Origin of saving - historical perspective

The history of saving is as old as the history of mankind itself. Primitive civilizations engaged in a manner conceptually similar to that of individual and family units of modern times. Hunting and gathering tribes developed strategies for accumulating and allocating food so that resources could be used in pursuits other than food collection. Thus, in a very real way, the notion of saving has preceded modern man. Therefore, the logical division of the available food over a specific period, in order to create a store of surplus for rainy days, is very old. Hunters and gatherers were replaced by mercantilism and the master guildsman/apprentice system with the advancement of civilization. Yet, saving still took the form of stored necessities, preservation remaining a key component of rationing consumption over time. Saving and housekeeping are not very different from one another in their literal meanings. This sense of housekeeping actually holds a basic character of a crossing-over from hunters and gatherers to the settlers’ state, when agricultural economy compelled that the planning period should exceed one crop year. Before a crop failure occurs that may lead to further economic problems, grain should have been stored with a view to overcoming such emergencies.

The question about merits and demerits of saving has already been raised in ancient times.

In old Greek literature, saving appears to be an ethical feeling and someone’s duty towards oneself, friends and state. Old teachings of economics, therefore, claim the need of a housekeeper who may be able to keep the assets and reserves of the house in a perfect order (ARISTOTLE 1953:17). This household can be symbolized as the main key for keeping and building assets. In ARISTOTLE’s as well as XENOPHON’s (1956:238) ancient writings, a sense of housekeeping is considered as a base for developing saving ability and forming assets. XENOPHON addresses the women specifically within this context and says:

" you are responsible for the planning of household's income and consumption process, you should be very careful about surplus in the household that the reserves for one year may not be finished within one month "(XENOPHON 1956:262).

This sort of housekeeping helps to develop a sense of contentment which helps further in controlling everyday expenditure. The so-called ‘Hausväterliteratur’² considers individuals in the sense of their activities and duties corresponding to their position in the household; the father as the head of the household, as the representative to the outer world, the mother as a competent person within the household, and similarly children and other household members according to the position assigned to them.³ The main emphasis

2 ‘Hausväterliteratur’ appeared as a base of the ancient economy in the seventeenth century and at the start of the eighteenth century in the sphere of German language. See TSCHAMMER-OSTEN (1973:5f, 40-43).

3 See also RÄDER (1993:107ff).

in housekeeping is on the acquisition, storage and utilization of goods and other possessions. The main theme, in this regard, is the satisfaction of the needs of the household, i.e., it deals more with the utilization of capital instead of the way to increase it.

The actual purpose of housekeeping, according to the ‘Hausväterliteratur,’ is the provision of means for the stability of the household unit and its members, on the short as well as on the long term basis. The latter, however, is only possible when a part of the income is kept aside (RÄDER 1993:109). Thriftiness, therefore, is a housekeeper’s customary virtue, and a desire to generate some surplus is considered a basic principle of economic transaction in a household.⁴ The ultimate objective of housekeeping, in the ‘Hausväterliteratur,’ is to maintain a (constantly changing) balance between consumption and production of available resources.

At the micro level, this behavior fulfilled the need for security; at the macro level, people were encouraged to allow others to use the stored funds for a specific price (interest). Yet, the appropriateness of storing and saving money was the focus of theological thought. This socio-religious context made saving a cornerstone of the prevailing economic system. The saving concept has always been awarded a significant position in the classical teachings of religions, e.g., Islam presents a complete package of the Islamic Economic System about income distribution, consumption, saving and charity in the Holy Quraan. Major emphasis is laid on always spending less than the available resources. It does not recognize the pure materialistic bent of excessive consumption. Necessities should be supplied, but it is advised to control luxuries. Even when resources increase, Islamic teachings prevent the accumulation of wealth and does not allow its utilization for luxuries and comforts.

To save money, and to prevent its concentration in a few hands, there are some specific rules. Limited consumption and charity are the components on which major emphasis is put in Islamic economic behavior.

