Wristons law of capital is named after Walter Wriston(1919-2005). He was a banker, and former chairman of Citicorp. He was widely regarded as the most influential commercial banker of his time(at least according to Wikipedia).
The law states that:
“Capital will always go where its welcome and stay where its well treated…Capital is not just money. It’s also talent and ideas. They, too, will go where they’re welcome and stay where they are well treated”
“Capital will always go where its welcome and stay where its well treated…Capital is not just money. It’s also talent and ideas. They, too, will go where they’re welcome and stay where they are well treated”
The key here is that capital is not just money, but its people and ideas too. For most of the short history of the US, it has attracted capital ruthlessly. People who work hard, people who study hard, ideas, patents, talents, especially people who were unwelcome elsewhere with their ideas. The world would have been a very different place if events in Germany hadn’t unfolded as they did.
The ‘welcome’ and ‘well treated’ parts are very important as well. Essentially,being nice to foreigners was critical(well, at least from an economic standpoint). Germany and Japan weren’t particularly nice or ‘tolerant’ to their neighbors in the first halve of the 20th century, so the smart ones, just left. Or as Amy Chua, Yale law professor said:
“Nazi intolerance caused the loss of incalculable scientific talent. The list of brilliant physicists and mathematicians who fled Hitler is astounding, including Edward Tellar, known as the “father of the hydrogen bomb”; the aeronautical genius Karman, John von Neumann, Lise Meitner, after whom element 109 is named; Eugene Wigner; Niels Bohn; Albert Einstein…”
The key word here was tolerance. But tolerance comes and goes. It is essential in the beginning of attracting capital but eventually wanes. The rise and fall of Europe’s history is based on tolerance but actually, relative tolerance. Jewish and Asian immigrants in the 1930’s, might or might not have been welcome in the US, but they were more welcome than elsewhere.
But in the current scenario, Wristons Law allows us in making educated guesses about the movement of capital and about future prosperity. Certain patters are recognizable, or as Einstein put it, “Insanity is doing the same things over and over again, expecting different results”.
What happened in the Dutch republic as Spain fell is a perfect example from history. The Dutch inherited all the Spanish capital(human and physical) and this eventually led to the establishment of the Amsterdam Stock Exchange.
But eventually, in 1688, when the Dutch William of Orange became a king of England, he brought over from Holland the financing and the people for the English Army. And so, it was soon enough that immigration followed and England became the new capital magnet.
Currently, the US is exporting its business too. However, Chua argues that China is unlikely to became a hyperpower like the US. China is not a human capital magnet since it is, to some extent, still a closed society. Chinese PhD’s(poor, hungry, and devoted) want to move to the US, rather than the other way around. But does that mean the US will not lose capital to some other country eventually, I’ll leave that for you to deice.
sources: Walter Wriston, Amy Chua, Ineihen-rm
