§ 4. Opportunities for investment. Opportunities for the investment of small savings favor the spread of a spirit of saving. The institution of small property, peasant propri etorship, has worked powerfully in this direction in many parts of Europe ; and the same effects have resulted in America from the wide diffusion of property in agricultural land. If the decline in the number of small independent farmers has somewhat weakened this influence in America, other agencies are effectively performing the same functions in other ways. Savings-banks, penny banks, building and loan associations, penny-provident funds, and other convenient means of invest ing small sums, encourage men to reduce their tobacco bills, their candy bills, their saloon bills, and to lay aside for the winter's coal, for the children's education, for houses, for busi ness investments, or for old age. The French government, by the sale directly to the people of national bonds in small de nominations, both recognized and helped to strengthen a cus tom of thrift in the small investor that has probably become more widespread in France than in any other country. Prob ably no one thing has given a greater stimulus to saving than has the development of insurance and the endowment policies in connection with it. The modern systems of compulsory accident and sickness insurance, and of pensions for old age, are accumulating large funds (invested in securities) and are collective saving on a large scale (whether it be deemed the saving by employers or by employees). Great modern cor porations have displaced many small business enterprises into which so much of the saving of the past was put, but have opened up other large fields of choice for investors in notes, bonds, and stocks. Of late some American corporations and governments have begun to issue bonds in denominations of less than $1000, known as "baby bonds," especially of $100 and $500, and their sale is steadily increasing.
§ 5. Get-rich-quick schemes. Nothing discourages absti nence more than the example of the loss of hard-won savings through unfortunate investments, as happens with many mil lion dollars of small capitals every year. A large part of these losses would be avoided if certain simple truths were generally recognized and certain maxims observed. Security against loss of principal is more important than promises of a large interest rate. It is well to remember that the prevailing rate of capitalization in the community sets the outside limit of safe investment to the investor without special knowledge and judgment of the conditions. Unusual percentages of in come (over 4 or 5 per cent) are bought by the small investor at the cost of disproportionate chances of loss. Buying stocks on margin, real estate on options, or anything partly on credit, is not true investing; it is speculation, and the chance is large that it will end in disaster to the "outsider" and the "lamb." The stranger offering remarkable returns on small investments has almost certainly a flaw either in his judgment or in his morality. There are now and then good inventions which need but capital to develop them, but to judge their practical merits requires expert knowledge and business experience or influence which few possess. Only with the advice of trusted friends with these advantages should the inexperienced venture to in vest outside of accustomed lines in the hope of unusual returns. "Get-rich-quick schemes" mean get-poor-quick for every one but their promoters. Patents from washing machines to chro matic printing, new processes from burning ashes to extracting gold from sea water, lead mines and gold mines which prove only to be "salted" mines, rubber plantations with elastic pos sibilities, electric "air line" roads destined ever to remain in air—these projects yearly lure millions of small savings from the trusting.
§ 6. Slower and safer plans. The average man investing outside of his own business should travel the well-marked roads: government, state and municipal bonds; stocks, or pref erably bonds, of the more conservative corporations bought outright at other than times of booming business and high capitalization ; real-estate mortgages in the neighborhood or placed through reliable agencies; shares in building and loan associations; deposits in savings banks; life insurance for breadwinners, first and mainly on the "ordinary life" plan or with payments limited to the earning years; and finally, old age pensions and life annuities. Carefully selected invest ments along these lines will yield to the average man in the long run much more than more active investments with the alluring promises of large dividends. If the small savings of the masses were more safe and remunerative, a wonderful stimulus would be given to industry, and the general welfare would be enhanced. In part no doubt this most desirable end can be furthered by public regulations in protection of inves tors, in part it must be brought about by the progress of sound principles of investment among persons of small means.
§ 7. Relation of the interest rate and saving. A question much debated is: should a rate of interest be looked upon as the cause of saving. Some persons might be willing to save somewhat were the rate of interest much lower, just as (on the hypothetical sellers' curve) some sellers might have been willing to sell for less than the market price if they had not found buyers willing to pay the actual price. In every loan market the price comes to equilibrium at a point lower than some borrowers would have consented to pay, and higher than some lenders would have consented to take. If the rate were much lower there would be many more borrowers and many fewer lenders. A higher rate reduces the number of borrowers and increases the number of lenders; borrowing is by so much discouraged and abstinence is given a larger premium, a reward for waiting.' A. high interest rate does not insure a high degree of cumu lative abstinence in a community; it is indeed nothing but the visible index of a low degree of abstinence (a high rate of time-preference), and interest will remain high till abstinence grows. The rate of interest marks the point of equilibrium in the market between present and future value of incomes, 1 A man carries a dollar in his pocket on a journey without getting interest, but he (now) values the future purchase more than the present purchase. Likewise, by persons ignorant of banks, dollars are some times laid away for sickness, old age, and other needs without the inducement of interest. The owner might even be imagined to pay for the safekeeping of the money in the meantime. Some have made much of these cases, have called hoarding a case of zero interest, and the payment of storage charges a case of negative interest. These are not oases of interest at all by our definition, they are cases of time preference for future money. The zero rate of time-preference does not extend to goods generally, for this would mean an absolutely indif ferent choice between present and future uses, gratifications and goods, and an infinite capital value for the smallest permanent series of incomes. (See above, under time-value.) These acts of saving money occur at a time when the individual is showing time-preference for the present in numberless ways. In these cases the money is for the time being withdrawn from its use as a medium of exchange and is turned to its use as a storehouse of saving. Like fruit in a plentiful season and ice stored in winter it is kept because it is relatively plentiful now, and a part of it if kept will provide necessities for a time of relative scarcity.