Six Principles Of Capitalism

Principle One

Capitalism’s primary goal is to let creativity blossom.  The result is to have  new products and services created in order to foster new wealth.

Capitalism’s downside is the generation of enormous inequality. Not everyone is creative. Not everyone will create new products resulting in new personal wealth.

A crisis occurs when there is too large a gap  between those who have created  new wealth and the people who work for a wage.

It is in everyone’s interest to make sure that the gap reverses and starts to close. It’s in the capitalists interest to do so, because without a strong middle class, there is not a strong consumer class.

It’s in the workers best interest to support the creator of wealth, because without new wealth, there is not enough work or money to increase the worker’s wage.

Principle Two

There is no ongoing capitalist system without capital (money, labor, machinery, etc.).

At the initial point of the capitalist system is the inventor, who invests capital with his imagination. Next comes the entrepreneur, who invests time in securing money, people, and brain power in creating a company. Many times the inventor and the entrepreneur are the same person, but not always.

Next comes the private investor, whose interest lies in investing money to make a gain on money. This is the point where the capitalist system works on a money for money basis.

The capitalist system both flourishes and folds at the point of the professional investor class. As a big part of the investor class, banks  create opportunity for new investments to receive needed capital. But these high end investors are more concerned about making money on money than they are in deeply understanding the underlying asset that has created the growth cycle.

If, at this point, banks become too aggressive and regulation too lax, the economy runs the significant risk of investing more money  than is warranted by the amount of new products being created. When this happens the economy contracts, and for a time ceases to grow.

For capitalism to remain relevant, transparency is a must. This is especially true for ‘ high end investors and banks. Transparency is best achieved by having a rules based auditing system.

Principle Three

I have succeeded at investing. I’ve also had some hard setbacks. To cut my risk, I’ve learned to diversify. In other words, I don’t put all my eggs in one basket. Also, I don’t invest more than I  can afford to lose.

Principle Four

In a capitalist system, care should be taken to ensure the tax system is progressive and not flat. A flat tax system benefits the rich and hampers the middle class. In a flat tax system, for example, a ten percent tax is a greater burden on a person making fifty thousand dollars, than it is on a person making one million dollars.

Whereas, in a progressive tax system the middle class person pays a lower percent in tax and the rich person pays a higher tax. The reason behind this is twofold. One, the richer person is benefiting more from the services payed for by taxes, and two, by paying a proportional tax, the middle class citizen is able to participate more fully in the consumer economy.

Principle five

At the deepest level of fundamental capitalism are the following values:

You own your labor, you own what you create, you own your money, you own your body, and most importantly you own your soul.

These values represent the nexus point between democracy and capitalism.

A violation of these values pulls these two apart, and begins to represent a system different from either democracy or capitalism.

Principle Six

To keep a sound capitalist system is hard. Constant vigilance and rebalancing is required.