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How to be a capitalist

If you want to know how to be a capitalist, look around you.

I admit it: I’m a capitalist. I believe in free markets. I think the invisible hand can do more than pick pockets and grope hard-pressed students packed onto the privatised railways.

Greed can be good – if it makes companies more efficient and brings more of us the products and services we want at lower prices.

Outrageous? Before you lynch me, you’d better know I’m not the only one.

We capitalists aren’t horned beasts dancing around pyres of sub-prime mortgage certificates. We’re men and women of all shapes, races, and ages. We have places where we get together, where we whisper to each other interesting business opportunities and swap tips on investing our SIPPs.

But these days we’re scared to be out and proud.

What a shame! We live in a capitalist world, and it’s only by living as capitalists that we can truly make the best of it. Capitalism isn’t just for golf club swingers and septuagenarians in South Kensington. It’s the system we all work within.

Unless you’re a dropout living in a tree tent above an anti-fracking campsite, you need to know the rules of the game to thrive. Taking a half-hearted approach to capitalism is like a goldfish taking a half-hearted approach to swimming.

You have to be in it to win it.

This is especially true as one of the least cuddly aspects of capitalism is it helps best those who help themselves.

The quickest way for the 1% to become the 0.1% is for the rest of us not to play the game.

With that in mind, here are 11 tips on how to be a capitalist.

1. Get some capital

Clues in the name. To be a capitalist you need capital. You can then invest this money to make more money, and be on your way to mega-riches. (Dust down your old Monopoly board if you’ve forgotten how it works).

I think one of the great strengths of capitalism is that it’s theoretically open to anyone. Rival systems claim to be more fair, but invariably they boil down to who you know (Marxism), who your parents were (feudalism), or who you were prepared to shoot in the head (dictator-ship-ism).

Most human beings will try to get ahead. Capitalism harnesses this, rather than fancifully suppressing it only to see it come out in less useful forms.

So, how do you get your capital?

Obviously it helps to be born to a rich capitalist1. But most of us will need to spend less than we earn.

That difference is your seed corn. Saved and invested, it will be the start of your capitalist empire.

2. Own the means of production

Here’s what Karl Marx knew and you should, too:

“In capitalist countries, the rulers own the means of production and employ workers. Means of production are what it takes to produce goods.

Raw materials, machinery, ships, and factories are examples.

“Workers own nothing but their ability to sell their labor for a wage.”

If you want to thrive in a capitalist economy, you need to follow Uncle Karl’s advice and get yourself some factories, machinery and ships. Or rather their modern equivalents, like data centres, luxury retailers, and offshore oil drillers.

If you don’t own the means of production, then all you’re doing is selling your labour for a wage.

That is, you’re a wage slave.

Happily capitalism has come a long way since Marx’s time and it’s now easier than ever to get your share of the money-minting machines.

By putting your money into a stock market tracker fund, you’ll buy a slice of all the major listed companies in the country – or even the world, depending on which fund you buy.

These tracker funds are cheap to own, and enable you to leave your company managers to get on with making profits. As they do so, the companies will become more valuable, and the value of your holdings will rise.

By reinvesting the profits they pay out as dividends, you can buy more slices of the companies, too. Over time it’s reasonable to expect 5-8% growth a year in today’s money terms from your basket of global companies.

3. Own other assets, too

Owning a slice of the productive economy is key to getting your stake in the capitalist system, but companies are not the only assets to amass.

Other potential things to buy are rental properties, fixed income investments like bonds (where you’re basically making a loan to a company), and of course you want to keep some cash handy for future corporate raiding (a.k.a. buying into the stock market when it’s cheap).

You might even consider making loans to spendthrift wage slaves via Zopa, which now has a Safeguard in place that should protect you from bad debts.

The key is to have more income producing assets then money-sucking liabilities.

Some argue that our economy sneakily tries to turn even high-earners into indebted consumers. That way they stay on the treadmill of working and spending, enabling those at the top to stay rich.

I won’t get into the conspiracy theories here. But whether that theory is right or wrong, by refusing to play the consumption game and choosing to own assets instead, you’re closer to the top of the pile than the bottom.

4. Treat yourself as a company

Who is the archetypal capitalist – Bill Gates or Richard Branson?

For me Branson wins that matchup every time.

Gates may be richer, and with Microsoft he built a far bigger and more world-altering business than Branson ever did.

But Sir Richard is the consummate entrepreneur. He’s restless and forever shuffling his cards, always looking for how to best spend the next year and the next dollar to greatest effect.

Branson understood early the power of personal branding, especially in a nation of shrinking violets. And on a personal level, he doesn’t get hung up on what he can’t do (he’s dyslexic, for example) but rather on what he can.

