Capital Neglect is Killing Capitalism

Capital represents the resources and labor used to produce goods and services.

“Ism” is a system.

Capitalism is an economic system based on the private ownership of the means of production and the incentives which drive their for-profit operation.

Capitalism differs from other economic systems as it allows for the private ownership of production and the resulting profits. Most other economic systems rely to varying degrees on the government to decide how resources and labor are used and how profits get distributed.

Almost everyone uses the word capitalism to define the United States economy. Unfortunately, the U.S. is straying from capitalism. The United States government and Federal Reserve increasingly pick winners and losers by dictating how capital is employed and how profits and losses get distributed.

This article focuses on one facet of government interference; the Federal Reserve’s distortion of the price of capital and the negative economic and social consequences its actions have.

Productivity is Paramount

Before harping on the Fed, it’s worth appreciating productivity, the most critical cog in any economic engine and a vital element of capitalism.

A country’s economic growth and the financial well-being of its citizens can be directly linked to how effectively an economy deploys capital. In a purely capitalistic economy, the incentive for profit is the leading factor promoting the most effective use of a nation’s available capital, labor, and resources.