Capital Strike

AAA

DEFINITION of 'Capital Strike'

A refusal of businesses to invest in a particular sector of the economy or in the economy as a whole. A capital strike can be compared to a labor strike, in which the labor force refuses to work unless its demands are met. In the case of a capital strike, companies refuse to provide capital for economic growth. Unlike a labor strike, however, a capital strike does not require the organization of companies in order to occur.

INVESTOPEDIA EXPLAINS 'Capital Strike'

Generally, an increase in aggregate demand for goods and services should prompt businesses to hire more workers, create more inventory and build up capacity.  A capital strike might result when financial institutions and other companies do not do these things. In this sense, despite increased demand from individuals, companies do not invest.

Several theories exist for the existence of a capital strike. One theory suggests that wealthy individuals and companies can withhold capital from the economy in order to force the government to alter regulations, taxes or other legislation.

Another theory suggests that companies review economic conditions in order to determine if using capital will result in a positive return. If company executives believe that return on investment will be negative or nonexistent, they will not hire more workers, lend funds or build factories. If enough companies believe that employing capital today will offer poor returns, a significant amount of capital will not reach the broader market.

RELATED TERMS
  1. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  2. Working Capital

    This ratio indicates whether a company has enough short term ...
  3. Capital Buffer

    Mandatory capital that financial institutions are required to ...
  4. Capital Flight

    A large-scale exodus of financial assets and capital from a nation ...
  5. Solvency Capital Requirement

    The amount of funds that insurance and reinsurance undertakings ...
  6. Capitalism

    A system of economics based on the private ownership of capital ...
RELATED FAQS
  1. What are the Basel III rules, and how does it impact my bank investments?

    The Basel III rules are a regulatory framework designed to strengthen financial institutions by placing guidelines pertaining ... Read Full Answer >>
  2. What advantages do corporations have over privately held companies?

    The chief advantage that most publicly traded corporations enjoy – and the primary reason why private companies decide to ... Read Full Answer >>
  3. Are there any exceptions to the law of demand?

    The law of demand applies in market economies and may operate differently for different products, markets and industries. ... Read Full Answer >>
  4. Besides Porter's 5 forces, what other forces shape industry in the 21st century?

    Competition, potential new competition, supplier power, buyer power and the threat of new substitute products, also known ... Read Full Answer >>
  5. How does a government raise the economy's money supply?

    The government can raises the money supply by loosening money or the reserve requirement for banks. Both actions work to ... Read Full Answer >>
  6. How does contractionary fiscal policy lead to the opposite of the crowding out effect?

    According to general equilibrium models in contemporary macroeconomics, expansionary fiscal policy could cause crowding out ... Read Full Answer >>
Related Articles
  1. Taxes

    Changes In Tax Legislation And Regulation

    Keeping on top of these amendments can help you avoid penalties and take advantage of benefits.
  2. Investing Basics

    The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  3. Investing Basics

    Capital Losses and Tax

    Capital losses are never fun to incur, but they can reduce your taxable income. Knowing the rules for capital losses can help you maximize your deductions and make better choices about when to ...
  4. Trading Strategies

    Follow The Herd In Trading The Capital Market

    If you have ever heard "the trend is your friend" and believed it, you may be a fan of herd instinct mentality. This is an environment where, just like with fashion, masses of people follow a ...
  5. Investing Basics

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  6. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  7. Entrepreneurship

    Government Regulations: Do They Help Businesses?

    These rules are in place to protect consumers and help businesses thrive at the same time.
  8. Economics

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  9. Options & Futures

    Principal-Protected Investments: Risks, Fees And Regulations

    Discover if these instruments hit the right note for you.
  10. Retirement

    Navigating Government And Nonprofit Financial Statements

    Learn how to trace where your tax dollars and charitable donations are going.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center