Virgin is Branson, and his business activities are an extension of his ambition and of his curiosity about the world. It’s as far from the wage slave mentality as you can imagine.

Like Branson, you can treat yourself as a company, too.

What are your strengths? Where can you deploy your talents to earn the highest return? What assets are you not using, and where are you wasting money? Did you over-invest in a university education and under-invest in networking? Did you skip classes in the school of hard knocks?

What does your personal profit and loss statement and your balance sheet look like?

Not everyone needs to start a business or turn into an entrepreneur.

But to thrive in a capitalist world, it pays to sometimes think like one.

5. Turn yourself into a company

That said, it’s actually not a bad idea to become a company if you can.

I don’t mean you need to give up being a doctor or a programmer or whatever you are, in order to launch a rival to McDonalds.

But if you can you do your job as an independent, one-man band – a freelancer or consultant or small business owner – then there are plenty of advantages:

  • With a diversity of clients (at least two!) you’re less exposed to the cost cutting measures of your capitalistic taskmasters. (i.e. Getting fired.)
  • You’re usually taxed more attractively.
  • It’s easier to put large amounts of money into a personal pension.
  • If you invent something, you’ve a better chance of owning and exploiting it.2

There are some disadvantages, of course.

When you run the show you can’t slack off, and the freelance and consultant budget can be the first to get chopped in hard times. Put money aside in case.

There’s also more paperwork, and you may need an accountant.

In many countries you’ll need to budget for healthcare, too, although in the UK we have the NHS to show for our taxes – a boon that’s often underestimated by UK entrepreneurs.

The next step beyond being a one-person show – running a proper, expanding business – is obviously gold stars and top marks when it comes to being a capitalist. Instead of making someone else rich, you have people making you rich.

Marx would say you’ve turned the tables. Now it’s you exploiting labour for your own profit – which is a result for our purposes.

Besides, there’s nothing to stop you implementing profit sharing or other enlightened benefits should you want to be a conscious capitalist.

It’s hard to start a business – much harder than some pundits with books to sell will tell you – and it’s risky.

I think becoming a self-employed problem solver is a good halfway house.

6. Create multiple income streams

Another baby step towards being the J. D. Rockefeller of your neighbourhood is to look for ways to add to your primary income.

Can you teach a musical instrument or a language, or some other skill? Could you invest in a franchise alongside an ambitious niece or nephew? Do you have expertise that would enable you to trade antiques for a profit? Could you write and publish your own digital books?

The list is very long, and your hours will be longer than Joe 9-5, too, so try to pick something you enjoy.

The benefits of adding extra income streams are you diversify your earnings, you can save and so invest more, and you think of yourself even less as someone with a job, and more as an entrepreneur. Mental beliefs are an important part of the picture here.

Don’t dismiss the value of even small amounts of extra income. Any additional passive income streams are valuable when you think of all the capital it would take to earn the same return in a low-interest rate world.

7. Diversify, diversify, diversify

Capitalists know the world is changing fast. Rather than moaning about it, they look for opportunities.

If you can address a strong need someone has, then they’ll pay you for it. Over time we get most of our new gadgets, services, and vices like this.

But that same rapid change that capitalism thrives on – and indeed fuels – is also a threat.

Sentimentalists think we should still be making all our own cars, washing machines, and aeroplanes in factories in each individual country.

Capitalists know global trade has (rightly) ended all that, but they also understand it could be their business that is “creatively destroyed” next.

Rather than hope that laws and regulations can protect your industry – let alone assuming you’ll have a job for life – it makes sense to diversify your skills, knowledge, investments, and other assets.

Be ready for total upheaval, because the chances are it will come at least once in your lifetime.

Getting the right balance is tricky, because capitalism rewards specialists – up to a point. They are more efficient, productive, and usually do a better job. But that also makes them expensive, which increases the chances they’ll one day be replaced by a robot, or cheaper talent in India.

I’ve personally tried to be a generalist for this reason. The alternative is to keep on the cutting-edge of your speciality, to stay young-minded, and to continually seek education and new opportunities.

Don’t fight inevitable change. Just ask the old music label bosses undone by digital file sharing, the engineers replaced by Japanese assembly lines, the IT managers whose jobs have been lost to The Cloud, and so on and on and on.

As for assets, old money diversifies, spreading its wealth. Many new rich people keep it all in one or two assets and either become a lot richer, or go bust.

8. Become an expert asset allocator

One huge reason capitalism works is because it harnesses millions of people’s individual decisions about where to put their capital and effort to best use, as well as what to spend it on.

In communist Russia, comrade Igor and factory chairman Alexander had to decide how many tractors the company would produce in five years. They’d consult with higher-ups in the party and local farmers, and be told there wasn’t enough steel anyway because some other comrade who ran the steel plant was pessimistic and had turned to drink.

