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Homesteading and capitalism, deux 

Well, I've given the additional thought I said it deserved, and all I come up with is additional problems with the Capital Homesteading concept recently advocated by David Brooks.

I'm not saying homesteading didn't work. But the ways it did work were not necessarily transferrable to today:
1) Didn't pay the Indians for the land
2) The land early on was fertile and capable of supporting farms. By the end of the Act's tenure, in the 1920s, you were "homesteading" desert lands with no irrigation possibilities, lands that could never support a farm.
3) Constant new entries to the market. Throughout the 1800s, new immigrants came to this country and sought to farm the Midwest. Thus those who had homesteaded those areas saw the value of their lands grow. You didn't have to be a homesteader to succeed economically, in fact you didn't even have to be a farmer. Land prices rose so quickly that you could just keep flipping real estate. One person who did (about whom I happen to know a great deal) was Joseph Lockhart.

Apply that to the stock market, and what does "constant new entries" remind you of? How about the boom that lasted from the pit of the Great Depression to about 1999? Stocks (as judged by p/e ratios) are valued far more highly now than then. How to replicate that success? Well, one way would be to give lots of government money to stock market investors. It'd be great for people who now own stocks -- though the new investors (like those who bought farmland before the dust bowl, or before the 1980s bust) might not fare so well.

I believe in capitalism, and I'm all for encouraging people to be better capitalists. (Though since when is a lack of capitalism such a big problem in the US?) But it seems to me capitalism is about creating products. You create a product people want; they pay you for it. ("Products," of course, can be completely intangible. But they're still services people want.) The heroes of capitalism are entrepreneurs.

By providing capital to entrepreneurs, stock-market investors play a key role. But why is it more important than the role played by salespeople, or managers, or janitors? The only difference is, since you can invest in stocks without working up a sweat, lots of rich people do it, and like to emphasize their own importance.

If we want to encourage behavior that improves capitalism, let's encourage entrepreneurs. Not stock market investors. Because actually, I think a lot of people who are denied access to the stock market already exhibit that behavior and that set of values. They just do it at the racetrack.

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