Friday, October 12, 2007

Retirement Planning, Aristotle and Your Home

Retirement Planning, Aristotle and Your Home

I begin chapter six with a look at Aristotle (384 BCE - 322 BCE>. This Greek philosopher, schooled by Plato and who later taught Alexander the Great, was refuted to have known everything there was to know during his time. That task would be much harder to achieve today.

He did however leave us with some very basic logic, some of which has been proved wrong – I will get to that in a minute – but much of which can be still used to make good arguments about certain subjects.

According to the Philosophy Pages, he made major contributions in the field of Physics with his determination of the four causes. They are listed below as the material cause, simply is the basic stuff out of which a thing is made. The formal cause {Gk. eidos [eidos]}, which is the pattern or essence in conformity with which these materials are assembled, the efficient cause is the agent or force immediately responsible for bringing this matter and that form together in the production of the thing, and lastly, the final cause {Gk. teloV [télos]} or the end or purpose for which a thing exists.

"The material cause of a house, for example, would include the wood, metal, glass, and other building materials used in its construction. All of these things belong in an explanation of the house because it could not exist unless they were present in its composition.

"Thus, the formal cause of our exemplary house would be the sort of thing that is represented on a blueprint of its design. This, too, is part of the explanation of the house, since its materials would be only a pile of rubble (or a different house) if they were not put together in this way.

"Thus, the efficient cause of the house would include the carpenters, masons, plumbers, and other workers who used these materials to build the house in accordance with the blueprint for its construction. Clearly the house would not be what it is without their contribution.

"So the final cause of our house would be to provide shelter for human beings. This is part of the explanation of the house's existence because it would never have been built unless someone needed it as a place to live.”

The reason I bring up this early philosopher at the beginning of the discussion on how we view homes in relation to retirement planning is rather straightforward. We believe that our houses are the center of our universe. Aristotle believed that the earth was the center of the known universe. Consider this passage: "... the natural motion of the earth as a whole, like that of its parts, is towards the center of the Universe: that is the reason why it is now lying at the center. ...

“From these considerations it is clear that the earth does not move, neither does it lie anywhere but at the center. In addition the reason for its immobility is clear from our discussions. If it is inherent in the nature of earth to move from all sides to the center (as observation shows), and of fire to move away from the center towards the extremity, it is impossible for any portion of earth to move from the center except under constraint. ... If then any particular portion is incapable of moving from the center, it is clear that the earth itself as a whole is still more incapable, since it is natural for the whole to be in the place towards which the part has a natural motion. ..." (Aristotle, On the Heavens (W.K.C. Guthrie's translation), Loeb Classical Library, 243-7 [296b8-297a1])

Fifteen hundred years later, Polish astronomer Copernicus would prove him wrong. Religion, in the time between had adapted this center of the universe idea and held on to it firmly, even after Nicolas Copernicus (1473-1543), who refused to reveal his thinking until a deathbed confession to a close friend.

Copernicus, by dispelling the notion that the earth was indeed at the center of the known universe, an erroneous observation that could have been made by anyone looking towards the heavens, dashed the ego of man. Ego is a sense of worth and there is no easier way to outwardly display that ego than the place you call home. The more opulent the house, the greater the ego that resides in it.

And as is often the case, you consider your house to be at the center of your financial universe. Only you would be wrong in doing so (an argument I make in detail in the book). Recent developments in the housing market, namely the current mortgage meltdown due to egotistically reaching for more home than a person could afford – abetted by lenders willing to take a risk, have left many people pondering their future and their net worth in a new light – one that is not so appealing.

Making the leap from thinking about your home as an investment to one where you seek shelter or raise a family could be difficult for some. Consider this quote from Nancy Reagan: "…homes are really no more than the people who live in them."

Now consider Warren Buffet's home.