We're Experiencing a 'Capital Strike'
Economics is the study of the relationship and measurement among production, distribution and consumption of goods and services.
It has been called the dismal science because measurement is difficult - unlike, say physics, where a combination of factors yield a predictable result.
We are engaged in many conversations today about private property and the economy.
According to Wikipedia, private property "is the employment, control, ownership, ability to dispose of and bequeath land, capital, and other forms of property by legal persons and privately owned firms."
The encyclopedia separates public property by referencing it as assets owned and controlled by a state, community or government.
Historically the concept of private property has its roots in land ownership. Whether the land was taken by conquest or discovery, then maintained by means of a heredity-based transfer, control of land established a means for those in control to tax (or rent) the property in exchange for something of value. The medium of exchange may be arbitrary currency or a portion of production created on the land by a tenant.
Fast-forward to today, and the effect of private property is to give the owner of the property many choices to use, change, lend or exchange his "stuff" at a time or place of his choosing. Individual earnings received in exchange for personal labor are private property subject to some mandatory uses proscribed by a government or a body with the authority to require the owner to pay over a portion. (Think union dues.) At this level, decisions concerning the remainder are personal to the owner.
Those with a storehouse of private property have the same freedom to make an individual choice to take the same courses of action listed above. (Think corporate profit and individual portfolio.) The storehouse is accumulated capital, and it can be housed with a corporation, pooled with other assets, or transferred to another vehicle to make best use of the intrinsic value.
Taxes are a demand on private property to support collective activity deemed by leadership to be in the best interest of the citizens. In some cases the collective activity is the most efficient way to deliver services to the taxpayers. (Think national defense.)
But at some point the owners of private property want to impact the use of their property paid in as taxes, believing that the use, dictated by others, is not in their own best self-interest. The election process in a representative democracy is one means to impact choices made by political leaders.
Modern Keynesian followers measure demand for goods and services. Their concept is that putting money in someone's pocket to spend in order to raise demand will work to improve overall conditions for all. This may work in a short cycle, but no society became great over time and stayed great by putting consumption ahead of production.
Government creates no wealth, nor do labor unions; that function is reserved for business and capitalism. While these producers have flaws, they also have a history of success and growth. Education and government-built infrastructure facilitates the growth of production and wealth generation.
Still, Barack Obama and progressive Democrats are making the same mistakes that FDR and the New Dealers made. They are pushing and punishing the wealth creators and the capital owners with a heavy government hand in the name of fairness without taking into account the inevitable pushback from business and the investment community.
They are trying to legislate an impact on the laws of economics. The Pied Pipers of Keynesian theories, classical and neo-Keynes alike, need to go back to the roots of Adam Smith and his principles of self-interest. Those on the dole may find it in their own self-interest to remain in the underground economy, accept life in the inner city, and produce little or nothing that can be used for production of wealth. In business terms, the transfer payment is then pure overhead that must be paid from production.
In 1937, the economic recovery which had started in FDR's first term stalled as a result of the president's anti-business policies. Having Walter Reuther or John L. Lewis as a business partner was so distasteful that businessmen refused to take an investment risk, and the recovery stalled. Despite name-calling by FDR, business stood firm and reduced their growth strategies. Many corporations that had weathered the first phase of the Great Depression entered bankruptcy and were liquidated.
The term in 1937 was a capital strike, and that is certainly true today. There are many noble social goals being pushed by the current White House, but the incentive to grow is dulled by heavyhanded government. Alphabet regulatory agencies where a gathering of unelected idealists make rules that others must follow at great expense have caused a modern day capital strike.
The end will come when the public and government recognize the value of capital and the important role played by profits.
Virginia Democratic politician Carter Glass, best known for his work on the Federal Reserve System and the Glass- Steagall Act of 1933, which enforced the separation of investment banking and commercial banking, once said, "A liberal is a man who is willing to spend somebody else's money."
Walter B. Bull Jr. lives in Pinehurst.
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