Steven Yates, who has a Ph.D. in philosophy, is a writer and consultant living in Columbia, S.C. He is the author of Civil Wrongs: What Went Wrong With Affirmative Action (ICS Press, 1994) and numerous articles and reviews.
We begin with a short of parable.
There lives in a typical American suburb a fellow I will call Floyd. Floyd was born shortly before the Great Depression. His parents were unemployed for several of those years. Money was extremely tight. As a child, Floyd knew what hunger was. He worked at whatever he could do to help out the family, no matter what the new child labor laws said. He carefully saved every penny, and in so doing, he learned to be frugal. What you earn, you don’t spend frivolously. You save as much as you can.
As Floyd grew up, he developed a natural understanding of money and wealth. He never assumed the world owed him anything, because nothing in his personal experience suggested that. He’d seen his parents struggle and skimp and scrape, and he’d learned to do so himself.
As an adult in the 1950s, Floyd began to do very well for himself. He got married in his twenties. Though earning first four, then five, and eventually six figures a year, his habits of frugality stayed with him. He and his wife lived in a modest house, with modest furniture. The two of them began to build up a substantial savings account. Floyd made some cautious investments in the stock market, and watched the assets of what would be his legacy to his family steadily climb. Whatever his net worth, however, he kept a very close eye on where his money went and what it was doing. This was force of habit. It never occurred to him that anyone would do otherwise.
Now sometime during the early 1950s Floyd and his wife had a son, Eric. As a child, Eric had most everything he wanted. Floyd was determined that his son would not grow up hungry and struggling the way he had. So Eric lived in surroundings that were entirely different from those of his father at the same age. Instead of a tiny, cramped apartment in which half of the appliances didn’t work, Eric’s environment was a comfortable house in a middle-class subdivision. During his childhood and early teen years, money wasn’t a problem. He didn’t know where it came from but there always seemed to be plenty of it. Unlike his father, Eric came to take it for granted. He loved, for example, to spend the money his parents gave him on stereo equipment, records, a new bicycle, and so on.
When Eric turned 16 his father wanted him to get a job to begin paying some of his own expenses. Eric resented it but got the job. At work he chafed at the tasks demanded of him. He did not like following rules set by bosses who were strangers. He did not save the money he made but spent it on a girlfriend, taking her to a plush restaurant he liked. Finally he lost his job one day because of his poor attitude. He had trouble getting another one, simply because the economy had taken a downturn and jobs he was qualified for were scarce. Eric couldn’t understand any of these things. He thought he should be hired anyplace he wanted, simply because of who he was. He believed would-be employers should care about him personally, the way his parents did.
Owed a Living
In other words, though he wouldn’t have put it this way, Eric had come to believe the world owed him a living—or, at the very least, he ought to be able to obtain money without working for it. At least part of his experience seemed to confirm this. After all, money had always been plentiful, hadn’t it? Why should it be so difficult to obtain now? And why did everything he made at the few jobs he’d had seem to slip through his fingers like water?
As a young adult with a university degree, Eric silently resented his job; his resentment was silent because insubordination and sarcastic comments had already cost him a couple of potentially good jobs, and he had learned that silent resentment has more survival value than open resentment.
He was constantly frustrated, however. He looked forward to vacations on the beach with his friends. He and his latest girlfriend ate out a lot. His money still seemed to disappear. With little knowledge of how to manage his money, he couldn’t have told you how much he had in his checking account at any given time. He had no idea how to calculate his own tax returns. His credit card debt was threatening to spiral out of control. He hadn’t started any kind of a savings plan, as Floyd had done at the same age. Retirement seemed a long way off in the future. Eric was present-oriented, not future-oriented. But since he didn’t have a very good job—hadn’t wanted to go to the trouble of finding one—he still had to borrow money from his parents from time to time, usually around holidays or when his automobile insurance payments were due. Floyd did his son’s tax returns for him. Eric had to borrow still more money, after accidentally rear-ending another automobile, because he had no reserve cash on hand to deal with such an unanticipated jump in his insurance rates. Nor had he the money to pay the medical bills for the chronic headaches and backaches he had begun having.
