What if Everyone Became Frugal?

In the ongoing debate over early retirement, frugality, investing, and simple living, one point is often brought up by our detractors. It usually goes something like this:

Well, maybe spending less and investing more works for you, but if everybody did it, society would collapse! Our economy is driven by consumers – without them, we are nothing!

And from our own side of the wealth divide, I often get half-joking notes like this:

Don’t get too popular, MMM. I need those millions of consumer drones out there to continue mindlessly consuming so my stock investments in America’s largest companies can continue to pay me reliable dividends.

I can see the point that both sides are making, and on a superficial and short-term level, they are right.

But in the long run, I believe the picture is much brighter: society as a whole will be much better off  once we manage to convert them all to a huge army of Badass Mustachians. And here is why:

Newspaper reporters often repeat the phrase that consumers are the engine of economic growth in the United States. They say it so often that most people believe it, as witnessed by the quotes above. But when you read books written by economists (who in general know more about economics than newspaper reporters), they tell you that consumers are not the engine of economic growth. They are actually the caboose.

What is the engine of growth, then? It is the savers and investors. Only by sacrificing current consumption, can people put money into banks or share offerings, which end up in the hands of new and existing businesses who can then use that money to create new technology, factories, or human capital, allowing them to increase their productivity. Capital creates productivity, and productivity is the driver of our standard of living.

To express the same ideas on a smaller scale: Imagine an ancient fisherman who catches five fish per day with a spear. If he eats all the fish each day,  he is saving and investing none. But if he can survive on four, and use the body of the fifth one to invent a fishing hook (or trade it with someone else in exchange for a net), he has invested in capital instead of current consumption – this builds his future productivity.

As it works for the fisherman, so it works for the whole country: investment is good for building a nation’s productivity. A shortage of national investment (collectively called the “national savings rate”) can lead to a complicated spiral of international trade conditions much like the ones we are seeing now: a current account deficit, a trade deficit, and eventually a gigantic depreciation of the value of a country’s currency, and some say hyperinflation as well.

The details of that are interesting (I’m currently reading a hyperbolic book on the subject called “Crash Proof 2.0 ” by a grumpy news commentator named Peter Schiff). But they’re not necessary for our discussion here. Suffice it to say that “Saving and investment are GOOD for a country, not bad”.

This brings up the next question: “But if we’re so productive, and yet we’re not buying very much stuff, what will we do with all the stuff we make?”

It turns out that’s a great problem to have. Through the natural action of free markets, we’d end up doing a mixture of two things:
a) Exporting way more stuff and importing less
b) Choosing to work less and having shorter working hours.

To understand why that would happen, you just have to look at the actions of individuals again. If you’re working alone on an island, you only need to produce whatever you want to consume. If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.

If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work.

The last issue is, “but how will they pay for their early retirement, when all stock investments have collapsed due to the shrinking economy?”

I believe that’s just a misunderstanding of the effects of market forces. When a society decides it needs to earn less money, it can happen in a mixture of two ways:
1) people can work shorter work weeks, but similar career lengths
2) people can continue to work long work weeks, but save and invest the extra income for earlier retirement

Either way, there will always be young people looking to get ahead quickly and companies looking for cash to finance productivity improvements – these people will still need loans to start and fund companies. Similarly, there will always be mobile people in need of housing – and so real estate (just another form of capital) will continue to provide returns in the form of rent payments. Capital will always have some value, and thus the concept of investment will remain valid.

So, frugality as a whole would work very well for society. We’d produce less, and we’d earn less, but that is perfect since we would consume less as well.

With the basic economics out of the way, now we can get really idealistic. This growing group of newly-frugal people probably wouldn’t just sit around and gaze into the oak trees all day. A certain portion of them would actually be even more motivated to produce new things than they were when under forced employment.

So, they’d start working again. But without much demand for consumer products, society would probably value different things. Some people would be willing to spend more to buy all-renewable energy. This would create market opportunities to build more of the stuff. And it turns out that there are many trillions of dollars of work to be done in that area. Other people might be willing to spend on better health developments, building up developing countries, or improved educational opportunities.

