Vitago

When applied correctly capitalism improves the strength and quality of life for investors, business leaders, employees and the government. I’m writing in really broad strokes here to explain how capitalism works and how you can take advantage of this system to make more money.

Take note: I am not an economist. If any out there come across this post, I’d sure appreciate some feedback in the comments!

Capitalism works in a way where the rich get richer and pull the rest of the community up with them. Conversely, communism works by pulling the community leaders down to the level of the rest of the community.

In a capitalist system, a person comes up with an idea, raises the money to make the idea happen and then builds a business around that idea. Business overhead boosts the economy. Expenses create jobs and move money. Taxes are collected to provide for the government. Each time a business grows, it’s expenses increase moving more money, creating a healthier economy.

How do you fit into this? If you are an employee, you may be content to work for your 401K though if you are reading this I’m guessing you are a bit more enterprising than that.

As employees gain experience in the business world they learn how the systems of business work. And somewhere along the way a person may discover an opportunity.

Once the idea occurs, the next step is to create a business plan and then generate financing for that plan. With the financing handled, a business is built around the idea. Employees are hired, some of whom will eventually get their own ideas and restart the cycle.

Assuming the business is a success, the business leader - idea person - starts accumulating assets, some of which are used to pay dividends to the investors. Some of the assets are moved to investing in other people’s ideas. Now the person with the idea is part of the funding cycle!

Smart investments bring in more money through dividends paid to you. That money can increases exponentially. The more you invest, the more money you have to invest in more ideas - there is no limit!

Each time a business becomes more successful and brings in more revenue, new jobs are created to manage that increase. The business will reinvest some of that gain back into the business and need employees to handle those expansions. More orders will go out to vendors and as their profits increase, some money will be reinvested into their own businesses. And more money goes to the government which needs more people to manage that money as well.

Also consider what happens to the idea person. As their assets increase they want to improve their own quality of living. They buy larger homes, more expensive cars, clothes, etc. all of which pushes the economy along.

What happens if two people have the same idea?

One of the best parts of capitalism is that it not only allows room for competition, it thrives on it! When competition occurs between businesses innovation accelerates and prices drop. These innovations can have dramatic effects on the community. Part of the innovation that occurs is increasing quality while finding less expensive ways to make that happen. This is great for the consumer who is always looking for a better deal.

This entry was posted on Monday, December 3rd, 2007 at 2:37 am and is filed under Investing, Wealth. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.