In going over the concept of the ownership of capital I come to the conclusion that wealth will tend to pool over time. Is this a correct conclusion?
In over-regulated markets you’re absolutely right.
I’m not sure what you mean by ‘pooling’. That wealth will concentrate to few people? Unlikely, since capital doesn’t translate into automatic profits. For some reason, people seem to hold a very Marxian view that capital only accumulates. This is quite one-sided, as it offers a theory on profit, but not one on losses.
I think it is a safe assumption that in a truly free market, we would see less ‘pooling’ of capital, since the state acts as a mechanism against losses at the moment (for some people).
I got into this argument the other day on a different site, a couple of (paraphrased) quotes;
“Money gravitates towards other money”
“The easiest way to make your second million is to make your first million”
Etc…
All arguments to justify the theft from one person (or group) and give it to other less fortunate people because money has inherent qualities that give its possessor an unfair advantage.
These are catchphrases, not arguments. It’s kind of sad that people actually think in these terms, with no supporting logic behind them. You only need to point to the closest empty building or factory to show that capital doesn’t equal profit. But in some situations, those catchphrases are true; namely when you acquire enough capital, you can buy politicians and acquire protection from losses. Of which Bear Sterns is probably the most recent example.
Wrong, but it is true that someone with the skills to amass wealth might very well have the skills to increase it. Mises wrote:
“To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way. Thus the owners of the material factors of production and the entrepreneurs are virtually mandataries or trustees of the consumers, revocably appointed by an election daily repeated.”
Bear Stearns is a poor example to the contrary. The owners of Bear - the shareholders - lost almost everything. Their shares fell from a peak of over $170 to just $10 when it was scooped up by J P Morgan, the only banking house willing to bid for it. Joe Lewis, the British billionaire who had bought into it late last year, lost $1 bn.
Thanks Lancett for the Mises quote.
Ego:
I agree that overregualted markets will result in the pooling of capital but that is the purpose of market regualtion.
As for the left-right paradigm, as a political “spectrum” I find it wholly inefficient. The dialectic of no government-total government gives me a better understanding of political parties than the artificially contrived dialectic of left wing and right wing which are essentially, in their extreme, both totallitarian and it is thus of little consequence to the average citizen whether a dictator or a politburo is enacting and enforcing laws.
That the right was conservative in France and upheld the status quo of the nobility left no room for change and the Libertarian had to sit with the anti-monarchists and socialists on the left contributes little to understanding of political position other than it’s physical location in the room.
Rothbard points out that he never changed his political point of view but found himself on different sides and locations of the spectrum over the courseof his career.
I believe employment of the currently accepted political spectrum is enabling to the slippery position of politicians who can abandon or take up left and right positions dependent upon their favourability in the polls.
Thanks to others who contributed your input was interesting.
What is the ownership of capital concept? There are so many existing organizations varying from the public corporations to cooperatives. And it doesn’t make sense to ask whether your conclusion is correct, when you don’t provide the rationale you took to get there…
Anyway, in a services economy the marginal cost in terms of capital is extremely cheap. Many people don’t realize but even in factories, the most expensive capital is human capital; engineers that can design the chips, cars or whatever you are manufacturing. From there, the raw materials and labor is way more expensive than any land and capital you need to use. Here in Portugal, in the last couple of years, two enterprises were started by guys out of college that manufacture chips and high-end automobiles. And there have been guys from poor classes, with no college degrees to show for, that organized lines to fabricate clothes and some related stuff.
When capital is a stronger component in your maginal cost, then you can go public and finance it through shares. Even very rich people won’t jeopardize their wealth into their own projects. If your conclusion is true, then stockholders should have a lot of dividends to show for. That’s only true for under-developed countries, where capital is a lot more needed than labor, but this are generally very risky, so few people put their money there. In developed countries, most investors are counting on gains from capital appreaciation (selling higher than they bought them), not dividends.
I’m thinking the whole concept packages several fallacies and ambiguous definitions together. What is capital? What is wealth? They are not the same thing, though the wording of this might imply they are synonyms. “Pool” implies some sort of fungibility in wealth. Value is left out of it entirely.
Here’s a hint: value is subjective. You know nothing about the relative value of ramen noodles and filet mignon by comparing their prices. The value of money is subjective as well, and so very likely the millionaire values an additional dollar less than a poor person does - as he probably does with the things he buys with his marginal dollars. That implies something about the relative value of filet eaten by a millionaire and ramen eaten by college student. Wealth is the accumulation of value, capital is an accumulation of money. Money translates into things of value through exchange, so “pooled” capital is not necessarily accumulated wealth, except when taken out of the pool.
No, this a meaningless statement.