If you check in on what Bill and Melinda Gates are up to these days, you’ll see a perfect example in large scale: people who no longer need to work for money, keep on working with the goal of helping the world instead. I want you to do the same thing once we’re finished getting rich together here.

All of these new desires would create more market demand, pulling workers into new fields and causing further growth of humankind’s capital. The free market would do its usual job of allocating resources efficiently, and it would feel much like it does today.

So you see, there is really no magic to the fact that we are currently buying and throwing away a lot of junk. Far from being a boon to our society, it’s really an enormous tax we place on ourselves, because it diverts our energy away from more beneficial efforts like the ones noted above.

In the short term, a massive switch to frugality would cause an economic depression, as the free market struggled to reallocate everything. Many people would suffer. But by creating a small and constant shift to a new way of living, the system will have time to adjust gracefully over time.

Luckily, there are only a few tens of thousands of Mustachians so far. The world isn’t in a rush to bend to our ways.  But together we’ll get this thing fixed, if we just keep the pressure on, slow and steady, until the job is done.


  • BK October 13, 2014, 6:51 am

    The economy and monetary supply is elastic, it is designed to adjust to whatever requirements are needed to ensure things ‘run smoothly’. Everything would be fine because of this, regardless of how people choose to live.

    Now if we assume that those controls weren’t adjusted in this what if scenario, then everything would most certainly crash. ‘That isn’t likely to happen. That would be like not using the steering wheel in your car when you came to a turn.

  • o October 16, 2014, 10:34 pm

    Sounds like Irwin Schiff’s (Peter’s father) book:: “How an Economy Grows and Why It Doesn’t”. Fantastic comic book! Last time I checked there was a reading of it on YouTube.

  • Ryan October 20, 2014, 6:35 pm

    MMM’s point is important–in the long run, it is not consumption but capital accumulation and productivity that drive the standard of living. There is no iron law of economics requiring that 2/3 or 3/4 of our output be consumed. But what people are missing here is the labor supply issue. When this came up at the ERE extreme blog I wrote this:

    It’s important to remember that, absurd as the overconsumption, overwork economy is, those of us with high savings rates benefit from it. The returns you get on your savings exist because, effectively, you own productive assets (whether through stocks, bonds, or whatever). Part of what makes those assets productive is the labor that runs them. If everyone works less, your productive assets produce less. Less production means less income for you and for everyone, which means less ability to fund projects that you want (like sending a man to the moon, which ultimately is just another form of consumption).

    There are a lot of moving parts here, which is why people interested in this should pick up a first-year graduate economics textbook to think through some simple models. I suspect that in the end, if everyone decided to work less, we could all still retire before the absurd age of 65–but probably the early retirement extreme would have to be less, well, extreme.

    • Nathanael September 22, 2015, 6:45 pm

      There is a massive difference between real capital (hydroelectric turbines, bridges, solar panels, factory machinery, etc.) and financial capital. Confusing the two has led to a lot of confusion.

  • Lukas November 27, 2014, 4:24 pm

    Actually to prove your point you just need to bring examples. Say Europe or more extreme: Bhutan. And I’m sure you can think of many more. These are regions with a lot less ridiculous spending and happier people than in America (or Singapore – your prime example of a consumerism-nation). Bhutan is even moving towards 100% organic farming. Or look at two of the richest European nations: The Dutch prefer to cycle bikes instead of driving cars just because it’s so much easier and the Swiss have built one of the best public transport systems in the world in spite of all the mountains.

  • Oleg Gonzo January 2, 2015, 6:07 pm

    I agree with the spirit of frugality, but I don’t agree with the argument you’re positing. Productivity is the engine of the economy, the demand for what the productivity . . . produces is like the body of the car that the engine propels. There would be no investors without shareholder return, aka generating wealth for the investors defined as earnings per share, which is based on increasing monetary demand for the productivity, whether it makes iron ore, financial planning software or the next iPhone. The way I see it, the engine is driven when people and institutions either buy a lot cheap things (crappy plastic lawn chairs from Chinese sweatshops), or fewer much more expensive things (handcrafted wooden lawn furniture bought locally), but I don’t see how you can have both Wall St. and everyone living by the frugality standards you are promoting.

