In his January 30, 2011 column, William Collins tells how he learned that land, labor, and capital are a company’s major costs, and that there are strategies to minimize each.  In today’s political rhetoric, we also hear that government is an obstacle to wealth creation.

Of an older generation, I learned a different theory of wealth creation, based on a vital partnership of capital, labor, and government.  This theory was severely tested during events like the Great Depression, but the American Dream flourished apparently better than it does today.  The old theory deserves revisiting as we wrestle with current economic difficulties.  For those who forgot or never learned it, the gist is:

Capital provides investment needed to establish enterprises and furnish the land, facilities, and equipment they need to do their work.  Fair return on investment is an essential incentive for obtaining capital, given the risks involved.

Labor acquires knowledge and skills, and devotes personal time and energy, sometimes risking life and limb, to perform human tasks.  A fair share of rewards provides incentive for professionalism and innovation, and enables consumption of the products of business.  Labor shares the risks of capital, but at a personal level where adapting to change is more difficult.  Sweatshop-level competition deters professionalism, innovation, and ability to purchase products of business.

Government supports capital by providing infrastructure, supports labor through education and social safety nets, and supports the entire enterprise by providing regulatory guides, defense, and domestic law and order.  The interstate highway system, air transport facilities, the Internet, and aerospace research and development are recent examples of enormous opportunities for wealth creation resulting from government action – undertaken at times of higher taxes than we complain about today.

Support of this threefold partnership brought us the world’s strongest, most innovative economy.  It raised our standard of living.  It created a sense of national unity, of people working for common cause.  All are sadly in decline today.  When we diminish labor and government, seeing them only as costs to be minimized, we endanger the vitality of our economy and of our republic.

(Published as a Letter to the Editor by the Charlottesville Daily Progress, Feb 8, 2011.)