The Voice of Reason: Capitalism for Dummies (or Liberals)

When my youngest son was probably 10, I thought I would give him a lesson in capitalism.

I placed 25 pennies out on the table in front of us, and divided the pennies into five groups of five pennies each.  I told my son that each group of five pennies represented a company owned by one person, with each company hiring dozens of workers that receive paychecks.

Next, I added three pennies to each group, telling my son that these additional pennies signified profit earned by those companies.  Next, I took one penny away from each group, saying that this represented the taxes paid by each company on that profit.  With the profit that was left, 10 pennies in total, I divided them into two additional groups of five pennies each, telling my son that this signified that the owner used the profit to created two more businesses that hired people.

I then added three additional pennies to each of the seven groups of pennies, signifying profit earned, and then took one penny away as their taxes.  With the additional 14 pennies of profit left, I created two more groups of five pennies each, and put aside the other four pennies to form yet another company, once we were able to earn enough profit to form another company of five pennies.

We continued the exercise until my son realized that profit was being used to create more profit and thus more businesses, and that with each new company, more and more people were being put to work.  I also explained that the taxes paid by the company helped to support government programs for the poor, our military and many other programs that needed money to operate.  He learned that as we grew those companies and earned more profit, more taxes were being paid and more people were being put to work.  I also explained that each of those workers paid taxes, on top of the taxes that were being paid by the companies.

Next I returned the pennies back to where they were before the first profit was added -- five groups of five pennies each.  Once more I placed three additional pennies into each group as profit, but then took two pennies away in taxes from each group instead of just one.  As a result, our total remaining profit from the five groups was only five pennies, which I split off into one other company that I told my son was able to hire employees.

We continued the exercise, taking two pennies of profit away each round, watching our companies grow much more slowly this time and thus fewer people being put to work by those companies.

I asked my son what was the difference between taking two pennies away and taking one penny away for taxes. 

"You don't have as many pennies left to form another company," he said. 

"And what happened to the number of new jobs we were able to create?" I asked.

"You only were able to form one instead of two and the companies didn't grow as fast, so there were fewer jobs," he replied.

He also recognized that fewer employees meant fewer people actually paying taxes, on top of the taxes that the companies paid.

With that small pile of pennies, I was able to give my 10 year old a lesson in capitalism.  He now understood that more money taken away to pay taxes means less money to build and grow businesses and thus fewer employees.

For some reason, most Americans today don't understand what I was able to explain very clearly to a boy who wasn't even a teenager. 

I have to think that if more Americans understood the basic principles of capitalism, Barack Obama would never have been reelected because of his "make the rich pay their fair share" platform, which seems to be his only plan to improve our economy.  More people would understand that higher taxes means less money to grow businesses and hire more employees.

If this lesson worked with a 10 year old, maybe it will even work with liberals? The only problem with this simple demonstration is that it would have to be dumbed down even further for Harry Reid and Nancy Pelosi.