    I wish it were different. If everyone reduced their consumption and spending by even as little as a third (driving down stock prices) perhaps we can see how the economy adapts. For some reason I don’t think Wall Street would be happy with everyone consuming less.

  • Fuweike January 21, 2015, 10:42 am

    A great example of what you’re talking about is Norway. They have tons of oil off their coast, and they are doing their best to sell it in a way that is environmentally responsible. With the profits, they keep and invest it, rather than spending it. The results is that whereas many countries like America have crushing national debt which takes enormous capital just to service, Norway has around $850 billion, and growing. Using MMM’s rule of 25, this would translate into $34 Billion of revenue every year. When Norway’s oil runs out, they’ll have an enormous treasure chest of cash to finance their education, healthcare, infrastructure, and other expenses without devaluing their currency or crushing their citizens with unreasonable debt.

    So, we don’t have to speculate what would happen if an entire country saved and invested its money on a large scale rather than spent it: Norway has already proved the merits of doing just this, with great success!

    • JMR February 4, 2015, 8:13 pm

      That sounds great until you consider the rising cost of running their growing pensions and social services as immigration rises and as people continue to abuse the free education system by remaining students during the duration of their careers. These are considerable problems in Scandinavian countries. I have a friend in Stockholm who has three Ph.D. degrees and plans to get another one because the financial support he is receiving and the leisure he enjoys keeps him content.

      • Kevin March 20, 2017, 11:05 am

        yes, all is not rosy in those countries. for example, Denmark has the highest per capita household debt in the world. so yes great quality of life and “free” this and that, but it’s an illusion, cause it’s propped up by debt financing. and of course it is, because it’s as expensive as fuck to live there.

        Norway has done a nice job with their oil, although probably not in a way that’s recommended (basically nationalizing the entire industry).

  • Doug May 3, 2015, 6:45 am

    In an odd way Mustachians are serious consumers when they’re still working and building a stash. Right now every cent that doesn’t go towards buying something else is going towards buying stocks or some other kind of investment. Buying stocks or rental houses is spending the money just the same as if I were buying cars or jewelry or clothes. The money is still flowing back into the economy to somebody that’s going to spend it, and it’s not getting sat on. I’m spending essentially 100% of my income, even if I’m buying something that will gain me value not lose it.

  • Michelle August 2, 2015, 11:03 pm

    I hate that Americans are called “consumers” with more frequency than “citizens.” It drives me crazy-just like the “consumers are the engine of growth” mentality. We have become completely out of touch with what is important. We are one of the richest countries in the world BEFORE factoring in items purchased. We need to practice Gratitude on a daily basis. Practicing Gratitude has been one of the major factors in killing my consumption habit. I have enough-but when I do consume I do it thoughtfully and with care.

  • Nathanael September 22, 2015, 6:43 pm

    There is a humungous distinction between “savings” and “investment”.

    Money I save under my mattress is bad for the economy in general (though it’s good for me).

    Money I put in a deposit account at Generic Evil Bank, which is used to make liar’s loans and defraud people, and to give bonuses to corrupt executives, is bad for the economy.

    Money which I invest in a startup which is building useful infrastruture — now that’s good for the economy.

    So, consider: suppose you buy some solar panels. You could look at this as wasteful, expensive consumption — but it’s also investment, very long-lasting investment, which will help the economy over the long run.

    Eventually, you want to spend your money — on socially useful and valuable investments. Andrew Carnegie was frugal in many ways, but he then spent his money building a huge network of public libraries. And that’s a form of spending which I dare anyone to say anything negative about!

  • topaustrian March 8, 2016, 9:05 am

    You are absolutely correct that us savers and investors are the engine of the economy. Are you an Austrian?

