Let me advance a heterodox idea: You can’t save. More precisely, you can’t provide for tomorrow’s consumption today with nearly as much certainty as you think you can. Most of what we consider “saving” is really just a hash of complicated contractual arrangements, with all the attendant fragility thereof; an unenforceable promise isn’t worth much.
Food
Consider food. Food can be stored for only a short period of time: let’s say several years, at the outside. You’re going to need to eat when you’re 65, but there’s literally no way to directly provide the food you’ll need in your 60’s when you’re in your 20’s. At best, you can save something else that you’ll (hopefully) be able to trade for the food you need in your 60’s.
Durables
Of course, some future consumption can be directly provided for; anything that wears out only slowly, or that can be stored indefinitely, can be acquired today for consumption in the future. Housing is the best example of this that comes to mind; you’ll need a place to live in your 60’s, and you can buy a house in your 20’s (well, in principle you can) that will be available to you then. (Modulo maintenance, eminent domain, &c.)
I argue that most of what you consume is more like food than it is like durable equipment: fuel, services, medical care, entertainment, appliances, &c. aren’t things you can save directly.
Investment
Most “saving” is really investment: you exchange part of what you produce today for (occasionally) something that will directly produce things in the future or (more usually) a promise of future income. An example of direct investment would be a cabinetmaker’s tools; if a craftsman buys a drop saw that will enable him to produce more goods for the same amount of labor, he has exchanged today’s goods for tomorrow’s income. Indirect investment is done through, e.g., stocks and bonds; the investment doesn’t enhance the productivity of the investor, it instead represents a 3rd party’s promise to deliver future income in exchange for money today.
Commodities
If one doesn’t wish to invest in capital equipment, one can always purchase property that will likely be exchangeable for goods and services in the future. Such property can be relatively mundane (precious metals) or exotic (oil wells), but all such saving rests upon two assumptions: First, that what is saved will not be stolen (or seized by the government) and second, that what is saved will hold its value to other people in the future.
Risk
The point of all this is that when one seeks to provide for one’s future, one must consider the likely future environment, and whether or not arrangements made today will be honored when they come due. Some things, such as the title to your house, are very likely to be honored. (But consider the hazards of war or, more seriously, eminent domain.) Other things, such as corporate bonds and other, more exotic securities (CMOs), are less certain. And then there are government entitlements, such as Social Security, that are entirely dependent on the year-to-year willingness of the government to continue paying them.
Which brings us to demography, and the problem of an aging population. Some people argue that a stable and/or shrinking population isn’t any problem at all: They argue that there will be less crowding, less pollution, &c. This overlooks the fact that someone has to make all the things that society consumes, and that, as we just saw, the elderly can’t, in any real sense, have saved goods for their retirement. All they can have done is to accumulate a variety of claims on the output of the workforce of the world of their old age. I suggest that those claims, whether made through government transfer programs, returns to capital, or asset prices of raw materials, will not be honored if they grow too onerous.
In the event of a perfectly inverted pyramid (4 grandparents, 2 parents, 1 child) I suspect the working children will reject the societal arrangement that renders them a laboring underclass charged with manufacturing consumables for a vast retired segment of society. Such rejection will be problematic.
Money
An obvious objection to all this is the simple argument that if a man puts money in the bank, he has just saved that money, and it will be available in the future. The simple answer to this objection is: consider hyperinflation. A sudden, massive fall in the real value of the currency in which his savings are denominated will leave him destitute. Whatever he was doing all those years, it wasn’t saving as we informally think of it.
In fact, such a man was really engaged in investment and currency speculation: He lent his excess production at very low (or zero) interest to his bank, in exchange for high liquidity and low nominal risk. The terms of that loan were specified in nominal dollars, exposing him to large losses in the event of currency depreciation.
