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Saturday, March 4, 2017

I Love Capitalists!

As an Economist, and a business owner, this statement should not be shocking. However, for some, they loathe CEOs and Capitalists. Many have taken the moral argument, which can be defended also, against CEOs, Business owners, or these greedy capitalists. All of us, at some level, are capitalists. There is no way around it. We are all seeking to obtain "things", tangible or intangible, to gain "happiness".  There are multiple reasons why Capitalists are vital to an economy.

Risk Takers

Capitalists organize the factors of production, e.g. land, labor and capital, and synthesize them to develop a product or service for consumers in the marketplace. Since no human is blessed with clairvoyance, this is an enormous risk. After the organization of these factors take place, the capitalist takes his product to the marketplace, not really knowing if consumers will purchase his product. The capitalist is the one taking the risk, making the sacrifice, for those aforementioned factors of production, to make a profit. No one else is doing this risk but the capitalist.

Builders of the economy

Once the capitalist sees the profits from his business, he will re-invest those profits back into the enterprise. This allows him to continue to pay his employees, purchase more capital equipment, capital, or etc, back into his business. As consumers purchase more of his product/service, consumers benefit from the product/service the capitalist provides. This overall benefit expands the economy.

Investment increases 

As the business owner increases his profits, he will discover that he needs to expand the operation.  He will need to find investors, or more capital from a Financial intermediary, to gain more capital. The infusion of capital helps expand the business, and the investors, receive a return on the investment. This return on investment, or return on capital, helps investors and financial intermediaries, invest in other projects in the economy.  This also allows the capitalist to hire more labor, land and capital to expand the operation.

Conclusion

The Capitalist is vital to the economy. He is a speculator that blazes the trail to expand the economy. Without this effort, the economy will grow much more slowly. Since the Capitalist chooses to take the risk, he absorbs that risk, if the operation fails. Conversely, if the operation is a success, those profits, net expenses, return to him to reinvest and expand the economy. When the latter occurs, we all benefit.


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