  • Will Bloomfield April 14, 2016, 11:40 am

    I’m coming to this post very late in the day, but I wholeheartedly agree: savings and investment are necessary; consumption follows. And the last commenter is also correct, this view very much accords with Austrian Economics. See https://mises.org/

    A great introduction to economics is Henry Hazlitt’s Economics in One Lesson, which is based on Frederic Bastiat’s 19th century essay, “That Which is Seen, That Which is Not Seen.” See http://bastiat.org/en/twisatwins.html. Bastiat’s Economic Sophisms is also great.

  • Trip October 27, 2016, 12:44 pm

    I have often thought about this topic ever since 2007. I came to the same conclusions as you. Abrupt change – massively painful. Slow and steady change – great for individuals and society.

    I agree that the U.S. would be much better off if everyone was saving and investing 15 percent or more of their income. I question what would happen if everyone did 50 percent or more. Is this even possible? That would be quite a radical cultural change.

    Then, would such a high level even be healthy? I look to Japan as an example (low birth rates and high savings rates compounds their problems). I don’t know how well the Japanese turn their savings into investments though.

  • Toubo January 3, 2017, 4:12 am

    Hello everybody,

    I discovered this blog a few days ago and started reading from the first post. I am already here… A bit too much if you ask me, but I am really enjoying myself reading all the posts, and I am doing some pretty deep soul searching currently thanks to this.

    Reading this particular article, I could not help noticing the analogy of the fisherman and his daily /fishing/consumption of fish. I do not know if it is a fluke or not but there is an excellent comics written by Irwin A. Shiff a long time ago (but still pretty much spot on) explaining all there is to know about money, capital, Austrian vs Keynesian economy etc. while being extremely interesting to read, especially maybe for the economic beginner non-mustachian. Since I did not notice any reference to it in the comments (that I checked quite quickly I must admit), here is the link: http://freedom-school.com/money/how-an-economy-grows.pdf

    I actually made an article on the subject a long time back on my own blog, which I started re-working on again after discovering MMM! Shameless advertising, I know it is bad taste:


    I was thinking about using my blog to discuss more world economic oriented things, but it is actually quite hard to find subject for regular posting, and each post requires a huge amount of research, so I am contemplating adding some down to earth Mustachian posts on what I know best, life as a foreigner in Japan.

    In any case, really happy to have discovered this blog, I will keep on reading now and commenting from time to time.

  • Marcin January 12, 2017, 3:41 pm

    I’m aiming for FI myself, but I disagree with your notion that everyone could do it.

    I think there are 2 pieces of this philosophy: saving and investing. Yes, most people could consume less now and save more money, but with the increase of the investment capital, the price of capital (i.e. interest/rents/dividends you could get for it) would become extremely low, below your current “safe withdrawal rate”. This would mean that early retirees would be mostly spending the savings made earlier (and they would need more savings) rather than living off interest. Without counting on return on your savings, I don’t think it’s likely to save within 15 years sufficient money to support yourself through the remaining 50 years, at least not in most jobs.

    Productivity improvements from increased saving rate, would probably be balanced by decrease in consumer demand due to lower spending, but even if they was any excess productivity gain, I don’t think it would be likely propagated to workers in the form of higher wages.

    So I’m afraid that we can only do what we’re doing by benefiting from the rest of the society who choose not to. On the upside if everyone started investing their savings now, the demand for investments would skyrocket and current owners would observe a huge one-time benefit by the value of their investments growing, but future yields for everybody would be terrible.

    This is kind of already happening with huge amounts of capital chasing the current stock market/startups/real estate at huge valuations, despite expected future returns being historically low.

    PS: Check out for more rigorous reasoning on the saving rate: https://en.wikipedia.org/wiki/Golden_Rule_savings_rate .

  • Jeff kelley February 26, 2017, 11:37 pm

    The less our society consumes, the more time our earth gets to heal itself. The less food we consume, the more time our bodies get to heal ourselves. Consuming less gives us time to live the lives we want and time is not a renewable resource.

