Our system of capitalism is based on the writings of its intellectual father, Adam Smith. Over 200 years ago he observed in his book, The Wealth of Nations, that a competitive market was better at allocating resources than a system controlled by a central power, in his case, the monarch. He was a brave man, for what he was saying that the chaos of the common man would be better than the authoritarian rule of the wise and all-powerful king who could have him executed for even thinking such unruly thoughts.
Imagine how different the United States of America would be without the capability of forming large pools of capital to finance industries like banking, railroads, telegraph, telephone, steel, automobiles, aircraft manufacturing, moving pictures, oil, mining, electronics, and computers. We live in the wealthiest nation known to mankind, largely because of our political and economic system. The poorest of our citizens often have better lives than the middle class of most nations.
Adam Smith laid the framework of thought over two hundred years ago that defined the basic principals of capitalism. America’s first Secretary of the Treasury, Alexander Hamilton, put the infrastructure in place at the birth of the nation with laws and institutions that set our nation on course to be the engine of capitalism. And a succession of folks who understood what capitalism was all about made this country the envy of the rest of the world.
There exists a major risk to the wealth of our nation by those who think of our financial markets as nothing more than a get rich scheme or casino. They have a significant misunderstanding of the basics of economics. What every participant in our free market capitalist economy must keep in mind is how important the ability to pool capital is for our economy and how important the market place is in pooling that capital. The capital markets are of greater value than the speculative interest that dominates our thoughts about markets and capitalism. The importance of the capital markets is not limited to investors but extends to every participant in our society.
Many potential investors overlook the true value of the capital markets, but they do so at our own peril. The wealth of nations is derived from the value of the corporations and businesses that drive the economy of the nation. The wealth of the individual participants in the economy is driven by their personal participation in those activities, and their personal investments in those corporations and businesses.