (both business and consumers) realize their inability to repay the debts at the now inflated prices cause the the monetary expansion. Of course, this leads to the Bust when debt defaults rapidly reverse the FRB monetary expansion.
LIFE Leadership is just months away from releasing my new book And Justice for All that reveals the SDS and FLD and how they interact within society. Increasingly, entrepreneurs are failing because they can no longer make accurate predictions based upon current prices thanks to the Boom/Bust FRB cycles. With that said, however, I am not a doom and gloom person as I believe the truth sets you free. It’s time for We the People to learn, live, and apply truth in the areas of finances (both personally, professionally, and societally) and restore the American (along with every other societies) Dream for the next-generation.
Here is part I of a two part series.
Sincerely,
The sine qua non for producing capital goods is saving, or the relinquishment or postponement of immediate consumption. Indeed in an action process the actor will only be able to reach successive and increasingly time-consuming intermediate stages if he has first sacrificed the chance to undertake actions which would produce a more immediate result. In other words, he must give up the achievement of immediate ends which would satisfy current human needs (consumption).
To illustrate this important concept, we will use the example given by Böhm-Bawerk to explain the process of saving and investment in capital goods carried out by an individual actor in an isolated situation, such as Robinson Crusoe on his island. Let us suppose that Robinson Crusoe has just arrived on his island and spends his time picking berries by hand, his only means of subsistence. Each day he devotes all of his efforts to gathering berries, and he picks enough to survive and can even eat a few extra daily.
After several weeks on this diet, Robinson Crusoe makes the entrepreneurial discovery that with a wooden stick several meters long, he could reach higher and further, strike the bushes with force and gather the necessary berries much quicker. The only problem is that he estimates it could take him five whole days to find a suitable tree from which to take the stick and then to prepare it by pulling off its branches, leaves, and imperfections. During this time he will be compelled to interrupt his berry picking. If he wants to produce the stick, he will have to reduce his consumption of berries for a time and store the remainder in a basket until he has enough to survive for five days, the predicted duration of the production process of the wooden stick.
After planning his action, Robinson Crusoe decides to undertake it, and therefore he must first save a portion of the berries he picks by hand each day, reducing his consumption by that amount. This clearly means he must make an inevitable sacrifice, which he nevertheless deems well worth his effort in relation to the goal he longs to achieve. So he decides to reduce his consumption (in other words, to save) for several weeks while storing his leftover berries in a basket until he has accumulated an amount he believes will be sufficient to sustain him while he produces the stick. This example shows that each process of investment in capital goods requires prior saving; that is, a decrease in consumption, which must fall below its potential level.
Once Robinson Crusoe has saved enough berries, he spends five days searching for a branch from which to make his wooden stick, separating it from the tree and perfecting it. What does he eat during the five days it takes him to prepare the stick, a production process which forces him to interrupt his daily harvest of berries? He simply consumes the berries he accumulated in the basket over the preceding several-week period during which he saved the necessary portion from his handpicked berries and experienced some hunger. In this way, if Robinson Crusoe’s calculations were correct, at the end of five days he will have the stick (a capital good), which represents an intermediate stage removed in time (by five days of saving) from the immediate processes of the berry production (by hand) which up to that point had occupied him.
With the finished stick Robinson Crusoe can reach places inaccessible to him by hand and strike the bushes with force, multiplying his production of berries by ten. As a result, from that point on his stick enables him to gather in one-tenth of a day the berries he needs to survive, and he can spend the rest of his time resting or pursuing subsequent goals that are much more important to him (like building a hut or hunting animals to vary his diet and make clothes).
22 Responses to “Robinson Crusoe the Capitalist?”
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Rory Sayers said
I love this subject as it pertains to so many elements of our lives. One issue is delayed gratification and how the central banking system discourages it for both politicians and individuals.
Looking forward to the release of the book and the conversations it will generate.
Let us all learn, live and share the Truth.
Rory
Rick Satterstrom said
Sounds simple when explained that way, looking forward to part 2 Orrin. My only trouble with this post was that I had to look up sine qua non, now I learned even more! Keep up the great work.
Randy Robson said
What a great, simple example to explain what most people make complicated!
Nick & Amanda Quinn said
We can’t wait for your new book, Orrin! The Freedom “F” is one of my favorite and one of the most important because if we are not free, who cares how much money we make. The Robinson Crusoe example is brilliant! Congress and the President would probably be confused by Robinson’s choice to sacrifice and make a tough decision for a long term gain. They might have recommended that he just borrow berries from the cave of a nearby bear and then spend the rest of his remaining days knocking enough berries out of the bushes for himself to eat and to pay the interest on his “berry loan” from the bear. Which turns out to be a great deal…for the bear.
