Captialism Mechanics

Let's review several necessary ingredients in a capitalist system.

1. Scarcity of capital. Capitalism doesn't function optimally with too much capital. There has to be competition for capital resources to flush out bad ideas and eliminate mediocre performers. With too much capital there is no competitive pressure improving the system.

2. Choices. The best decisions get made by those closest to the problem. This is why a parent can choose the best school for their child but a state agency cannot, or why you can design and structure your own life optimally. Freedom of choice matters.

3. Low barriers to entry. The lower the barriers to entry, the more democratic the system. An industry that allows market participants easy entry tends to attract bright, hard-working entrepreneurs. The more rules and regulations, or the higher the capital requirements of entry, the less efficient an industry becomes as there is no way to disrupt the established players.

4. Externality Pricing. If you don't price externalities into a market system, you are going to end up looking like the bottom of the Hudson River - it's cheap to pollute when there is no cost. While some externalities are worth accepting, others are not.


When you combine the forces above, among others, you create a wildly dynamic system that moves society forward through all kinds of innovative ideas, products, and services. What you do *not* necessarily do is make the capitalist wealthy, particularly in the case of the innovators who do not survive long-term. Partly due to competition, much of the value gets passed from the business to the customer, creating a better society but not a particularly good investment.

What is a hard-driving capitalist to do if society keeps ending up with the benefit and she has a shareholders meeting to run next Tuesday and needs to show profits? A modern (well, maybe not so modern) trend is to try to interfere with the principles above. If you can create barriers either through the market or through government, you protect your castle with a bigger moat. Let's look at some examples.

Wal-Mart
Retail is not a particularly profitable business on a percentage margin basis, but if you build it to enough scale, you can establish a barrier that competitors cannot overcome, driving other choices away. The buying volume becomes the protective moat. Wal-Mart became a no-commitment buying agent for rural Americans, and passed almost all of the benefit to the customer. It was all working well until this laugh-y guy named Bezos showed up.

Costco
Determined to undermine Walmart in price, Costco restructured the retail model to focus on few items, forklifts moving products, and critically, quietly assigning the last, most expensive leg of the transportation chain to the customer. This is why people from central Vermont drive halfway across the state to shop at our one statewide Costco location. This is a form of time externality transferred to the customer. In fairness to Costco, it is the customer's choice.

Microsoft
Software has low barriers to entry, making it a prime target for hard-working immigrants and ambitious smart people. Existing ambitious smart software people like Bill Gates knew this, so the competitive moat was built by using the network effects of operating systems. This is the same principle that keeps Facebook in power. The competitive advantage is the fact that there is little choice - you have to join the platform everyone else is on.

Pretty Much Any Large Financial Firm
The regulatory and compliance structures established by Dodd-Frank are difficult for a small but rising firm, as the costs are high, and large firms can spread the overhead over a larger client base. Many lawmakers have little understanding of the operational differences between small and large firms, so this is easy for a lobbyist to exploit. The disruptive up-and-comers are eliminated.


The list above is by no means exhaustive. The important point: in a fair capitalist system you create value by giving customers better choices. Capital flows freely to support those innovators. But that is not always the reality of today's landscape.

Dan Cunningham

Return to Articles
How We Are Different
Low-fee index funds. Transparent & fiduciary financial advisors.
Local Financial Advisor
We are in your community. We are local.
Investment Management
We tailor to each client. Index funds at the core.
Index Funds
Broad market exposure, low expense.
Dan's Corner
Meaningful musings from our founder.
Fiduciary
Your best interests are our priority.
Low Fees
Our fees are among the lowest in the nation.
Financial Planner
Financial advisor optimizes your financial picture.
U.S. Treasury Bonds
Use Treasury Bonds to reduce risk.
Book Recommendations
Here are some of our favorites.
Inflation
What is inflation, and what cuases inflation.
When Should I Invest?
Life transitions = important financial decisions.
Retirement: 401k and More
Retiring? Plan the future you want.
IRA Rollovers
401k Rollovers. IRA Rollovers
Active vs. Passive Investing
We believe there is a winner in this debate.
The Investment Process
How we work: low-cost index funds, personalized attention.
Simplicity
Simplicity is the ultimate sophistication.
Investing: What to Focus On
Low-fee index funds. fee-only advisor.
Switching Financial Advisors
Can be uncomfortable, but an important step.
Advisor Recruiting
We attract top-tier talent. Not your usual firm.
Basic Investing
Let's start with Investing 101.
Understanding Your Financial Statement
Let's break it down to basics.
Taxes on Investments
What causes taxes within your investments?
Behavioral Economics
The less emotion, the better.
Timing the Market in 2020
2020 - a case study in the futility of market timing.
How Financial Firms Bill
Fee-based vs. fee-only, and lots more.
Who Supports Indexing?
Bogle, Swensen, Buffett, and others.
Transparency
One click to see our fees.
Mutual Funds vs ETFs
Clarifying the difference.
Does Stock Picking Work?
The research says no.
Countering Arguments Against Index Funds
What happens in a down market?
Annuities
Lots of fees, little clarity.
How Do Mutual Funds Work?
Invest in the basket.
How to Relieve Financial Stress
New client? anxiety is normal.
Financial Terms Glossary
Common investment terms you should know.
Firm Comparison
One Day In July vs the competition.
Retired Investing
Retiring? Let us help.
Accounts We Manage
We manage a wide range of investment account types.
High Net Worth Investors
Preserve and grow your wealth.
Investing an Inheritance
Prioritizing and planning for the future.
Frequently Asked Questions
Good questions, real answers.
Female Investors
Your voice needs to be heard. We are listening.
For the Business Owner
Choosing what's best for your business.
Environmental Investing
Carbon intensity, fossil fuels.

Locations

Vermont

Connecticut

United States

Services

Individuals

401k Plans

Institutions

Environmental

Account Types

Differentiators

Cash Flows

Low Fees

Fiduciary

Dedicated Advisor

Materials

Advisors: Join Us

Careers

Articles on Investing

About the Secure Act

Quarterly Booklets

Resources

Vermont Investment Management

Vermont Retirement Planning

Vermont Wealth Management

Vermont Financial Advisors

Investment Tools

In the Media

Shelburne, VT Financial Advisor

Frank Koster | Josh Kruk | Keith McCarthy

5247 Shelburne Rd, Suite #101

Shelburne, VT 05482

(802) 777-9768

Stowe, VT Finanical Advisor

Available for meetings in Stowe.

Peter Egolf

(802) 999-2321

Burlington, VT Financial Advisor

Hans Smith | Katie Muttitt

Nancy Westbrook | Peter Egolf

77 College Street #3A

Burlington, VT 05401

(802) 503-8280

Darien, CT Financial Advisor

Available for meetings in Darien.

Keith McCarthy

(203) 554-9466


v 2.1.4 | © One Day In July LLC. All Rights Reserved.