It is a common misconception that a capitalist is someone who believes in the process of capitalism as an economic model. This definition, like many others, is designed by the western education system to misinform. The belief based definition is a non-sequitor and is used to enforce the participation in Hegelian dialectic distraction from reality and promote a breakdown in thought. Facts remain true whether one can comprehend them or not.
The term capitalist was first used by several economists such as David Ricardo in the 18th century and later on by Karl Marx who understood the process of capitalism thoroughly. When Marx wrote the Communist Manifesto in 1848, it was clear that a capitalist is a private owner of capital. Capitalism refers to the economic relationship in which capitalists invest in capital such as land and equipment and pay laborers to operate the means of production to generate economic output. The incentive for the capitalist is potential profits, and the incentive for the laborer is their wage.
As an example, a capitalist could build a manufacturing plant to stitch clothing and hire 10 people that used to hand stitch clothing. The laborers would earn more than they could by hand stitching, the capitalist would earn a substantial profit, and more clothing would be available to consumers at lower prices. Everyone gains, and because the relationship is voluntary, it is difficult to argue otherwise.
While this relationship has existed throughout history it become prevalent at the onset of the industrial revolution because productive innovations were created that provided an explosion in economic value but required the division of labor and capital investment beyond the reach of most laborers. Without this relationship, most innovations of that industrial revolution and beyond would have never materialized. From the year 1000 to 1820, the world economy grew by 500%. However, the world economy has grown by more than 5000% since 1820.
Marx's criticism of this relationship was notably that unskilled laborers have little negotiating room and therefore suffer from stagnant or falling wages through natural competition. Marx also observed that unskilled labor ends up with more routine and less enjoyable work. While these points are true, it is important to note that laborers enter into agreements to work on their own free will. If workers believed they would be better off providing value another way then they are free to do so.
There are only two ways to amass an abundance of wealth. The first way is to take more value from others than you provide - essentially by stealing. Those who use this strategy view wealth accumulation as a zero sum game. Madoff, Ken Lay, many bankers and politicians have proven this strategy successful however it will never be as successful as the second method. The second way is to create and add more value than you consume. The more value you create for others the more capital you will accumulate. While this is a simple concept, it has been largely forgotten by laborers in the developed world - and to their own detriment. Capitalists must understand this concept in order to be successful as their income depends on it. Bill Gates, Warren Buffet and Steve Jobs have all amassed incredible wealth in their lifetimes by creating even more value for the world.
Because capitalists create most of the value in the economy, they earn larger incentives through financial gain than most laborers. That being said, some laborers such as athletes and actors have created immense entertainment value and been compensated greatly for it. But they are still laborers. This demonstrates that wealth alone doesn’t make you a capitalist and laborers can out earn capitalists especially if they are particularly skilled.
What does it take to be a capitalist?
Clearly, a capitalist must have a capital investment with a profit motive. It should be noted that a capitalist without any capital is a laborer as a capitalist is a synonym for investor. However, it is possible to create capital to become a capitalist. Many notable examples of this come from the technology industry where college students starting from nothing have created billions in value. A much more common way of becoming a capitalist is adding excessive value as a laborer until enough capital is accumulated to invest as a capitalist. Retired laborers who invest in rental properties or dividend stocks are capitalists. Small business owners, landlords with rental properties, land owning farmers, and stock investors are also capitalists.
While the purest definition of a capitalist is one who derives all their income from capital investment, many people assume the role of a laborer by working for an employer and also as a capitalist by owning other investments. This is an important realization because it means that laborers do have the ability to transform themselves into capitalists.
Many capital investments are beyond the resources of individuals however it doesn’t mean that smaller investors can't participate in profitable projects. The risks and costs of capital investment can be shared amongst pools of investors with capital slices.
Conclusion:
The more value you create, the more wealth you can amass for yourself and others. Capitalists add a massive amount of value to the economy by creating jobs for laborers and innovating. Laborers and small investors can pool their resources to become larger capitalists, enabling them to create even more value as a group than they would have alone. A breakdown in this relationship would create a breakdown in the economic growth and development witnessed over the last 200 years. Governments don't create jobs or profits, capitalists do.
