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The Dichotomy of Workers Versus Capitalists

In yesterday’s Prophecy, I shared my thoughts on Bill Bonner’s Diary. Today, I’m excited to share Gale Pooley’s thoughts with you!

Below you’ll find his response…

I agree with much Bill Bonner has to say, especially as it relates to money and gold.

However, I do take issue with his dichotomy of workers versus capitalists.

I define capital as anything people can use to create value. Human capital is one of the most valuable and important capitals in a modern economy. Therefore, all workers are capitalists. When working capitalists invest their earnings, they are creating financial capital.

More than 50% of Americans today invest in the stock market directly or through retirement accounts. It was less than 4.2% in 1952. IRAs were introduced in 1974 creating new opportunities for investing. The SEC banned fixed-minimum commission rates in 1975 and technology has made it much cheaper and faster to invest. Daily trade volume reached 100 million shares in 1982. Today it ranges between 2-6 billion shares.

While it is true that the Dow in 1971 was around 900 and it has increased to 28,000 today, it is not the same stock market. Just take a look at a few of the companies in the Dow 30 in 1971:

  • American Can Company
  • American Tobacco Company
  • Bethlehem Steel Corporation
  • Eastman Kodak Company
  • Goodyear Tire and Rubber Company
  • International Harvester Company
  • Johns-Manville Corporation
  • United States Steel Corporation
  • Westinghouse Electric Corporation
  • F. W. Woolworth Company

Do you know anybody who still owns any of these stocks? Me neither. There has been a dynamic turnover in companies as creative-destruction continues to innovate new wealth.

The same is true for individual human beings. We are continually adding human capital to our portfolios.

Someone who got their first job in 1971 as an unskilled worker was getting paid around $2.00 and hour. If they had added to their human capital by learning new skills and had become a blue-collar worker, their hourly compensation would have increased 16 times to $32.06 per hour. If they had become senior managers their income would have increased to 29.5 times to $59.06 per hour.

If you’re smart, you will invest in yourself and the stock market too. Both investments are yielding around 7-8% a year on a compound annual rate.

As Thomas Sowell has pointed out, people are not stuck in categories. They generally move up over time.

He said:

“Most working Americans who were initially in the bottom 20 percent of income-earners, rise out of that bottom 20 percent. More of them end up in the top 20 percent than remain in the bottom 20 percent…We should be concerned with the economic fate of flesh-and-blood human beings, not waxing indignant over the fate of abstract statistical brackets.”

—Gale Pooley

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

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