Do Capitalists Produce Nothing?
The subprime crisis left many Americans wary of financial markets and capitalist financiers. In his recent speech President Obama blamed Wall Street, and to a lesser extent Main Street, for the 2008 crisis. According to this speech, Washington bears little or no responsibility for the 2008 crisis.
Obama is not alone in blaming Wall Street for the state of the economy. Chris Matthews recently vented his own anger toward financial tycoons and free enterprise. According to Matthews, our system gives the largest rewards to the least productive people: hedge-fund investors. The most successful hedge-fund investors made two to four billion dollars last year.
According to Matthews, these investors create nothing real, “not steel, not cars, not computers, not even movies”; they only make money for themselves. The gains of these investors supposedly come from the working poor and middle class who live paycheck to paycheck. Matthews has misled his audience in this matter.
Some of these hedge-fund investors lost money in 2008, so their long-term gains are not as high as they might seem. However, this fact does not negate Matthews’s basic argument about transfers. What does Matthews see as the solution to the alleged problem? He has high hopes for the new financial regulations that Congress will vote on this year.
Is Matthews correct? Should government increase regulation of all financial markets to get back at the most successful hedge-fund investors? Given the assumption that these investors make literally nothing, the correct measure would be to expropriate their unearned income. If Matthews had really thought things through, he would have joined Marx in condemning at least these capitalists. Of course, if Matthews had thought things through, he might have also realized that his assumption that hedge-fund investors produce nothing is never true.
Investors have two functions in modern economies. First, they defer consumption to invest in future production. The only reason that workers are able to produce steel, cars, or anything else is that someone saved and invested in real capital equipment in industry.
Most everybody saves some money in one way or another. However, a disproportionate amount of investment in capital comes from a relatively small number of wealthy persons who refrain from spending their fortunes. Without the capital accumulation achieved in modern capitalism, people would not be living from paycheck to paycheck as workers, but from harvest to harvest as peasants.