A Capital Idea

One of the coolest innovations of the sharing economy is that it allows people with new ideas to get startup capital more readily. Capital refers to the money needed to start a new business or to get a new business running. One essential aspect of capitalism—in fact, where the name comes from—is that in a capitalist society, people who want to start new companies must get capital from investors, who get to choose which new ideas they want to fund.

If investors choose wisely, they can get wealthy when the business succeeds and they can own a share of that success. If they choose poorly, they can lose their investment. But in non-capitalist societies, the decision of whether to invest or not isn’t made voluntarily—it’s made by government bureaucrats who invest citizens’ money without their permission. Since nobody can be certain whether a new company will succeed or not—in Lando’s case, maybe people don’t want his capes, or there’ll be a shortage of materials, or maybe Lando’s capes are not as fashionable as he believes—the point is investments are inherently risky.

In non-capitalist societies, where investments are often made based on political favoritism instead of what consumers may or may not want, taxpayer money can get wasted on all sorts of bad ideas, because the bureaucrats making these decisions have little incentive to choose wisely. (They get paid even if they make bad decisions). And even in capitalist societies, banks and other investment groups might be overly cautious or out of step with what buyers really want.

The sharing economy democratizes capitalism—by allowing ordinary people to decide for themselves whether to invest money in a new company. And that means all sorts of innovative new ideas—like capes for everyone. I mean… who doesn’t love a good cape!

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