§ 5. Saving without and with the use of money. Abstinence of the conservative sort shows its results in keeping in repair and providing for the replacement of fertile soil, ditches, fences, houses, tools, and equipment of every kind in the owner's possession. Much of this does not need to take the money form, but much of it does, as in payment of wages and purchase of materials to keep up repairs, and in the laying aside of a depreciation fund, or the provision of insurance to replace the agents when destroyed. It calls for positive effort on the part of the owner to resist treating gross usance and receipts of his fields, tools and other equipment as a disposable income, in order to enjoy a more bountiful present at the expense of the future. In many ways one may "borrow from the future" without borrowing from any person (unless it be one's self).

Abstinence of the cumulative sort likewise can and does in large measure take the form of saving in kind rather than in money. One has but to dispose of his labor and wealth so as to use in each period less than the full net income of the period and to put the surplus into durable forms yielding future incomes. The pressure of present desire is so great, and so many unexpected present needs crowd upon men, that few find it possible or think it possible to save much in this way, and fewer still find it easy.

When incomes are received in money, saving usually takes that form. Every clear dollar of money income (after providing for the maintenance of the principal) is disposable either as present enjoyment or as savings to constitute a new capital. This may be done by buying labor and materials to build new agents, "adding barn to barn," or it may be by buying other durative direct agents, as a house to live in where one has been paying rent, or it may be by buying durative indirect agents, as a horse and plow which one has had to hire for use in his own fields. Or the money may be used to purchase a factory, or to hire laborers and to buy materials to create a new industry.

A large part of money savings, however, takes the contractual form. The saver may take out an insurance policy. He may deposit in a savings bank (or commercial bank with a savings department) and get from 2 to 4 per cent interest, the bank in turn buying bonds of corporations, or making loans on mortgage security at a higher rate of interest. He may loan to a business man or to a house builder, taking notes and mortgages, or he may buy bonds and mortgages from a corporation. In all these cases the money loaned is transferred to another, and if wisely invested, will produce new incomes. Money saved can be made to yield an income only by being spent - that is, invested in some way.1

§ 6. Classes of borrowers. A distinction is usually made according to the purpose of the borrower, between two main classes of loans: consumptive and productive loans. Consumptive is the adjective usually applied to a loan made for the direct use of one's self (or of one's dependents). It is borrowing by a spender, and virtually undoes, negatives,

1 Some reservoirs of small savings in the United States in 1914 are here indicated.

Savings bank a depositors, 11,100,000c; deposits .................

$ 5,000,000,000


Postal savings, deposits ...............................



Building & L. Asso. members 2,800,000 c; assets.....



Insurance (assessment) policy holders 8,800,000 c; assets



Insurance, ordinary and industrial policy holders 38,-200,000 c; assets ..............................



Total ....................................



3 years,


average ................



6 years,


average ...............



3 years,


average .............



6 years,


average ..............



a Do not include savings departments or interest-bearing time deposits of commercial banks, which doubtless are large.

b Estimated; postal savings in the United States have been increasing at the rate of about $1,000,000 a month since the beginning of the postals savings plan in January, 1911.

c The same person may be counted more than once in these statistics.

It is estimated (by Le Moniteur des Int<5rets matúriels) that the net additional issues (i.e., not including conversions) of securities (corporate and public) in the world between 189G and 1913 was as follows the act of the abstainer. This was almost the only kind of borrowing before the development of modern money markets. Among the many varieties of circumstances in real life several types of consumptive borrowers are distinguishable: (1) the victim of chance, (2) the chronic improvident, (3) the prodigal, (4) students or apprentices, and (5) abstaining users, or becoming-owners.

§ 7. Victims of mischance. Some kinds of misfortune are comparatively rare, are difficult if not impossible to provide against, and fall with overwhelming weight upon the unprepared victim. Such misfortunes are fires, floods, hurricanes, earthquakes, failure of crops through drought, excessive rain, pests, hail and windstorms; such are bodily accident through burns, cuts, falls, crushing weights and strains, which partially or completely, temporarily or permanently, disable from labor, or cause the death of a breadwinning member of the family. Such also are many industrial accidents as the cutting off of the usual employment through failure of the sources of materials, loss of vessels in transit, brigandage, war, etc. In all such cases the victim's condition suddenly falls below the accustomed and the normal. Sometimes immediate food, fuel, and clothing are a necessity of bare existence. One standing face to face with starvation can not be worse off a year hence; nearly always there is some ground to hope that if the present misfortune can be relieved, fate will be kinder in future. One who expects to be better provided in the future will choose to pay a premium for a loan. "When the present misfortune is far short of starvation, and is but a certain measure of inconvenience, the same kind of a motive exists, tho in a lesser degree. A loan at such a time, it must be remembered, is but the choice of the least of evils. If the person can not borrow he is tempted to increase his too small present income by converting, pledging, or selling, his control over future income. He may do this at great cost (equivalent to a large discount) by treating the present tangible wealth as if it were income, eating up the seed corn, and neglecting repairs on house and field and tools. Or he may exchange his durative wealth to get a larger present control of enjoyable goods. This, at a forced sale or in an unfavorable market, he can do only at low prices, much lower than must be paid to replace them.2

To one faced with such a choice the pawnbroker with his exacting terms must at the moment appear as a benefactor. He has not created the distress; he appears to offer the best way out of it. A defect of this alternative is that the loan is not made in a true market. There exists no true market for making such loans. The necessitous borrower usually is forced to make an isolated trade where he is in no position to higgle, where he must make the utmost concession to a hard bargainer. Such opportunities attract and develop a class of grasping usurers, "the loan sharks," who hold the victims of chattel mortgages in a veritable serfdom. The hard bargain is made still harder by other arbitrary and dishonest exactions for renewing the loan. Tho the object pledged may be of little value to others, it often has a personal and sentimental value (as an heirloom or a keepsake) so that the borrower will make great efforts to prevent its forfeiture.