The Truth About Capitalism

Transcript

Ken Fisher:

I guess young people maybe might not always get this cold, but if you're old and you don't see this, you haven't been observant in your lifetime. Capitalism is the blessed phenomena of human material well-being. It has been since its dawn in this world. It continues to be—sometimes a little more, sometimes a little less.

But if you look at 10- and 20-year spans, capitalism keeps coming up with new, never yet done things that are better for humans than before, with lots of things that are attempted that fail, but a few that spark through and change the world. And that has been going on since long before any of us were born, and if you, sort of, if your own way, compare what was in a kitchen, let's say, in an American home in the 1950s when I was a boy, to what's in a kitchen today, or what you can have in a home office when pretty much nobody had home offices in those days, because there wasn't much point in it. If you just look at medicines, if you just look at consumer products, if you just look at things like Uber and Lyft—the people that started Uber, most people would have thought, 'that'll never work,' and in fact, lots of things that entrepreneurs tried, fail. Most of them fail. But capitalism has this part where people somehow know that some of them work, and their crazy idea is funded by somebody, sometimes funded by venture capital, trying to create something big, fast, sometimes by non-venture capital and bootstrapping, creating something more slowly, often family owned. But all of those things create material benefit in our lifetimes.

Let me just go on with different examples. Most of this happens in America, but family-owned LEGO, largest toy company in the world today. And children play with all kinds of LEGOs in all kinds of ways that were unfathomable when my sons, in their late 40s and early 50s, were boys and had LEGOs. Early LEGOs. When you look at that evolution, that's the kind of slower bootstrapping slowly change the world, coming up with new variations of, in that case, LEGOs— but capitalism creates those benefits for people, and not everybody likes everything capitalism provides, because some people like a ham sandwich and some people want tuna, and some people don't want a sandwich at all. They want something else, and that's all fine, but people are benefited by the choices. Capitalism operates in a myriad complex way that people don't fully understand. And the financing of it flows through a thing which, in words of simplicity, I will call the capital markets pricing mechanism, that allows every bit of savings in any form, real savings, to be redeployed from the deposit base that becomes the savings into something else that flows into that money's highest and best use, even if it's not perfectly efficient.

The fact is, money will, let's say, go into a bank. The bank will turn around and lend both to direct entities that will use it for a business purpose or a consumer for consumption purpose— a home mortgage or whatever, credit card loan, whatever— but also to entities in what sometimes is referred to as shadow banking that will turn around and redeploy them in different structures aimed at higher risk activity that the bank itself wouldn't take. All moving capital to flow to its most efficient, higher and best use purpose, to aim eventually at re-supporting the things that are already there, that are slowly trying to evolve, while also having enough or more than enough to fund the crazy people that start things that most people think would never, ever work, but some of them end up do, and changing the world. And that process of capitalism being the holy, blessed phenomena of human materialism, whether it's in consumer products, whether it's in technology, whether it's in health care, you name it, is something that's been going on all of our lives. Every 20 years, a phenomenal amount of progress has been made in that realm.

And further, there's this other point which I've made repeatedly in my lifetime, which is that if you look at what the largest stocks in the world are at a point in time, and then you come back 20 years later, 75% of them won't be on that list. They might still be around. They might have been decimated 40 years later. It's almost all the only ones that remain up at the top of the list. Toward the top of the list in the long term, are the big energy companies. But when I was young in the investment business, a little over a half century ago, the biggest stocks included IBM, Sears-Roebuck; It included Polaroid and Xerox, the Eastman-Kodak. Some of these companies, like IBM, still around, still a big company, but it's way smaller on a relative basis than it used to be once upon a time, and it's nowhere near the largest stock, which it was for a good period of time. Same thing happened to General Electric, which hung on for a while, but other ones, like Polaroid, Eastman-Kodak and Xerox, effectively decimated. And that reality is the chaos of capitalism.

That is the creative destruction where the new come along, eat the old, the old end up—even though at a moment in time the the big, mature ones look like they could never be attacked, they could never be overtaken— but they can, because of all those crazy people that are looking at them now as targets, trying to find a way to eat their lunch. And some of them will succeed. And that's how you get the ones that we have today. But every 20 years, 75% of them go away. Fall down the list, slowly start decimating. And over 40 years, they're almost all gone. So, why am I telling you this? Because I get asked all the time, why is it that you think capitalism works? And the answer is, because it does., all you have to do is look back over any sweeping period of time and see the innovations in benefit to humans, and also creative destruction of what goes on in capital markets that keeps changing and reflecting the improvements that people make for the benefit of humans. So, thank you very much for listening to me. I hope you found this useful and educational, a little different than most people normally talk about, but anybody tries to tell me capitalism isn't good, them's fighting words.

So, thank you very much. I hope you found this useful. I hope you like another video. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen. Click the bell to be notified as soon as we publish new videos.