Untaxing-I (Introduction) ch 5:     Understanding Exactly What Capitalism Is

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Capitalism has nothing to do with the goods or services provided by the public company. Virtually any product or service can be placed inside a public company to produce equity value for the shareholders. The primary function of the public company is the production of equity value.

The stock or ownership interest in a public company carries equity value. The equity value is a  portion (or fraction) of the public company’s entire market value.

Shareholders exchange one form of value for another form of value, i.e. the shares or units of stock or ownership interest in the public company. Generally, the form of value exchanged for ownership interest is some unit of currency.

This value exchange can take the form of any number of hybrids from debt to cash. For instance, a debt-loan can be taken from a bank where the shares (or other things) are pledged as collateral.  In another instance, cash can be exchanged for ownership interest in a public company.

This exchange of value involves risk on the part of the shareholder because the equity value of the ownership interest is not guaranteed. The inherent risk of the exchange of equity value is one of the pillars of true capitalism.

A simple description of Capitalism is the act of taking a risk with a public company with the goal of increasing the value of one’s ownership interest in the public company. Such activity should be accessible not only to investors, but also employees, innovators, business people and customers.

The only product of Capitalism is Equity Value which is produced after taking a risk.

It’s now time to examine three economic thoughts, presented in Parts II, III and IV. The first two — The Modigliani-Miller Theorem also known as the Capital Structure Irrelevance Principle (1958) and The Laffer Curve (1974) for a tax policy on everything — are current contributions to the economic literature. The last one is the Katchings’ Two Laws (or Theorems) of Capitalism and 22 Variables of the Public Company.

It is from these Two Laws (or Theorems) and 22 variables that the scientific formula for capitalism and its vehicle (the public company) is established. The discipline of the scientific method enables us to optimize the taxable market value structure of the public company. Once optimized, 100% of US citizens are finally direct participants in American Capitalism and Democracy.

Go to part II: Examining Modigliani-Miller’s Capital Structure Irrelevance Principle