These people were just as smart as us, but the system was stupid. They didn’t have the information required to best allocate their resources.

Capitalism replaces all this guesswork and centralised control with prices, which reflect supply and demand. Capital flows to the places where it has the best chance of multiplying, for a given level of risk. Prices of goods and assets change to reflect this.

The system is far from perfect. Despite what academics need to believe to make the sums work, none of us is ultra rationale. Amongst many other things, we get greedy, we get fearful, and we don’t always have perfect information.

As a result, capitalist economies have booms and busts.

Sometimes certain assets and opportunities are too expensive, while others are a steal. Capitalists can make mistakes at knowing which is which, just like two comrades could disagree on the national cabbage target for 1956.

Your job as a capitalist is to try to do a better job at telling the difference between cheap and expensive opportunities. You want your money – your capital – to be in attractive and sustainable places, and you want to pull some or all of it out of areas that look too frothy or, conversely, look doomed.

You don’t want to invest in flaky stocks at the height of the dotcom bubble, but equally you don’t want to retrain as a horseshoe fitter the year before Ford takes motor cars mass market.

Try to be alert to the relative attractions of cash, bonds, shares, overseas markets, and the other assets you invest in.

This is easier said then done, and many investors find they’re better off adopting a passive approach to their portfolio, periodically rebalancing to ensure they don’t become too exposed to fads. This method automatically puts money to work in the unloved – and under-priced – opportunities.3

There are allocation decisions to make outside of your share portfolio, too.

Stuck in a country lane for two hours on a Friday night? Maybe it’s time to sell your holiday home. A third person asks if they can buy your antique Aston Martin? Perhaps you should sell it. Can’t sell your Spanish buy-to-let for love nor money, despite deep price cuts? Maybe you should be a buyer, not a seller.

You might not want to sell granddad’s medals from the war (I’m always amazed by how people on the Antiques Roadshow will swap precious heirlooms for two weeks somewhere sunny) but otherwise, all your assets should have a price where you’d sell.

And a price where you’d buy back in!

9. Be flexible

Be open-minded. Money doesn’t care where it’s put to work, and nor does a capitalist, beyond legal considerations and your own ethics.

How many people have daydreamed about opening a cool coffee shop? Countless – there are even books on it. I’d suggest there are probably less over-supplied areas to look towards if you want to get into retail or restaurants. Think creatively.

Workers tend to pigeonhole themselves, whereas capitalists are business people first and foremost. Richard Branson is again the supreme example – he’s not just the record shop guy, the airplane guy, the fizzy drink guy, or the financial services guy – he’s all of that and more.

Stay alert to opportunities. They come up in strange places.

As a freelance I earn most of my money from something that began as a hobby when I was doing something else, and I have various other income streams that deliver the same again from assets I own.

I’m not Richard Branson. But I am a capitalist.

10. Minimise your taxes

Capitalists believe that free markets – and companies and consumers expressing their choices and voting with their wallets – deliver the most productive allocation of humanity’s resources.

That’s not to say markets necessarily deliver the “best” allocation, because the word “best” is so subjective.

I’d personally prefer half the money spent on cheap clothes in Primark went on conserving the world’s rainforests, for example, but few shoppers would agree.

What if 90% of people in the world got 100% richer but 10% got 50% poorer – would that be good or bad?

If you were one of the unlucky 10%, you’d probably think it was bad.

What if that 10% wasn’t at the bottom of the pile, but rather they were the richest? Is your answer different now?

This sort of conundrum – invariably combined with self-interest – is why even close friends rarely entirely agree about politics and economics.

I have dear friends who will find this whole post horrendous! The fact is though that I believe the private sector will deliver better outcomes in most cases. Even for some thorny issues. In my ideal world, beyond a safety net for all citizens, government is mainly about setting the rules for society to get the results the majority want.

Cleaner lakes and rivers? Less fat cats in the boardrooms? More houses? Fewer people dying of heart attacks? The State doesn’t need to make that happen through the public sector. Change the rules and set the right incentives, and smart entrepreneurs will find a way.4

The logical conclusion is that a capitalist believes she knows better how to spend her money than the State does. Money is better off in our hands.

It’s a legal requirement to pay your share of the taxes, and I’m not suggesting otherwise. But there’s a big difference between tax evasion and tax avoidance.

A capitalist doesn’t donate money to the public purse – not when he or she believes it’s better being put to work by hungry entrepreneurs and companies. I don’t believe in a zero-sized public sector, but with the government already taking more than 40% of the UK’s GDP, I think it’s got enough to be getting on with.

Besides, if you’re taking the risks, why should the State take a big slug of the rewards?

