Guest article by Dr. Gary North (ⴕ)
ACTIVE WEALTH, PASSIVE WEALTH
And now, behold, the LORD hath kept me alive, as he said, these forty and five years, even since the LORD spake this word unto Moses, while the children of Israel wandered in the wilderness: and now, lo, I am this day fourscore and five years old. As yet I am as strong this day as I was in the day that Moses sent me: as my strength was then, even so is my strength now, for war, both to go out, and to come in. Now therefore give me this mountain, whereof the LORD spake in that day; for thou heardest in that day how the Anakims were there, and that the cities were great and fenced: if so be the LORD will be with me, then I shall be able to drive them out, as the LORD said. And Joshua blessed him, and gave unto Caleb the son of Jephunneh Hebron for an inheritance (Joshua 14:10-13).
Caleb is my favorite character in the Bible. He was a man with a vision, and his vision came true — most of it, anyway. He had stood alone with Joshua, when the two of them returned from scouting the promised land. The other ten spies recommended that the nation of Israel not attempt to conquer the land. They were afraid.
And they brought up an evil report of the land which they had searched unto the children of Israel, saying, The land, through which we have gone to search it, is a land that eateth up the inhabitants thereof; and all the people that we saw in it are men of a great stature. And there we saw the giants, the sons of Anak, which come of the giants: and we were in our own sight as grasshoppers, and so we were in their sight (Numbers 13:32-33).
In contrast, Caleb and Joshua recommended an immediate invasion. The inhabitants of the land looked large, but they were fall guys. The bigger they are, the harder they fall.
And Joshua the son of Nun, and Caleb the son of Jephunneh, which were of them that searched the land, rent their clothes: And they spake unto all the company of the children of Israel, saying, The land, which we passed through to search it, is an exceeding good land. If the LORD delight in us, then he will bring us into this land, and give it us; a land which floweth with milk and honey. Only rebel not ye against the LORD, neither fear ye the people of the land; for they are bread for us: their defence is departed from them, and the LORD is with us: fear them not (Numbers 14:6-9).
The people of Israel sided with the ten spies, so God condemned that generation to another 40 years of wandering in the wilderness — a fitting punishment. He gave them what they asked for.
And he gave them their request; but sent leanness into their soul (Psalm 106:15).
Only two men of that generation entered the promised land: Joshua and Caleb. That was their promised reward for standing firm.
Surely they shall not see the land which I sware unto their fathers, neither shall any of them that provoked me see it: But my servant Caleb, because he had another spirit with him, and hath followed me fully, him will I bring into the land whereinto he went; and his seed shall possess it (Numbers 14:23- 24).
Think about Caleb's situation. He was 40 years old and healthy. He had his whole life ahead of him. Yet he would spend his years of strength wandering in circles. He could build no house, plant no trees, and have no permanent place to call home — for an undisclosed period of time. He knew he would eventually settle down, but not before every man over age 20 — adult males at the time of the exodus — had died. For him, funerals must have been a delight. "503,264 down. 100,284 to go" (Numbers 1:46).
ACTIVE DUTY
When the invasion finally began, he was mentally ready. He was not some doddering old man. At age 85, he was ready for the biggest fight of his life. He had been waiting for this for 45 years.
He had long understood that the fulfillment of God's prophecy was not that he would die in his bed. It was only that he would cross into the promised land. He heirs would possess the land, but he might be killed. No matter. What was important was the inheritance. He had already been in battle for five years.
He still had his health. I think back to a TV ad for Geritol (remember Geritol?) in the mid-1970s. A middle aged woman who still looked pretty good assured us, "When you've got your health, you've got just about everything." To which Caleb might have added, "A sword would also be helpful. Spears are good, too."
He selected a mountain as his battleground. Usually, the defender wants the high ground. The attacker has more trouble assaulting it. We say, "It's an uphill battle." But Caleb wanted to attack the high ground.
Caleb had been 40 at the time of the scouting (Numbers 14:5). He was now 85. The war of conquest was still in progress. So, he had gone on active duty as a soldier at age 80. His goal was passive wealth: an inheritance to pass on to his heirs. But to gain it, he had to be an active participant. His years of passivity were the wilderness years: wandering aimlessly in circles, getting nowhere. Then, when most men are ready to sit on their laurels, he went on active duty. So did Joshua.
AGE 80: A MILESTONE
Before he died, Moses wrote a psalm. It was preserved, and it is included in the Book of Psalms: Psalm 90. In it, he observed,
The days of our years are threescore years and ten; and if by reason of strength they be fourscore years, yet is their strength labour and sorrow; for it is soon cut off, and we fly away (Psalm 90:10).