  • Michael March 4, 2017, 8:29 am

    New to the blog. I think it is great. I think what this thread is about is what economists describe as the “paradox of thrift.” If everyone is thrifty does the economy grow? Does innovation take place at a rapid clip? An early poster talked about Japan and their high savings rate. The govt of Japan reduced interest rates to spur economic growth. Their capital markets were very flat for long periods. People saved instead of spent/invested and their economy languished. Here, post war, we had the baby boom. People spent like crazy and the economy thrived. My belief, what is good for the individual (thrift) is not necessarily what is good for the country. Spending drives the economy. Saving makes the individual strong.

    • Mr. Money Mustache March 4, 2017, 10:56 am

      Right, but the argument of this article is that not all spending is created equal. Spending on disposable stuff with negative externalities (like SUVS), has much less benefit than those same people buying solar panels or barbells, to reduce their energy or hospital bills, for example.

      • Mikey March 4, 2017, 11:37 am

        Yes, exactly. I really wish this kind interacted more with Economic thought. GDP is taken as the be-all-end-all. Mutually opposing “goods” like cigarettes and barbells are both considered equally, despite the fact that their effects cancel each other out. You have to think, with the US/Canadian real income being having increased so much over the last century, has our well-being actually increased by a proportional amount? If not, we’re doing something wrong. (We’re doing something wrong) Is the average $400,000 home really twice as good as the average 200,000 home, or only 1.5 or 1.2 times as good? Of course, in the short term, the real economy, and the money side of the economy are inextricably linked, so the cessation of all production of $400,000 homes would have disastrous financial effects. But I really liked your thinking at the end of gradually phasing such changes in. Perhaps over time, such things like the housing bubble collapse will not be possible, as there will be no “bubbling”

      • Michael March 28, 2017, 9:20 am

        Thanks for responding. Love the blog. I have been inspired to cut the cable cord amongst other life changes…

  • Kevin March 20, 2017, 10:53 am

    excellent discussion. i’ve been searching for an answer to that question for awhile now. i think in general we always underestimate human ingenuity. 80 years ago folks were wondering what on earth all the horse and buggy drivers/makers would do now that the car had been invented. the economy changes, for some people those transitions are painful, but there has pretty much never been a long term job shortage. the economy slows down in some areas and picks up in others. i personally think it’s pretty damn exciting what could happen socially and economically if folks exercised the freedom that they already have to lead a low consumption lifestyle.

  • Roger April 28, 2017, 2:09 am

    Go to your average landfill site and have a look at our waste plastic ‘stuff’, food waste, wood and paper. Tonnes and tonnes and tonnes of it being dumped on a bulk scale every day by large lorries, except Sunday, every week, every year till the hole is filled and then move on to a new hole. The joke is now a lot of the plastic is also found at sea.

    The modern world and consumerism gone bad on a huge industrial scale?

  • SMM May 18, 2017, 2:38 pm

    A good example of this is the Tiny houses show on HGTV. People are moving into these less than 1,000 SQ FT homes to save money and live more freely (e.g., no mortgage and thus frugality). Maybe it will introduce a paradigm shift of smaller is better (in food consumption, pollution, etc.).

  • Joel June 8, 2017, 5:02 am

    I’m reminded of each year, twice a year, when I see posts on social media threating to “stick it to the man” and not spend a dime for 24 hours. We have this notion that not spending is more hurtful than spending ingrained in our heads. This is in fact not true as the only person we are sticking it to is ourselves. A consumerist society that values stuff I see being hurt by their own doings.

    Ironic, actually.

  • JoeHx November 27, 2017, 8:05 pm

    What would happen if everyone was frugal? Same thing for anything else – the market would adapt. There might be some growing pains – which can really suck for some people – but in the end I think things would be better.

  • Bruce Godfrey December 16, 2018, 5:33 pm

    Increased society-wide frugality would increase the optionality of the average citizen re: time, and increase social capital both directly and indirectly. Many problems that we now solve in the cash economy we could solve or mitigate less formally.