Similarly, the teachings of Christ tell us about the virtues of saving and contented behavior not only for one's own household but in the form of charity which may be helpful for neighbors and the society (DOMELA-NIEUWENHUIS 1889:48ff). Social aspects are preferred to economic aspects, here. The followers are advised to work hard to be able to acquire sufficient provisions for themselves and other poor fellows, and not to depend upon the Church. These teachings of the virtues of saving by Church fathers (2nd -7th centuries) were further modified by scholars later on (12th -14th centuries). It preserved its significance till the late Middle Ages and kept spreading among the individuals through the influence of the Church, and, later on, became gradually rooted in the general "customary laws" of the society. This new realization provided a base for amassing huge treasures and brought about a significant development in the productivity of manpower, hence resulting in renunciation, which represented an ideal over a period of one century. "Only the internal reorganization of the psychological forces and an outer limitation of the luxurious objects can lead to a proper life" (PASCHKE 1961:25f). The notion of setting money aside for later or earning money with money (interest) was taboo.

Economics as such was subordinate to the Catholic Church, which was considered the great pillar of stability in an age of disorder. TAWNEY (1926:31) captures the basic thought of the period:

„.... that economic interests are subordinate to the real business of life, which is salvation, and that economic conduct is one aspect of personal conduct, upon which, as on other parts of it, the rules of morality are binding.“

4 See HOFFMANN (1959:189), who defines surplus as a difference between yield and the cost of total input in farm and household.

Any money that might enter into a saving stream was, therefore, to be given to the Church for the cause of religious propagation and to ensure one's place in eternity. The view on the merits of moderate spending kept its significance stable, even in the Reformation Period, as one of the basic ethics of Christianity. Incipiency of saving behavior as known today succeeded transition of society from a non-market, largely non-monetized economy to one in which market and money were dominant. A change in the religious climate accompanied this shifting economic sentiment. John Calvin (a Protestant reformer during the mid sixteenth century) challenged the theological validity of the role of economics in religious thought. The conception of the 'Protestant work-ethic' complemented the theological beliefs with respect to worldly requirements of life. Diligence and ambitions became the ideal categories acting as an essential prerequisite for the success of one's development process of life. Thrift became a virtue according to this work-ethic, as HEILBRONER (1962:55) states:

"Calvinism promoted an aspect of economic life of which we have hitherto heard very little: thrift. It made saving, the conscious abstinence from the enjoyment of income, a virtue. It made investment, the use of saving for productive purposes, an instrument of piety as well as profit."

According to WEBER, the underlying rationality of Calvinism produced a mental atmosphere that was conducive to the growth of capitalism in the Protestant countries of Europe. The rational attitude towards life and the cosmic world was a prerequisite for the development of science and the technological revolution (LOOMIS/LOOMIS 1969:XV).

The universality of the phenomenon of saving is evident in other religious philosophies as well. The religious beliefs of Hinduism, for instance, were strongly associated with material desires; this was shown in the very mundane nature of rewards prayed for (RADHAKRISHAN 1952:41), and this value placed on mundane happiness strengthened the attitude towards greater consumption on rituals. On the whole, however, religion in this early Vedic period discouraged saving and investment. This traditional notion of Hinduism modified its Vedic ritual, the Brahmanic supremacy, and other worldly tendencies in the period between 300 and 500 AD. In fact, Hinduism influenced saving motives adversely (i) in its attitudinal aspect, mainly through the interrelated beliefs in the doctrine of transmigration, the law of karma, etc.; (ii) in its institutional aspect, mainly through the caste system, etc. As regards the law of karma, taking material advantage as an ideal presupposes an interest in the present rather than in the next life. The knowledge that the course of life has already been determined by past actions and that there is no scope for bettering one’s next life would generate, in most people, no incentive to save (and, indeed, would generate a disincentive ) and to improve material conditions (MISHRA 1962:202). Asceticism obviously generated greater savings which may be utilized for greater investments, but asceticism merged in other worldliness; not only did it put material objective at a discount in favor of other worldly objectives, but any savings resulting from asceticism are utilized for unproductive consumption. In the Hindu institution, the caste system is by far the most important factor for an individual’s saving efforts. A much graver implication is related to the incentive aspect of the caste system.

The caste system has a social as well as an economic aspect. The social status determined by birth represents a great disincentive for saving in order to enhance one’s social position, because upper castes always remain at a higher social level.

The period from 1500 to 1750, however, may be denoted as an era of acceptance of innovations, of flexibility as well as rigidity within the context of consumption and saving.

Thus, Hinduism could accept the doctrine of ahimsa and the institution of mahanthas (religious leaders owning large property) which followed a Buddhist pattern; but it had nothing to do with any innovation that could threaten its caste system. „Modern capitalism undoubtedly could never have originated from the circles of the completely traditionalist circle“ (WEBER 1962:113). In most cases, given adequate propagation, any profitable innovations have generally been adopted, openly or discretely, by Hindus. Hindus usually sold their old cows to Muslim purchasers who ultimately slaughtered them for commercial purposes. The religious conscience thus found satisfaction in the explanation that they (the sellers) were not responsible for what the purchasers did with the cows (MISHRA 1962:61). Such ideological innovations and a contact with secularism provided a sound base for an individual’s betterment by accumulating wealth and investing it in a productive way. A strong concept of saving started in the Vaishya (the traders) caste group, who, being traders, started lending money on interest. Locally, they were known as Baniya and are considered as pioneers in introducing new ways of saving in cash and kind.

To conclude the above-mentioned facts, it may be stated, that, in comparison to other religions, Hinduism took a quite longer time to prescribe thrift as a virtue and to condemn prodigality as a vice.

Not only Hinduism, but Buddhism as well stressed an appreciable increase in rationalistic thinking around the period of 300 BC. The period witnesses a favorable influence on the propensity to save and invest by improvements in the techniques of exchange. Buddhists completely denounced the supernatural and the sacrifice ritual and believed in the doctrine of transmigration. They also practiced asceticism, which was consistent with their business philosophy in the sense that it strengthened their already high propensity to save and invest (MISHRA 1962:24f). Thus, asceticism as well as rationalism tended to encourage the economic application of knowledge by reducing the importance of ritual and priestly classes, which led to a reduction in waste and unproductive consumption and encouraged saving.

Whatever the undercurrents, the most conspicuous elements in religion during that period were the spirit of reason and rationality, on the one hand, and the stress on certain ethical codes of individual and social behavior, on the other. There were elaborate religious regulations relating to debts and mortgages (BASHAM 1954:221-2). Moreover, the forbidding of beef eating in conformance with ahimsa (non-injury to men and animals) further restricted the pattern of consumption expenditure. In 100 AD the religious philosophy of Buddhism emphasized that the secrets of all achievements, including spiritual achievement, lay in a healthy economic background and that accumulation of wealth and economic development are the perennial source of all dharma (religious life) (MISHRA 1962:27f).

In other words, with the idea of worldly requirements, a stage was set for the impending introduction of capitalism to human societies. Later on, the 'founding father' of modern capitalism, SMITH, wrote exclusively in the 'Wealth of Nation', within the context of an interplay of capital formation and saving. According to SMITH (1961:437), capital is increased by parsimony and diminished by prodigality and misconduct. The saved revenue adds to the saver’s capital, who either employs it himself or lends it on interest to have a share of profit. If the capital of an individual can be increased only by what he saves from his annual gains, the capital of a whole society may also only be increased in the same manner.

MULLIS (1984:3) perceives this treatise as a foundation upon which all capitalistic nations based their economic perceptions. Perceptions of potential problems with the equilibrium

of saving and investment developed in the 1930s, when instability in many economies in the world became a challenge for the economists, and they began trying to unravel the problems, creating havoc in the economic structure.