A Search for Wisdom
Occasional Paper #6
MAY 1990PERSONAL ECONOMICS
There are many theories of economics. The names of some theories are self descriptive: macro-economics, micro-economics. Others have well known names: Keynesian economics, Austrian economics. Each of these theories develops the plan of a whole economic system.
But each of us lives in a micro sphere of his economic needs within whatever economic system his current society is operating. As an analogy, each person is playing a poker game with the rest of society. The game is chosen for him by the current state of his society. Current politics determines his current game: capitalism, communism, socialism, laissez-faire market or whatever. It really makes little difference what theory a person may believe. He must play within the rules of the economic system in which he lives. Through the political system, the individual may work for change. But rarely will that change be completely to his liking.
Human Action, Ludwig von Mises' classic for the Austrian school of economics, comes close to setting a context with the name of his book. But he moves on to discuss a theory of the way the economics of a society will behave. There is little guidance for the individual in playing the economic poker game he has been dealt.
The individual must play the hand he has. Unfortunately, the rules of his game are ever changing so that it is difficult for him to plan. The individual is dealt his hand through heredity, and his chips he receives from his environment. Human actions are personal, not those of the state. The way a person plays his cards and places his chips are personal matters within his society.
I find little in the various theories of economics to guide me in the actual game I have to play. Fortunately, most of the theories of economics have been tried in history. Their lessons are there for anyone to examine. The biggest problem in the study of history is to find the lessons that fit the current situation. The vehicles used to express the lessons have a way of obscuring them. I don't know if I can successfully tie my specific ideas to the lessons of history. I may fall short because of my lack of learning. However, I believe that should I make the effort, I could factor any current economic problem into elements that have been already tried.
From the analogy with a poker game, one can see how personal economics can be developed from the cards he was dealt by heredity and the chips provided by the environment in which he lives. By using his heredity effectively the individual can modify his environment. He may improve his environment if he has some luck in playing his cards. Also the individual may develop some skill in playing his cards to his best advantage. The problems of personal economics involve the individual's success in the game of life he has been dealt within his society.
Presuming that the individual desires to maintain or improve his environment there are several things he can do. He can learn to understand and appreciate the cards heredity has dealt him. If he is tone deaf and color blind, he should recognize that there are some areas of activity in which he could never hold a winning hand. He would be best counseled not to venture too many chips in these areas.
Utilization of the early social economic environment the individual may find, is probably best used to explore his hereditary abilities and to learn to exploit them to their fullest. Fortunately, everyone has many individual abilities that he can learn to use. As an ongoing pattern of life, the individual might continue to explore new abilities. Somehow, an ultimate drive and personal satisfaction can be derived from finding and exploiting specific abilities.
To the extent that an individual can exploit his abilities, he will be successful in his poker game and will increase the number of chips he has. This amounts to increasing the scope of his environment in which he can further expand his abilities.
He will soon discover a problem in the rules of the game. Others become covetous of the chips he may accumulate. Other players will try to win the same chips. When necessary, others will try to change the rules. Recognizing and adapting to the current rules is an ever continuing activity. A first principle of poker is to not show others your hand and to be prudent in the use of your chips.
History proves what Goethe said: something to the effect that debt is a tool of the devil. There are many examples in history, some even very recent, where the individual in debt becomes beholden to his creditor. He can no longer play his cards according to his inclinations, but becomes a slave of his creditors. The mass media of marketing advocates the idea of buying now and paying later. When an individual does this, he is taking a chance that he will no longer be able to play his cards.
The first rule of personal economics is to avoid debt. Do not succumb to the marketing media. Do not succumb to the business idea that you must borrow to get started. True you may not have as many chips to begin with, but you will not become a slave to others. Your progress may be slower than others, but much safer. There are many cases in history where debt has led to major successes, but there are even more cases in history where debt has led to personal misery. So avoid debt!
Early in life, use the chips you have to exploit your abilities. Find what you can do well and play those cards. As you preserve and expand your supply of chips, explore more of your abilities. The basic tools in society involve communication. Even if you have limited abilities in English and Math, it is worth investing sufficient chips to communicate. These are the tools of the game. They are the tools of communicating in society. So schooling should include the basic skills. Take advantage of the schooling that is imposed upon you. Pay particular attention to the basic skills of reading, writing and arithmetic.
What is the relevance of the other courses you may choose to take? Ten years ago personal computers as they are known today, were never dreamed of. Yet today some aspect of personal computers is a major part of many vocational possibilities. There is no way of knowing what the future has to offer as vocational possibilities, but history shows that those who have mastered the basic skills are better able to cope successfully with new possibilities. Do not be directed to vocational courses at the expense of the basic tools.
