As Nicholas Vardy shares in today’s article, America’s affinity for liberty and innovation has attracted talented people from around the world.
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Like one little-known company Alexander Green recently discovered…
It’s putting not just its customers but all of humanity first – through the biggest development in medical technology in half a century.
Trading for well under $10, this stock could be the opportunity of a lifetime.
– Madeline St.Clair, Assistant Managing Editor
“Capital will always go where it’s welcome and stay where it’s 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.”
– Walter Wriston, American banker
Few Americans have heard of Walter Wriston’s Law of Capital.
Yet Wriston’s Law offers a crucial insight that explains America’s long-term success.
Few Americans recall that…
In the 1950s and 1960s, the Soviet Union was set to dominate the world. (Nobel Prize-winning economist Paul Samuelson even famously predicted that the Soviet economy would overtake the U.S. economy by 1984.)
In the 1970s and 1980s, it was Japan that was to become No. 1.
And over the past two decades, China has been eating America’s economic lunch.
Yet Wriston’s Law helps explain why none of these rivals ever prevailed over the United States…
And why they are unlikely to do so in the future.
Wriston’s Law of Capital
Coined in 2006 by Rich Karlgaard, publisher of Forbes, Wriston’s Law of Capital is named after Walter Bigelow Wriston (1919-2005).
At one time, Wriston oversaw a global financial empire as chairman and CEO of Citicorp (the holding company of Citibank).
Wall Street economist Dr. Henry Kaufman called Wriston “the most influential banker of his day.”
Put simply, Wriston’s Law states the movement of capital is key to a country’s success.
And “capital” is more than just money.
It’s also talented people and their ideas.
People and ideas will always go to where they are “welcome” and “well treated.”
Wriston’s Law explains the ultimate success or failure of a country – whether it’s Singapore in Asia, Venezuela in Latin America or even tiny Estonia in Europe’s Baltic region.
These countries differ in terms of geography and history. But their relationship to capital explains much of their relative successes or failures.
Consider the example of Spain. For most of the 14th and 15th centuries, Spain was a magnet for capital.
It was the single best place for non-Christians to live and prosper in Europe.
That all changed in 1478 with the launch of the Spanish Inquisition.
Spain’s era of tolerance vanished overnight.
And the mass exodus of Jews left a catastrophic financial vacuum in the coffers of the Spanish global empire.
As Wriston’s Law predicts, capital – money, people and ideas – moved where it was welcome and well treated.
In the case of Spain, capital migrated to Holland.
The tolerant Dutch Republic had become a magnet for streams of religious refugees from all over Europe.
Their ranks included not only Jews from Spain but also Protestants from south Netherlands, Huguenots from France, Lutherans from Germany, and Quakers and Pilgrims from England.
These prosperous immigrants boosted Holland’s financial institutions.
They played a vital role in the establishment of the Amsterdam Stock Exchange.
Thanks to the influx of capital, the Dutch Republic thrived as the Spanish empire crumbled.
The Dutch had applied Wriston’s Law of Capital: They attracted capital by welcoming it… and kept it by treating it well.
The Manhattan Project 2.0
Of course, the most prominent contemporary example of Wriston’s Law of Capital is the United States.
For most of its short history, the U.S. has been a magnet for capital.
Generations of immigrants – many who, like the Jews in Spain, had been unwelcome elsewhere – brought their personal capital to the U.S.
Consider the example of the Manhattan Project – the building of the first atomic bomb in the early 1940s.
Many of the key figures behind this remarkable effort had just recently left Europe for the U.S.
In Day of Empire: How Hyperpowers Rise to Global Dominance – and Why They Fall, Yale law professor Amy Chua summarizes the importance of tolerance in attracting the best and the brightest of the world to the United States.
She writes…
In 1930s Europe, Nazi intolerance caused the loss of incalculable scientific talent. The list of brilliant physicists and mathematicians who fled Hitler is astounding, including Edward Teller, known as the “father of the hydrogen bomb”… John von Neumann, a child prodigy and the co-creator of game theory… Enrico Fermi, builder of the first experimental nuclear reactor… and of course Albert Einstein… Up until the 1930s, Germany and Hungary were home to some of the world’s leading physicists. Practically overnight, their departure turned America into “the world’s dominant force in pure science.”
America, Chua continues, built its dominance on commerce, not conquest.
She argues that the U.S. is a hyperpower based on the Dutch model… but on a different order of magnitude.
Today’s version of the Manhattan Project is Silicon Valley. Immigrants like Tesla founder Elon Musk have become iconic American success stories.
Immigrants have founded more than half of Silicon Valley’s unicorns – startups valued at greater than $1 billion.
The CEOs of Alphabet, Microsoft and Twitter were all born and grew up in India.
Wriston’s Law in a Closed Society
Applying Wriston’s Law to China offers some unexpected insights.
Surprisingly, it suggests that China will never become the world’s leading superpower, no matter how large its economy gets.
That’s because China is a closed society.
It’s not a magnet for people and ideas.
No one knows this better than the Chinese themselves. Anyone who can get money out of China is doing just that.
Before recent immigration restrictions, 9 in 10 Chinese PhDs opted to stay in the U.S. rather than return home.
The “Chinese Dream” is far less appealing than the American way of life.
The bottom line?
Wriston’s Law tells us that money, people and ideas always flow toward freedom and opportunity… and away from repressive and kleptocratic regimes.
And welcoming that capital is essential to a nation’s long-term success.