Always take into account capital gains tax and taxes on income. Paying high taxes on your investments makes a big difference over the long term.

11. Give something back

My comments about taxes may have riled some readers, but I’m not praising personal gluttony and excessive hedonism.

I’ve not once mentioned driving sports cars, bathing in the milk of alpacas, or guzzling expensive champagne with high-class strippers (whether Wall Street asset strippers or the more traditional variety).

Although who wouldn’t want some that now and again? Perhaps not all the same time.

Whatever, it’s a personal choice that has nothing to do with capitalism. Many communist and socialist legends could spend money with the best of them on the backs of the workers. Plenty of capitalists have been wildly greedy, but Bill Gates has devoted the rest of his life and fortune to philanthropy, and Rockefeller didn’t drink or smoke.

Nobody succeeds in a vacuum. A healthy, educated population, family and friends, infrastructure, and the rule of law – none of this comes cheap. That’s why I’m happy to pay a fair share of taxes, and why I think it’s good to give something beyond that to causes that are meaningful to you.

Plus it feels good to spend your money helping others.

Some of the greatest modern mega-capitalists including Gates, Warren Buffett, and Mark Zuckerberg have pledged to give away at least 50% of their fortunes to philanthropy. Others work behind the scenes – and yes, a few inevitably want their names above the wing of a hospital or library.

Who or what would you like to help if you were wealthy?

Thinking about it might just help you get there.

  1. Because I believe in equal opportunity I’d support higher inheritance taxes, unlike my supposedly socialist friends who bemoan the taxes the State will claim when their parents in the Cotswolds conk out []
  2. Check your contract. Many terms of employment stipulate your employer owns everything commercial you think up – even if it’s unrelated to your day job! []
  3. Passive investing is the ultimate way to trust in the wisdom of the market, making passive investors uber-capitalists, whether they like it or not! []
  4. Don’t blame capitalism that we don’t have a perfect and fair world. The fact is people don’t vote for a lot of things that would be better for everyone in the long run. []

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{ 31 comments… add one and remember nothing here is personal advice }
  • 1 Under The Money Tree January 30, 2014, 2:42 pm

    ‘Treat Yourself as a Company’

    This is perhaps the thing that made the biggest impact to my investment success when I implemented it a few years ago.

    I know so many so called intelligent people that will happily slave away crunching numbers, devising new strategies or plotting future revenue growth for their employers yet hardly give their own investments or personal finances more than a few minutes thought each year.

    The way businesses succeed (in the most part) is by paying attention to the details such as: keeping costs down, maximising return on capital, managing risk, applying leverage sensibly and looking after their shareholders. These are all the good things us investors must do to succeed too.

  • 2 Willem de Leeuw January 30, 2014, 6:58 pm

    Yep, and make sure you keep score, whether with Excel or a database – for the home gamers and small businesses – like MS Money. It’s surprising how many people and businesses don’t keep on top of their cashflows.

  • 3 ermine January 30, 2014, 8:19 pm

    A great manifesto, however, it’s all about work 🙂 As well as being a good capitalist, sometimes it’s also good to learn what enough looks like IMO.

  • 4 maria@moneyprinciple January 30, 2014, 10:33 pm

    I always thought of my self as a socialist. I am a good Marxist as well and it occured to me that as such it is my duty to bring together labour and capital because their separation is the source of all evil – exploitation. Logically, it is my duty to accumulate capital since I already have labour.

    So, I’m with you on this one: I am a capitalist. Btw, when I did the new class study ‘game’ I came as ‘elite’ because of the cultural and social capital I’ve been accumulating as well.

    Good post!

  • 5 ermine January 31, 2014, 9:46 am

    The State doesn’t need to make that happen through the public sector. Change the rules and set the right incentives, and smart entrepreneurs will find a way

    There’s still a hidden philosophical implication of this, which is that ‘The State’ knows best. Which begs the question, how does it get to know best, and how do we make sure it is staffed by good men and true, rather than self-seeking rascals who will suborn the power of The State to serve their own interests.

    The problem of power corrupting human nature is something we’ve been struggling with since Plato’s Republic. Despite the expenses scandal I figure most of our politicians are trying to do what they think is the right thing. Whether it is an optimal/least-worst balance or not I’m not smart enough to figure out.

  • 6 The Investor January 31, 2014, 10:49 am

    @ermine — I disagree, I’m not saying the State knows best, even implicitly. 🙂 I am saying we live in a democracy and people want to see their desires (right or wrong) come true.

    My point is that doesn’t need to involve the State implementing / fulfilling (poorly) whatever it is they want. We want cleaner transport, for example, and its Elon Musk and Tesla who is pioneering that, not Joe Blogsworth at the Department of Motorised Clean Transport Efficiency Delivery Unit: Second Division.

