"If the major opportunities for future growth of government lie in the area of conventional taxation, are there any defenses available to the citizenry? ... Perhaps the most fruitful advice comes in two parts. The first piece of advice is to avoid war and the rumor of war: this is history's greatest boon to the tax man. ... The second piece of advice is to seek ways of inhibiting government's ability conveniently to increase its collections. Possibly the very increase in that ability that is in prospect can be turned to account by a constitutional provision which forbade the income tax, and perhaps even the storage of information regarding individual incomes by third parties, including government." ~ Benjamin Ward
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Nine or ten thousand years ago, mankind began to plow fields. I don't know what tools he used--perhaps some kind of wooden spades or trowels, fashioned with flint from a cedar of Lebanon; but somehow he turned the earth and cereal seeds were planted and some months later his little society had something to eat--without having had to strike camp and move along every few days or weeks in search of tasty new goodies to pluck or spear. This discovery of agriculture was perhaps the most significant single advance in the history of living creatures. It was also a fine example of true capitalism; the group agreed, presumably by a form of consensus, that this year they were going to invest the labor of plowing and sowing in fields reserved for that exclusive purpose, and harvesting so as to store some food for later consumption. Probably it was not a solo performance; one man can hunt and gather, or else plow and sow--but not both. So the Board met, heard and discussed an R&D report, made a financial projection and a decision, had the Secretary memorize the minutes, adjourned the meeting and the deed was done. Little could they guess that they had just changed humanity forever.
Today mankind does exactly the same, worldwide, though in this country the efficiency of planting and harvesting is such that the agricultural surplus allows over 95% of us to engage in profitable work elsewhere than in agriculture, and yet be very well fed--while celebrating the errors of Rev. Thomas Malthus. It's not so everywhere, but worldwide there has been a dramatic mechanization, compared to that first turner of sod. That mechanization happened because capital was repeatedly invested--and, certainly, because knowledge was uncovered and technology invented. But those things, too, are a form of capital investment; students and inventors produce nothing, while they are studying and tinkering, and yet they too need to eat.
Graduates of government schools may well suppose that the money used for such capital investment grows on trees, but it's not the case; in true, free capitalism, the resource comes from postponed consumption. In that first village, perhaps there was an unusually good natural harvest--but the decision was that (say) half of them would continue to hunt and gather while the other half cultivated next season's crop; and that may well have meant that everyone lived on short rations for a while. That was the act of investment. They worked and went a little hungry today, so as to eat more tomorrow. Real capital has no other source, ever. I ran a small business for some years, and in one of them made what was, to me, a large gross profit; I chose to plow some of it back into the hope of further growth, consuming only part. That's also called "saving." As it happens, it didn't work out, but if the investment had produced what I hoped it would, I'd now be a very rich curmudgeon instead of just a curmudgeon. Free capitalism comes with risk as well as the possibility of wealth, and even that investment was the best that I could possibly have made, for it was mine. Money cannot be invested more wisely than by its owner.
In the sort of refined, developed and still partly free economy such as prevailed here and in parts of Europe during the 19th Century, new ways were found to enable savings to be invested well. Everyone could put some aside and place it in ventures in which they took no other active part at all. We know this as the buying of shares, or stock. It's a clever way of both raising capital and letting large numbers of people share the wealth--but at root, people postpone some consumption and place the saved resource well, so as to eat better tomorrow, exactly as humans did ten millennia back. That's why very few of us need till the soil at all, and why those who do till it can sit in air conditioned cabs and listen to Brahms--on noise-canceling Bose headphones.
It's also why (absent government, its distortion and taxes) it's perfectly feasible for everyone to retire and live comfortably off the investments he has made. I once worked out that if one labors for 21 years, saves 5% of what is earned and invests it so well that it yields 15% a year compound, one could then retire and enjoy exactly the same as dividend as one was earning in salary--aged about 40. If you think 15% is a bit high, build a model on your PC, plug in different figures and do the math yourself; the point is that anyone (in that free society) could, if he chose, postpone consumption and then live off capital for many years. And pass on a nice legacy to the next generation.
But government, alas, is not absent at all, and nor are its distortions and taxes, and right now we are living through the most massive distortion, or misallocation, in history. The media, which seem to know nothing at all, parrot it as a "stimulus."
What's being done is (a) to fabricate some money that has not been saved by postponed consumption and is not owned by someone who earned it (because fiat money isn't earned by anyone and stolen money is certainly not owned by the thief) and then (b) to spend it on projects that seem likely to give jobs (of some kind . . . any kind) to people who will vote, come next election--so that, presumably, the cycle can be repeated. It may be a slightly less idiotic investment strategy than scattering freshly-printed C-notes from helicopters, but only just.
Probably there is also the thought, in what passes for the minds of these government macro-managers, that this injection of alleged money will trigger a round of spending by those who are paid the wages, which will deceive producers yet again into producing for real, which will truly re-start a stalled economy. This is the fiction that dominated the 20th Century, thanks to the mistaken theories of my countryman John Maynard, Lord Keynes. He wasn't all bad, mind; he made a personal fortune in the stock market, and walked out of the Versailles peace conference protesting accurately that its savage terms would produce a second war with Germany . But on economics, he was dead wrong; pols still follow his advice today because (a) they imagine it is up to them to do something, rather than to get out of the way and do nothing, and (b) they have no idea what else to do. In the event that it should "succeed," the only possible outcome is a worse crash a few years later, when the deception is revealed.
So the much-hyped "stimulus package," regardless of its details, is a total fraud; it is investing money that doesn't exist in schemes that won't produce--an irrational act of an irrational organization, or as Forrest Gump would say, "Stupid is as stupid does." Some of the funny-money will stimulate the production of more automobiles to which buyers prefer competing alternatives; some will arrive in bank vaults whence it will again be loaned out to people unlikely to repay (because the laws compelling such loans have not been repealed) and many of whose managers have already demonstrated their incompetence; and some may reach the hands of homeowners whom it will "enable" to continue paying off mortgages they cannot afford, just so as to continue to overstate the asset column on the lender's account of financial health. Some, it's true, may do something useful like improving the quality of roads and bridges, or even building more power stations and wind farms and other renewable-energy projects; but those are not true investments either, because the figures are rigged from the get-go. How can one possibly estimate the ROI from investing $X million to build a bridge, when no toll revenue from it will ever flow? Or consider: if the owners of a few thousand square miles of badlands could erect windmills for producing useful supplies of electricity at competitive rates, they would have no difficulty in attracting genuine capital, which someone had truly saved--there would be no need for funny money. To the extent that that hasn't happened, there is something doubtful about the ROI projections; and I noticed that last year's persuasive promoter of large wind-farm projects, T. Boone Pickens, was advertising not so much to raise capital as to raise political support so that capital could be channeled his way after having been stolen from those who would not otherwise choose to lend it to him.
Is there a better way? You betcha. In the coming free society, there will be no major misallocations of wealth because all of it will be placed by its owners, whose decisions while fallible will be the wisest possible and so the most productive possible. When mistakes do occur, those with money will spot the chance to buy up assets cheap, fly in as fast as vultures, and put them rapidly into use again so that the progress resumes. The biggest such operation ever likely to take place will be in the few years following E-Day, and it will last a while because there will be such a vast amount of carrion to consume; but given time those ugly but libertarian birds will do their good work and clear up the mess.
So they could today, if only E-Day could be brought forward; but it can't--or not very much. A quiet but huge program of re-education is prerequisite and it is under way, but several more years are needed.