capitalism

How the Pilgrims Did Personal Finance

Tim Lemke — Fri, 04 Nov 2016 09:00:09 +0000

It's the time of year when we celebrate the Pilgrims crossing over to the New World and settling the land we now call America. The stories of the Pilgrims' courage in traveling on the Mayflower and surviving those early years are legendary. But they did not survive and eventually thrive without some financial savvy.

Are there money lessons to be learned from the Pilgrims, even though they had little money to begin with? Yes. Here's a look at what we know about the Pilgrims and their financial habits.

1. They Were Deeply in Debt for Many Years

The Pilgrims' journey to the New World was financed by people who might have sympathized with their desire for religious freedom, but these businessmen believed the colony would actually generate a big financial return. In reality, the Pilgrims asked their investors repeatedly for more money just to survive. An initial debt of as little as 1,200 British pounds grew to as much as 7,000 pounds, and the Pilgrims weren't out of debt for almost 30 years, according to the Pilgrim Hall Museum. That would be hundreds of thousands of pounds today.

2. They Had Little Currency, So They Used Beads

When the Pilgrims arrived in Massachusetts, they didn't have much in the way of real money — and it's not like they had any ATMs to go to. So, they instead relied on something called wampum, or strings of beads made of shells. According to The Mayflower and the Pilgrims New World, wampum was a remarkable innovative currency, with purple beads worth twice as much as white beads, and rules governing the quality, shape, and size. It quickly became the defacto currency for trading with the Native Americans.

3. They Were Thrifty

No question, the Pilgrims were forced to make do with the bare necessities. They grew and hunted their own food. They made wood slab homes from wood they chopped themselves. In fact, they were probably even more thrifty than popular images suggest. Those buckles you often see depicted on Pilgrims' shoes and hats? Those were unlikely to have been there, as Pilgrims more likely used simple leather and laces. The myth of the buckles arose from artists during the Victorian era.

4. They Were Communists — Then They Were Capitalists

When the Pilgrims first arrived, they experimented with something called "Common Course," in which all of the settlers owned property together. But it didn't last: "Because they could not reap the fruits of their labors, no one had any incentive to work, and the system failed — confusion, thievery and famine ensued."

By 1623, the Pilgrims divided the land equally, and an early form of capitalism began.

Conservative organizations and politicians have hailed the Pilgrims as an example of America rejecting communism for capitalism, even back then. Things are probably a little more complicated than that, but there's ample evidence that the colony began to thrive over time when each settler had land of his or her own.

5. They "Pivoted"

These days, you often hear about young startup companies shifting their focus or even their entire business concept due to market conditions. This is called a "pivot." And the Pilgrims were pretty good at pivoting. Early on, they tried to make money off the fur trade. But by 1650, the beavers they relied on became scarce, and they faced competition that made it hard to expand their operation. So, they switched to fish and lumber, and those became main revenue sources.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

A Society of Fear

Philip Brewer — Wed, 28 Oct 2009 13:00:02 +0000

There are people out there whose livelihoods depend on the fact that most people go every day to some job or another. Business owners, investors, retired folks — capitalists in general — pay their expenses with profits that would be threatened if there weren't plenty of workers trading their life for a paycheck.

I don't mean to speak ill of capitalists — I'm one of them (in my own "eking out a meager existence" way). But as a group, they have a vested interest in most people choosing to get up and go to work every day. And, as a group, they're terrified that most people wouldn't do that unless they had to.

I think that's why society has been organized to make the wage slave/debt slave trap the default path for almost everyone.

It's a gentle trap: borrow a bit to go to college, a bit more to buy a car, a bit more to buy a house... You earn plenty of money and enjoy a comfortable life — and all you lose is your freedom to do anything else besides get up everyday and go to work.

When I wrote about it before, a lot of commenters chimed in to defend the wage slave/debt slave trap — on the grounds that it motivates people to "work;" that it teaches them how to "manage money;" that it keeps them "honest."

And I find that fascinating. Because, see, I can understand business owners feeling that way — their profits would drop if people managed to escape their debt traps, gaining options besides showing up at their job day after day. I can also understand managers feeling that way — their bonuses would be a lot smaller (and their jobs a lot harder) if their employees were in a position to choose the work that was the most fun or interesting or useful or important. I can understand the government feeling this way — income taxes could drop a lot if debt-free citizens could choose to earn less.