    @UnderTheMoneyTree — Yes, I’ve even known high flyers in finance who took the first mortgage their bank offered them!

    @Willem — “What gets measured gets managed”, right?

    @Maria — You’ve befuddled me somewhat there, but glad you liked the article. 🙂

  • 7 Luke January 31, 2014, 10:53 am

    At first I skimmed over this as a manifesto puff piece (sorry TI)!

    On second consideration, I found myself nodding along to several of the points you made, particularly the comments on adaptability and readiness to change.

    It made me realise that although I’d learned the lessons of setting myself FI or ER goals from here, ERE and other blogs, I essentially have no plan or milestones with which to get there (beyond ‘stay with the job you hate and save lots’). A reality check is required, thank you for the prod.

  • 8 Grumpy Old Paul January 31, 2014, 10:53 am

    @Ermine,
    The corrupting effect of power applies to the private sector as well as government. The difference is that in a democracy the government can be voted out.

    On an unrelated topic, Branson is the quintessential example of the triumph of form over substance. Readers of this blog will be familiar with his FTSE 100 tracker with a 1% annual charge; his early advertising implied that he created the product because it was the kind of thing he was seeking for himself. Does anyone really believe that?

    Another well-known Branson product with which I have some familiarity is Virgin Trains. I travel from Scotland to the south east by train from time to time and have used both the West Coast and East Coast main lines; the East Coast trains are far more comfortable and the first class service is far superior. Oh, I should mention that East Coast trains is at present state-operated.

    I’v received the odd pitch and voucher for Virgin Wines. They hit the bin very quickly as soon as I started reading the terms and conditions. Take a look at the reviews on trustpilot or reviewcentre. The Wine Society, a co-operative, is far better, offering a wide selection of wines and complete flexibility regarding purchasing.

    Nice guy as I am sure he is and successful businessman to boot, I’d still hesitate to set him up as any kind of role model for a young would be entrepreneur.

    BTW I’m not in favour of nationalising everything that moves and never had any time for the Soviet system. Capitalism works well when there is genuine competition and a modicum of integrity and transparency is present.

    @The Investor,

    You are amongst the very few people who share my view on inheritance tax and with a similar rationale. Expressing that view in most company is rather akin to detonating a stick of dynamite and, yes, you’re right, it works across the political spectrum.

    You probably experience an even more explosive response than I do since my right of centre friends can dismiss me (incorrectly as it happens) as an ‘Old Labour’ man or die-hard lefty. People are much more comfortable with packages of political opinion and, in my experience, find it more difficult countenancing one person holding both what are regarded as left wing and right wing views.

  • 9 Neverland January 31, 2014, 12:09 pm

    Quite a bit of cognitive dissonance here (sp?)

    On the one hand you say “In my ideal world, beyond a safety net for all citizens, government is mainly about setting the rules for society to get the results the majority want”

    The you say “we have the NHS to show for our taxes – a boon that’s often underestimated by UK entrepreneurs”

    The you complain “but with the government already taking more than 40% of the UK’s GDP, I think it’s got enough to be getting on with”

    The NHS, welfare and pensions are about 55% of UK government expenditure, education which I assume you don’t argue with spending on either, is about another 12%

    It would be pretty difficult to get the government’s share of the economy down to 35% say and maintain any semblance of the “basic safety net” you talk about without economic growth that doesn’t seem possible in the UK without a credit bubble

    So really we are quibbling about whether the state should be 35-45% of the UK economy, hardly a truly free market capitalist society at either end of the spectrum….

    Is what you are in favour of really free market capitalism or is it just the status quo with lower taxes on you?

  • 10 The Investor January 31, 2014, 1:35 pm

    No, there’s no cognitive dissonance here beyond what we all bring to the table. 🙂

    I support extensive but not exclusive free market capitalism versus socialism. I support state spending in the region of 30-40%, as things stand, for a combination of reasons — some redistribution, some tragedy of the commons type stuff, and some essential services best provided by the State (e.g. defense, but I’m not convinced about health care).

    I’d be happy to see that share come down in the right circumstances. I’d look to curb State pension provision over the long term, by forcing people to save (which to an extent is finally being done). I don’t see where the young poor should be penalized over the old poor who at least had *some* chances to put themselves in a better place ahead of their old age. (Not “all the chances of an oligarch”, for pedants out there).

    I say we “have the NHS to show for our taxes” and that’s good, versus the US, where they are taxed pretty heavily and still have to buy private healthcare insurance at great cost.

    That doesn’t mean “we must always have an NHS”.

    I’m afraid I don’t live in Internet-World, where everything is black and white and all or nothing.

