Saving and Borrowing Ii 1

The notoriously high retail prices paid by the poor even for cash purchases when made in very small quantities, is a penalty of the same kind for lack of a little capital. They buy a pound of sugar, instead of a dollar's worth, a bucket ful of coal instead of a ton at a time, etc., a practice costly of their own time and of the small shopkeeper's time who must get higher prices to make a bare living selling in that way. The time-premium outgo from the customer is usually not a corresponding time-premium income to the merchant, but merely pays for services and other store expenses.

Probably we should class as examples of the same type of loans, on a large scale, those made by governments in time of war. If the national territory, or the real or supposed national interests and honor, are threatened, the citizens often value them beyond any possible money-price. To win they are ready to sacrifice their lives, a fortiori they are ready to sacrifice a part of their material fortunes. The immediate need is large supplies to feed soldiers and to arm them with tools to burn, batter, and blow up the enemy. High rates of interest are offered by the government and large obliga tions are assumed for the future, to tempt its own citizens or those of foreign states to furnish the money to buy these supplies and instruments of destruction.

§ 10. The prodigal borrower. The peculiarity of the prodigal type of consumptive borrower is in the artificial, self-indulgent, subjective character of the desires that impel him to borrow. He has capital, relatively a good deal of it. A prodigal usually is one who has come into his fortune by chance—inheritance, gambling, a lucky stroke of business— and therefore is without discipline in thrift. With a habitual high rate of time-preference, he comes into sudden possession of incomes capitalized at a low rate. He is impatient at the slowness with which the incomes ripen, and he takes measures to hasten them to gratify desires long latent, and now up springing, often in a favoring atmosphere of flattery, vanity, and false friendship. Sometimes he meets the difficulty by selling some property ; or he temporizes and borrows money with a vague hope that some way may be found to retain his property. When interest is 10 per cent, a promise of a hun dred dollars a year gives immediate control of a thousand dollars; when 5 per cent, control of two thousand dollars.

Lacking business experience he is not likely to find the best form of loan. To secure an immediate loan he lightly agrees to pay an exorbitant rate of interest often made necessary by the prospect of his financial collapse. It is clear that the high rate of interest he pays is but a reflection of a time valuation that already exists in his mind. The net result of such a course is a transfer of property from the prodigal to others, a wasteful transfer in which often scheming and avaricious men gain unjustly, and often the savings of true abstainers are transformed into riotous living and foolish display.

§ 11.

Students and apprentices. We come now to some cases of consumptive loans with a more provident motive, that of increasing the future earning-power of the borrower. A student borrows money to spend for food, clothing, text books, tuition, etc., needed while taking a course in college. When he borrows he has little earning-power, but with that faith in himself which makes the young American so interest ing, he pictures himself four years later, sheepskin in hand, drawing a munificent salary with which he can easily satisfy the most exacting Shylock. Apprentices, young lawyers waiting for clients, physicians slowly gaining a practice, busi ness men "working up trade," have enough faith in them selves to borrow meantime what they need to live on. They may be disappointed and suffer loss, but hope supplies their motive in borrowing.' 4 Especially when such expenditure for self-improvement is directly in industrial lines, as learning a manual trade, or a profession (aa dentistry, medicine, engineering, architecture, etc.) there is a tempta tion to call this "an investment of capital," or a capitalizing of man's earning power. But that is merely a figure of speech, tho it is true that the outlay for utilitarian training is made in order to increase the earning power of the learner. But the future incomes can not be In this type of consumptive loans we see a very different motive from the former types. The borrower is looking to future needs, not to present indulgence, and the loan is use less for its purpose unless he supplements it with a true abstainer's spirit, adding his industry, self-denial, and fore thought to attain the end of his education. This type of consumptive loan is often economically better than one to spend upon material production.