Tag Archives: captive capital

Captive Capital: A Reply

Assiduous reader LH posted a thoughtful reply to the last post on the idea of captive capital in Dickens’ A Christmas Carol:

I’m wondering about the logic in this line of argument. There is too much absolutist terminology for my liking such as “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. ” It’s not either/or – there’s a balance. Saving does not equate to hoarding.
As one who does not have a pension (as is the case for most in our country) if I do not save (or “hoard” in your language) I become the grasshopper not the ant. My income is such that I can (and should) do that. At the same time I give and it has become a significant part of who I have become. Through this all I have been struck by two truisms: 1) the love of money is the root of all kinds of evil and 2) it is better to give than receive. I am by no means the poster child for these truths but when I have opportunity to encounter those (all too rare) “aha” moments I am always struck by them and would like to think that on some level this affects me at a deeper level to cause change and, perhaps, bring me more in alignment with God (or whatever you want to call that Transcendent Other).
This is what I think happened to Scrooge. When he gave he was having a profound encounter with a notion that moving away from a sense of “self and self alone” (which I think is really at the core of hoarding) and other narcissistic values brings surprising happiness and freedom. I think part of Dickens’ genius in his story (and in other bits of his extensive writing) is in communicating the serendipity of this action. If you read a biography of Dickens you will learn that he was a philanthropist at heart and found great joy in indulging in his giving.
I wish all readers the opportunity to experience that freedom and joy this Christmas and perhaps wonder where this comes from – is it some objectifiable neuronal endorphin-related phenomenon or is there something more consequential “out there” that our soul is responding to?

Captive capital is capital in the form of stocks and bonds which is no longer traded. It is held by hoarders (such as Scrooge), university endowments, pensions, and sovereign wealth funds. Once capital becomes captive, it desires to grow. It does not want to be disturbed. It does not want to be drawn down. It may make disbursements–such as when university endowments pay out scholarships–but the idea is for the principle to grow. The danger is that captive capital supports a class of consumers, who, owing to the fact they have an income stream, can now consume without producing. A second danger is that since captive capital grows faster than the GDP, at some point it will become the entire economy. The example I used was the Norwegian Sovereign Wealth Fund. You can see the original post here.

Saving Does Not Equate to Hoarding

Saving does not equate to hoarding: that is the one of the points LH brings in his reply. It’s true. So, in terms of producers and consumers, the following options are possible:

  1. those who produce and consume in equal amounts (i.e. one who makes $10 and spends $10). These are the workers.
  2. those producers who invest a portion of their earnings. Their investments work for them, allowing them to consume more than they produce with their own hands (i.e. a saver who makes $8 with his own hands but, thanks to investment income, can spend $10). These are the savers.
  3. those producers who invest all (besides what is necessary to subsist) of their earnings. Their investments work for them, but they reinvest all the proceeds (i.e. one who can spend $100 but only spends $1). These are the hoarders.

Perfect! Saving does not equate to hoarding. It is a sliding scale. In the most efficient economy (the least captive capital), those who produce consume an equal amount. A less efficient scenario happens when investors begin ‘captivating’ capital: investing it for the purposes of spending the income it generates. But this is not all bad, since these savers are at least spending it. The capital is not entirely captive. The hoarders are the worst case scenario. They invest, but spend the bare minimum. If production and consumption is a cycle, by hoarding they bust the cycle.

The True Problem Isn’t Even the Hoarders

Even though the hoarders’ investments grow faster than the economy (because rates of return on stock market investments typically exceed a country’s GDP), the hoarders aren’t the true problem. Eventually their savings will be freed and will return into the economy. The reason? We all die in the end.

The bigger problem are pensions, endowments, and sovereign wealth funds: they have an indefinite lifespan. The bigger they get, the more privileged one class gets and the less privileged another class gets. To be sure, pensions, endowments, and sovereign wealth funds are beneficial, but at what point do they become too big? Anyone ponder that?

One solution that LH pointed out would be to give back to society. But would enough people do that to offset the damage of captivated capital?

And with that thought: Happy New Years! Party like it was 1999!

I’m Edwin Wong and I look forward to Doing Melpomene’s Work in 2016. See you there!