  • 11 dearieme January 31, 2014, 1:36 pm

    I can see the merits of Inheritance Tax as long as it applies only to people considerably richer than me.

  • 12 BeatTheSeasons January 31, 2014, 2:38 pm

    @dearieme

    That’s the problem, it doesn’t apply to the rich – they can afford to pay advisors to set up elaborate trusts and other tax avoidance schemes. Not to mention there being no Inheritance Tax on farmland!

    It’s become just another way to take money away from hardworking middle of the road families who have managed to build some wealth by spending less than they earned and who have then invested or bought a nice house.

    The older I get the more cynical I become about the PR missions designed to convince us that particular taxes are in some way morally good. Socialists have their 50p rate, environmentalists have their green taxes, health nuts are in favour of taxing smoking and drinking….. and even the Investor supports Inheritance Tax and the 100% Child Benefit Tax!

  • 13 Rob January 31, 2014, 2:56 pm

    On capitalism, I agree that encouraging the little guy to be ‘more capitalist’ e.g. by owning shares would help reduce inequality, if it became more popular. But I don’t think slashing the state pension will do any good. The evidence suggests most would not make up the shortfall. This is where these and other ‘shrink the state’ arguments fail, IMO. No matter what the incentives, many people simply have no interest in owning shares, buy-to-let etc – because it’s too complicated or the idea of ‘capitalism’ repels them. Likewise, many will save little of their income even in the face of poverty in retirement. Trying to change people’s ways is ineffective; instead, we should design our economic system and government with aggregate human nature in mind: aspiration, greed, corruption, laziness, chance events (redundancy, illness, disability). Capitalism deals with aspiration/greed to a degree, but not at the extremes where the latter becomes pathological and sociopathic. So we should try to rein in excesses via the tax system, as far as is practical. Not out of envy, but acknowledging we want to create a society with equality of opportunity for every kid, with a safety net for chance negative outcomes.

    The main problem is that it’s easier to hit the (salaried) middle classes with extra taxes than the upper echelons of society, whom have the means to engage in offshoring assets and other aggressive tax avoidance strategies. One way to mitigate this would be to increase property taxes, e.g. having extra council tax bands or a mansion tax. Inheritance tax is another good one touched on here, but again the super-rich will use trusts and keep assets offshore. In the US, they have an annual tax form called FBAR which requires a list of all foreign accounts, if the aggregate total is >$10k. Perhaps UK should do the same?

    Interesting that you think defence is an essential for the state but healthcare isn’t! IMO we could slash the defence budget in half (to levels of Germany & Japan) if we cut out the crap like Trident & Middle-Eastern follies. NHS has its faults, but life expectancy and infant mortality are lower than the US whilst spending half as much (in both % of GDP and $/capita terms). A good deal in my eyes.

    Funnily enough, after all that I tend to agree with TI that UK state is about the right size, but some tweaking could be done longer term. These things are never going to be perfect but we have a good balance overall. My priorities would be more accountability in companies (to shareholders) and government and a more progressive tax system.

    TL;DR: We should design our government/economy to work with, not against, human nature, and build it using evidence-based reasoning. The size of the state should be a consequence of our desired outcomes, not a prerequisite based on our pre-conceived ideologies.

  • 14 The Investor January 31, 2014, 2:58 pm

    I think you make your point well BeatTheSeasons. I would add though:

    It’s become just another way to take money away from hardworking middle of the road families who have managed to build some wealth by spending less than they earned and who have then invested or bought a nice house.

    This is for me a fundamental difference between other taxes and inheritance tax. The person who worked hard and saved is DEAD. The person who is getting the money did not work hard and save. It is just a windfall.

    I wouldn’t have 100% inheritance tax but I’d happily tax 90% above, say, the first £30K. It seems to me it’s the fairest most egalitarian form of redistribution there is.

    But you’re quite right everyone hates the tax that applies to them. Many readers’ blood will be boiling on reading my proposals for IHT.

    And of course the big picture problem is actually collecting it, as you allude.

    As for Child Benefit “tax” (another of the proliferation of ludicrous labels being slapped on any withdrawal of a benefit (sorry a “right”)) I may have supported child benefit limitation, but my readers always come first:

    http://monevator.com/how-to-keep-child-benefit-and-retire-richer/

    That article came out before even The Guardian started running essentially the same advice every week…

    🙂

  • 15 Neverland January 31, 2014, 3:41 pm

    I think right now we are living in the worst of both worlds; a socialist’s spending paradise with a free maket tax base

    Some facts from the OBR’s January government finances release

    2013 government income forecast (2012 equivalent): £575bn (£551bn)

    2013 government spending forecast (2012 equivalent): £643bn (£631bn)

    2013 public sector net borrowing requirement: £99bn (£81bn)

    Sooner or later there are some very hard choices down the road, with an aging population we cannot continuously increase our national and personal debts

  • 16 The Investor January 31, 2014, 4:00 pm

    Interesting that you think defence is an essential for the state but healthcare isn’t!

