It is extremely frustrating and sad to witness the Republican presidential hopefuls inability or unwillingness to stand up for the principle of wealth creation. I believe it’s because many in the contest themselves do not know or grasp that the objective of individual or corporate effort is to maximize return on investment.
Witness the current invective hurled at Mitt Romney by both those of socialistic orientation and–embarrassingly–others who claim to be pro-liberty, free market types. Mr. Romney committed the grave sin of making a ton of money for himself and his investors. Worse still, sometimes he made money even though people lost jobs or the businesses he invested in failed. This ignorance is a great threat to our Country’s future.
Even the tepid defenses I’ve read or heard about the evil private equity industry focus on the social good. And why? Because its said, on balance, society benefits from the job creation that results from the investments made by private equity firms. But whether the businesses succeed or fail, or whether or not jobs are created or lost, is entirely beside the point. Capital flows to opportunities that yield the largest rate of return for a given level of risk. And where do the greedy, evil private equity firms get their capital that they use to speculate on companies and our jobs? They get it from you and me and mutual funds and union and pension funds and college endowments and other investors, who all share the common goal of maximizing their return on investment.
Sometimes this goal is achieved by growing a company and with it creating jobs. Other times, a company is worth more if it’s liquidated because the present value of its liquified assets exceeds that of the present value of its anticipated future cash flows. This proactive destruction creates liquid cash that is then invested in new opportunities with the goal of maximizing return. The capital freed from investment in buggy whips, typewriters, film, cathode ray tubes and rotary phones created opportunity to invest in the gasoline engine, computers, digital technology, flat screens and iPhones.
Either result, immediate job creation or job loss, is just a by-product of the objective. An objective which bears repeating, because most in the United States no longer understand: the objective is to make money. Companies and the people who own them do not exist for the purpose of giving people jobs. That they do, that they create value and products and services that greatly improve our life and life expectancy is something to be appreciated, not vilified.
Regulations and crony capitalism pervert this highly efficient market mechanism by picking winners and losers, independent of value or demand. The result is what you see around you today. It seems we are no longer capable of even building a gas pipeline for use in harnessing natural resources, for power to fuel the very lifeblood of our Nation.
I’m just a small voice shouting out. I know there are more who understand and appreciate the realities we face and the consequences of failing to accept and grasp the real. I just hope that more will step forward to speak the truth. Because the truth will indeed keep us free.