Capital Formation

by Jeffry R. Fisher

I bristle every time I hear some leftist demagogue demonize earning or owning "more than I need". Although critics often point out that undermining rewards undermines incentive, there's something even more important that most people, especially "undecideds", don't know... and even though conservatives often cite the effects (e.g. taxation hurts job creation), it's a rare academic who takes the time to carefully connect all of the dots so that moderates can believe it:

Capital can only be created from surplus.

The Connecting Dot
Only after buying what one "needs" can one even begin to think about diverting wealth into capital formation. What's more, the only people who can accumulate the vast amounts of capital America needs are those with the self-discipline to create and hold capital rather rather than (or long after) buying luxuries.

Progressives Torpedo Capital
Therefore, taxing the "rich" and taxing "corporations" is taxing the guardians and repositories of America's capital, effectively torpedoing capital, not luxury. Wealth redistribution diverts capital into consumption (dissipation). It should be dialed down to the barest survival-level safety net (and even that should employ tax credits so that the money never touches the hands of politicians who would claim credit for spending other people's money).

Furthermore, beyond the direct harm described above, the left's hare-brained criterion for "economic justice" displays a more general ignorance and blindness of how to reconcile economics with liberty. Indeed, it reveals a childish, sour-grapes hostility toward economic liberty that doesn't merely threaten to suffocate capital formation in America; it also threatens to chase away existing capital, both foreign and domestic.

Electoral Consequences
Electing demagog-crats to Congress and the Whitehouse will be transformative all right: In a "Great Leap Backward", their New Deal policies will transform America back into the America of the Great Depression. Therefore, this election cycle, we need to demand improvement from Republicans rather than surrendering to Democrats.

PS: Not Trickle Down Theory
For those who think I am spouting "trickle down" economics, I'll add a reminder: Trickle down theory suggested that wealthy people benefit working Americans by spending on luxuries, thereby employing yacht-makers etc. This is far different from capital formation.

I agree that trickle down theory is truly lame economics. Far from creating capital, every dollar's worth of resources devoted to luxuries is a dollar not devoted to new capital. Therefore, any policies promoting luxuries are harming the economy as much as Marxist policies that divert resources into more basic comforts.

Indeed, at the same time that I decry "soaking the rich", I wouldn't mind seeing luxury taxes on conspicuous consumption. Let the wealthy accumulate wealth, but encourage them to accumulate more, not less, as capital.

Copyright 2003-2008 by Jeffry R. Fisher: Permission is granted to reproduce this article in whole, but only in combination with attribution, the original title, the original URL, and this copyright notice.

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