Barn-Raising Borrowing

Communities in the United States in the 18th and 19th centuries would rally around a young married couple and get together over the course of a weekend and build them a barn. According to Wikipedia:

A barn raising is a one or two-day event during which a community comes together to assemble a barn for one of its households. [...]

Generally, participation is mandatory for community members. These participants are not paid. All able-bodied members of the community are expected to attend. Failure to attend a barn raising without the best of reasons leads to censure within the community.

Having the community raise your barn is essentially accepting debt. You pay your debt to the community back over the course of your lifetime by helping to build other people's barns.

In "Selfish Savings" I noted that the primary purpose of savings is to give us the "option of consuming in the future instead of today" enabling us to withstand bouts of unemployment and take care of ourselves in retirement. The barn-raising concept enriches this temporal nature of savings. Instead of the typical savings cycle over the lifetime of an individual being "save when you're young, then spend when you retire", it's "spend, then save, then spend". In other words, young adults borrow in order to have places to live, in order to set up households, and in order to have transportation to their jobs. Perhaps they also borrow to pay for an education so they can get a job. Then they occupy their productive years paying off debt and then saving for retirement. Finally, they spend down their savings during retirement. Instead of being the recipient of a barn and then being compelled to attend barn raisings forever, modern young adults simply borrow money and (usually) buy an existing house (or barn). Then they pay back the debt at a pace that works for them (and the lender).

This cycle of borrowing, spending and saving over the course of a person's lifetime would occur in the hypothetical economy outlined in "Selfish Savings" where everything is perfectly stable (GDP, population, production, etc.) and does occur in a real, dynamic economy such as the economy of the United States. So far, in the hypothetical examples I've described, the amount of money going into savings is exactly matched by the amount of money coming out of savings and individual entities (and families) receive virtually all of the benefits of savings (and borrowing).

In my next post on savings, we'll start with the hypothetical static economy and see what it takes to get a little growth to happen and how savings relates to that.