FB treated me to Belfry’s production of A Christmas Carol on December 1st, opening night! It stars Tom McBeath as a corrigible Ebenezer Scrooge. Written by Dickens and adapted for the stage by Shamata. Here’s what the party looks like. That’s Scrooge in front of the door, wearing a grey housecoat:

Christmas Carol Synopsis

Everyone knows the story of Scrooge. Consumed by avarice, he is offered an opportunity to change. Three ghosts visit him: the Ghost of Christmas Past, the Ghost of Christmas Present, and the Ghost of Christmas Future. They show him how his miserly ways have made Christmas miserable to those around him. The shock of seeing himself from the perspective of the other changes him. How does he change? He starts spending the capital (money) on those around him. A donation to the charity. A raise for Cratchit. A turkey for Tiny Tim. Forgiving the debtor. And so on.

A Revisionist Reading of Christmas Carol

The usual reading of Christmas Carol is that Scrooge lacks holiday spirit. He is miserly and miserable. He makes those around him miserable as well. The commonplace interpretation of Christmas Carol is surely what Dickens had in mind. It might be right but it is, well, commonplace. If the role of art is to challenge, what is needed is not a commonplace interpretation but a revisionist interpretation. A revisionist reading goes something like this:

If debtors owe Scrooge money, is that Scrooge’s fault that he collects his debts? If Scrooge is paying Cratchit too little, why doesn’t Cratchit tell him to go to hell? Is Scrooge the only employer in town? If a charitable gentleman donates to charity, does his donation place a moral obligation on others to do likewise?

That’s the standard revisionist reading of Christmas Carol. I like it. But it doesn’t go far enough. Let’s take the extreme revisionist position.

Scrooge and the Problem of Captive Capital

Part of the complaint against Scrooge is his wealth. Specifically, he hoards his wealth. In other words, the capital that he has accumulated isn’t being pumped back into the economy. It isn’t making him happy. And it cannot make others happy. Like it or not, implicit in the story is the idea that money buys happiness. Happiness isn’t going around because his capital is captive: it sits in his vault. It does not circulate. How do we know this is correct? At the end of the play, when he starts circulating the captive capital (turkey for Tiny Tim, raise for Cratchit, donation to charity, etc.,) everyone becomes happy. So Christmas Carol is a play about the problem of captive capital. Or at least that’s what a revisionist stance would argue.

If you don’t like Scrooge, you are against captive capital. If you are against captive capital, you think money should be free, not hoarded. By producing things (or services) one creates capital. By spending money, capital is returned back into the system, where it can work. It goes around in a cycle. If the cycle is broken, then the capital has become captivated. It is useless.

Are you still with me? Captive capital (i.e. all the money Scrooge has hoarded) is bad. Circulating capital is good (turkeys for Tiny Tim). Capital follows the cycle of production (creation) and consumption (spending). Now the $10,000 question: can you think of an example of captive capital today? Not any example of captive capital, but the largest example of money that is doing nothing. Scrooge money, if you will. So big that it threatens to undermine the economies of the world.

Did you say billionaire heirs and heiresses? Yes, that is captive capital, but that is not the biggest and most damaging example. Did you say corporations and cash hoards? Well, sort of. Maybe. The jury is still out on that one. Apple justifies its cash hoard ($200+ billion and equal to the GDP of a medium sized nation such as Czech Republic) because it gives it autonomy. It’s harder for lenders to boss Apple around. The cash hoard gives Apple autonomy from Wall Street. Berkshire Hathaway is like that too. They’re both well run companies in my eyes. Did you say Buckingham Palace (as EK suggested)? Yes, that’s true. But what I was thinking of is bigger than Buckingham. The biggest and most dangerous example of captive capital are pension funds, sovereign wealth funds, and endowments.

Pension Funds, Sovereign Wealth Funds, Endowments & Other Forms of Captive Capital

The popular argument is to make pension funds, sovereign wealth funds, and university endowments larger. Pensioners benefit from pension funds, citizens benefit from sovereign wealth funds (social benefits), and students benefit from university endowments (bursaries and scholarships).

Here’s the problem, however. It can be summarized in a little equation r>g. R or the rate of return of captive capital is greater than g or the growth rate of a nation’s GDP. Pension funds, sovereign wealth funds, and university endowments invest in the stock market. Nowadays, the stock market is projected to grow 7% a year (historically it has been closer to 10%). The GDP of developed nations such as USA or Canada grows 2% a year if we are lucky. So, if r>g, pension funds, endowments, and sovereign wealth funds will grow to become a disproportionate amount of a country’s national wealth. To compound the problem, pension funds, endowments and sovereign wealth funds also grow tax free, a fact which further exacerbates the equation “r is greater than g.”

The tax free is a big deal. Think of the monasteries in the middle ages. They were tax free as well. They grew to such an extent that eventually, they were a drain on the national income: at some point, everything became part of the monastery, choking the government of revenue. Some say that this is why the kings had to make war on the monasteries, to reclaim the missing economy.

You ask, well, what’s the problem if captive capital gets bigger? Some might even want captive capital to get bigger. Students, pensioners, and the citizens of nations who have sovereign wealth funds would benefit. This brings us back to Scrooge.

In a healthy economy, there are producers and consumers. Producers produce, make money, and release the money back into the cycle by consuming. Scrooge is a danger because he produces, but does not consume. Well, pension funds, endowments, and sovereign wealth funds are sort of like that. Except on the other end of the chain: by paying out benefits, they support consumption but they are not producing anything.

Take the Norwegian sovereign wealth fund. It is a highly praised and successful model: instead of spending their North Sea oil revenue, it goes into this fund to provide benefits to Norwegian people. In 2014, it had $857.1 billion of assets (in USD). That’s 1% of the whole world’s stock market. Now, Norway’s population is 5.1 million. Conventional wisdom says that one can spend 4% of a stock portfolio each year indefinitely without drawing down on the principal. Since sovereign wealth funds grow tax free, the safe drawdown percentage is even a little higher, say 4.5%. So, a $857.1 billion investment should yield $38.569 million per year. With a population of 5.1 million, that means that each year, every man, woman, and child in Norway could receive $7562 USD for doing nothing at all.

Now, the Norwegian sovereign wealth fund started out in 1990 and, in 24 years, has grown to $857.1 billion. If it continues to grow, sooner or later, everyone in Norway can retire. Even the children. This is good. Or is this good? Someone still has to produce the goods the Norwegians are consuming. So, in effect, by managing their capital well, they have enslaved other people in the world. Sort of like what Scrooge has done.

Ba humbug.

I’m Edwin Wong, and there is little problem of captive capital when it comes down to Doing Melpomene’s Work.