The Backward Art of Spending Money

Wesley Clair Mitchell, Eli Ginzberg, Wesley Mitchell

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9780765806116
• eBook ISBN: 9781351305501
• Topic: Business
• Subtopic: Business General
• Index: Business

Nearly 85 years ago, Wesley Clair Mitchell, the acknowledged leader of American economists during the first half of this century, wrote: "Important as the art of spending is, we have developed less skill in its practice than in the practice of making money. Common sense forbids our wasting dollars earned by irksome efforts; and yet we are notoriously extravagant. Ignorance of qualities, uncertainty of taste, lack of accounting, carelessness about pricesà. Many of us scarcely know what becomes of our moneyà."More than ever, in our world of ever-increasing credit card debt, lenient bankruptcy laws, and runaway consumption, these words still ring true. This collection of Mitchell's essays, makes it easier for today's and tomorrow's economists and social scientists to become acquainted with Mitchell's many contributions to the study of the American economy.Regrettably, the passage of time can blur and even obliterate the reputation and achievements of yesterday's leaders of ideas and actions. Although the National Bureau of Economic Research, which Mitchell helped to found and which he led in the 1920s and 1930s, remains a leading research institution, relatively few of its associates, who represent the elite among U.S. academic economists, have any first-hand acquaintance with Mitchell's work. Eli Ginzberg rounds out this edition with Mitchell's comprehensive analysis of "Business Cycles," first published in 1929, an area that commanded most of his scholarly efforts. Ginzberg's essay on Mitchell, written in 1931 and published for the first time in 1997, serves as an appropriate introduction to this new edition. His afterword contains remarks delivered at the 50th anniversary of Mitchell's death at the meeting of the Allied Social Sciences Association held in Chicago early in 1998, a telling tribute to this undisputed giant in the field.Wesley Clair Mitchell (1874û1948) held major teaching posts at the University of California and Columbia University. One of the most eminent U.S. economists, Mitchell focused much of his research on the statistical investigation of business cycles. His two major works are Business Cycles (1913) and Business Cycles: The Problem at its Setting, (1927).Eli Ginzberg is A. Barton Hepburn Professor Emeritus at the Graduate School of Business, and Director of the Eisenhower Center for the Conservation of Human Resources at Columbia University.

1
The Backward Art of Spending Money¹

IN THE scheme of modern life, making money and spending money are strictly correlative arts. Of the two, spending is rated as both pleasanter and easier to practice. Certainly for most of us it is not less important. A few, indeed, make so much money that they can slight the art of spending without suffering discomfort, but the vast majority would gain as much from wiser spending as from increased earning.

Important as the art of spending is, we have developed less skill in its practice than in the practice of making money. Common sense forbids our wasting dollars earned by irksome efforts; and yet we are notoriously extravagant. Ignorance of qualities, uncertainty of taste, lack of accounting, carelessness about prices—faults that would ruin a merchant—prevail in our housekeeping. Many of us scarcely know what becomes of our money; though well-schooled citizens of a money economy ought to plan for their outgoes no less carefully than for their incomes.

For this defect in our way of living we are often taken to task, not only by thrifty souls who feel that waste is sin, but also by men of large affairs who wish that we might ask less insistently for higher wages and save more money to invest in their securities. No doubt there is sufficient reason for faultfinding, and no doubt much of the free advice given on mending our ways is sound. Conscience admits the first, common sense the second. But in our haste to plead guilty we forget certain mitigating circumstances which might go far toward recommending us to the mercy of an impartial court. To spend money is easy, to spend it well is hard. Our faults as spenders are not wholly due to wantonness, but largely to broad conditions over which as individuals we have slight control.