    It’s that I think only the State should be allowed to defend the country. I am happy going to BUPA for hip pain, instead of the NHS. I am not happy calling up some Somali pirates to defend our waters. 🙂

  • 17 Rob January 31, 2014, 4:48 pm

    @TI – Places like BUPA only work with some degree of government oversight. Otherwise, we’d have a private healthcare industry full of quacks and fraudsters. My main point was that state healthcare through NHS is pretty efficient by international standards, whereas most of the military is just fluff/posturing/cold war relics that doesn’t achieve much in practice.

    I’d agree with your inheritance tax proposal if it meant equivalent tax cuts elsewhere (perhaps increasing minimum wage and tax free allowance whilst decreasing employer NI?).

    BTW, I enjoyed your article, and think it’s mostly good advice, but it must be tempered with the realisations that a) most of the population won’t follow your advice for one reason or another and b) there is (obviously) more to life than just chasing money, and most of us get the balance wrong. The last paragraph of this article from the blog Raptitude sums it up well for me.

    @Neverland – Some projections state the UK will become the biggest economy in Europe through population growth. Immigration of young workers might help with government finances, though there are obviously big questions about whether there’s popular support for this approach. Phasing out some benefits for rich pensioners (TV licence, winter fuel, bus pass etc.) seems likely, but a dramatic reduction in state pension less so – pensioners vote!

  • 18 The Investor January 31, 2014, 5:33 pm

    @Rob — You write:

    Places like BUPA only work with some degree of government oversight. Otherwise, we’d have a private healthcare industry full of quacks and fraudsters.

    Sorry to keep tediously re-quoting my own article but it’s not all or nothing, as I explicitly wrote:

    […]government is mainly about setting the rules for society to get the results the majority want.

    Cleaner lakes and rivers? Less fat cats in the boardrooms? More houses? Fewer people dying of heart attacks? The State doesn’t need to make that happen through the public sector. Change the rules and set the right incentives, and smart entrepreneurs will find a way.

    Of course you need some degree of government oversight. I’m not proposing anarchy.

    But there’s a big difference between oversight (“rules and regulations”) and a minimum safety net (perhaps a national health insurance scheme that is spent at private sector health providers) and with staffing the 3-5th largest employer in the world (the NHS!)

    Anyway, this isn’t really a post for debating the NHS. Thanks for sharing your thoughts, glad you found the piece interesting.

  • 19 Rob January 31, 2014, 6:26 pm

    @TI – I only mentioned regulation as a minor point of clarification rather than contention. Sorry if I didn’t come across that way! Agreed you covered it in the article and your argument for balance makes sense.

    The role of capitalism is obviously a big topic, but FWIW I’m pretty close to your position, rather than (say) your ‘socialist’ friends! For all the debate, small percentage changes here-and-there in government spending/taxes don’t make a huge difference to us as individuals, at least strategically (like asset allocation, perhaps?). Our time is mostly better spent achieving what we can within the system we’ve got, as your article covers so well. Cheers!

  • 20 oldthinker January 31, 2014, 7:58 pm

    @The Investor

    > This is for me a fundamental difference between other taxes and inheritance tax. The person who worked hard and saved is DEAD. The person who is getting the money did not work hard and save. It is just a windfall.

    Your argument seems to ignore a fundamental feature of the human nature: providing for our loved ones is a hugely important driver behind working hard and saving hard.

    By the way, being alive or dead does not appear to be relevant to your ‘just a windfall’ reasoning. From this viewpoint, it would be equally logical to levy an additional tax when somebody who has worked hard takes his children on an expensive holiday: the kids who are getting the holiday did not work hard; it is just a windfall for them, so tax their share 90%.

  • 21 ermine January 31, 2014, 8:31 pm

    @Rob I agree with the principles of your proposal, with perhaps one major exception

    to work with, not against, human nature, and build it using evidence-based reasoning

    I am beginning to suspect evidence-based metrics as applied to systems of human beings is a large part of the problem we are having today. what you measre changes because of your measurements. I’d suggest the human systems we have work better when led from the front inspired by principles instead of being pushed from the back with tickboxers. The grammar school I attended taught from values, not evidence based tickboxery of this sort I have been lucky enough to avoid hospitals since I was a child but it appears that while we have become better in the technology some of the basic compassion appears to be lacking. We don’t collect evidence to fix that, we get principles and values into the organisation.

