The Overlooked Promise of Capitalism and the American Dream

This article explores possibilities for American Businesses through the lens of financial posterity. The article also considers how the effect of competition, given this view, should operate in a capitalist economy. The objective of this article is to remind the reader about a central, but unstated, promise of the American Dream.

Remind Me Again – What Is the American Dream?

The Declaration of Independence famously proclaims that “All men are created equal…” with the right to “life, liberty, and the pursuit of happiness.”  

The Preamble to the US Constitution, states that men should “secure the blessings of Liberty to ourselves and our Posterity.”

The philosophy that underscores these founding documents is also carried into the United States’ free enterprise economic system. These principles free people to pursue their own self-interest, unencumbered to the greatest degree possible.

Left to their own devices, Americans are able to compete with one another for the almighty dollar by providing goods and services to one another. The natural incentives to work hard and the rewards that come with self-interest well understood are unleashed in this system. Free enterprise makes the American Dream possible.

The phrase “American Dream” was coined in the early 1900s.  The term in its historical context spoke more specifically to the ability of Americans, regardless of nationality or background, to obtain some level of wealth for future generations if they applied the right work ethic. The American Dream is the idea that if someone works hard, and plays by the rules, their children and future generations will be better off than they were.

Success Breeds Competition

Success in any system invites competition, a critical element to financial posterity. Business in a free market consists of billions of people around the world entering into a combat arena to either emulate or undermine success generated by others. Even trees compete in the forest for space at the top.  Billions of years of competitive evolution prove that when scarce resources are on the table violence is not out of the question.  

No investor or business owner can expect that they will not come under serious threat at some point over the course of their operations. It’s only natural. Markets are the fairest battlefield; in less productive situations it’s the court of law.

Consider that at the extremes of examples, American economic dominance was challenged by Japan in the 1980s. Japanese conglomerates were buying up everything from auto parts manufacturers, computer companies, landmark real estate to major movie studios. American dominance will come into question again with the rising economic forces of other Asian Pacific countries, and after that perhaps Africa.  

Extreme competition can create volatility and loss. Loss resulting from reduced profits are driven by factors, such as ever-increasing wages to retain employees, marketing expenses, and lower sales volumes. Excessive and aggressive competition in a capitalist system is by its nature destructive and can even lead to the shutting down of companies. Through six degrees of separation, everyone knows a story of an entrepreneur losing everything.

But what is the result of all this economic bloodshed?  

The Overlooked Promise of Capitalism Is Lower Prices

Lower prices should be as synonymous with the American Dream as hotdogs are to baseball. Lower prices, next to changes in technology, are the greatest driver of economic efficiency and a county’s growth. Study after study demonstrates that consumers flow to low prices like water to the lowest point.  

Unfortunately, the national economic discourse veers to the left or right and this simple concept is readily forgotten.  

Competition for the same scarce resources or customers from multiple companies creates alternatives for consumers. In most markets, lower prices are a result of heavy competition and the consumer is better off for it through a resulting higher standard of living.

An Investors Perspective on The Future of The American Dream

A national discourse focused on great competition among nation-states and among businesses can only bolster the prospects of the American Dream for future generations.  

If life is a competition of self, business is against everyone, all the time, all at once.  

Dealing with increasingly global competition there are few places for a profits-heavy business to hide. Competition means that business managers will have fewer and fewer tools to insulate against rivals and produce returns in the short run. Investors, therefore, face material challenges in deploying capital that will compound for decades uninterrupted. What are they to do?

Properly considered, the American dream offers a clue – Posterity is about future generations after all.

As an investor, taking a long-term approach to the deployment of capital is a way to stave off the competition from individuals who won’t or can’t take a long view. Companies that can invest in changes in technology or processes that permanently drive prices lower for longer are bound to win market share relative to their adversaries.  

It’s obvious that an investor looking for short-term gains in the stock market will have a harder time when all other investors are fishing in the same proverbial pond for the same kind of fish with the same expectation of pulling those fish from the stream. What is described is not fishing but the experience of the vast majority of investors in public equities. In point of fact, the country and future generations are no better off when wins and losses are traded back and forth by these investors and middlemen simply siphon fees.

Instead, posterity-minded investors should seek opportunities to invest in companies understanding that lower prices are the most natural form of competition.  

Why? Because lower prices are the American dream, there is a natural desire to see prosperity for future generations occur. Demand for a better standard of living will always be in part what it is to be American, the quest for lower prices is part of being human.

Even in situations where winner-take-all economics occur, a lack of price increases for a long time makes everyone better off. Of course, long-term investment is harder than short-term investment. Why should it not be?

Competition generally means that Investors and managers won’t be able to make investments that yield a quick buck. Instead, the greatest returns will be generated by individuals and firms with the capacity to suffer short-term volatility. Businesses and investors who are willing to build solutions that drive down prices for goods and services with no close substitute are bound to be economic winners. This is where investors should deploy capital, into companies that can sustainably drive down prices.

We should take solidary that Capitalism is the American sport. Business owners and investors who play to win will think and play the long game.  

Over the long haul, the American dream is one of lower prices for goods and services. It is wise for investors to remember this and invest accordingly. And for business managers to remember posterity is the chief reason a business exists. Competition means that winners will be able to play the long game of driving down prices. Investors will need as much patience to win.

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