    We measure GDP poorly; a car crash looks like a high-GDP event (car repairs, medical bills, ambo rides, new vehicle sales), but we do not count the capital losses both monetary and intangible. A more frugal society would be more robust and misfortunes and have greater social capital to deal with them. A frugal society and frugal person have the optionality to be temporarily non-frugal if needed; the opposite is not true.

  • Lola April 16, 2019, 9:45 am

    Amen, agreed completely! I’ve followed FI principles for several years now, I am nowhere near 100% early retirement but it allowed me to tone down working hours, simplify and re-orient my life towards purpose work rather than profit which I absolutely agree with you is the best occupation – serving people.

  • Violet March 17, 2020, 11:21 am

    Wow! I never thought of that, honestly. The ancient fisherman example is brilliant. I just love your blog. Not a true Mustachian yet, but I’m doing my best :)

  • Leigh March 22, 2020, 3:35 am

    Well, here we are. Non-essential spending has ground to a halt. Stay safe everyone.

    • Mateo March 23, 2020, 9:15 am

      Yeah, I keep thinking of this blog post! Long-term we would be fine transitioning to everyone being frugal, but the shock of closing all the restaurants and entertainment businesses at once is brutal.

  • Pete May 12, 2020, 1:11 pm

    The more things change the more they stay the same. I remember this post from many years ago, and I’d say the discussion is still ongoing. For example CNN just had a story “Americans create a new economic threat with their own savings.” The threat apparently is less debt, less spending, more savings. Anyway, hello to this post from the future.


  • Bill G July 21, 2020, 3:57 am

    I wanted to revisit this article because central London is getting a crash course in everyone being frugal. I have two former colleagues working from home saving a combined £1k in train and tube fares (they live almost an hour from town on the fast train). Add to that they are eating home cooked food for lunch, which should be both better quality and cheaper. Finally they are enjoying the extra time they have once the commute has been removed.
    In town meanwhile, sandwich shops are either closed or near empty. Similarly public transport is struggling with the lack of travellers purchasing travel cards and season tickets. The large office buildings in the square mail and docklands are empty too, many are owned by Scandinavian pension funds and if firms choose to switch to working from home as the new normal those pension funds will take a serious hit in income and the value of their assets.
    The jobs that office staff supported may not have been of great quality, many would have been downright poor, but they did exist. The UK government is going to have to address the gap between the winners (people who can mostly work from home) and losers if this becomes the new normal.

  • Leonard August 24, 2020, 2:54 pm

    Do you still recommend Personal Capital now that they were sold?
    I already started receiving annoying calls from them trying to get me into their paid base. Thoughts?

  • YL April 16, 2021, 10:45 am

    Interestingly enough, there’s an argument to be made that wages wouldn’t actually go down. In the face of decreased consumer demand, there would be an immediate decrease in production the demand for labor, which would lead to a decrease in wages in the short-term.

    However, considering that most people would be aiming for early retirement/working less, the tightening of the labor supply would force employers to raise wages to entice people to continue working.

  • Eric Bowlin December 14, 2022, 9:14 am

    Consumerism is definitely not a positive aspect of humanity. I always find I’m happiest when I’m not pursuing materialistic things and instead focus on more intrinsic things.

  • Brian Neuman July 25, 2023, 10:03 am

    “society as a whole will be much better off once we manage to convert them all to a huge army of Badass Mustachians.” 

    That was posted here 11 years ago. Today, in 2023, it is very far from true. People burn thru their money as much today as ever before. Then they complainy-pants endlessly about not having enough money. Why do they do that?

    • Mr. Money Mustache July 25, 2023, 4:34 pm

      Very true, Brian!

      Although on the positive side, today we have this thing called “The FIRE Movement”, which is at least known about by tens of millions of people worldwide, perhaps even 100+ million? I’m not sure how many people are actually practicing Mustachians, but it’s definitely a much bigger number than when I wrote this in 2012. And I view that as great news!


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