    Evidence is great with things – I’m an engineer and am all for measuring the measurable. I think a lot of what is going wrong with targets and efficiency drives is when we pretend we are measuring a human system that reacts to what’s being measured like a bunch of ferrets in a sack. It delivers the target by cannibalising other good stuff

  • 22 The Investor February 1, 2014, 8:56 am

    @Rob — Cheers! I do get a bit of an allergic reaction to some of these issues, so apologies if I seemed too twitchy!

  • 23 living cheap in London February 1, 2014, 10:31 am

    My friend & I once sat over a beer or 2 & sketched out an alternative to Monopoly…. it was called “Socialism” & we envisaged the advertising tagline to be “It’ll never work”. A game in which the aim was to re-distribute your wealth to the other players as quickly as you accumulated it. The game was obviously a non-starter.

    So yes, I’m a capitalist, but the challenge we face as a society is that capitalism does not work for a large % of the population. I refer to those who are trapped in economic hardships with no way out, & those who are too poorly educated to ever lift themselves beyond being slaves to the system.

  • 24 Grumpy Old Paul February 1, 2014, 12:05 pm

    @The Investor,
    Elon Musk. Now you’re talking. There’s an imaginative and innovative entrepeneur for you. However, contemporary characters like that are few and far between.

  • 25 Rob February 1, 2014, 3:03 pm

    @ermine – Good points. I guess I’d encourage a broader definition of ‘evidence’ than tickboxery. As you point out, it’s best to lead from the front rather than push from behind – motivation is key. The failures you mention seem based on defining the wrong goals, or defining them narrowly, rather than a failure of evidence. I agreed with your article about precision vs accuracy – bureaucrats focus on the stuff that’s easy to measure, rather than tricky but important aspects like student/teacher satisfaction, life skills, creativity etc.

    Value systems are good, but have to be motivating in order to be useful, or they too backfire. How do you discover what’s motivating? Surveys are one (overused) way. Basic knowledge of (evidence-based) behavioural psychology is useful. It’s a tricky question, but science and evidence can help if we adopt an open attitude. Certainly more carrot and less stick would be a good place to start.

  • 26 Steve February 2, 2014, 10:02 am

    — “This is for me a fundamental difference between other taxes and inheritance tax. The person who worked hard and saved is DEAD. The person who is getting the money did not work hard and save. It is just a windfall.” —

    As Mr Spock would say, this is logical. But the problem is here that other forces are brought into play, namely our instinctive desire to provide for our children not only while we’re alive, but after we’re dead as well. I read somewhere that in any case, IT doesn’t bring that much into the treasury coffers, and I’m willing to bet that if IT were increased, it would bring in even less.

  • 27 Brick By Brick Investing | Marvin February 4, 2014, 1:37 am

    This article was definitely a breath of fresh air. There has been a lot of hate and finger pointing towards capitalism over the last decade. It seems that if you have a decent financial IQ, motivation, and the determination to create a business every views you as some demon spawn who is sucking the life out of everyone that comes across your path.

    It boggles my mind when people get so upset that a company creates a product and actually has success selling it. It’s almost as if they expect the company to donate those profits to the poor. Literally! “Hey Mr. CEO, why are you making so much money!”

  • 28 theFIREstarter February 7, 2014, 6:06 pm

    I’m so pleased to see number 11 on the list! And I didn’t know about Zuck’s pledge so that’s refreshing to hear.

    Great article as always Monevator!

  • 29 Jeremy December 29, 2014, 6:33 pm

    Wow, this is a great post. I’ve had long wine laden conversations over the years that followed a similar vein

    I share your perspective on the inheritance tax, or the Death Tax as the haters like to call it. Warren Buffet’s quote comes to mind: “a very rich person should leave his kids enough to do anything but not enough to do nothing” Having a few less people with an inherited ability to do nothing would probably make the world a better place

    I also enjoyed your thoughts on taxes and charitable giving. We do our best to pay $0 in tax every year, because a) it is fun and b) the endowment we leave behind will be that much larger for it.

    Thanks for sharing

    Jeremy

  • 30 GetRichBrothers January 5, 2015, 6:34 pm

    Monevator,

    Great read. This is a pretty comprehensive list on becoming a capitalist which was made even better since you mentioned my favourite capitalist of all time: John D. Rockefeller.

    I agree that it has never been easier to join the ranks of the rich. The stock market has taken wealth out of the hands of the select few and with today’s ease of access, basically anyone can get involved in earning long-term returns that could well-position them for a life of comfort a few decades down the road.

    Take care!
    – Ryan from GRB

  • 31 connect2hcb September 13, 2015, 4:15 pm

    This article is very useful and thought provoking. It explains the concept of being a capitalist so very well. A worker makes money by putting in her labor whereas a capitalist makes money by putting in her capital. It’s interesting to note that a worker would stop earning if she stops working.

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