Orrin Woodward said
Nick and Amanda, Exactly! Its interesting on how the Free Market system is based upon Long Term Vision, Delayed Gratification (like Rory mentioned), and the Power of Compounding. Unfortunately, the State treats us like children to be nannied by their fiat money and massive debts. Instead of caring for society, they are destroying it while also destroying the champion inside of everyone who falls for the idolatry of the State instead of worshiping God. 🙂 Ok, I’ll step down from my soapbox now. 🙂
Rory Sayers said
Right on Orrin! I had my soapbox out earlier but decided to put it away and delete the bulk of what I wrote.(lol)
The core issue is the spiritual and moral bankruptcy of the population.
Orrin Woodward said
Rory, Bingo! 🙂
george guzzardo said
Orrin, Thanks for taking the time to study and report this information about the manipulators of our society. We are being armed with knowledge and can learn to protect ourselves. Also, with the LIFE Leadership materials and Compensated Communities we can help our people. God Bless, George
Johnathan Yoder said
Excellent Post Orrin! I have a brother in Afghanistan who is just starting to realize the state of our economics. I am very excited to get him your new book when it comes out.
Richard Kroll Jr. said
Orrin.. thank you for the easy to understand application to help better understand the need for savings (delayed gratification) in order to produce capital goods! Extra bonus was using Robinson Crusoe as the example- always loved that story!!
Can’t wait for the release of “And Justice for All”!!!
Heidi said
Hi Orrin, I was just reading The Gilded Age by Twain and Warner to my kids and no wonder I never read this in public school growing up! Twain and Warner are totally making fun of corruption in government spending of our tax dollars and that was only 100 years after the formation of our country. I can only imagine what Twain would write now.
Thanks for ALL you do.
Elizabeth Sieracki said
Thank you Orrin! Once again you have simplified a concept to help me understand.
A child has changed my perspective on so many things including the freedom F. I have a renewed desire to learn more In the line of Freedom, because I know I’ll be teaching her soon enough.
Orrin Woodward said
Elizabeth, it is amazing to me how much my thinking changed once Laurie and I started our family. All of a sudden it hit me that my duties must come before my liberties. Keep learning and leading! thanks, Orrin
Tim Marks said
Orrin
Great example of what we all should do in our personal and civilian activities. Really wish our Government read your blog 🙂
Tim
Michael Hartmann said
It seems the ultimate challenge adults have to learning and leveraging the power of delayed gratification (saving) is actually battling the years and years of programming ingrained during their lifetime spent in front of their TV’s. Your simple example took me 5 minutes to read and contemplate to understand while the average credit card commercial lasts less than 30 seconds (but may be repeated dozens of times during a single broadcasted sporting event). Repetitio mater studiorum est – If there was only a way to get this positive messaging delivered to the American population on a consistent, on-going basis we might be able to slow down and ultimately turn the corrosive tide of decay that’s become such a “normal” part of our modern society.
Orrin Woodward said
Well said Mike!
Steve Meixner said
Months away !!! Darn, I’m really looking forward to this book Orrin!! Guess I’ll have to practice that “Delayed Gratification” 🙂
Steve
Orrin Woodward said
It will be released at the LIFE Leadership major in book form and a 4 CD pack that has Chris Brady interviewing me through the concepts. I think they turned out really good and they expand on all the concepts further. thanks, Orrin
SJ Barakony said
*** applause! ***
Another Major, another world class book release for & from the best community, compensated & gold medal winning in all ways, on planet Earth 😀
This is terrific news to look forward to!
( makes me wonder if Dan’s book will be released at the last major of the year, or will George be writing one? 😉 )
God Bless always! To Him be the glory forever & ever.
-Kaizen, always.
Anthony Baeza said
Orrin,
First, I appreciate the depth and clarity in which this information is provided in palatable chunks that can be shared to awake and unite concerned citizens and perhaps “sleeping citizens,” alike. It helps to make visible the clear distinction between the much more worthwhile “road not taken” and the too easy “dis-information super highway.” When folks are able to see truth clearly for what it is, they can arm themselves to make sigmicanf changes in their lives, communities, nation and world. One person at a time!
Charge!
Anthony
KellyJack Nelson said
One thing nice for Mr. Crusoe is that he was on an island that didn’t have any regulations on the amount of berry picking allowed. Or anyone that required a portion of his berries. So, I like the island idea. I can feel the sun on my face and the warm sand on my feet. I can smell hints of the berries in the breeze. We need an island! Now only weeks until the book that is one of the stepping stones to those islands. Thanks Orrin
Chris Olson said
wow