Under the less complicated economic organization of barter and the nascent use of money, the family was the unit in large measure for purposes both of producing and of consuming goods. By the time of American colonization, English society had grown out of such simple conditions. But the earlier colonists were forced by their isolation to revert to practices that the mother country had long since abandoned. The family became again a unit of producers, caring for one another’s wants. Foodstuffs and other raw materials were produced by the men, assisted by the women and children; these materials were prepared for family use by the women, assisted by the children and men. While this form of organization was transient in any one district, it kept reappearing on the frontier, so that for generations production was based in part upon the family as a unit.

Denser settlement would have sufficed by itself to enable Americans to develop division of labor and regular markets corresponding to those of seventeenth- and eighteenth-century England. But in addition there came the industrial revolution and the railway. These factors in combination gradually deprived the family of its old importance as a unit for producing goods. For the factory made, the railway brought, the shop kept a great variety of articles that the family once provided for itself. Production was reorganized on the basis of a new unit—the business enterprise —in which the members of many families were employed. And the new unit proved vastly more efficient than the old. It made possible more elaborate specialization of labor and machinery, more perfect coordination of effort and greater reduction of waste than could be attained by the family. There resulted a gigantic increase in the volume of goods produced and in the aggregate incomes earned.

Meanwhile as a unit for consuming goods, for spending money, the family has remained substantially where it was in colonial days. Division of labor in spending has not progressed beyond a rudimentary division between the adult men and women of the family—the women bearing the heavier burden of responsibility. Housework has been lightened by the growth of industry; but housewives still face essentially the same problems of ways and means as did their colonial grandmothers. No trade has made less progress than this, the most important of all trades.

It is because we have not wanted to that we have not developed a larger and more efficient unit for spending money than the family. Our race-old instincts of love between the sexes and parental affection, long since standardized in the institution of monogamy, are a part of experience at once so precious and so respectable that we have looked askance at every relaxation of the family bond, whatever material advantages it has promised. While we have become increasingly dependent upon other men for the goods we buy and for the sale of our services, we have jealously insisted upon maintaining the privacy of family life, its freedom from outside control, so far as our circumstances have permitted. Reluctantly we have let the factory whistle, the timetable, the office hours impose their rigid routine upon our money-making days; but our homes we have tried to guard from intrusion by the world of machinery and business. There are strains in our stock, to be sure, that can adapt themselves more readily to the lock step of life organized by others; such people fill our family hotels. But most of us still prefer a large measure of privacy, even though we pay in poor cooking. So long as we cling fondly to home life, so long will the family remain the most important unit for spending money. And so long as the family remains the most important unit for spending money, so long will the art of spending lag behind the art of making money.

The dominance of women in spending, which the family form of organization establishes, may explain in some measure the backwardness of the art. An effective contrast might be drawn between the slipshod shopping of many housewives and the skillful, systematic buying done for business enterprises by men. But the fair comparison is between the housewife’s shopping for the family, and her husband’s shopping for strictly personal wants. Current opinion certainly represents women as more painstaking than men in making selections, and more zealous in hunting for bargains. Doubtless if men had to do the work they would do it otherwise in some ways, and doubtless they would think their ways better. But if men had to spend money under the limitations now imposed upon women by family life, they would certainly find the task exceedingly difficult. It is the character of the work more than the character of the women that is responsible for poor results. Indeed, the defects of the workers are partly effects of the work. The lack of system, which reduces the efficiency of so many housewives, comes in a measure from the character of their daily tasks, like the pedantry that makes so many teachers uninspiring.

