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Bourgeois Capital

Here’s a letter to Cafe Hayek reader Walter Quinn:

Mr. Quinn:

Thanks for your e-mail. If I understand your point, it’s this: even if the absolute value of assets that we Americans own rises, it’s “an economic peril” for us if non-Americans own a growing portion of the capital located in the United States.

I disagree. Suppose that Jones lives in a house in Virginia that he owns outright but to which he makes no improvements in 2018. Further suppose that the house next to Jones’s is owned outright by Smith – who lives in Saskatchewan and rents this house to tenants – and who makes significant improvements to her Virginia house in 2018. Finally suppose that in 2018 the market value of Jones’s house rises by $X while that of Smith’s house rises by $2X. Is Jones made worse off because a greater portion of the assets located in his neighborhood comes to be owned by Smith? Of course not. And what “peril” does this relative change in asset values pose to Jones? None that I see.

People vexed and frightened by U.S. trade deficits often assert that we Americans are losing our capital to foreigners. An obvious flaw with this assertion is that it’s based on the mistaken supposition that the amount of capital in the world is fixed. The reality is that capital can, and when given the opportunity does, grow.

This reality reveals a deeper flaw in protectionists’ fear of trade deficits – namely, the failure to realize that by far the single most important ‘form’ of capital that any country can possess is a mix of bourgeois attitudes and institutions. As long and insofar as the U.S. has such a mix of attitudes and institutions – as long and insofar as we Americans admire entrepreneurship, respect property and contract rights, aren’t overly frightened by economic change, refuse to wallow in envy, and reject excessive obstruction of the price system – the economy here will be dynamic and productive. And it will afford to anyone who wishes – American and non-American alike – ample opportunity to pursue prosperity.

Among the many ironies of protectionists is their embrace of policies that eat away like cancer at this most important form of capital.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030