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Sun, July 21

Community View | Don’t understand capitalism? How wealth is created?

You’ll feel relieved to know you don’t have to read Adam Smith or even a book about him to understand how capitalism, a purely amoral economic system, creates wealth.

As Smith noted, there are three main components to the system. Land, capital and labor. You can easily express it algebraically: Ln + C + Lb = NW, or New Wealth. Rumpelstiltskin had a captive princess who could do it. So can you.

Land because you have to have a location at which to do the following: Invest capital (that’s money you have laying around) in a business that produces a product or service which can be sold for more than what it cost you, the capitalist, to produce. These excess of profits over costs is brand new money that hadn’t existed before. New wealth. It’s really that easy.

But there are rules. Yes, profits are draws against future assets. Capitalism is the art of leveraging the future.

Wimpy’s hamburger today for payment next week. And as long as that payment (or a reasonable facsimile) is made, the system can go on creating new wealth forever.

It also requires belief in oneself which makes some introspection to get to know oneself necessary. The necessity arises from the reality that capitalism is easily abused and it takes a bit of morality to make sure that abuse does not destroy the little gnome spinning straw into gold.

It is we, the users of the capitalist system, who inject the morality into it.

Business. Good old human know-how.

We took what the Founders wrote, what Smith described, and in 242 years created the greatest and wealthiest nation on Earth.

Others watched and copied to create the greatest and wealthiest species on the planet. What happened to ourselves is that we became carried away and created financial bubbles that were leveraged too far until there was no value left in their market assets.

There have been countless bubbles since the start, but only two that we leveraged too far, which burst and took us back to core values: 1929 and 2008.

And now we’ve climbed out of the last one and some of us, in reactive fear, have put on a cloak of violent fascism, which we are now getting tired of and growing away from as will be shown in the next two months.

It’s not like we destroyed anything in the process. Just did a little hard looking at ourselves in the mirror and as McCain’s eulogy highlighted, saw a better self with greater ability to use capitalism wisely so that we could all have better lives.

This is the conundrum of capitalism that the right doesn’t seem to get. People are the assets of a capitalist economy. We are all Lb, the labor that produces the goods and services that can be sold by the capitalist for profits or new wealth.

It logically follows that the more of us, the Lbs, there are who are happy working and consuming, the more profits there will be, the more new wealth will be created, the more the 1 percent’s investment is worth. With, of course, a larger share for the 99 percent who are the real engines of this economy.

It’s easy to create Lb who are happy, well-adjusted and productive.

First we educate them on the knowledge of how the system works, then ensure they are able to find work they enjoy, giving them the healthiest mindset we can (free of prejudice and fear), and set them (us) loose to do what we do best.

Cooperate and spin straw into gold.


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