The housewife’s tasks are much more varied than the tasks that business organization assigns to most men. She must buy milk and shoes, furniture and meat, magazines and fuel, hats and underwear, bedding and disinfectants, medical services and toys, rugs and candy. Surely no one can be expected to possess expert knowledge of the qualities and prices of such varied wares. The ease with which defects of materials or workmanship can be concealed in finishing many of these articles forces the purchaser often to judge quality by price, or to depend upon the interested assurances of advertisers and shopkeepers. The small scale on which many purchases are made precludes the opportunity of testing before buying, and many articles must be bought hurriedly wherever they are found at whatever price is asked. If this work could be taken over for many families and conducted by a business enterprise it would be subdivided into several departments, and each department would have its own minute division of labor. There would be the commissariat with its trained corps of purchasing agents and chemists, each giving his whole working day to the buying or testing of meats, or vegetables, or groceries. There would be departments of building and grounds, of furnishing, of fuel and lighting, of the laundry, of clothing, of the nursery, and the like—all bringing specialized knowledge to the solution of their problems, all having time and opportunity to test qualities and find the lowest prices. The single family can no more secure the advantage of such division of labor in caring for its wants as consumers than the frontier family could develop division of labor in production.

Nor can the family utilize labor-saving machinery to reduce the cost of living more effectively than can the very small shop utilize it to reduce the cost of production. The economical use of machinery requires that the work to be done be minutely subdivided and that each successive operation be standardized. The family unit is so small, the tasks are so various, and the housework is so scattered from cellar to attic as to make machinery more troublesome than useful. Even if a housewife were supplied with an elaborate mechanical equipment, and if she knew how to operate each machine and keep it in order, she could make but brief use of each device as she turned from one of her endless tasks to the next. A machine that is to stand idle ninety-nine hours in a hundred must possess extraordinary advantages, or cost but a trifle, to warrant its being installed even in a factory. Hence, the equipment that can be employed economically in the household falls into the class of inexpensive utensils and hand tools; even in this age of steam and electricity, a family must be cared for by hand.

Again, the general managers of households, unlike the general managers of business enterprises, are seldom selected upon the basis of efficiency. Indeed, there are grounds for believing that in this country less attention is paid than formerly to housewifely capacity in choosing wives. The young farmer going west to take up land knew that his success would depend largely upon the efficiency of his helpmate. Perhaps his grandson exercises as much worldly wisdom in choosing a wife, but he thinks more of how much an available parti can add to his income than of the skill with which she can manage what he earns.

However chosen, the young wife seldom approaches her housework in a professional spirit. She holds her highest duty that of being a good wife and a good mother. Doubtless to be a good manager is part of this duty; but the human part of her relationship to husband and children ranks higher than the business part. In a sense the like holds true for the man; but in his case the role of husband and father is separated more sharply from the role of money-maker. The one role is played at home, the other role in the fields, the shop, or the office. This separation helps the man to practice in his own activities a certain division of labor conducive to efficiency in money-making. He can give undivided attention during his working hours to his work. But the woman must do most of her work at home, amidst the countless interruptions of the household, with its endless calls from children and friends. She cannot divide her duties as a human being so sharply from her duties as a worker. Consequently, her housekeeping does not assume objective independence in her thinking, as an occupation in which she must become proficient. Household management, under the conditions of family life, is not sufficiently differentiated from other parts of the housewife’s life to be prosecuted with the keen technical interest which men develop in their trades.

Upon the household manager, capable or not as she may be, family life commonly throws an exhausting routine of manual labor. In large business enterprises matters are managed better. The man who makes decisions, who initiates policies, who must exercise sound judgment, does no work with his hands beyond signing his name. He is relieved of all trivial duties, protected from all unnecessary intrusions. One of the handicaps of the small enterprise is that its manager must also keep the books, write the letters, or work in the shop—must disperse his energy over many tasks. In the great majority of homes the housewife labors under a like handicap. If she has no servant, then cooking and sweeping, mending and shopping, tending the children and amusing her husband leave her little leisure and less energy for the work of management proper. Tired people stick in ruts. A household drudge can hardly be a good household manager. Even with one or two servants to assist them, many wives work longer hours than their husbands, and work under conditions that are more nervously exhausting. The number of housewives who have leisure to develop the art of spending money wisely must be a very small percentage.

