Capitalism
Capitalism is an economic system based on capital. People living within a capitalist economic system often believe that they understand capitalism. Of course, some individuals do have a good understanding, and typically, they are wealthy individuals. If one is uncomfortable due to their own financial situation and is not wealthy, it indicates a lack of proper understanding of capitalism. The moment one acknowledges their lack of understanding is the first step in learning the essence of capitalism.
Inflation
Inflation is a crucial aspect that cannot be overlooked when discussing capitalism, and it must be understood properly. You’ve likely heard about inflation in school or from newspapers, but experiencing it firsthand is a different matter. The realization that money is nothing more than pieces of paper is a destination one truly needs to feel, especially when delving into the realm of capitalism.
Banks and Interest Rates
I am convinced that those who understand the mechanism I am illustrating right now may already be aware of the biggest flaws and issues within capitalism. Let me give you an example. In a capitalist world, there are only 10 people and just one bank. And there exists only $100 in the world. Let’s assume the bank has $100, and people have $10 worth of gold collectively. People deposit their gold with the bank in exchange for $10 each for economic activities. The bank, in turn, claims a 10% interest as a fee. Imagine this scenario. Is this a plausible situation?
Still not sure what the issue is? Let’s imagine. People engage in various economic activities—some use their $10 to farm, some to make shoes, and others to open a restaurant. Perhaps someone can use $10 to make and sell clothes. This is how the economy operates. And then, one year passes.
Now, the bank needs to collect the interest of $10 on the $100. It should collect $1 from each of the 10 people. Then, the bank will naturally have $10. Of course, in the market (among the 10 people engaged in economic activities), $90 will remain. Those astute enough will be startled here, realizing what the problem is.
Four years have passed like this. Someone will have more than $10, and someone will not even have $1 to pay as interest. However, it’s not like someone can die, right? After four years, the bank now has $40. Since someone has no money, they decide to borrow an additional $10 from the bank. However, there were four people with no money. All four borrowed an additional $10 from the bank. The bank decides to charge an interest of $2 per year for the additional money borrowed.
Let’s do a quick calculation. The bank can now collect interest of $10 + $10 = $20 per year. There is still $100 circulating in the market. Let’s continue the scenario. Another 5 years have passed. People engaged in economic activities are struggling due to a lack of money, and some now possess more than $80. Can you imagine? We are now on the verge of an economic breakdown. People are slowly becoming more violent. At this rate, it seems like the world of capitalism is about to collapse. The bank declares, “We will lend money interest-free to those with no money for a year. However, after a year, the annual interest will be $1 for every $10 borrowed.” However, the bank only has $20, and there are 9 people with no money. To cover the shortfall and have some extra, the bank creates $100.
The bread I used to eat, the meat I hunted and consumed, and the clothes and shoes made from the hides—all remain unchanged. The only difference is that the money used for exchanging these goods has doubled. The value of my house, factories, farms, horses, and cattle remains the same. It’s just that the existence of money, the means of exchange, has depreciated in value.
Will capitalism collapse?
It’s a sad reality, but capitalism is the most successful economic system in the world. Despite its flaws, people generally live better and enjoy more prosperity under capitalism than under other economic systems. It’s a far more successful system than the alternatives, providing a higher standard of living for many.
Real Estate and Stock
In capitalism, real estate and stocks are indispensable. These two represent quintessential assets that provide a hedge against the risks of inflation. Historically, the wealthy have always owned these assets. Additionally, stocks reflect the present and future of successful companies. The stock market is often considered the epitome of capitalism. Moreover, it’s a place where human greed and fear are vividly expressed, offering numerous opportunities for those who can navigate it wisely.
Conclusion
Just by understanding these principles, your likelihood of becoming wealthy significantly increases. You might even already think like a wealthy person. The reason I can write such a post is that I understand the essence of capitalism, study it, and invest, allowing me to live without traditional employment. I don’t consider myself wealthy because I haven’t earned as much money as I desire. However, I still don’t engage in labor; I simply invest. This doesn’t mean I don’t appreciate the sanctity of labor. Accumulating capital through work and then investing or starting a business is the path. And, once you become wealthy, it’s crucial to never forget the sacredness of labor. Becoming wealthy is a simple starting point – all it takes is the “decision” to become rich.