Monday, July 29, 2013

If You Have a Free Moment . . .


We love it when we get intelligent questions that we can answer without too much trouble.  In addition to the fact that it proves somebody is actually reading this blog, answering the question saves us the trouble of trying to think of something to write about.  We were therefore delighted to receive the following question a few weeks ago:

If you have a free moment, could you help me come up with a response to this? Or maybe give me some sources to research in.

"Lack of capital ownership by the common person is a problem that has been growing in magnitude since the 15th century."

This is patently silly. In the 15th century, very few people had any property rights at all. The economic success of the United States that permitted it in 110 years to become the most powerful economy in the world was the pinnacle of individual liberty that was achieved during that time, especially 1870-1910. Since the beginning of the progressive era, institutionalized injustice (feature of growth of Govt) has increased and economic growth as a result has stalled finally.

The statement is in a sense correct, but it would have been more accurate to say that "Lack of ownership of the means of production" is the problem, not mere capital ownership; both labor and capital are "means of production."

The issue is complex.  It was around the 15th century that things started to change from a land-based, labor-intensive economy, to a technology-based, capital-intensive economy.

This was, in my opinion, made possible by the reinvention of commercial banking as a systemic thing rather than something individuals did amongst themselves, and later (in the late 17th century) by the invention of central banking.  By removing the need to accumulate savings before investing, commercial and central banking spurred the tremendous innovation and economic growth that has characterized the modern age.

During the Middle Ages there was a gradual evolution from slave, to serf, to peasant, with "peasant" connoting a small landowner.  In addition, the Church owned a great deal of land which it leased on easy terms on long leases that were tantamount to private ownership by the lessee.

With the Reformation, most of the land belonging to the Church was confiscated and the tenants dispossessed, regardless of any leasehold they retained.  The large landowners also began forcing small owners to sell.  In England, especially, this was a serious problem as "the staple," that is, the annual production of wool, took on greater and greater importance, and led to clearing the small landowners and tenants that remained.  Thomas More commented that England was the only country where sheep ate men.

Loss of ownership of or access to landed capital would not have been a problem if ordinary people had gained access to the new commercial banks and were able to finance acquisition of other forms of capital.  That did not happen, however, and more and more people were forced into the wage system and the proletarian condition.

This resulted in people demanding that the State do more and more to take up the slack.  A good description of this process can be found in Goetz Briefs, The Proletariat: A Challenge to Western Civilization (1937).  Briefs pointed out — in 1937 — that the political power of the proletariat, combined with the "envy avoidance" of the wealthy had created a situation that was causing national bankruptcy through the effort to have the State provide for every material need.

WWII caused a "re-set," but with the hegemony of Keynesian economics after the war and the rise of the Welfare State, governments have been trying to provide everything, and debt has reached almost cosmic proportions as they mortgage future tax collections out of production that will probably never take place.

So, to be strictly accurate, the problem is not lack of capital ownership per se.  That is a symptom of a much deeper problem: lack of access to capital credit to purchase capital that pays for itself out of its own future earnings, and thereafter generates income for the owner.

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