It’s the Capital Supply, Stupid!

Republicans insist that creating jobs is all about “tax cuts,” while Democrats insist it is all about other people paying their “fair share” of income taxes.

Both parties buy into the fairy tale that the purpose of national economic activity is to “compete” in some fabled “global economy.” Both parties tell us we need to manipulate the tax code to move our workers into the “jobs of the future.”

Whatever those are. As if they know.

What’s worse, no amount of revenue—not even the current record-setting influx of $3.27 trillion in cash into the federal coffers this past tax season—comes close to satiating both parties’ reelection-driven lust for new and ever-higher levels of spending.

They can’t even balance a budget, these self-styled mavens of “job creation.”

Politicians: Masters of the Economy?
“It’s the economy, stupid,” was the relentless refrain of Bill Clinton’s “moderate” Democrats in the 1990s, and conventional wisdom holds that his focus on this mantra accounts for his surviving impeachment.

But the economically illiterate platforms of both parties today are double-blind proofs that the only art the parties have mastered is the art of messaging for the purpose of getting elected.

Consider the current uninspiring state of our public finances: some 20 years after the D.C. punditocracy discovered in their focus groups that the “economy” was the most important thing to most people, we are $20 trillion in federal debt with greater than $100 trillion in unfunded liabilities weighing on an economy that is struggling to eek out a paltry 3 percent annual growth rate.

We used to be wealthy, the world’s largest creditor. Now we are the biggest debtor in the history of civilization. Even faster than we became a superpower, we are becoming fiscally undone.

This is the legacy of the idea that we elect politicians to run the economy. How do we fix this?

Current Misunderstandings
In his 1952 talk, “Capital Supply and American Prosperity” the great Austrian economist Ludwig von Mises pinpointed what made the United States economically exceptional:

The average standard of living is in this country higher than in any other country of the world, not because American statesmen and politicians are superior to the foreign statesmen and politicians, but because the per-head quota of capital invested is in America higher than in any other countries.

He went on to explain:

Capital is more plentiful in America than in other countries because up to now the institutions and laws of the United States put fewer obstacles in the way of big-scale capital accumulation than did those foreign countries.

Finally, Mises concluded:

No party platform is to be considered as satisfactory that does not contain the following point: as the prosperity of the nation and the height of wage rates depend on a continual increase in the capital invested in its plants, mines, and farms, it is one of the foremost tasks of good government to remove all obstacles that hinder the accumulation and investment of new capital.

Donald J. Trump is the first president in my adult lifetime to grasp this truth.

Modern presidents of both parties have been strangely beholden to an ideological commitment to “free trade” (a.k.a. “fair trade”). This, combined with serial abuses of our tax code for election purposes, has assured the U.S. capital supply would eventually decline, as the law of equilibrium inexorably draws capital investment away from high-wage, high-tax nations (like ours) and redirects it to low-wage countries, even countries run by autocrats and dictators.

The only thing left to produce the illusion of prosperity when your capital supply evaporates is exactly what we’ve been living high on ever since: fiat money and federal debt.

Returning to Economic Exceptionalism
Trump’s non-ideological view of the role of government in national economic affairs, which is paradoxically both pro-labor and pro-business, expresses itself in a two-pronged policy.

First, he would remove obstacles to large-scale capital investment in American industry. Second, he would encourage such investment in American labor by capitalists—foreign and domestic—using both his bully pulpit and whatever legislative inducements he can cajole from an otherwise feckless Congress.

Trump’s “economic nationalism” rather more resembles the hybrid approach of our Founders than the laissez-faire religion of Conservatism, Inc., or the dystopian fantasies of the progressive Left.

America’s Founders rejected federal income taxes of any kind, fearing they would become oppressive and vest too much power in the national government. To raise federal revenue, they instead instituted a regime of ad valorem tariffs on all foreign merchandise. If you were an American worker or an investor in American industry, and you bought only American goods and services, then by design you paid no tax at all.

This approach put the emphasis precisely where it should be today: on making large-scale private capital investment in American labor advantageous for everyone. It protected our wage and price structure and our capital supply from all intervention, both foreign and domestic, and set the stage for the most rapid cycle of capital accumulation the world had yet seen.

In turn, the federal government had an incentive to keep conditions optimal for American workers and investors in U.S. labor, since ironically the government’s only source of revenue was from foreign trade.

A Congress thus incentivized doesn’t argue about raising self-imposed “debt ceilings,” or “creating jobs of the future,” much less “healthcare for all,” or greasing a glide path to citizenship for illegal aliens, but focuses instead on performing its enumerated constitutional duties, strictly within its results-based means.

In a world of constant conflict over finite resources, economics is not some monopoly board game played by career politicians, but a matter of life and death for any society that seeks the unique combination of political independence, economic prosperity, and peaceful republican self-rule set forth in our national charter.

Our politicians should be competing against each other for our consent to govern rather than sacrificing us in competition against largely nameless global forces serving foreign ideologies, all for the sake of their own fleeting ambitions. The only metric that matters is whether per-capita capital investment in our domestic labor rises or falls, and this should be the main criteria by which we assess their proposals, and hire or fire our politicians when we consider their relative economic prowess


About Bob Calco

Bob Calco is a verified Deplorable who lives in Tampa, Florida, with his wife, two sons, and four cats. A successful software architect by trade, and an inveterate polyglot and world traveler at heart, he studied political philosophy until it was clear that to pay bills he needed a marketable skill. His passion on issues related to trade and economics go back to his formative college days, when he learned to distrust, and independently verify, literally everything he was taught.

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6 responses to “It’s the Capital Supply, Stupid!”

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  1. But the economically illiterate
    platforms of both parties today are double-blind proofs that the only
    art the parties have mastered is the art of messaging for the purpose of
    getting elected.” or in other words,


  2. I would dispute the claim that the Founders envisioned any sort of hybrid economy. We had a tariff and virtually no internal regulation. It was as close to laissez-faire as one could get. Otherwise, good article.

    • I meant hybrid not in terms of the nature of the economy but in terms of the state’s role with respect to it. Protecting it with tariffs isn’t most modern libertarians’ idea of laissez-faire (including von Mises, who was double souled on this issue, I contend); but otherwise leaving it alone does ring true to non-interventionism. There wasn’t such terminology at the time — they were all pretty fresh off Adam Smith’s discovery of the science of economics, and some of them clearly had studied his ideas. Especially that bit about capital accumulation. :)