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.

BREAKING DOWN '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. Iron Butterfly

    An options strategy that is created with four options at three ...
  2. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  3. Bull Put Spread

    A type of options strategy that is used when the investor expects ...
  4. Bull Spread

    An option strategy in which maximum profit is attained if the ...
  5. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
  6. Capital

    1) Financial assets or the financial value of assets, such as ...
Related Articles
  1. Options & Futures

    What's the Strike Price?

    The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ...
  2. Economics

    What is Right of First Refusal?

    The right of first refusal is a contract in which a seller grants another party the right to enter into a business transaction before anyone else.
  3. Options & Futures

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  4. Fundamental Analysis

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  5. Fundamental Analysis

    Capital Markets: Where They Matter Most

    See which countries and regions dominate the world's capital markets and why American entrepreneurial spirit and risk-taking give the United States an edge.
  6. Fundamental Analysis

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  7. Active Trading

    How To Manage A Bull Call Spread

    A bull call spread, also called a vertical spread, involves buying a call option at a specific strike price and simultaneously selling another call option at a higher strike price.
  8. Stock Analysis

    Profit With Less Risk With This Options Strategy

    Capital preservation and minimizing losses should be the most important objectives of any investor or trader. Warren Buffett is credited with the saying: Rule No. 1: Never lose money Rule No. ...
  9. Investing News

    Retail vs. Tech: How These Companies Use Working Capital

    Learn about the difference between retail and tech businesses' use of working capital and why working capital varies so widely in the technology sector.
  10. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
RELATED FAQS
  1. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  2. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  3. How do I set a strike price for a future?

    Find out why futures contracts don't have set strike prices like options or other derivatives, even though price change limits ... Read Answer >>
  4. How do I set a strike price in a put?

    Learn about put options, considerations to make before you select strike prices and how to select strike prices for your ... Read Answer >>
  5. What does low working capital say about a company's financial prospects?

    Find out what it means when a company has low working capital, including how this metric is interpreted based on business ... Read Answer >>
  6. How is working capital different from fixed capital?

    Understand the differences between working capital and fixed capital, including definitions and examples of how businesses ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center