James d. Gwartney

Video:
Growing Money
Again, our point is not that you should live a miserable life of austerity and sacrifice so
that you can be rich when you retire. Where’s the advantage in becoming rich in the future by
living in poverty until the future arrives? Instead, we are stressing that ordinary people can
have a high standard of living and still accumulate a lot of wealth because it does not take
much savings to get a big payoff. Of the $1,106,677 Honza accumulated by not smoking, only
$143,080 came from reducing his consumption. Indeed, people who save and invest will be
able to consume far more than those who do not. At retirement—or sooner—Honza can start
spending his wealth and end up having much more than if he had never saved.
All it takes is an early savings program in a tax-advantaged retirement account, a little
patience, knowing how to get a reasonable return on your savings (see the next two elements),
and taking advantage of the power of compound interest.
Note: Sharia or Islamic banking
Sharia or Islamic law forbids the payment of interest on debt. In order to compensate
lenders for the use of their money, Sharia banking has developed different types of financial
arrangements that are in keeping with the law, such as profit sharing. Investments in products

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such as alcohol and pork, which Muslims are forbidden to consume, are also forbidden for
investment. In addition, based on the concept of fairness, all parties involved in a business
transaction should share profits and losses—which implies that in order to gain a return on
investment, you have to be exposed to business risks. So, if you want to buy a car, for example,
an Islamic bank would buy the car, and agree to resell it to you for a fixed number of payments
totaling a slightly higher amount. You still have car payments, and the bank still makes money
on the transaction, and the transaction remains compliant with Islamic banking laws. Deposits
you make into a Sharia bank, instead of earning interest, will earn a set share of the bank’s
profits during the time the money is deposited.
Banks that are involved in Islamic banking must be separate legal entities, but some big
international banks have Islamic subsidiaries.

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