If You Ask Me: A Global Banker Reflects on Our Times
Wriston, Walter B.
A Matter of Semantics
Getting back to the United States and the capital-formation problem, do you think there are any good chances of getting some tax changes favorable to capital formation and investment? If so, what changes?
The capital shortage is a semantic disaster area. As everyone learns in first-year economics, there is a price that will clear any marketplace. What people mean by a capital shortage is that the price that'll clear the marketplace is too high. Therefore, they want the government to allocate credit resources at a cost more to their liking. In an economic sense there can't be a capital shortage because those who save and those who wish to use that saving will always find an agreeable price--an equilibrium.
That is not to say that all of us will get all the capital we'd like to have. I dare say that in every company people come in with plans for capital expenditures that add up to four times their invested capital. It certainly happens to us. That's how capital shortage figures are derived. They are shopping lists of projects everybody wants.
Capital is merely deferred consumption--the conscious decision by someone to save a buck rather than spend it at once. But the rate at which we save in the United States hasn't varied by more than one percent in the past ten years.
It isn't likely to increase under our present tax structure, which is designed to penalize savers and encourage consumption.
The interest we make on our savings is taxed while the interest we pay for money we borrow and spend is deductible.
It's all been warped by the tax laws.