I recently discovered how mankind became aware of the principles of capitalism. About 15 years ago I bought a couple of cloves of garlic to plant in my garden. Last month, I planted approximately 100 feet of garlic cloves and still had about 10 pounds left over.
It is this simple. If you plant a clove of garlic, you will get about eight new cloves when they mature the following summer. Some of the garlic you use and some you set aside to plant in the fall for next year’s crop. The less you consume, the more you have to replant.
Therein lies the concept of capitalism: The less you consume, the more you have for future production. Dave Ramsey has made a fortune taking this simple concept and making it sound profound. It seems simple but not many Americans grasp the concept.
A few years ago, Monsanto tried to convince Indian farmers to buy a hybrid corn seed that would produce larger crops but the seed from the corn grown that season would not germinate. After the first year, more seed would have to be purchased from Monsanto.
I believe most Americans might consider themselves more sophisticated than peasant farmers in India. But the Indian farmers would not buy this corn seed. These “unsophisticated” farmers understood that once they had given up the capacity to set aside seed corn for the next growing season, they would become enslaved by Monsanto because Monsanto could raise the price at will for future purchases. They understood that a lack of capacity to save seed for planting the next spring would impoverish their future.
In effect, American consumerism can cause some families to eat their seed corn. Access to capital is the lubricant of the entrepreneurial process. Americans have developed a firm belief that access to capital means availability of credit. Little attention is paid to savings and reduction of debt as a source of capital.
Some of America’s great family dynasties have been the product of intergenerational savings. If great-grandpa saved a fortune and it was passed down to grandpa and then dad, accessibility of capital may not be a problem for you. Progressives despise this progression. The estate tax does not exist to generate revenue for government. It exists to prevent the perceived unfairness of seed corn being passed from generation to generation.
We think of the progressives’ goal as being the leveling of the playing field for all life for every individual. The progressives recognize that inherited capital is the key to intergenerational wealth and is therefore unfair. One of my realizations has been that life is unfair. Another realization has been that life has been unfair in my favor. I am not sure what to do with that information.
American consumerism is one enemy of capital accumulation. Another is the concept of finding someone to be responsible for your security. Eastern Michigan’s concept of the American dream is to find an umbilical cord to attach to for life.
The idea is to tap into someone else’s capital to provide for your needs. If you are successful in attaining that union or government job, it will keep you during your lifetime at an exceptional level of security. Nothing, however, will pass on to the next generation.
People who depend on themselves for their security must save enough money to fund their own retirement and health care needs. If you are a child of a person who accumulated capital for their needs, you will receive their seed corn with which to create intergenerational wealth. In comparison, a child of a person with a big business or government pension and health care will receive little. This may account for Grand Rapids’ economy being more stable and having a brighter future than our neighbors to the east.
Congress is currently debating what our estate tax should look like in future years. This is not an issue of revenue. It is an issue of what is perceived to be unfair by progressives, in that the availability of seed corn allows another generation to prosper using the capital generated by their ancestors. You can’t pick your parents and you can’t pick your kids. What you leave to them may purchase foolish toys. On the other hand, look what intergenerational wealth has done for West Michigan.
We are a society of instant gratification. With credit cards, you can buy a car, house, vacations and a lifestyle your cash flow cannot sustain. A peasant farmer in India knows that accelerated consumption of scarce resources leads to future impoverishment. Obviously, Americans enjoy a higher living standard. Giving up some consumption now in order to have more capital in the future makes sense.
Contrary to progressives, even though life may be easier for someone inheriting capital, it is possible to generate your own capital and move into the middle class or better in American society. We have a lot to be thankful for in West Michigan.
Planting garlic reminded me of the power of growing more than you need and using the excess for future planting. Maybe somewhere in northern Europe a thousand years ago, a future Hollander was planting tulips and came to the same realization I came to with garlic. Thank God.
Paul A. Hense, CPA, is president of Hense & Associates, a local accounting firm. He also is past chairman of the National Small Business Association and the Small Business Association of Michigan.