How Is Capitalism Supposed to Work?

So we understand God rewards personal initiative and risk. He said that a laborer is worthy of his hire. For Scripture says, “Do not muzzle an ox while it is treading out the grain,” and “The worker deserves his wages.” 1 Timothy 5:18.

How does capitalism work? Listen to Fernando De Soto in his 2003 book, The Mystery of Capital, describe how capital accumulation can begin to work for individuals owning their own home.

The United States became the most important market economy and producer of capital in the world…Westerners houses no longer merely keep the rain and cold out. Endowed with representational existence, these houses can now lead a parallel life, doing economic things that could not have been done before.

Houses can lead a parallel life? What is he saying? That house as it is paid off develops  value, which can be leveraged to start a small business or investment. The big separator between poverty and the middle class is home ownership. But we will discuss this more in the future. The accumulated capital in the house can be made available for investment. This is called an asset. Here the wise, prosperous mind will go. But unfortunately, the mind driven by poverty thoughts will waste this capital opportunity on consumer goods that lose value and do not produce income, thus short circuiting a practical opportunity for financial prosperity. Don’t do this.

But there is more. The stock market offers a way for average investors to buy into the fastest-growing companies in the world, helping spread the company’s wealth to the average person. De Soto explains more:

Citizens of advanced nations are thus able to split their assets into shares, each of which can be owned by different persons, with different rights to carry out different functions. Thus a single factory can be held by countless investors, who can divest themselves of their property without affecting the integrity of the physical asset.

Amazing. Enter the stock, which is a small share of a company that anyone can own. About half of American households own shares of stock, mostly in retirement funds of some type. Some are fond of criticizing large companies as “greedy” when they are selling a product for a profit at the price the market will bare (or what someone is willing to pay), but this profit goes back to the owner of the stock, the shareholder. Likely even those that criticize these “obscene profits” receive some of them in their retirement funds. Ironic.

Here is a practical example. Amazon.com Inc., was sold publicly in 1994 at a value of $440 million. Anyone could have bought a part of this company by purchasing shares of this stock. That same $440 million investment is now worth about $358 billion. That investment grew at over 800% over those 23 years or roughly 35% each year. Capital invested has the opportunity to bring increase, although always with some risk.

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