Improving Our Standard of Living (Wattpad Edition)

Chapter 16: Property Rights, Stock Markets, Economy of Scale

The essence of capitalism is the right to acquire property, especially the kind used to produce and sell goods and services.

Property isn't money, but it can be sold for money. It includes lands, buildings, stocks, factory equipment, intellectual property, the labors of employees, and the products they produce. Other terms for it include assets, capital, and wealth. They all mean the same thing.

We often use the words wealth and money interchangeably, though they have different meanings. For the most part, wealth is property. Money is permission to obtain property. Technically, wealth includes the value of one's money, but it mostly refers to the combined value of one's assets.

Property rights give people the freedom to buy property and use it to produce and sell goods and services. Individuals may also rent their property, or use it as collateral for loans.

In a country with secure property rights, people have the freedom to pull their resources and start businesses. That's called investing.

Investors can split up ownership of businesses into many deeds called stocks. An individual that owns more shares of stock in a company owns a larger percentage of it. If the corporation makes a profit, the shareholders can take a portion of it as personal income. Those that own more shares receive more money. Income from owning shares of stock is called dividends.

Some companies don't pay dividends. They are usually younger growth firms. The value of their shares is expected to go up. The incentive for owning stock in companies that don't pay dividends is to sell the shares at a higher price in the future. Or hold onto them long enough to receive dividends once the firm matures.

The people that own the largest number of shares of a company usually have the most control over it. They decide what the firm produces, where it produces, how it produces, and employees' wages. If a single individual owns 51% or more of the shares, he or she has tremendous control of that company.

The board of directors is the top management group that makes decisions for a company. They are elected by the shareholders. Individuals that own the most shares have the most votes.

Stocks are bought and sold on the stock exchange. It was invented to make buying, selling, and investing in businesses easier. The stock market decentralized business ownership, making it more democratic.

Before the stock exchange, companies were created by single individuals, families, or small groups. They had to be wealthy. The stock market allowed anyone with even a little bit of money to become an investor, not just the rich. Firms became much easier to create.

The stock market reduces the severity of loss to investors if a business fails. Dividing ownership into many deeds and spreading it among several people means that the weight of failure is also spread out. Even if a company goes bankrupt, its backers will be able to invest in something else because the loss of failure isn't as severe for each individual.

The stock market made it possible for massive corporations to exist, and for their owners to be from all over the world.

Corporations are sometimes criticized for being too big, and I too am a critic of them when they engage in corrupt practices. Nevertheless, they serve vital economic functions.

The primary one is the ability to produce some types of goods at lower cost than would be possible for small businesses. Big companies have more resources, tools, and labor power at their disposal to make some types of products more efficiently and inexpensively.

For example, a small business of five people might be able to make a car, but it would be expensive and take a long time.

A corporation, however, might have thousands of employees, several factories, and tools all over the world. It has the resources and connections to build the same car much quicker and cheaper, and it can produce several more. Of the thousands of employees, each one can specialize in making a specific part of the car, which has thousands of different parts.