Floyd couldn’t understand what Eric’s problem was. Never had. Eric was becoming a major unanticipated expense in his own right. This was the one thing in Floyd’s life he hadn’t counted on. Why couldn’t the kid assume some responsibility, as he had done when he was younger? Why did he resent working so much? Why did he have no savings account worth speaking of? Why did he spend all his money like there was no tomorrow? Why was he so utterly uninterested in money, except when he needed to borrow some from his parents? And what would he do when the well ran dry, as eventually it would at this rate?
An aging Floyd is baffled by Eric’s behavior, and sometimes lies awake at night wondering if he has done something wrong.
In this parable are some important lessons. Prior to the lessons, though, it is useful to rehearse some preliminaries. The free market has been the greatest engine of wealth creation and distribution the world has ever seen. Every scholar worthy of that name now realizes this. During the 1900s various kinds of socialism and welfare-statism were tried and failed. As brutal dictators held sway over stagnant economies, they brought only misery to their people. Only the capitalist West had broken out of the cycle of stagnation and grinding poverty by discovering the value of economic freedom, rooted in such ideas as the natural rights of persons to keep the fruits of their labors and trade voluntarily with others in value-for-value exchanges. Picture Floyd surviving by buying, say, candy or shirts with what little money he had and then reselling them for a profit. In a communist country, had he been caught doing this he would have been in serious trouble. In our capitalist one, he not only was not penalized for his industry and thrift, but was learning valuable lessons about how a free economy works.
The first lesson Floyd learned is that the world does not take care of the individual. In a free-market society, with some limitations, individuals are expected to take care of themselves. Those who rise to the occasion prosper. Those who do not rise to the occasion suffer the consequences of inaction. Rising to the occasion here means learning the first law of the marketplace: that one can only serve one’s own needs and interests and improve one’s own standard of living by helping others serve their interests—providing them with a good or a service they want and are able and willing to pay for.
A second lesson Floyd eventually learned is that divisions of labor make it far easier for a group of people working together to help others obtain what they want and are able and willing to pay for. Thus the formation of companies makes it easier to create larger amounts of wealth. Floyd learned these lessons in his childhood. They became instinctive, a part of him. He might not have been able to explain it. He had become a businessman, not an economist or a philosopher. He was a doer, not a talker.
Floyd’s third lesson was that wealth does not consist merely of the change he carries around in his pocket but includes stored-up assets. The latter do not fall from the sky, or appear as a result of some inexplicable, miraculous force. In a world that does not take care of the individual, wealth can only result from a careful plan of savings devised by each person. Even if one can keep the fruits of one’s labors, if they are immediately spent they won’t generate wealth. Wealth is created when one consistently saves or invests a percentage of the fruits of one’s labors over a number of years and allows it to grow.
However, there are a few things Floyd didn’t learn, and these are less obvious. They help explain how and why Eric went astray. They might explain why a percentage of the generation Eric grew up with has remained attracted to socialism despite its catastrophic results.
The lessons Floyd learned he learned through personal experience—what some call the “school of hard knocks.” These lessons of life are not easily communicated to one’s offspring. The difference is between merely talking about a sequence of events and actually living through them. Eric, it is clear, faced none of the struggles his father had faced. He never went hungry. As a child he’d never worked to survive—never even been required to do daily or weekly chores, like clean his own bathroom or bedroom. His parents did most everything for him except his schoolwork. While occasionally they told him he should do more things for himself, they never followed through on it, so as Eric got older he took his parents and their labors on his behalf for granted.
He never questioned where money came from, but assumed it would always be there. When he was told to go out and earn it, he rebelled—instinctively. He couldn’t understand the changes he was being compelled to adapt to: changes from a home life where he had been protected to a work life with no such protections. Eric was no economist or philosopher, either. He had no curiosity about where wealth came from. He just expected it would always be there—and that others would take care of him as his parents had.
