These are polarizing times. Left or right? Right or wrong? People are beginning to realize that the time may have come to choose a side. What is moral? What is constitutional?
I want to ask a different question. What is capital? As the polemical questions of our times go, this one is often ignored by most, other than perhaps academics and economists. Traditionally, capital is considered aggregate wealth. Wealth of an individual or a business. Wealth of an institution or a nation. Capital is the fuel that is burnt on the altar of human endeavor. It is the grease that keeps the wheels of human productivity rolling.
But lately, propaganda and policy have unseated this humble and loyal servant of the people with a false God; Demand. Increasingly, public perception now is that capital means nothing without demand. Let us try and bring some light to this issue, and see if we can place our venerable friend back in the driver's seat.
So the narrative is that businesses operate solely on demand. Unless there is demand for their products or services, a business is sure to fail. A fairly logical and acceptable conclusion on its face. Yet, it fails against reality. Proponents of government spending use this argument to argue against tax cuts, higher economic freedom etc. They claim that since demand will always stay, businesses can be forced legally to tow the government line. As long as demand exists, businesses will too. Regulations then can only do good.
This is a pernicious argument. Because it puts the cart in front of the horse. Businesses value demand, yes. Their entire models depend on how well they calculate the demand for their products. But government regulations and higher taxes eat into something of limited and critical value: Capital. The consumer may demand the Sun and the Moon, but without capital, not even sliced bread is possible. Innovation and production play an elemental role in the success of a business, much more than demand. Without capital, there is neither.
The internal combustion engine, the airplane, the computer, the telephone, electricity, the radio, the television and almost everything else we use in our daily lives; none of these were invented because there was a 'demand' for them. Most people didn't even understand the science behind them, much less demand their existence. They were invented and mass produced because of two kinds of people: the Creators and the Investors. Sometimes these were the same person. But most often, they were not. While the creators created, the investors utilized their own precious capital and carefully honed intuition to ensure that the wondrous creations made it to fruition. We should all be thankful to these two very special kind of people, for their effort and courage. Our lives today are a direct result of their passion and foresight.
Now imagine the Government in control of most of the capital, that they of course acquired through force: laws and taxation. How different our lives would be today, if instead of angel investors and banks, Steves (Jobs and Wozniak) had to plead for a government handout for their creations? This is but the logical conclusion of Government interventions in the market. The more capital they control, the more is wasted, on ill-advised projects and election year promises. Now the Government and their apologists are well aware of this eventuality. Therefore its crucial that the public believe their 'demand' narrative through and through. They will claim that all those inventions happened only because there was a 'demand' for better means of travel, for better communication, better infotainment. These are classic straw men, designed to divert your attention from one basic fact, one we know but are asked to forget: Demand, sirs, is endless. And in itself, worthless.
I want to live forever. Isn't that the ultimate in demands? I want to see the Universe unharmed. I want....oh, i want. There is enough demand in our hearts to keep the fires of industry burning forever. Yet, businesses fail. All the time. Why? Because capital is precious. And its dwindling. Capital to create, capital to invest, capital to buy worthy products and services. Its not the 'demand' that is falling apart, but the capital that is constantly being crowded out through incredible government spending. Spending on social programs full of trust fund IOUs, spending on unfunded Wars. Capital is constantly being eroded because the savings that once used to fund innovators is now at an all time low. Capital is dying because artificially low interest rates ensure zero savings, and money printing ensures capital devaluation.
What is capital? It is the most noble consequence of our lives. It is value created through effort and hard work. And when we exchange one value for another, through trade and investment, we create a world where every demand is met. Government doesn't create capital. It appropriates it, and then kills it.
