We live in remarkable times, and our relationship to money is very different because of it. Appreciating this can open up possibilities for how you think, feel and act with your money.
We all see the world through the lens of the culture and the times in which we live. People living during the Renaissance didn’t know they were living during the Renaissance.
It’s often only in hindsight that we can see the pattern.
Today it’s hard to fully appreciate the truly remarkable conditions in which we live. To us, it’s just life. To our ancestors, it would be breathtaking.
Consider that for nearly all of mankind’s existence, our ancestors lived on the equivalent of about $1 to $3 a day. Imagine paying for your home, your food, your clothing, your medical needs – everything – from a total of $1,095 for the entire year, or about $91 per month. For us that would be dire poverty, yet that’s what our ancestors lived on – and, until recently, most of the population on Earth.
Something changed all that, beginning in the late 1600s in Holland, spreading through England in the 1700s and moving gradually – and then recently more quickly – throughout the rest of the world.
That $1 to $3 a day grew by a very conservative factor of 16. And more realistically, when you include the vast improvement in the quality of goods and services, it grew by a factor of 100 (how do you compare an iPhone or antibiotics with anything in existence a few hundred years ago?).
This was the beginning of the Industrial Revolution, followed soon after by what Deirdre McCloskey calls the “Great Enrichment” – which we are very much still enjoying.
Throughout history there have been times and places of improved economic conditions. But for perspective, the best that you’ll find is maybe the raising of average income to $6 to $8 a day. Though that never lasted for very long, and it’s still dire poverty by our standards.
Today, the worldwide average income is about $33 a day, and in the wealthier countries it’s more like $100 or so a day.
Therefore, if you’re reading this, it’s very likely that the average income among everybody in your country – not just a fortunate few – is more than 30 times what our ancestors could expect to live on. Adding the incalculable innovations and improvements (those iPhones and antibiotics again), we can conservatively more than triple that.
This isn’t the difference between having a clunky or nicer car; a small apartment or a large house; shopping at a discount store or a fancy store. This is the difference between a high probability of an early death by starvation or disease or living a relatively good life until about 80.
In other words, this change since 1800 or so is a phenomenal improvement in life for all people.
Economists and historians have searched for the difference that caused the Industrial Revolution and the resulting Great Enrichment, and they have asserted many different opinions…
That it was the accumulation of capital, property rights, thrift, natural resources, or imperialism and oppression… but none of these can explain it. That’s because each of these has been present and often in abundance for millennia without leading to a great enrichment of regular people across the spectrum.
It was, of course, a function of innovation. But innovation itself was not new, either.
Innovation Is Everything
Historically, innovation was largely drawn from the relatively small population of the aristocracy and the clerisy. For most people, there was no encouragement to innovate. In fact, they were more likely to be shunned for it.
It’s hard to imagine a culture in which curiosity and innovation weren’t appreciated, where it was literally sinful for regular people to come up with ideas that could change and improve life for regular people. But this was common for most of mankind’s history.
Deirdre McCloskey’s brilliant thesis in her trilogy The Bourgeois Virtues, Bourgeois Dignity and Bourgeois Equality is that it was the sudden opening of an atmosphere of dignity and liberty for ordinary people that led to the Industrial Revolution and the Great Enrichment that is still lifting multitudes out of dire poverty around the world today.
It wasn’t the accumulation of capital, imperialism, property rights… or even innovation in itself that made this difference. It was an idea and a conversation that changed. Regular people were encouraged and given the freedom to innovate, exploding the potential for mankind’s inventiveness.
Today, we’re accustomed to a pace of innovation that would’ve made our ancestors’ heads spin.
Our ancestors had to put a certain amount of grain to use for seed aside for the following year’s planting. They saved, not so they could build their wealth but so they could possibly not starve to death the next year – and starving to death was a very real possibility. Famine was an ever-present fear, occurring roughly every 10 years or so in many places. And this has been commonplace for much of the world up until several decades ago.
We have the possibility of saving a part of our wealth now that we can invest and grow – allowing our wealth to build even more wealth for us while we do other things.
For us, the challenge has more often come in the form of what trade-offs we choose…
Do we choose short-term or long-term financial goals?
Do we take some of the money we earn and spend it on things that have the potential to work for us and earn money all on their own (what we call investments)?
Do we spend all of our money now on things we want or need?
Do we spend more than we earn and take on debt from what we buy now to be paid with money we earn later?
These are serious choices, and the wrong ones can bring financial ruin. But can you appreciate the fundamental difference between such a scenario and those that nearly all of our ancestors faced just a few short decades ago when they had to choose between more food now or potential starvation later?
Money issues still carry with them a sense of life or death, a primal sort of anxiety that can grip us at 3 a.m. when we realize that there’s a problem with our finances.
But if we can step back from the familiar of today and observe our situation from the perspective of our ancestors, we may be able to also step out of that primal anxiety and see how vast our own resources – and the potential for their growth – actually are.
How we approach life’s problems and opportunities can look very different when we let this sink in.