Traps for the Unwary
These stereotypes of Floyd and Eric are just that: stereotypes. And to defenders of free markets, the above lessons are common knowledge. But there nevertheless are a few traps for the unwary, and it is important not to fall into them. The most important trap here is the belief that the comfort and safety of the prosperity generated by markets is necessarily good for those who grow up with it.
Human beings are not exclusively rational creatures. Many intellectuals who have produced rational defenses of free markets (for example, Ayn Rand) have always simply assumed that “perfectly rational man” is a uniquely human ideal. But as philosophers from David Hume down through economists such as F. A. Hayek never failed to point out, we are all far more creatures of habit than we think—especially if these habits have “worked.” Many of our most successful endeavors as a society revolve around traditions that developed spontaneously through the accumulation of the habits of a multitude of people. Some of these habits remain relatively fixed; others change in response to new conditions, new ideas, or new inventions that have proved their worth and become of value to the people. Invariably, this is the reason an economy cannot be effectively planned, or micromanaged. None of the specifics can be predicted in advance. (Who, for example, could have predicted the meteoric rise of the World Wide Web?) The problem is complexity—the working out of the results of a multitude of variables only a small fraction of which can be observed by any one person or any group of persons at a given time.
Where do habits come from, and what does it mean to say that they “work”? Habits are consistent patterns of action. They work if they solve the problems a person actually faces. They become almost automatic if they yield stability in a person’s life over a long period—perhaps over a lifetime. The habits one develops, and whether or not a given habit will work, depend quite a bit on one’s environment.
We have to be very careful when we talk about the relationship between a person and his environment. There probably is no such single relationship. It will vary from person to person. We are safe in saying that the environment is not everything. That is, it is not the complete determinant Marxists and other socialists would have us believe. But neither is it nothing. As an explanatory tool for why some young people continue to believe in socialism despite the avalanche of evidence against it, or merely why one person succeeds and another fails, knowledge about the way the person was raised could be very helpful.
One’s immediate or proximate environment creates the problem set a person encounters—perhaps in childhood. If a person encounters and solves problems directly connected to skills of earning a living and building up assets, then these translate into habits that ensure a prosperous life later (barring, of course, acts of God or arbitrary edicts imposed by a political system that change all the rules).
A person who encounters no significant problems of this sort may never see the need to develop these habits, which are habits of thought as well as of action. Then when his environment changes—as it will, when he leaves the “nest”—he will not have developed the survival skills he needs.
Too Much Nurturing?
It is both true, and necessary, that one’s family be nurturing in the sense of providing helpless infants and small children with the basic necessities of life. But a family environment can be too nurturing. It is too nurturing if it does not teach the maturing child anything about what wealth is and where it comes from—if it simply gives the child what he wants out of a well-intentioned but misguided need to protect. Parents who always “do things to help” the child can be too nurturing, and can even discourage the child from acting on his own. The environment will not create problems the child has to solve and can learn from. Thus the child does not learn that inaction has consequences.
So while Floyd applied a lot of important truths about money and wealth to his own life, he assumed that Eric would acquire these truths automatically, as if by osmosis (or perhaps learn them in school). As a result, how ever much his own personal lifestyle as a businessman rejected welfare-statism in principle, he unintentionally allowed his family to become a kind of welfare state in microcosm. Eric grew up too comfortable. His life illustrates the dangers of too much comfort too soon. These are the dangers of wealth and well-off circumstances, passed down instead of earned: the children can become the family equivalent of a country’s welfare recipients. When the time comes, they find it difficult to learn as young adults the lessons their parents learned in childhood. They may bitterly resent having to earn their own living. It is clear that resentment against the need to earn one’s own living lies behind a lot of modern socialist thinking. (This might explain why socialists have tended to concentrate in modern research universities. Kept safe by tenure in the surrogate parent of the modern research university, academe’s socialists exist, or subsist, in a proximate environment without any real economic threats or problems.)
