I wish to share a recent conversation on the subject of faith and works. Some very theoretical theologians seek an artificial—and non-biblical—separation between the two. The presumed differences erected between faith and works by these arguments are seemingly philosophical and semantic, but they lead to very different practices that can mean great differences in real life. I repeat the conversation below, simplified into its chief elements. I will refer to my partner in the conversation as Sam.
Sam: Christianity is divided into faith-based churches and works-based churches.
WAA: I reject that division. I think that it’s artificial, man-made, not God-made. But so that I might understand you better, explain to me what you mean by it.
Sam: Really, there is a difference. There are those who believe that they have to do works to be saved, that by their works they earn salvation and that they need those good works to be saved. We believe that no amount of works can be sufficient to earn salvation, that Christ provides salvation through His grace, and that we receive that grace through faith in Christ, faith alone. Indeed, we think it presumptive of anyone to think that he can somehow earn his way to Christ’s grace. If you could earn it, it wouldn’t be grace—and in any event you would always come up short.
WAA: I would suggest then, that either there is no difference between what you and I believe on this matter, or you yourself do not believe in what you are saying.
Sam: How do mean?
WAA: Just this. You say in effect that we cannot earn Christ’s grace, that if we do, it would not be grace, that believing is the essential thing and that it is enough.
Sam: That is correct.
WAA: What does belief involve? Can I believe and still swindle my neighbor?
Sam: No, if you are swindling your neighbor, then you probably don’t really believe.
WAA: So it seems that you agree with James, the brother of Jesus, that there is a connection between faith and works. He was the one who taught that our faith is shown by our works.
Sam: But it is the faith that saves, not the works.
WAA: I would agree with that, taking faith in its wholeness. For it is clear that the two are connected, that faith and works are not irrelevant to each other. As James says, without the works there is no faith. Faith without works is dead (James 2:20, 26). But I will go even so far as to say that any good works are good, because they are a demonstration of faith, a demonstration of what you believe. I think that you believe that, too. You act like you do.
Sam: How do you mean?
WAA: You go to church regularly?
Sam: Yes.
WAA: You obey laws, you are kind to your neighbors, you are loyal to your wife and family. All of that is true?
Sam: Yes, all true. But I make plenty of mistakes and have my share of unkind thoughts in the course of the day.
WAA: I think that you are making my point. Why do you do the good that you do—acknowledging that you are otherwise prone to live not so good if you just let yourself go—why do you overcome those unkind thoughts and act kindly?
Sam: Because it would be wrong to be unkind.
WAA: Why? Measured by what? Measured by Christ’s commandments, especially Christ’s two great commandments, to love God and to love your neighbor.
Sam: I can’t argue with that. But by my faith in Christ I am saved, no matter how many good works I do.
WAA: Is that so? Do you really believe that? Do you think that you would be saved if you were cruel to your wife and unkind to your children, swindled your neighbor, cheated your employer? If you stopped going to church, neglected your duties?
Sam: As I said, that would show a lack of faith.
WAA: Exactly. We are saved by our faith because our faith is part of our works. You cannot have faith without it revealing itself. You cannot hide your faith. Faith shows itself in good works. God has spent a lot of time and effort giving us commandments to show us the path of goodness. You have to disregard a large part of the Bible if you assume that commandments and keeping them is not important. It seems important to God. Your good actions—measured by their consistency with God’s commandments—demonstrate your faith in the giver of those commandments.
Sam: But it is never enough. We cannot do enough to merit salvation. The apostle John taught that whoever claims to be without sin is deceiving himself (1 John 1:8).
WAA: That is true. That is precisely why we need a Savior. Christ knows that we would never do enough. But that is no reason to stop trying. There are many things that I have not mastered but that I keep trying to master. For a righteous person driven by faith, falling short is incentive to get up and try harder, having faith that Christ will help you to do better, that with His help you can do better. The Master of all takes our very best efforts, however imperfect, and makes them perfect. He makes up the difference, in fact draws us on and helps us to narrow the difference. And He makes our efforts worthwhile with faith that the Savior will add the necessary finishing touches.
Sam: But only for those who believe in Him.
WAA: Again, we agree. Because we believe in Him, we try to be like Him, we do what He asks. Through our works we show Him—and perhaps show to ourselves—our faith. Or, as John taught, through our works of obedience we reveal that we love God and make that love real (1 John 2:3-6; 5:3). It is to those who have faith in Him, who love Him, in real life and living practice, that He extends His grace and salvation. We may not earn salvation, but in this way we qualify for it by meeting the conditions set by the Savior. The ancient American prophet, Nephi, explained it this way: “reconcile yourselves to the will of God, and not to the will of the devil and the flesh; and remember, after ye are reconciled unto God, that it is only in and through the grace of God that ye are saved.” (2 Ne. 10:24)
Sam: I still think that we disagree.
WAA: It is only if you try to separate faith and works that we will disagree. James described it in a powerful metaphor. He said that as the spirit and body united give life to the body and when separated the body is dead, so faith and works, when separated, become dead also (James 2:14-20, 26). So, we are saved by faith if you mean the faith that produces the works of complying with God’s commandments. If you do not, then your faith is dead and cannot save you because it does not help you to become better. What good is that kind of faith? It is of no value at all. It is the faith of the devils, as James explained (James 2:19), who have known the Savior from before the beginning of time. But God is the God of life and the living, and if your faith is alive it will lead you to the Source of all life, even to God the Father. As Jesus taught, “if thou wilt enter into life, keep the commandments.” (Matt. 19:17)
The conversation continues, but I will leave it there, for now.
Showing posts with label discipline. Show all posts
Showing posts with label discipline. Show all posts
Wednesday, August 11, 2010
Sunday, April 11, 2010
Of Government Collusion and Market Discipline
There is a lot of noise and confusion about what caused the recent financial panic. The Obama Administration believes that the basic problem is that markets do not work right, people are too dumb to choose for themselves, and that regulatory agencies were not able or were unwilling to keep up with bank shenanigans. Their solution: more of the same, that is, create a variety of new government agencies and bureaus that have the authority to dictate and control any part of or player in the financial system, including control of financial customers large and small (look in the mirror for the definition of financial customer). This neglects the fact that government agencies were the most blameworthy in the recent financial panic. In fact, it is impossible to have a long, sustained economic recession or depression without government policies causing it. (I will save for another day how the policies of the Federal Reserve and the Franklin Roosevelt administration made sure that an economic downturn became a depression lasting for a decade.)
Let me address the first of these points in the Obama administration’s justification for taking over the financial system. First of all let us consider the markets. It is true that the markets did not perform right. That was because government rules, structures, and programs did not allow the markets to perform right. The government guarantees bank deposits, so depositors do not care very much how safe or sound a bank is. Government-sponsored enterprises (GSEs), like Fannie Mae and Freddie Mac, bundle up mortgages into securities that investors assume have little or no risk. The Securities and Exchange Commission (SEC) approves and controls the small number of credit rating agencies, and investors believe that these agencies are right when they give to a particular company or investment their highest credit rating (such as AAA), a rating that is thought to present little or no risk. The SEC has protected these agencies from competition and from market discipline for their errors while providing little in the way of regulatory discipline.
With those and other government protections in place the appearance of risk just about disappeared from the mortgage markets. Different investors have different appetites for risk. It was not the people hungry for high risk returns that fueled the housing bubble. Many of those with the weakest appetite for risk, seeking the safest investments, were drawn to the mortgage markets. In this government-manufactured atmosphere of little or no risk, many mortgage firms, increasingly non-bank mortgage firms, made it more and more possible for people to buy houses that they could not afford. Once the mortgage firm made the mortgage, regardless of the ability of the borrower to repay, the firm sold the mortgage to the GSEs, who sold it on to investors who poured trillions of dollars into what they thought was a safe haven. Then the mortgage firm went on to make more mortgages. Investors were shielded from asking whether the mortgages were any good, that is, whether the person buying the house could actually afford it.
That mispricing of the risk pulled more and more money into mortgages and real estate, driving prices up and up, pulling in more and more investors as the prices rose, until it was impossible to put one more Jack on the house of cards without it tumbling down. People panicked when “safe” investments turned out to be risky. Then the government started panicking, bailing out some firms and not others, changing the rules almost weekly, demanding hundreds of billions of dollars from taxpayers in order to pick financial winners and losers. Investors, not knowing where the government would turn next, panicked some more.
It was government interference in the market that failed, not the markets. Without all of the government camouflage, investors would have insisted on knowing that the mortgage borrowers could afford their houses before funding loans to buy them. Ask yourself this: would we have had the whole housing blow up if people who could not afford to buy houses were not given mortgages? Yet the Obama Administration, even today, is tripping over itself to find new ways to guarantee new mortgages, in many cases especially for people who cannot afford their houses. Where have all the subprime mortgages gone? They have gone to the Federal Housing Administration (FHA), where they have a government guaranty. (Watch what happens to the FHA house of cards in the coming months.) When will they every learn? Oh, when will they ever learn?
Giving more power to the kind of government agencies that helped create these problems hardly seems like the sensible answer. That is what the Obama Administration proposes, though. Instead of controlling the markets with more government interference and masking of risk, more bailouts for firms that should be allowed to fail, more power for some new government bureau to pick winners and losers and to tell people which financial products they can and cannot have, we should be exposing financial players more to market discipline. We should make it harder to hide risk and easier for investors to recognize the risks and allow the markets to charge higher prices for higher risks and lower prices for lower risks.
Market discipline has always been the quickest and surest regulator. It rewards the efficient provider of what the buyers in the market want, and it punishes the incompetent. Very importantly today, the market is stingy about bailouts.
Let me address the first of these points in the Obama administration’s justification for taking over the financial system. First of all let us consider the markets. It is true that the markets did not perform right. That was because government rules, structures, and programs did not allow the markets to perform right. The government guarantees bank deposits, so depositors do not care very much how safe or sound a bank is. Government-sponsored enterprises (GSEs), like Fannie Mae and Freddie Mac, bundle up mortgages into securities that investors assume have little or no risk. The Securities and Exchange Commission (SEC) approves and controls the small number of credit rating agencies, and investors believe that these agencies are right when they give to a particular company or investment their highest credit rating (such as AAA), a rating that is thought to present little or no risk. The SEC has protected these agencies from competition and from market discipline for their errors while providing little in the way of regulatory discipline.
With those and other government protections in place the appearance of risk just about disappeared from the mortgage markets. Different investors have different appetites for risk. It was not the people hungry for high risk returns that fueled the housing bubble. Many of those with the weakest appetite for risk, seeking the safest investments, were drawn to the mortgage markets. In this government-manufactured atmosphere of little or no risk, many mortgage firms, increasingly non-bank mortgage firms, made it more and more possible for people to buy houses that they could not afford. Once the mortgage firm made the mortgage, regardless of the ability of the borrower to repay, the firm sold the mortgage to the GSEs, who sold it on to investors who poured trillions of dollars into what they thought was a safe haven. Then the mortgage firm went on to make more mortgages. Investors were shielded from asking whether the mortgages were any good, that is, whether the person buying the house could actually afford it.
That mispricing of the risk pulled more and more money into mortgages and real estate, driving prices up and up, pulling in more and more investors as the prices rose, until it was impossible to put one more Jack on the house of cards without it tumbling down. People panicked when “safe” investments turned out to be risky. Then the government started panicking, bailing out some firms and not others, changing the rules almost weekly, demanding hundreds of billions of dollars from taxpayers in order to pick financial winners and losers. Investors, not knowing where the government would turn next, panicked some more.
It was government interference in the market that failed, not the markets. Without all of the government camouflage, investors would have insisted on knowing that the mortgage borrowers could afford their houses before funding loans to buy them. Ask yourself this: would we have had the whole housing blow up if people who could not afford to buy houses were not given mortgages? Yet the Obama Administration, even today, is tripping over itself to find new ways to guarantee new mortgages, in many cases especially for people who cannot afford their houses. Where have all the subprime mortgages gone? They have gone to the Federal Housing Administration (FHA), where they have a government guaranty. (Watch what happens to the FHA house of cards in the coming months.) When will they every learn? Oh, when will they ever learn?
Giving more power to the kind of government agencies that helped create these problems hardly seems like the sensible answer. That is what the Obama Administration proposes, though. Instead of controlling the markets with more government interference and masking of risk, more bailouts for firms that should be allowed to fail, more power for some new government bureau to pick winners and losers and to tell people which financial products they can and cannot have, we should be exposing financial players more to market discipline. We should make it harder to hide risk and easier for investors to recognize the risks and allow the markets to charge higher prices for higher risks and lower prices for lower risks.
Market discipline has always been the quickest and surest regulator. It rewards the efficient provider of what the buyers in the market want, and it punishes the incompetent. Very importantly today, the market is stingy about bailouts.
Saturday, February 13, 2010
Of Christ and the Perfection of Men
A fundamental principle taught by Jesus Christ and His prophets and Apostles is the perfectibility of men. Embedded in the middle of the Savior’s Sermon on the Mount is this commandment: “Ye are therefore commanded to be perfect, even as your Father which is in heaven is perfect.” (Matthew 5:48, JST) The resurrected Savior repeated the same commandment to His disciples in the Americas, with these words: “Therefore I would that ye should be perfect even as I, or your Father who is in heaven is perfect.” (3 Nephi 12:48)
The Apostle Paul developed this theme, explaining the role of apostles and prophets and other workers in the Church in helping men to become perfect:
Of course, looking around us it is hard to find examples of men or women who have become perfect. That is surely why Paul pointed to Jesus Christ as our example by which to measure our progress and upon whom to model our development. Having said that, I have not found it hard to discover examples around me of men and women who are becoming more perfect.
The objection to the perfectibility of men is usually raised with little substantive argument but rather with a disdainful huff or with a gesture to the surrounding society as if to suggest that belief in perfectibility of men is naïve at best. There is some merit to this argument if you neither look closely at individuals nor at how the power of God operates upon the Father’s children. Men left to their own devices are hardly improvable let alone perfectible. And yet how do we account for those who are becoming better people, often much better people?
An ancient American prophet king, by the name of Benjamin, described the common condition of men this way:
We all know that untaught, unguided children tend to grow up to become barbarians. The biggest problems in public schools come from children who have either little parental guidance or bad parental guidance. On the other hand, time and again we see children who are well cared for and guided by their parents overcome enormous obstacles to become noble men and women.
King Benjamin, as a king and a prophet, was saying that we should learn from God our Father as our children learn from us. It is by allowing the power of the Holy Spirit to change our hearts and attitudes that we become better and better and more like God, more perfect all the time, as Paul also explained to the Ephesians.
Similarly in our day prophets of Jesus Christ have reemphasized the perfectibility of men under the influence of God. The Prophet Joseph Smith taught in an epistle in January 1834,
It is also proper and important to note that improvement and perfection is an individual accomplishment. While men certainly may help and encourage one another, each man must grow in perfection by himself, and he must do it without coercion, since perfection comes by his own free choices, building his own moral character through the decisions made throughout the course of a lifetime. Because of the individual nature of the perfecting process, efforts by governments to coerce perfection from their people are not only doomed to failure, but they will actually impede the moral growth of the people by limiting their opportunity to choose to do good.
The Apostle Paul developed this theme, explaining the role of apostles and prophets and other workers in the Church in helping men to become perfect:
And he gave some, apostles; and some, prophets; and some, evangelists; and some, pastors and teachers; for the perfecting of the saints, for the work of the ministry, for the edifying of the body of Christ: till we all come in the unity of the faith, and of the knowledge of the Son of God, unto a perfect man, unto the measure of the stature of the fulness of Christ . . . (Ephesians 4:11-13)
Of course, looking around us it is hard to find examples of men or women who have become perfect. That is surely why Paul pointed to Jesus Christ as our example by which to measure our progress and upon whom to model our development. Having said that, I have not found it hard to discover examples around me of men and women who are becoming more perfect.
The objection to the perfectibility of men is usually raised with little substantive argument but rather with a disdainful huff or with a gesture to the surrounding society as if to suggest that belief in perfectibility of men is naïve at best. There is some merit to this argument if you neither look closely at individuals nor at how the power of God operates upon the Father’s children. Men left to their own devices are hardly improvable let alone perfectible. And yet how do we account for those who are becoming better people, often much better people?
An ancient American prophet king, by the name of Benjamin, described the common condition of men this way:
The natural man is an enemy to God, and has been from the fall of Adam, and will be, forever and ever, unless he yields to the enticings of the Holy Spirit, and putteth off the natural man and becometh as a child, submissive, meek, humble, patient, full of love, willing to submit to all things which the Lord seeth fit to inflict upon him, even as a child doth submit to his father. (Mosiah 3:19)
We all know that untaught, unguided children tend to grow up to become barbarians. The biggest problems in public schools come from children who have either little parental guidance or bad parental guidance. On the other hand, time and again we see children who are well cared for and guided by their parents overcome enormous obstacles to become noble men and women.
King Benjamin, as a king and a prophet, was saying that we should learn from God our Father as our children learn from us. It is by allowing the power of the Holy Spirit to change our hearts and attitudes that we become better and better and more like God, more perfect all the time, as Paul also explained to the Ephesians.
Similarly in our day prophets of Jesus Christ have reemphasized the perfectibility of men under the influence of God. The Prophet Joseph Smith taught in an epistle in January 1834,
We consider that God has created man with a mind capable of instruction, and a faculty which may be enlarged in proportion to the heed and diligence given to the light communicated from heaven to the intellect; and that the nearer man approaches perfection, the clearer are his views, and the greater his enjoyments, till he has overcome the evils of this life and lost every desire for sin . . . (Teachings of the Prophet Joseph Smith, p.51)
It is also proper and important to note that improvement and perfection is an individual accomplishment. While men certainly may help and encourage one another, each man must grow in perfection by himself, and he must do it without coercion, since perfection comes by his own free choices, building his own moral character through the decisions made throughout the course of a lifetime. Because of the individual nature of the perfecting process, efforts by governments to coerce perfection from their people are not only doomed to failure, but they will actually impede the moral growth of the people by limiting their opportunity to choose to do good.
Thursday, August 20, 2009
Of Discipline and Every Good Thing
God sent us to the earth to test us, to see whether we would do all things that He would require of us. Abraham recorded a vision he saw of the Father and the Son before the creation of the world as They discussed the purpose of the creation. It was clear that the world was made for the children of God. In that vision the Son, Jesus Christ, said to the Father, “We will go down, for there is space there, and we will take of these materials, and we will make an earth whereon these may dwell; and we will prove them herewith, to see if they will do all things whatsoever the Lord their God shall command them” (Abraham 3:24,25).
The Father never commands us to do anything other than what is good for us. All of His commandments are designed to make us happy. Where is the test in responding to commandments like that? Here, do these things and you will be happy. Here is the earth and all its riches. Here is life in a physical body with the capacity to enjoy those riches. Here are family and friends with whom to enjoy all this goodness. Where is the test?
God made the test by making us aware of the goodness of things long before it would be good for us to have them. An important part of the test of life is waiting to partake of the good things of this creation until we are actually prepared to receive and enjoy that goodness. Dessert is after dinner. You can drive the car once you have learned and once you have earned a license. Sexual relations are reserved for marriage, when their riches are unlocked for you within the bonds of genuine love and within a family ready to receive and raise children surrounded by the security of loving and committed parents.
Taking of the good things of life too soon can often limit or destroy the value and the goodness, harvesting the grapes before they are ripe. You cannot put them back on the vine once you have discovered that they are still sour.
Passing these tests of life requires discipline. We learn to harness and control our appetites. It does not mean forsake the goodness of the earth; the discipline of God means to partake of that goodness in its fullness. Through the development of that discipline by faith in the goodness to which the commandments lead we become disciples. From the days of Adam and on into our day the disciples of Christ have been able to “lay hold upon every good thing” (Moroni 7:25).
The Father never commands us to do anything other than what is good for us. All of His commandments are designed to make us happy. Where is the test in responding to commandments like that? Here, do these things and you will be happy. Here is the earth and all its riches. Here is life in a physical body with the capacity to enjoy those riches. Here are family and friends with whom to enjoy all this goodness. Where is the test?
God made the test by making us aware of the goodness of things long before it would be good for us to have them. An important part of the test of life is waiting to partake of the good things of this creation until we are actually prepared to receive and enjoy that goodness. Dessert is after dinner. You can drive the car once you have learned and once you have earned a license. Sexual relations are reserved for marriage, when their riches are unlocked for you within the bonds of genuine love and within a family ready to receive and raise children surrounded by the security of loving and committed parents.
Taking of the good things of life too soon can often limit or destroy the value and the goodness, harvesting the grapes before they are ripe. You cannot put them back on the vine once you have discovered that they are still sour.
Passing these tests of life requires discipline. We learn to harness and control our appetites. It does not mean forsake the goodness of the earth; the discipline of God means to partake of that goodness in its fullness. Through the development of that discipline by faith in the goodness to which the commandments lead we become disciples. From the days of Adam and on into our day the disciples of Christ have been able to “lay hold upon every good thing” (Moroni 7:25).
Monday, September 8, 2008
Of Borrowing and Saving
The basic rule is, if you are not already saving, then you are not ready to borrow. This may sound paradoxical, but it is the only safe way to approach borrowing.
You may wonder, if I have savings, then why would I borrow? That question may be answered in any number of ways. Asking it suggests some lack of understanding of the proper purpose of borrowing.
The proper purpose of borrowing is to manage your income. You should never borrow to spend beyond your income.
Most people receive income in lumps, like once a month or twice a month. Expenses do not always behave themselves that way. First, there are the every day expenses, such as for food, transportation, and a wide range of miscellaneous minor expenditures that quickly add up. Then there are other expenses that occur monthly and may more or less happen at about the same time as your income. A third category is the big expenditure, that may come once or twice a year, such as tuition, taxes, major purchases, insurance premiums. Since the timing of our income and outgo often do not line up, we use borrowing to help bring the two into line.
For example, the tuition is due in September, but you plan to pay for college by working through the school year. A student loan or other borrowing arrangement with the college can line your income up with the expense.
Another example might involve a big appliance. Your refrigerator breaks down and you need a new one. You may not usually have several hundred dollars of unallocated income available in any one month to pay for the new refrigerator, but you likely will over the course of a year. Borrowing lets you draw that income from the course of the year into your current month and match it against this large purchase needed today.
Here is a bigger example. You need a new car, both for family transportation and perhaps even for travel to work. Very few people have enough ready income to buy the new car with what will be received in any one month. Most people, though, can draw upon funds available from their income over the course of a few years to pay for the car, and borrowing is the tool that they can use to do that.
Of course, this borrowing from the future to pay for something today can be abused. There is a natural temptation common to man to seek gratification today and worry about tomorrow’s problems tomorrow, even while causing them today. Two things can help counter this potential for abuse. One is interest, and the other is saving.
Interest is what we pay for borrowing. While rewarding the lender, it is a penalty against anyone who borrows in order to spend beyond his income. As you spend beyond your income, the interest mounts. In the end, it will bring down the abuser once the abuse has gone too far and gets out of hand.
Saving is a more benign and effective check on the impulse to borrow in order to spend beyond income. If you are regularly saving, you are doing something even more important than preparing for the future and reaping the rewards from lending to other borrowers. By definition, if you are saving, you are living within your income. You are taking part of your income and putting it aside. That discipline is what is needed to prevent you from using borrowing to exceed your income. You have a proven practice of spending less than you earn.
That is why I say that if you are saving, then you are prepared to borrow, and if you are not saving, then you are either living right on the edge—spending your income as fast as it is received—or you are going beyond, borrowing to spend beyond what you earn, and that leads to trouble. Then you will be spending to consume something that you did not earn and do not deserve. The eventual price for that is loss of freedom, as you must in the future consume much less than you earn in order to satisfy the debts.
You may wonder, if I have savings, then why would I borrow? That question may be answered in any number of ways. Asking it suggests some lack of understanding of the proper purpose of borrowing.
The proper purpose of borrowing is to manage your income. You should never borrow to spend beyond your income.
Most people receive income in lumps, like once a month or twice a month. Expenses do not always behave themselves that way. First, there are the every day expenses, such as for food, transportation, and a wide range of miscellaneous minor expenditures that quickly add up. Then there are other expenses that occur monthly and may more or less happen at about the same time as your income. A third category is the big expenditure, that may come once or twice a year, such as tuition, taxes, major purchases, insurance premiums. Since the timing of our income and outgo often do not line up, we use borrowing to help bring the two into line.
For example, the tuition is due in September, but you plan to pay for college by working through the school year. A student loan or other borrowing arrangement with the college can line your income up with the expense.
Another example might involve a big appliance. Your refrigerator breaks down and you need a new one. You may not usually have several hundred dollars of unallocated income available in any one month to pay for the new refrigerator, but you likely will over the course of a year. Borrowing lets you draw that income from the course of the year into your current month and match it against this large purchase needed today.
Here is a bigger example. You need a new car, both for family transportation and perhaps even for travel to work. Very few people have enough ready income to buy the new car with what will be received in any one month. Most people, though, can draw upon funds available from their income over the course of a few years to pay for the car, and borrowing is the tool that they can use to do that.
Of course, this borrowing from the future to pay for something today can be abused. There is a natural temptation common to man to seek gratification today and worry about tomorrow’s problems tomorrow, even while causing them today. Two things can help counter this potential for abuse. One is interest, and the other is saving.
Interest is what we pay for borrowing. While rewarding the lender, it is a penalty against anyone who borrows in order to spend beyond his income. As you spend beyond your income, the interest mounts. In the end, it will bring down the abuser once the abuse has gone too far and gets out of hand.
Saving is a more benign and effective check on the impulse to borrow in order to spend beyond income. If you are regularly saving, you are doing something even more important than preparing for the future and reaping the rewards from lending to other borrowers. By definition, if you are saving, you are living within your income. You are taking part of your income and putting it aside. That discipline is what is needed to prevent you from using borrowing to exceed your income. You have a proven practice of spending less than you earn.
That is why I say that if you are saving, then you are prepared to borrow, and if you are not saving, then you are either living right on the edge—spending your income as fast as it is received—or you are going beyond, borrowing to spend beyond what you earn, and that leads to trouble. Then you will be spending to consume something that you did not earn and do not deserve. The eventual price for that is loss of freedom, as you must in the future consume much less than you earn in order to satisfy the debts.
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