One very accomplished economist who also had a major impact on the workings of the American capital markets in the 20th Century was John Burr Williams.¹  In one of his best works, Interest, Growth, and Inflation, Williams discussed interest rates and inflation through an a-typical lense: he inverted personal debt, and viewed it instead as "contractual savings." Williams theorized that, if a person did not save money ahead of time to buy a car, but rather got the car first, and saved for it later by making monthly payments, that person was engaging in contractual savings.  The presence of a legally binding contract forced individuals to save; however, that savings had already been converted to consumption previously (bought the car earlier in time).  Williams ideas, or those very similar to his, have come to be known today as "forced savings".  This is a particularly well-known concept as it relates to home ownership.  The homebuyer is considered to have a forced savings program, as he or she pays down the debt on the home over time and builds equity (a very inefficient form of savings).  Williams viewed contracts, such as promissory notes, as the vehicle by which the majority of savings occurs in the United States.  Since he wrote this material in the early 1970s, the trend has only acclerated towards greater contractual savings.   

J.B. Williams distinguished "optional savers" from contractual savers.  He noted that people back in the 1930s typically saved first and bought goods later with cash.  However, by the late 1960s, people were typically buying first and saving later.  Today, most Americans are also bound by contract to make multiple payments against various items consumed in the past or present.  Under this arrangement, goods and services are provided by optional-savers, or those I will call "capitalist-savers", prior to the contractual savers' paying in cash.  The contractual savers must make good on their contracts, so that the providers of capital will both continue to have the means and the motivation to infuse the economy with finacial resources, savings, which provide the material for others to produce goods and services to the contractual-savers. 

The challenge for the aspiring capitalist is to view the economic situation from Williams' second kind of savings, optional savings.  The capitalist-saver, unbound by the constraints of contractual savings, produces free capital for allocation to projects that will earn a satisfactory annual compounding return on capital.  Stated differently, the contractual saver expends his or her capital ahead of time; when the capital actually arrives, which is saved income, it is already committed.  Prior committments will perennially keep the Contractual Saver in a financial dungeon, whereas the capitalist-saver has a continually broadening array of capital allocation choices.  The capitalist-saver is able to produce allocable capital through a strong inclination to part from the crowd and live far below his or her means.  As a result of choosing this path, the capitalist-saver has the resources to infuse banks, the U.S. Treasury, select real estate, and the capital markets with funds that are then used to make loans to the contractual savers of the world.  The capitalist-saver has a powerful weapon in his or her arsenal that the contractual saver sorely lacks: the power of compounding returns on capital.


1.  http://en.wikipedia.org/wiki/John_Burr_Williams

Williams, John Burr.  Interest, Growth and Inflation, Frazer Publishing Co. (1998), pp 44-46.
Williams mentioned, but did not elaborate very far on "optional savings".  Contrasting the two types of savers, I am attempting to elaborate in a logically consistent manner on Williams' mostly unexplored optional saver (the person standing opposite the contractually obligated saver).