Craftsmen of Capital

Imagine a craftsman -- a woodworker.  Over the years, he has developed considerable skill with various wooden structures: chairs, cabinets, tables, shelves, and similar furniture.  His expertise allows him to construct excellent pieces with clean and sturdy lines.  He has refined techniques that allow him to work efficiently with high quality.  He has collected and even developed critical tools that have enabled him to perfect his craft.

Of course there is more to his quality than the tools. He has learned a sequence of steps and has come to quickly recognize quality in his raw materials.  After years honing his skills, he knows exactly what to have available for a job beforehand, saving time.  He knows techniques that preserves the quality of the finish.  Even when he encounters a new challenge, his perspective and experience allow him to address it quickly with excellent results.

His skills support an attitude that will not accept inferior work.  It is not just the years he has put into his craft; it is the focus.  There is a difference between ten years' experience and one year's experience repeated ten times.

Envision a town where this craftsman is still in demand even though construction and similar activity are in a slump.  Lesser but still experienced competitors are idle and looking for work.  A county commissioner has a brother who is an unemployed carpenter and is struggling to understand why this one woodworker is so busy, while others, like his brother, are on food stamps and unemployment.  After all, these other  unemployed craftsmen have families to support.

It isn't fair.

The county commissioner visits the master craftsman and views his workshop.  It is pristine and filled with tools, some of which the commissioner has never seen, and he asks the craftsman what they are.  The woodworker  happily and proudly explained their use.

The commissioner leaves the shop seeing quite plainly what the problem is.  This one successful and busy wood craftsman has an unfair advantage.  He has tools and equipment the others do not have.

In order to help the unemployed woodworkers, the commissioner gets the support of his fellows to pass an ordinance to expropriate some of the tools from the master craftsman to give to the unemployed craftsmen so they will have a more equal playing field.  It is only fair that he should share the opportunity.  Certainly the master craftsman could not object to "paying" his fair share, to share the opportunity he has enjoyed.  After all, he was helped by the county through roads, sewers, and police protection.  He even first learned his craft in a public high school in shop class.

Six months later, nothing has improved.  The master craftsman is reluctant to buy more tools, since there is now the risk that the local government will just take them away.  He therefore takes longer to execute some jobs and thus has to charge more for the work.  But now that he is less productive, he takes fewer jobs, and he no longer needs the assistant who used to help him.  He earns less money and pays less in taxes.

The other craftsmen who now have new tools are not nearly as productive with them as the master craftsman, who spent years learning how to use them efficiently and wisely.  Most of the tools sit unused, collecting dust.

The commissioner cannot possibly understand what happened.  He could see the tools, but he could not see the real wealth: the attitude, habits, and mind of the craftsman.  Being a mere woodworker, the master craftsman was unable to articulate his real value: his philosophy of work.  In fact, he was so humble that it was not even mentioned.  

Capital is the tool of the capitalists.  Those who create it know far better how to deploy it than those who seek to expropriate it in the name of fairness, social justice, or whatever other rationalization the intellectuals and elites may conjure.  Just as the craftsman learned through trial and error, so does the capitalist.  Failure is part of the process.

As George Gilder so profoundly noted in his new edition of Wealth and Poverty, capitalism works best when knowledge is matched with power.  When knowledge and power are matched, we get iPhones, Apples, Microsofts, Amazons, the vaccine to eliminate cervical cancer, J.K. Rowling's Harry Potter books, Facebooks, and Googles.  When political power is exercised without knowledge or in place of knowledge, Gilder's definition of regulation, we end up with Solyndras, a collapsed housing market, and dozens of financial regulatory agencies that were unable to stop the worst financial collapse in eighty years.

Warren Buffett may be willing to pay more taxes, though he apparently is not willing to do so voluntarily, as Mitt Romney did.  But the critical question is not how much the wealthy are able or willing to pay, but where the capital will generate the greatest economic growth.  Capital is a tool that, in the hands of Buffett and other capitalists like him, has generated billions of dollars of wealth, jobs, and tax revenues.

The poorest in the countries with the most economic liberty do far better than the poorest in the countries with little economic liberty.  There is a tradeoff between equality and the economic growth brought about by economic liberty.

Capital, like the tools of the craftsman, benefits us all when it is allowed to be deployed by those who are most experienced and focused on deploying it wisely, by those who truly understand the risks and costs.  An economy built with expropriated tools is not built to last.

Henry Oliner blogs at