No, it’s not.
Are you claiming that every new dollar (or gold ounce, no difference in this context) is valued the same as the previous one by the same person? That a unit of money has an objective value?
Or is there some other objection?
But you compared valuations of two different persons.
Perhaps he’s trying to say you can’t make such assumptions. However, as an argument against the notion of diminishing marginal utility implying income redistribution, it’s a real possibility that a wealthy person values that extra dollar more than some poor sod, as it might be highly valuable to them to invest, for instance.
-Jon
Yes, but no difference. They will value each dollar differently than the other, as well as themselves differently from previous dollars and at different times. I said it was “likely” that the millionaire values a marginal dollar less than a poor person. I could have said “possibly” and not made such a strong assumption, but I was getting at a particular relation that I think applies in many cases, pursuant to the point that the rich person’s wealth may not be as great as his accumulation of capital would seem to imply.
If you’re arguing that that assumption is unwarranted, have at it, it’s a reasonable objection.
(I edited your quote to clarify the meaning I think you intended.)
You’re right, that is a real possibility. I consider it unlikely in the case of each single dollar, but it is still possible. I was arguing toward the rhetoric implied by the OP statement, as much as against the substance. That kind of rhetoric usually carries an allusion to the “fat capitalist pig” gorging on wine, women, and song, so I was aiming at the marginal utility of that dollar for consumption rather than investment.
Yes, I understand. I’m just saying he shouldn’t be so quick to dismiss the idea. It’s a powerful counter-argument to the leftist fallacy I mentioned. Thanks for pointing out the missing word in my post.
-Jon
Surely the poster means “means of production” by capital. An engineer degree, a tractor, etc. I do agree that it’s hard to tell what he’s saying.
Franchises, like McDonalds, Pizza Hut, Blockbuster, etc are all over the world and the capital here is owned de-centralized, they provide some structure and the brand, so I think these successful organizations poke holes at that conclusion of Pliny.
Ok. I mean in a completely unregulated market all forms of capital - capital goods, means of production, money, wealth, whatever can be termed capital - will tend to pool over time in terms of generations and form a class system. Strictly hypothetical. My concern with this would be the rigidity of the class structure. I think the Mises quote from Lancett best answered that question and that it would remain fairly fluid, if in fact it even evolved that way. It is just a model from the information, admittedly; woefully inadequate, I have.
I run across in discussions that it is necessary to redistribute wealth through a tax system or the rich-poor divide will widen. To refute this I simply point out that the rich-poor gap is widening but I have been attempting to figure out what would happen without intervention from a redistributive tax system.
What about inflation that benefits those with close relations to politiceans, bailouts of creditors, subsidies to big industries, land expropriation to build a shopping malls, tax benefits, etc. Those are all redistributions of wealth as well. 
Besides, a lot of the redistributions those guys are thinking about are provided in the form of services. Special interests form lobbies for professional associations and what have you to suck all that money. Milton Friedman advocated replacing welfare programs by simply giving enough money to everyone each month – which you’d take from an income tax, and so you can see how it would balance out – that would avoid all the overhead and special interests from those that work in the system, and would more easily be replaced by a moral charity system that would focus more in making people self-relient rather than depedent.
Anyway, Adam Smith already made the case a couple of centuries ago, and we have a lot of history to back up it, that economic freedom and prosperity go hand by hand.
A lot of these redistribution of wealth programs also make the people contempt about their situation. Here in Portugal they have been trying to motivate people that are in welfare to take highschool classes. Very few of these people even appeared at the classes! Do you know their solution? As long as you go to the classes, you will get the highschool diploma! No exams needed, unless I guess if they want to apply for college, they just need to attend the classes.
Poor neighbours have a lot of issues – my mother used to school in such places --, booze and drugs, domestic violence, child abuse are everyday occurances. But they have houses – the city actually gives them the houses in the hope they will take better care of them --, food, utilities, education, health care, etc. The problems now are social, not economical. This kind of help instead of make them self-relience, facing life with optimism and help them take care of their families (a lot of times, the guy actually abandons the family), de-motivates them into looking for work and make them spent the days in bad habits.
In opposition, my grandfather started out of nothing from Brazil, to work in farming, then selling cook oil door to door and farm products at the marketplace. Then he open a mini-market and started a business as a bulk retailer as well. And from there, he adventured into a couple of other stuff – not being good at managing employees, he never really expanded things. You don’t see stuff like that nowadays. Even young entrepeuners use bank programs to finance and organize them through. I’d like to know what’s the experience of life of these people that moan about capital accumulation. What enterprise have they started that made them so unhappy about the system?
Good argument, Blacksheep. Thanks!