With modern medical technology and sanitation, Western man has exceeded this age limit by about half a decade. Some of this increase is a statistical deception. It is based on average life expectancy at birth. If we were to examine the statistics of life expectancy in 1900 for people age 5, we would find that most Americans survived well into what we call old age. From age 20, the age of death would be even greater. Life insurance premiums keep getting lower as we live longer, but the major breakthroughs in life expectancy have been related to the elimination of childhood mortality.
This is the greatest single triumph of capitalism: the near-elimination of most fatal childhood diseases. Our children outlive us. We do not bury them; they bury us. Ask any native in any backward society if there were just one Western benefit that he could have, what would it be? If your list of options included this one — he would not see any of his children die, and he would die at age 80 — he would take it.
Caleb was 85, yet he was still in the thick of the battle. There was no passive income for him at age 80. He still had a mountain to conquer after five years of war.
As yet I am as strong this day as I was in the day that Moses sent me: as my strength was then, even so is my strength now, for war, both to go out, and to come in.
He regarded this as a blessing.
This mental attitude is the standard. It is not commonplace today because we have been pitched the mythology of retirement by insurance salesmen who want to sell us high-commission, overpriced, whole life policies. Caleb had a great advantage. Whole life policies had not been invented. Neither had golf.
There are some men whose goal in life is to die on the 18th hole of a golf course, having just shot their age. I don't understand this because I don't like frustration. Missing a putt seems to frustrate people. My suggestion: avoid things that frustrate you. But, then again, nobody has ever claimed that golf is rational. Nobody rational has, anyway.
Now, if I were a master putter, I would consider producing a $39.95 DVD showing the duffers of the world how I do it. If your goal is to sell DVDs, and you have skills at putting, more power to you. But knocking a ball into a hole for its own sake makes no sense to me.
My paternal grandfather died the right way. He was 81. He was a life insurance salesman. He had just called his last remaining client to tell him that a new agent would handle the account. He was holding a Rolodex. His hands began to shake. He put the Rolodex back on his desk. "I think I'll go lie down," he told my grandmother. He did. He never got up again.
I use age 80 as a milestone. I think ahead, as if I were at my 80th birthday party. The heirs have gathered. What would I tell them about how I lived my life, in ten minutes, that they might remember and even benefit from? What kernels of wisdom could I pass down?
If people lived their lives with age 80 in mind, they would be in better shape when they reach age 80. They would have more to show for their investment of 80 years.
You have to make the time investment anyway. What is your highest likely rate of return? People miss the point when they look only at their investment of money. Money comes and goes. Fortunes are made and lost. But time is ours to use until it ends. It is the constant.
You will not make 80% of the money that Warren Buffett has made, but you will probably live 80% of the years that Warren Buffett will live. With respect to life expectancy, we are all dealt pretty much the same hand. That's why there is life insurance. The predictability of the statistics — the law of large numbers — makes insurance policies possible.
Not everyone can be Warren Buffett financially. In theory, everyone can be a low-budget version of Mother Teresa. The barrier to entry is not money. It's ethics and self-discipline, both of which are a matter of will, not external circumstances, and surely not money. We don't need a million Warren Buffetts. A million Mother Teresas, we could use. Two million wouldn't hurt.
ACTIVE WEALTH
Caleb after age 40 was seeking active wealth. He already had passive wealth. Wandering in the wilderness, he had food (manna), a place to sleep (tent?), good health, and a clear vision of the future. This was all good. Yet it was not what he wanted. He knew there was something better. He just had to be patient.
He had to spend these low-productivity years in preparation for his high productivity years. Normally, we think of life as the reverse. Retirement comes after the years of high productivity. But that which pushes us into retirement should be circumstances, not the stand-alone lure of retirement.
Barzillai is the biblical model. I have never heard a sermon about Barzillai. You probably haven't, either. But his story is worth knowing. He assisted King David during a difficult period for the king.
And Barzillai the Gileadite came down from Rogelim, and went over Jordan with the king, to conduct him over Jordan. Now Barzillai was a very aged man, even fourscore years old: and he had provided the king of sustenance while he lay at Mahanaim; for he was a very great man. And the king said unto Barzillai, Come thou over with me, and I will feed thee with me in Jerusalem. And Barzillai said unto the king, How long have I to live, that I should go up with the king unto Jerusalem? I am this day fourscore years old: and can I discern between good and evil? can thy servant taste what I eat or what I drink? can I hear any more the voice of singing men and singing women? wherefore then should thy servant be yet a burden unto my lord the king? Thy servant will go a little way over Jordan with the king: and why should the king recompense it me with such a reward? Let thy servant, I pray thee, turn back again, that I may die in mine own city, and be buried by the grave of my father and of my mother. But behold thy servant Chimham; let him go over with my lord the king; and do to him what shall seem good unto thee (II Samuel 19:31- 37).
