Capital Strike

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.



comments powered by Disqus
Hot Definitions
  1. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  2. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  3. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  4. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
  5. Retail Sales

    An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce.
  6. Okun's Law

    The relationship between an economy's unemployment rate and its gross national product (GNP). Twentieth-century economist Arthur Okun developed this idea, which states that when unemployment falls by 1%, GNP rises by 3%. However, the law only holds true for the U.S.
Trading Center