Saturday, November 14, 2015

ANS -- A High Income Isn't Enough to Truly Join the Capitalist Class

This is a short excerpt of an article.  I am sending it because it has a clear definition of the difference between being rich and being a capitalist.  The question: is it immoral to be a capitalist?

A High Income Isn't Enough to Truly Join the Capitalist Class

Before we begin, let me reiterate the example I provided in Class in the United States to illustrate the difference between merely having a high income and truly being a member of the capitalist class.

Imagine two men, Greg and John. Greg is a medical doctor and earns $300,000 per year. He has to show up to work regularly, using the rare skills he's acquired through a very expensive medical school education and years of on-the-job training. If he dies, or goes into a coma, his family will receive little or no income because he's unable to work. John, on the other hand, owns a $3,000,000 limited service hotel that generates $300,000 per year for him.

He doesn't have to run it or be involved in any way because he pays a management firm to set rates, staff the property, and maintain the standards required by his franchise agreement. If John suddenly passes away or is incapacitated, his property will continue to mint money, drowning the family in cash. The family also has the option of borrowing against the equity they have in the property to acquire another hotel or expand, increasing profits further.

I've always said that the purpose of investing is to make your money work for you so that it generates cash regularly instead of (or in addition to) you having to sell your labor. In this case, John is truly a member of the capitalist class because he owns assets that generate cash for him as a result of providing needed services to the economy. In other words, John is not important or respected because he is rich; he is rich because what he has built fills a necessary need in society and the money is evidence of that. Greg, however, is very well off and experiences a standard of living among the highest in history. But he is not a true member of the capitalist class. To be, he would need to take his earnings from practicing medicine and build a collection of cash generating assets that could work alongside him, pumping out money as he focuses on healing people at the hospital.

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