But I'm mystified by ordinary people feeling this way. It's bad enough that people put themselves into the position of having to go to work every day — and worse, having to go with whatever job pays the most because it's the only way to get all the bills paid — rather than being able to choose work because it's interesting or because it helps people. But that's only the beginning of the madness. Everyone in the debt slave/wage slave trap has to worry that any little mistake could cost them all their worldly goods and their entire future.

In a world where these sorts of debts are normal, an ordinary person with ordinary expenses has to be afraid all the time. An unexpected expense can put the whole household at risk — it means more debt, probably at a higher rate. Any little glitch in earnings can be ruinous — it means missed payments, late fees and penalty rates of interest.

Imagine if things were different — if most people had a comfortable emergency fund and little or no debt. A lost job would mean belt tightening, but not foreclosure. A sudden spike in fuel costs would mean turning down the thermostat and wearing a sweater, but not pawning the wedding rings for enough gas to get to work one more week. It would mean not living in fear.

As I said, there are a lot of people who think their livelihood depends on that fear. Those whose profits are higher and jobs are easier when there are plenty of frightened workers have a vested interest in things as they are. But I think we'd be better off if people were less afraid.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What's Your Financial Philosophy? What It Means To Live Below Your Means

Silicon Valley Blogger — Wed, 04 Feb 2009 22:38:34 +0000

We all want to try to live below our means, but we all approach this goal from various directions. There are pretty much just three basic ways to do it: cut costs, increase your income or do a bit of both.

There are some terms that are bandied around that describe these strategies:

You can either be a frugalist -- someone who is generally thrifty and who strives to keep costs low. Your goal is to keep a lid on spending and to keep a careful watch on outgo.

Or you can be a capitalist -- someone who focuses on income generation and making money. You work on ways to raise your earnings and emphasize the income portion of your balance sheet.

Most people I know are a little of both, although I believe that people are predisposed towards a particular philosophy when it comes to trying to save money. There's a term coined to describe someone who takes the hybrid approach: it's called being a frugal capitalist. I'd certainly describe myself this way, although I admit that I do gravitate towards spending more of my waking moments pondering over wealth building strategies rather than deliberating what it is I can do to shrink my budget.

As we discuss these financial orientations, I thought to share with you some additional truisms that I've personally found interesting.

Do You Live Below Your Means or Earn More Than You Spend?

When you live below your means, I've taken it to mean as "spending less than you earn". This implies that you're trying to cap your spending and assuming a ceiling on your earnings. This perspective begins with establishing how much we earn then working to make our spending fit those parameters.

To spend less than we earn, we concentrate on strategies that help us to stop overspending, to get rid of debt and to curb our shopping habits. We fuss over our budget, wrestle with personal budget software and become adept bargain hunters. We basically spend our time working around our money limitations.

I actually prefer to think about saving money a little differently. If you think about it, spending less than you earn actually has a flip-side: "earn more than you spend". I like the phrasing here a lot more, since it places emphasis on "earnings", and removes any insinuation of financial limits. At the same time, some people may feel that such a statement may also have an underlying consumerist bent, with the idea of "earning more" having the connotation of profligacy. To some, it may suggest that having higher income could also imply higher spending.

I don't think of it this way -- I've decided to subscribe to the "earn more" philosophy because I find it generally more inspiring. When you think of your professional and financial future, wouldn't you prefer to imagine that "sky's the limit"?

What's Your Financial Philosophy?

We only have so much time to spend in the day thinking about how to take care of our finances. I've found that with that time, I've always preferred to focus on those ideas that give me the inside scoop on how to become a millionaire, how to build wealth, increase income, and invest to grow my net worth -- all topics that mainly fall in the realm of the capitalist. Others may feel more comfortable and more empowered by walking the path of a pure frugalist.

Either way, I think that to some extent, this is just mincing words. What's important is that we do what we're most comfortable doing when it comes to our money. When we enjoy how we handle our finances, it increases our chances of achieving our goals and reaching financial success and independence one day.

This article is from Silicon Valley Blogger of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Book review: Supercapitalism

Philip Brewer — Thu, 07 Feb 2008 15:17:44 +0000

Supercapitalism: The Transformation of Business, Democracy, and Everyday Life by Robert B. Reich.