Most people must sometime begin playing their game of poker on their own. True, parents usually try to give their children as much education as possible. With such gifts, the individual can delay the time before he must provide his own chips. Treasure those gifts, scholarships, and so on, which may come your way, and take advantage of them. They will allow you to better understand and exploit the hand of cards your heredity may have granted you. Use those gifts as your chips and work with them. Do not just throw them away.
If your environment does not provide you those gifts, the same goals apply, but you must develop your own source of chips. Very early you will learn that there will be rewards for some things you do. This is learning to use the cards you have to gain the chips with which to play the game. Use those chips to understand and exploit your heredity.
History shows that successful people from all environments exploit their abilities. Some have had many social economic gifts with which to start while others have nothing. There are success stories from all environments. Do not despair should you start with fewer chips.
The accumulation of chips with which to conduct your personal economics may be coveted by others. Despite the type of economics a political system may adopt, that system will attempt to take as many chips from you as possible. The limit is when the individual will revolt. When enough people revolt, the political system will change. Throughout history political systems have changed. The goal of personal economics is to harmonize with the changing political systems.
In the United States we talk of a free market economy, a capitalistic society. It is interesting to look back at the Socialist platform in the late 1920's. Our capitalistic society has adopted every one of the planks in the Socialist platform. Yet we still talk about our capitalistic society. We still give lip service to the idea of a free market.
Examine the regulatory agencies that control so much of our life today. And look at the rapidly expanding tax rates. When the income tax was introduced in 1913 the rate was 6% of earnings over $500,000.00 at the time. What has inflation done to $500,000.00? And what are the tax rates now? Add to the income tax rates, the Social Security tax and quickly one can see that the basic federal taxes are a substantial part of the chips the average person accumulates. Add to that the state income taxes and sales taxes as well as the local property taxes, and personal economics shows that the game is stacked against him.
The US IRS is a federal power unto itself. It assumes you are guilty until proven innocent. It may take money from your bank, sell your car and house, and confiscate other property without due process of common law. What is one to do with his personal economics? As in any poker game, or any game for that matter, you do not show your hand. This is the fundamental reason for personal privacy. No one can take what they don't know you have.
The chips may not all be in real property or personal property. Knowledge of how to exploit the cards dealt by your heredity are much more difficult to confiscate.
A major investment of your environmental chips, should be in the skills to exploit your abilities. No one can say what skills others should develop. No two people are the same. This is an individual matter and no one can better decide than the individual. Associated with the skills, one can invest in the tools with which to perform the skills. The tools are usually difficult for the IRS to confiscate. They do not require reporting as income from principal. The tools are a capital investment necessary to exploit almost all abilities. As our society is moving more toward a service society the individual's tools are a more important part of personal economics.
As life progresses and society changes, developing an ability to adapt by exploring and exploiting new skills will provide the best plan of personal economics. A life of learning, exploring and exploiting ever new abilities besides providing a sound basis for personal economics can be a personally satisfying and rewarding life<197>a much more satisfying one than forever being a slave to a creditor. It is more satisfying than relying on some retirement plan or the Social Security benefits over which you have little control.
The marketing media would have you believe that there are many things you should do to establish and expand your credit rating. This supports a market built on credit. Buy now and pay later! Many discussions of what to do for personal privacy revolve around your potential as a consumer. If you can control your life to avoid debt, many of these suggestions become unnecessary. You simply have no need for credit.
Marketing agents would like to know as much about you as possible. They want you to fill out long forms in their applications for credit. They want to know how many chips you have that they might be able to get. From the history of you bank account, your charge cards, and other regular patterns of spending they can discover even without your knowledge, how many chips you have for them to take. Avoid credit and you avoid the charge card history of your activity. Use your bank only to establish expenses for tax deductions and for convenience of everyday life. You do not need to lay out a complete record of the cards or chips you have.
Do not fall for the line of keeping up with the Jones's. Nice things are nice. But once you have nice things, you do not necessarily have to change them because your neighbor has something different. Now the marketing types would have you believe you should. Ask yourself if it really makes you happier. Ask yourself how it fits in with your personal economics. Are you going to be like sheep or are you going to be an individual? That is your choice.
Supply and demand may govern much of economics in any theory. But reduce that to personal economics. An ultimate goal is to be happy with your life. Examine your requirements according to the hereditary hand of cards you were dealt, and the chips your environment provides. It is your life.
Within a changing political society, you must learn to adapt. The more options you have, the better you can adapt. Avoid debt, and don't put all your eggs in one basket. These are simple guidelines for your personal economics within any society despite the changing economic theories it may try to follow.
Glen B. Haydon, M.D.
HINDSIGHT is decicated to examining the past in a search for wisdom coping present. After all, hindsight is always 20/20. Extrapolations into the future are left to the reader.