The Composition of Wealth
Back in college (early 1970s), I remember in Dr. Sennholz’s U.S. Economic History class his comments about the composition of wealth in a socialistic country versus a capitalistic country. At the time, he compared India’s wealth during the late 1800s with that of the United States during the same time frame.
India’s wealth was comprised primarily of gold and precious gems he said, while wealth in the United States was in the form of factories and other “productive” assets; i.e., the means of production. In India, productive assets were at risk of seizure (corruption, bureaucratic red tape, and taxes primarily) by the state while precious metals and gems were more easily hidden and transported out of harm’s way. On the other hand, they seemed to keep their value better than many things and they didn’t provide a traceable cash flow until sold. The disadvantage, of course, was that they didn’t satisfy many customer wants and they didn’t generate any income or jobs.
In the United States, where the means of production were in private hands (with a profit motive), large factories could be built with little concern for the kind of man-made risks that India had. The Carnegies, Mellons, and Rockefellers held most of their assets in the form of stock in corporations that owned the means of production that made the United States the wealthiest and most productive country in the world. At the same time, the U.S. government was relatively small which allowed businesses to focus on customer satisfaction, innovation, and growth rather than satisfying government mandates, rules and regulations. (Customer service was more important than national security.)
Today, the trend seems to be for U.S. companies to “out-source” their manufacturing to Asian companies where capital investment in the means of production is on the rise. There has been a tremendous outflow of wealth from the United States due to taxes, law suits, inflation, burdensome regulatory restrictions, and growing competition for capital (with a higher rate of return) from third world countries that are becoming more capitalistic. There is both a push and a pull for capital to leave the United States. There is also a trend towards increased government ownership of the remaining means of production in the United States. Consider: Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Citigroup, General Motors, and AIG.
If these trends continue, it won’t be long before the capital that is the life blood of capitalism (and supplies the jobs that makes people productive) will leave the United States and reside in communist China. Won’t that be ironic? As China reduces its number of state-owned companies, the United States is reducing the number of privately-owned companies! A role reversal…
In time, U.S. citizens will be seeking out gold, silver, and gems as a store of value, while the Chinese will have a currency backed by gold and will become manufacturers to the world.
Could the Chinese yuan replace the U.S. dollar as the next currency of choice? Will Americans be allowed to own foreign currencies, gold, silver, and/or gems?
While it would be interesting to hear how Dr. Sennholz would answer those questions, I know he would recommend that Americans be allowed freedom of choice in money…gold, silver, whatever (see Money and Freedom). Of course, that would eviscerate the power of governments over the people, and governments don’t give up that power without a fight.
Robert Jackson Smith