Frugality seems prevalently to be considered a form of deprivation. It is seen as something people resort to when they have no other choices. This is not how I see it. In my idiosyncratic world, which I apparently share with successful entrepreneurs and capitalists, frugality equals economic efficiency.

Economic efficiency means

  • Achieving the most output with the least input.
  • Achieving the lowest per unit costs.
  • That nobody can be made better off without making somebody worse off.

Consequently, when I see a person who is not frugal, I don’t see a person who is not deprived. I see a person who is …

  • … not getting a much as he potentially could.
  • … paying too much.
  • … making someone worse off (probably himself).

The reason for this is the same reason as any poorly run company. The spendthrift person lacks the skills and knowledge to properly manage his assets (time and money) resulting in a lower return on equity (quality of life). Equipment and services are purchased that are not really needed or cost substantially more than what is justified by its output. Having little understanding of the actual value of a piece of equipment or a service, the inefficient or unfrugal person pays too much and gets too little in return. This clearly makes that person worse off. It does make someone else (the seller) better off, but in the end, even the seller and the buyer combined would be better off if the unfrugal person became more productive with his assets (time and money).

Originally posted 2007-12-19 16:17:00.