For most of the 20th century, capitalism and democracy seemed to go hand-in-hand. After all, every democratic country was largely capitalist and nearly every capitalist country was, at least to some extent, democratic. What we've seen since the 1970s, though, has been a huge upswing in capitalism, while democracy has weakened. Robert Reich's book is about how this happened and what we might do about it.

The upswing in capitalism

As early as 1984, Alvin Tofler (in The Third Wave) was talking about the technological shifts that were making short-run and custom manufacturing competitive with mass production. Those changes, together with improvements in transportation, began to make it possible for small firms to compete effectively with large firms in many areas.

Before that, economies of scale meant that there could only be a handful of firms in most markets. Although those firms would compete, the competition was circumscribed by the fact that neither consumers nor investors had many choices. This situation also strengthened the hand of organized labor--a large company taking full advantage of its economies of scale was both highly profitable and highly vulnerable to a strike. It was cheaper to share those profits with labor than to have them vanish as a result of a work stoppage.

Beginning in the 1970s, though, new production technologies began to allow smaller firms to offer niche products that were better (for their niche) than anything the big companies could mass produce. New transportation technologies began to allow companies to source their supply chains anywhere in the world--including in countries where wages were low and environmental protection didn't add to costs.

Not only did more choices let consumers get closer to exactly what they wanted, it also let them choose the cheapest alternative. Over time, that produced relentless pressure on all companies to lower their costs.

At the same time, changes in capital markets gave investors more choices, making it easier for them to move their money to the most profitable investments. That produced relentless pressure on all companies to raise their profitability.

Reich uses the term "supercapitalism" to refer to this situation, where the ordinary choices of ordinary consumers and investors are aggregated in a way that simply forces businesses to choose minimizing costs and maximizing profits over all other objectives. It is pointless to suggest that a corporation would make any other choice. Even if an executive was inclined to do so, the corporation's profits would suffer, the stock price would suffer, and the executive would be quickly replaced.

Supercapitalism has had two positive effects:

Consumers have vastly more choices than they had before.
Goods are much cheaper than they were before.

These things are great. And, just as it is pointless to suggest that corporations do anything other than minimizing costs and maximizing profits, it is largely pointless to suggest that consumers do anything other than buy the products that best suit their needs at the lowest possible price. Some consumers (especially affluent consumers) do--they buy local, they buy organic, they buy fair-trade, they buy green--but in the aggregate, consumers buy what they want at the lowest possible price.

This is where Reich's book really starts to get good. Up to here, he hasn't really covered much that hasn't already been covered by Tofler or by William Greider in One World Ready or Not: The Manic Logic of Global Capitalism. Now, though, he shows how this situation is driving changes in standards of living.

Results of supercapitalism

Other people have observed that incomes for the poor and middle-class have stagnated, while incomes for the wealthy have risen sharply. Reich points out that this is entirely to be expected. With shareholders demanding maximum profits, corporations don't have any choice but to give it to them. A lot of those shareholders are ordinary people, who hold significant amounts of stock in their 401(k)s and elsewhere. But although there are many people getting a share of these maximized profits, most of the dollars are going to the already wealthy--because they have so much more of the shares than anyone else.

Also to be expected is the very high pay for CEOs. Not just anybody can do the job of minimizing costs and maximizing profits. The people who can do it well make so much more profit for the corporation, that they more than cover the incremental cost of hiring a first-rate CEO.

Many people are entirely happy with this situation. Corporations are supposed to maximize profits, and the CEOs who guide them earn their high salaries and huge bonuses (or, at least, many of them do).

Most people, though, Reich says, are of two minds about supercapitalism. Most people think that at least some more of the revenue that flows through corporations ought to end up flowing to the workers in the form of health insurance, higher wages, a pension, and so on. Most people think that working conditions should be safe, products should be safe, and that environmental destruction should be avoided.

So, if most people are of two minds, why are we in the situation we're in? Because markets powerfully aggregate the desires of consumers for low prices and the desires of shareholders for high profits. However, says Reich, "The institutions that used to aggregate citizen values have declined."

The point Reich wants to make most strongly is that there is no hope to make change through exhorting corporations or corporate leaders to behave differently--the corporations are functioning as they are supposed to, and any corporate leader who tried to do differently would quickly be out of a job. Because of this, all manner of "guidelines" for good corporate citizenship and "voluntary programs" that corporations undertake for publicity are pointless--worse than pointless, because they distract from the real issues.