What could Eric have done differently? He never faced the problems his father had. To be sure, when he realized he was having trouble keeping jobs when others didn’t, his reason should have told him something was wrong. But Floyd had effectively held him back by never having sent him a consistent message about the importance of work and of taking care of himself instead of relying on someone else. This message remained in place, as Floyd continued to bail him out of jams when he became an adult.
What could Floyd have done differently? Hindsight, of course, is always 20/20. But Floyd should have taught his son the value of dollars and cents in ways similar to the lessons he’d once learned. He should have put Eric on a strict allowance, for example, with amounts in direct proportion to his having done specific chores such as clean his bathroom or bedroom, or having worked in the kitchen. And then if Eric spent his allowance and found himself wanting something but having no money to pay for it, that was too bad. Floyd’s best course of action would have been to explain to Eric how his present lack illustrates the benefits of saving his allowance over spending it. Saving rather than spending requires two important skills of wealth-building: frugality and self- discipline. Self-discipline means learning to tell yourself No. Wanting something is not a reason for immediately going out and spending money to get it.
Floyd and his wife should not have allowed Eric to pick up the message that comfortable surroundings are automatic. If they had begun the lessons early enough, Eric would have learned to take for granted that he had to begin mastering his environment in stages—it is not the responsibility of others, including his parents. Another skill of wealth-building is being able to control the relevant aspects of your environment instead of being controlled by them or watching as they go to pieces. The only way to control your environment is to take necessary actions and then work at transforming them into habits. (The adult Eric’s bathroom, bedroom, and kitchen, one can be certain, are absolute messes!)
Floyd could have taught Eric that initiative leads to reward. Should Eric have gone beyond what was originally called for—for example, by doing yard work—then Floyd could have rewarded him with bonus pay. Action is always better than inaction. Develop a goal and a consistent strategy for reaching that goal; judge actions by whether or not they help achieve the goal. Such are the keys to successful living. Communicating these ideas to one’s young is likely best achieved by requiring them to live the ideas consistently, rather than simply giving them the fruits of one’s own labors. Some successful people have recognized this, establishing relatively small trusts for their children in their wills and arranging to give the rest to charitable causes when they pass away.
Producing Responsible Adults
There are, of course, schools of thought in academic child psychology that would find this line of reasoning reprehensible. The question to be posed for any such school is: does it lead the child to recognize that comfortable surroundings have to be maintained through conscious effort, or doesn’t it? Does it produce responsible adults with the savvy to earn their livings and continue the wealth-building traditions of their families? Or has it produced lifelong quasi-adolescents, spendthrifts with no self-discipline and negligible personal assets, drowning in debt because they cannot manage their habits.
We must realize that generations are different, because the environments they grow up in are different. It is not enough to produce intellectual defenses of the free market, as important as these are. It is necessary to communicate this knowledge through object lessons that build up habits. And it is necessary to start when the children are very young. The feed-them-if-they-cry schools of thought simply have to go, if we are to avoid producing more generations of youthful socialists who assume everything is going to be handed to them.
How to encourage this kind of education is, to my mind, an unsolved problem for freedom thinkers today—particularly given that we are talking about what the scientist/philosopher Michael Polanyi once called “tacit knowing.” This is knowing that comes through lived experience and the building up of habits, and that is therefore difficult to articulate as words and lectures: as Polanyi put it, “we know more than we can tell.”* The Floyd of our parable knew how to prosper but did not or could not communicate this to his son. It is likely that at least some of what went wrong in the 1960s has its explanation here, along with the fascination socialism continues to have for many otherwise well-educated children of the American middle class.
The laws of wealth creation that enable free markets to create prosperity are not learned automatically. They are not acquired through cultural or even familial osmosis. Nor can they really be taught in the abstract, except perhaps in rare circumstances to students actively seeking them out. They must be learned in the context of doing—as a way of living in the world, and from early childhood on. Those who learn to do, will prosper. Those who don’t, won’t.
* Michael Polanyi, The Tacit Dimension (New York: Doubleday-Anchor Books, 1967), p. 4.