He knew his limits. He was not good at making judgments any longer, not even between foods. He was worn out. But he wanted no handouts from the king. He was determined to remain a net producer, not become a net consumer. He forfeited the services of a servant for the sake of the king.
Active wealth is attained in the free market by selling services or goods. You are a net producer. The proof of this is that someone is willing to pay you for your services. If you were not a net producer, the buyer would buy elsewhere.
Active wealth is secured by improving your skills, becoming a better forecaster, and lowering production costs. It is a full-time job.
PASSIVE WEALTH
This is what so many Americans are pursuing. It is a futile quest for most of them. There is insufficient capital to provide everyone with passive wealth sufficient to make them comfortable American consumers. The West has created the political illusion of future passive wealth: the retirement system and the Medicare system. Together, these systems will bankrupt every nation that indulges itself in this political fantasy. Those people who plan to become dependent on government-provided passive wealth will not sacrifice income today to improve their own abilities to become producers of active wealth after age 65.
Passive wealth depends on the ownership of capital that benefits from the productivity of others. There is a legitimate role for passive wealth. It helps get us over rough places when we make mistakes or get sick. Insurance is the most common form of passive wealth. It is a marvelous invention. But it is for emergencies, not permanence.
They used to run ads for life insurance policies and annuities. There was a picture (drawn, not a photograph) of a silver-haired, distinguished-looking man and his equally distinguished-looking wife. They were on an ocean liner. The caption read something like this: "Retire in luxury on $5,000 a year." Those ads are long gone. The Federal Reserve System has seen to that. The depreciation of money wiped out the dreams of a retirement funded by any fixed-return investment. The bond market went into a 42- year slump in 1940.
Passive wealth for most people is supplementary, the way that the government says Social Security income is. Anyone who plans to live in comfort on his investment portfolio alone is as naive as the man who plans to live solely on Social Security. A few people can do it for a time. But the cost of living will rise and pension funds will go belly-up. When stocks pay dividends of under 2% per year, and fund expenses are 1.5% per year, Warren Buffett can live comfortably. You can't.
This is not a case against thrift. It is not a case against passive wealth. It is a case against exclusively passive wealth if you are under age 80. Passive wealth is supplemental. It is for rainy days.
The people who accumulate passive wealth successfully are usually active in building more of it. Buffett could quit. Why should he? I saw an interviewer ask Ray Charles if he planned to retire. Charles shot back: "And do what?" It's the doing that matters. If you're Ray Charles, why quit? He still sings great. He still plays the piano great. Would he be great in retirement? Would millions of people think this? "Ray Charles. What a great retiree he is!"
If his voice ever goes, he should quit. Sinatra quit too late. There comes a time to shuffle off to Buffalo. It takes wisdom to see this. It takes wisdom to accept the judgment of others who see this. But there are fall-back positions, such as teaching the skill that you can no longer perform for a living. Teaching can produce active wealth.
I have a friend, Art Cunningham. Art is a retired engineer. He has passive wealth: a pension. He is generally a rational fellow, except when it comes to golf. He gardens. He has a huge room filled with model trains. He also teaches full-time in a private high school. The school has fewer than 50 students. The school doesn't pay much, but it lets him pass on what he knows to the next generation — actually, the next to the next generation. For three consecutive years, his half dozen science students have won the state robotics contest. This year, it also won the regional. The contest covered five states. They compete against high schools with 3,000+ students.
For him, passive wealth is not supplemental in terms of the percentage it contributes to his overall income. But it is supplemental in terms of his lifestyle. His lifestyle is shaped by teaching, yet the money income that the teaching produces is supplemental to his pension.
In terms of the flow of money, he is richer passively than actively. But in terms of his preferred lifestyle, he is richer actively than passively. He is creating wealth actively in the lives of the students. But the money — digits — does not reveal this clearly.
CONCLUSION
I recommend that you write your speech for your 80th birthday party. Put down on paper or on a screen the story of your successes and how you achieved them. You have some successes. You probably want more. The act of writing them down, as if you had achieved everything you really want to achieve, will help you achieve whatever you want to achieve.
The original article was first published here
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