Reich spends a good section of the book detailing some efforts supposedly intended to try to shame corporations into better behavior, such as making corporate officers testify before congress on why their corporation did something bad. His point is to demonstrate that such things are always a distraction from actually fixing the problem--which would be to pass legislation requiring the desired behavior. One example is the massive oil leak in Alaska caused by undetected corrosion in a BP feeder pipe. BP executives were grilled about why they hadn't done the same sort of inspection and maintenance that was done every two weeks on the Trans-Alaska Pipeline that the feeder pipe fed into. Nobody mentioned, however, that the inspections of the Trans-Alsak Pipeline were required by law and the inspections of the feeder pipe were not.

If there is no hope to get corporations to behave better (except through legislation), Reich also feels that there is little hope that consumers or investors could be convinced to behave differently.

I know that many Wise Bread readers would put the onus on the consumer. If consumers don't want third-world sweatshops, they shouldn't buy products produced in them. If they don't want dangerous toys or dangerous food-like edible products, they shouldn't buy them. If they want employees to be well-treated, they should buy from companies that treat their employees well.

The problem is, the market doesn't work this way. You can go to the store and see which bag of dog food is cheapest. You can't see which one is contaminated with melamine. You can tell which tennis shoe fits best by trying it on, but there's no way to know if it was manufactured by slave labor. (There are people who try to find out and publish the information, but their efforts are thwarted, standards are unclear, opinions differ, and in any case, the information is rarely to hand at the moment when the consumer knows whether the shoe fits.) When all companies are arguing how much greener they've become by using renewable energy, the stock price stands uncontested as the market's estimate of future profitability.

So, this is Reich's point: markets can be expected to produce vast arrays of products at attractive prices and with a good return to shareholders--and that's all they can be expected to produce. If we want something other than that--if we want fairness, health, safety, a clean environment, and so on, then the place to turn is not the market; it is to government.

Solutions

Reich has some suggestions. He has a few suggestions for modestly easing the pressures of the market, none of which are new ideas. He has more interesting suggestions for changing the balance between corporations, individuals, and the government.

The most important is to get rid of the idea that corporations have rights. "Corporations should have no more legal rights to free speech, due process, or political representation in a democracy than do any other pieces of paper on which contracts are written. . . . Only people should possess such rights."

Issues

As you can imagine, I've left a lot unsaid here. There's a long and interesting section on income inequality, and another fascinating section on how corporate lobbyists have captured the legislature. If you're at all interested in these topics, definitely pick up the book and read it.

However, there are two topics related to using legislation to control corporate behavior that Reich doesn't touch on. One has to do with the difficulty in following the law when laws become complicated, and the other has to do with the modern corporation's ability to escape.

It is all well and good to suggest that, in a democracy, the citizens should decide what the proper bounds of corporate behavior are and mandate those bounds with legislation. In practice, though, it can easily become absurdly difficult for any business to keep track of all the laws and regulations that it has to comply with. This leads to all manner of ill effects: expense (money paid to lawyers and others, just to figure out what the law is), unfair results (when it's impossible to know what's legal, ending up a criminal turns into a matter simply of bad luck), disdain for the law (if anything you do is likely to be illegal, perhaps the law isn't worth respecting), and corruption (if it's impossible to comply with all the laws, the officials charged with enforcing them can extort bribes as a cost of doing business).

Of course, we've got all those things already without the advantage of better corporate behavior, but more legal strictures will lead to more of it.

When businesses had large factories and large workforces that worked at them, they had no choice but to accept the legal restrictions that were in force wherever the factory happened to be. Now that businesses have global supply chains, they're in a position to play states and countries off against one another. If one state has laws they don't like, they can move production to another state, or move it offshore. They don't have to move their business itself--they can buy what they need from some business in another jurisdiction--but they can move the business if they want to. In many cases, businesses hardly exist as a physical entity anymore. More and more they are just a corporation that owns some intellectual property and has some contracts with suppliers and with customers. Any jurisdiction that passes onerous laws will find that such corporations choose to register elsewhere.

Reich doesn't seem to address that issue at all.

Aside from those two issues, I think Reich has done a great job of analyzing the changes of the past few decades. I really enjoyed this book. If you're interested in the intersection of capitalism and democracy, I expect you'll enjoy Supercapitalism.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: