Thu 21 Dec 2006
Frugalism vs. Capitalism II
Posted by RichSlick under Money Management
[9] Comments
Lazy Man & Money replied with a counter argument to my post regarding Frugalism vs. Capitalism and the old chap put on a good show but I have to issue a response and here it is:
“That extra dollar will be taxed”
Are you seriously arguing that you shouldn’t earn extra money because you’ll be taxed for it? I think this epitomizes why frugalist won’t ever achieve superior wealth (note I’m not saying they won’t achieve a level of wealth – just not superior wealth) because they focus on the cheap and not on making the extra buck.
“The dollar a frugalist saves is typical a 100% guaranteed savings. The dollar that a capitalist earns is likely brought on with increased risk, that over the long run, might turn into a loss.”
A prudent capitalist mitigates his risk, carefully chooses his investments and seeks higher returns but you are correct, their investment MIGHT turn into a loss but just like when you woke up this morning it could have been your last day on earth – there are risks to everything.
2) “The capitalist buying new all the time can over-extend themselves…The capitalist consumes and consumes without heed of what it might be doing to the environment.”
I don’t recall ever writing anything about buying new all the time nor did I write anything about over extending yourself. I specifically wrote that a capitalist uses EXCESS CAPITAL (i.e. disposable income) to purchase whatever he/she wants without too much concern for the price or cost of an item.
“The capitalist consumes and consumes….†I don’t recall writing or advocating unlimited consumption nor did I write anything about willfully damaging the environment but society has a way of fixing issues like this via methods called boycotts, regulations, laws, and lawsuits.
3) “..Again, the capitalist over-extends himself, but justifies it by “helping the economy.—
Once again, never said anything about overextending yourself. Use EXCESS CAPITAL.
4) “This probably stems from the capitalists wasteful nature.”
“Capitalist wasteful nature†– Are we using the same meaning for the word capitalist? A capitalist invests his/her capital to achieve superior returns – what is wasteful about this? I posted the definitions of Capitalist and Capitalism on my blog.
5) “Car buying -… He also realizes that a car is a depreciating investment and would prefer to put his money in more investments.
A car is NOT an investment unless you’re using it to generate income (are you a taxi driver or a car dealer?). See my post here, (sigh and shrug shoulders).
“Capitalist…are looking for a way in which they can make more money for themselves†GOD YES! You have it down!
6) Pennies – I agree on this point, but don’t see any advantage or disadvantage to either.
You don’t see the advantage to earning an extra penny vs. not spending a penny? (Sigh and shrug shoulders.)
7) Spent time – The frugalist will be happy about the better world he has left behind, having twice as much as the capitalist, and have no debt. The capitalist risks ending up like Casey Serin, unable to sleep at night because the investments didn’t work out as planned.
I can name five billionaires off the top of my head: Bill Gates, Warren Buffett, Sam Walton, George Soros, Paul Allen and NONE of them got ultra rich being frugalist. These guys ALL own giant mansions, high end cars, yachts, planes, etc. They are die hard capitalist – leaders to look up to. How many frugalist billionaires can you list? How about frugalist millionaires?
I recall reading as a kid in the Guiness World Book of Records about some little old lady that died with 18 million dollars of net worth. If memory serves, she got rich by living dirt poor and if I recall even let one of her kids die because she refused to pay for medicine. Is this the kind of hero you aspire to be?>
I know many think of Warren Buffet or Sam Walton as frugalist because they drove the same old car for x years or didn’t splurge on whatever but make no mistake they didn’t get there by pinching pennies they got there by investing capital to achieve superior returns.
I do not believe you can honestly be both a frugalist and a capitalist and pursue both without sacrificing vigor for one or the other.
9 Responses to “ Frugalism vs. Capitalism II ”
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Framing this one Rich.
I don’t think just being frugal will achieve great wealth. A penny saved my be worth more than a penny earned (due to taxes and risk), but earning an extra 100 pennies will beat saving 1 penny any day of the week.
But I also think a lot a wanna-be “capitalists” can confuse consumerism with capitalism – like you did a little bit in this post. To quote you “I specifically wrote that a capitalist uses EXCESS CAPITAL (i.e. disposable income) to purchase whatever he/she wants without too much concern for the price or cost of an item.” What the (*&^!
A capitalist, per your own definition, is “…a person who has capital especially invested in business” – spending is NOT always the same as investing! The old expression “you have to spend money to make money” is only true if you are spending money sensibly. Spending money on a tailored suit could be an “investment” if you’re a merchant banker, “investing” in a lottery ticket isn’t, even if it helps the economy.
Once you have achieved great wealth, your “toys” will be often be more expensive than average. But, for example, Buffet is still RELATIVELY frugal – just look at the cost of his offices, cars, house etc. compared to his Net Worth. I’d argue that many of the wealthy people that have MADE their own wealth are reasonably frugal (there are a few notable exceptions such as Trump). I think spenders of wealth such as Paris Hilton tend to fall more in the “consumerist” camp than “capitalist”.
ps. In terms of extremely frugal billionaires I can think of Howard Hughes, but I don’t think he was all that frugal while he was making his fortune, just when he got old and more eccentric, so he’s probably not a legit example.
Actually Rich you show ignornce on this one. You assume way to much. Warren Buffett does not own a huge mansion. He drives himself around in an older car, refuses to hire a driver, his car has personalized tags that say thrifty and his home is in a modest middle income neighborhood with no garage whatsoever. He lives in the same home he bought back in 1958 for $31,500.
http://beginnersinvest.about.com/library/weekly/bl-warrenbuffett.htm
http://www.finfacts.com/irelandbusinessnews/publish/article_10007932.shtml
http://www.huffingtonpost.com/2006/09/21/billionairesonly-on-f_n_29974.html
Same Walton, when he was alive also drove an older vehicle and stoped in at a little cafe every day to have coffee with the neighbors, just like so many people in rural (small town) America.
This is what I was refering to the other day, while the super rich may be great captialists, they tend to be the ultimate frugalists as well….when I chose my online name, I realized the the King of Thrift was Mr Omaha himself, Warren Buffett.
So the last two comments basically have focused on whether ONE person – Warren Buffet is a true frugalist or not. One SINGLE person is all you could find out of 300 million in the US? For the sake of argument – I’ll concede Warren Buffet is a frugalist. Anyone else?
And enough wealth, at some point you need to use that excess capital (i.e. disposable income) that isn’t being invested for something.
like most all the super rich…read Forbes magazine…
http://www.forbesautos.com/advice/toptens/billionaire/01-billionaires.html
these articles have been around quite some time, and I have posted about the billionaires cars quite a few months back.
That is part of the reason they are super rich, because they don’t act rich.
I just saw all the cars. I wouldn’t consider any of those cars a frugalist car. Buffet has a Lincoln town car – relatively new at 2001. Gate & Allen like Porches.
The only vehicle that might be a frugalist one is that Volvo driven by Igvar Kamprad.
The Waltons like gas guzzling large trucks.
Ballmer drives a gas guzzling Lincoln Town Car although a few years old.
Where are all the ford escorts, toyota prius, or honda civics, or anything else that saves money?
Of course, all of these travel on their private jets, stay at high end hotels and no doubt eat at the most expensive restaurants but that’s on the company dime so maybe they really are all frugalists! lol!
the point is most all of them bought older cars with cash, did not borrow, and unlike most Americans do not trade them in every 2-3 years.
I do know that Buffett sold the lincoln on ebay this year, I am not sure what he bought to replace it…but believe me after hearing him on cnbc, I can say beyond doubt, that he paid cash…he was pretty critical in that interview of loans especially credit cards.
RE: Casey Serin:
Some similarly business-minded folks from the old country also run into tough times, due to their own innovative ideas for creating wealth, just like Casey:
Uzbekistani immigrants await discussion of entrepreneurial methods