Though so many conditions of family life conspire to make hard the housewife’s task, a surprising number of women achieve individual successes. If housekeeping were organized like business, these efficient managers would rapidly extend the scope of their authority, and presently be directing the work of many others. Then the less capable housewives, like the mass of their husbands, would be employed by these organizing geniuses at tasks that they could perform with credit to themselves and profit to the community. By this system we get the full use of our best brains in making money. But the limitations of family life effectually debar us from making full use of our best domestic brains. The trained intelligence and the conquering capacity of the highly efficient housewife cannot be applied to the congenial task of setting to rights the disordered households of her inefficient neighbors. These neighbors, and even the husbands of these neighbors, are prone to regard critical commentaries upon their slack methods, however pertinent and constructive in character, as meddlesome interferences. And the woman with a consuming passion for good management cannot compel her less progressive sisters to adopt her system against their wills, as an enterprising advertiser may whip his reluctant rivals into line. For the masterful housewife cannot win away the husbands of slack managers as the masterful merchant can win away the customers of the less able. What ability in spending money is developed among scattered individuals, we dam up within the walls of the single household.

There are, however, reasons for the backwardness of the art of spending money other than the organization of expenditure on the basis of the family. Grave technical difficulties inhere in the work itself, difficulties not to be wholly removed by any change of organization.

The rapid progress made and making in the arts of production rests upon progress in scientific knowledge. All the many branches of mechanics and engineering are branches of the tree of knowledge, nourished by the roots of research. Among the various sciences the most important for industry are physics and chemistry. It is by applying in practice the physical and chemical laws learned in the laboratory that recent generations have been able to develop not only their complicated machinery, but also their effective processes of modifying materials. Now physics and chemistry happen to be the sciences that deal with the subject matter that is simplest, most uniform, and most amenable to experimental control. They are therefore the sciences of which our knowledge is most full, most precise, and most reliable.

In similar fashion, progress in the arts of consumption rests upon progress in science—or rather waits upon progress in science. To secure the better development of our children’s bodies we need a better knowledge of food values and digestive processes, just as we need better knowledge of electricity to reduce the waste of energy on long transmission lines. To secure the better development of children’s minds we need better knowledge of the order in which their various interests waken, just as we need better knowledge of physical chemistry to control the noxious fumes of smelting plants.

But, unfortunately for the art of spending money, the sciences of fundamental importance are not physics and chemistry, but physiology and functional psychology. While the latter may be ultimately capable of reduction to a physicochemical basis, they certainly deal with subject matters far less simple, less uniform, and less amenable to experimental control than does physics or chemistry proper. Hence, they are in a relatively rudimentary condition. As now written they are easier for the layman to read, they present fewer superficial difficulties; but that is precisely because their real difficulties have not been mastered and elucidated.

Accordingly, even the housewife who is abreast of her time labors under a serious disadvantage in comparison with the manufacturer. The latter can learn from an industrial chemist and a mechanical engineer far more about the materials he uses, the processes at his disposal, the machinery best adapted to his purpose, than the housewife could learn from all the living physiologists and psychologists about the scientific laws of bodily and mental development. No doubt the sciences that will one day afford a secure basis of knowledge for bringing up a family are progressing; but it seems probable that they will long lag behind the sciences that serve industry. Hence, the housewife’s work presents more unsolved problems, is more a matter of guesswork, and cannot in the nature of things be done as well as the work of making and carrying goods. Until such time as science shall illuminate the housewife’s path, she must walk in the twilight of traditional opinion.

If the art of making money has advantages over the art of spending on the side of scientific technique, it has equal advantages on the side of business method. Money-making is systematized by accounting in which all the diverse elements in a complicated series of bargains are adequately expressed in terms of one common denominator—the dollar. Thus a businessman is enabled to compare the advantage of granting long credits with the advantage of selling on closer margins for cash; he can estimate whether it would be cheaper to buy a higher grade of coal or to let his fireboxes burn out rapidly; he can set off the cost of additional advertising against the cost of more traveling salesmen. And since profits are also expressed in dollars, the businessman can control all items of expense on the basis of their estimated contributions toward his gains. In making money, nothing but the pecuniary values of things however dissimilar need be considered, and pecuniary values can always be balanced, compared, and adjusted in an orderly and systematic fashion.

Not so with the housewife’s values. A woman can indeed compare costs as long as they consist solely in the money prices she is charged for goods. But she cannot make a precise comparison between the price of a ready-to-wear frock and the price of the materials plus her own work in making. Still less can she compare costs and gains. For her gains are not reducible to dollars, as are the profits of a business enterprise, but consist in the bodily and mental well-being of her family. For lack of a satisfactory common denominator, she cannot even make objectively valid comparisons between the various gratifications which she may secure for ten dollars—attention to a child’s teeth, a birthday present for her husband, two days at a sanatorium for herself. Only in the crudest way can subjective experiences of different orders occurring to different individuals be set against one another. Opinions regarding their relative importance change with the mood and flicker with the focus of attention. Decisions made one hour are often cause of regret the next. In fine, spending money cannot conceivably be reduced to such a system as making money until someone invents a common denominator for money costs, and for all the different kinds and degrees of subjective gratifications that money can procure for people of unlike temperaments. Such household accounts as are kept doubtless have their value; but the most painstaking efforts to show the disposition of every cent spent still leave unanswered the vital question of what has been gained.

And what does the housewife seek to gain ? The businessman in quest of profits can answer such a question for himself in terms distinctly definite. To make money becomes an end in itself; to spend money involves some end beyond the spending. When the housewife pursues her problem to this final query she comes upon the most baffling of her difficulties. Doubtless she can tell herself that she seeks the happiness of her husband and herself, the fair development of their children. But before these vague statements can serve as guides in the intensely practical problem of spending money, she must decide what happiness and development mean in concrete terms for her particular husband and children. Of course, our housewives are seldom philosophers, and if they were they could not let the dishes go unwashed while they wrestled with the question of what is best worth while in life. Most women, indeed, do their work in an empirical spirit, so busied with obvious difficulties of detail that they are saved from seeing the deepest perplexities of their position. It is commonly the very young wife whose conscience is worried about the ultimate aims of her spending; and she is more likely as the years go by to stop thinking about this problem than to think it out.

In accounting for the defects of the art of spending, as that art is currently practiced, there is little need to lay stress upon difficulties that are neglected by the great mass of practitioners. But there is one end which women assuredly do seek in spending, albeit unconsciously for the most part, which deserves attention because it is subversive of economical management.

Nassau Senior long ago pointed out the important role played by the desire for distinction in guiding conduct; and more recently Thorstein Veblen has developed the theme with much subtlety in his satirical Theory of the Leisure Class. We are all prone to draw invidious comparisons between ourselves and our neighbors. Such comparisons give us much edifying satisfaction when they can be twisted to our advantage, and produce a corresponding sense of discomfort when we cannot disguise our own inferiority. The subject matter of these invidious comparisons is d...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface to the Transaction Edition
• Introduction, “Wesley Clair Mitchell”
• Prefatory Note
• 1 The Backward Art of Spending Money
• 2 Quantitative Analysis in Economic Theory
• 3 Statistics and Government
• 4 Institutes for Research in The Social Sciences
• 5 Research in The Social Sciences
• 6 The Social Sciences and National Planning
• 7 Intelligence and The Guidance of Economic Evolution
• 8 Making Goods and Making Money
• 9 The Role of Money in Economic Theory
• 10 Bentham’s Felicific Calculus
• 11 Postulates and Preconceptions of Ricardian Economics
• 12 Wieser’s Theory of Social Economics
• 13 Sombart’s Hochkapitalismus
• 14 Thorstein Veblen
• 15 Commons on Institutional Economics
• 16 The Prospects of Economics
• 17 Economics 1904-1929
• 18 Business Cycles
• Afterword The Optimistic American Empiricist
• Index