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 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.
RELATED FAQS
  1. What are the disclosure requirements for a private placement?

    The U.S. Securities and Exchange Commission (SEC) has set forth disclosure requirements for private placements, including ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How is trading volume regulated by the Securities and Exchange Commission (SEC)?

    The U.S. Securities and Exchange Commission (SEC) has trading volume as a requirement for selling securities that are otherwise ... Read Full Answer >>
  4. Has deregulation helped or hurt the profitability of companies in the telecommunications ...

    Deregulation is almost always a double-edged sword in terms of business profitability. The profits of legally protected monopolies ... Read Full Answer >>
  5. What level of reserve ratios is typical for an insurance company to protect against ...

    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
  6. How does government regulation impact the retail sector?

    Many different subsectors are in the retail industry, ranging from retail food to clothing to furniture and beyond. Each ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  2. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  3. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  4. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  5. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
  6. Marlboro Friday

    A reference to Friday, April 2, 1993, when Philip Morris, the maker of Marlboro cigarettes, announced that it would be cutting ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!