Capitalism and Democracy Are the Greatest Wealth Engine Ever Built. Why Aren’t You Using It?

Capitalism alone does not produce broadly shared prosperity. Neither does democracy alone. It is the combination of the two that works, and the historical record on this is overwhelming.

Daron Acemoglu and his co-authors published a landmark study in the Journal of Political Economy in 2019 analyzing countries from 1960 to 2010. Their finding was striking: countries that transitioned from autocracy to democracy saw roughly 20% higher GDP per capita within 25 years. This was not correlation. They used instrumental variables to establish causation. The mechanism was straightforward. Democracies invest more in education and health. They build infrastructure. And critically, they create institutions that prevent powerful incumbents from pulling up the ladder behind them.

This is the part that matters for understanding how the economy actually generates returns. Capitalism is built on a simple and powerful idea: people competing to solve problems and create value will, in aggregate, produce more innovation and more wealth than any centrally planned system. Adam Smith articulated this in 1776. Milton Friedman sharpened it in 1962 when he observed that he could not think of a single example in history where broad political freedom existed without something resembling a free market economy. The incentive structure of capitalism, where you get rewarded for building something people want, is genuinely remarkable at producing innovation.

But capitalism without democratic guardrails produces oligarchy. Russia after 1991 is the clearest modern example. The country adopted market economics without establishing rule of law, and the result was a handful of oligarchs accumulating state assets at fire-sale prices through the loans-for-shares privatization of 1995 and 1996. Anders Aslund documented kickback rates of 20 to 50 percent. China pursued a different version of the same problem: market economics without political accountability. The short-term growth numbers were impressive, but the model relies on state-controlled companies and suppressed dissent. As multiple economists have observed, with the exception of Singapore, this approach has never worked over the long run.

The flip side is equally instructive. India had democracy but strangled capitalism for decades through the License Raj, a system of permits, quotas, and public monopolies that ran from 1947 to 1991. GDP growth averaged just 3.5% annually for almost half a century. It took a balance-of-payments crisis in 1991 to force liberalization, after which growth accelerated to 6% and eventually higher, pulling hundreds of millions of people out of poverty.

The lesson is not subtle. You need both systems. Capitalism creates the growth. Democracy creates the rules that keep that growth competitive, fair, and open to new entrants.

If capitalism is the engine, antitrust is the immune system that keeps it from eating itself.

Senator John Sherman said it plainly in 1890: if we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of the necessities of life. The Sherman Antitrust Act passed the House 242 to 0. It was unanimous because the logic was obvious. Between 1880 and 1902, roughly 5,000 small businesses had been absorbed into 300 large combinations. The trusts controlled entire industries through secret railroad rebates, predatory pricing, and outright intimidation.

What happened after the government broke up these monopolies is the part most people don’t appreciate.

When the Supreme Court split Standard Oil into 33 separate companies in 1911, the collective value of those successor companies quadrupled within a decade, from $600 million to $2.9 billion. Rockefeller’s personal fortune nearly tripled. Competition didn’t destroy value. It created more of it. Several of those “Baby Standards” became foundational companies that exist to this day: Exxon, Mobil, Chevron, Amoco.

The pattern repeated with every major antitrust action.

The IBM Consent Decree of 1956 forced IBM to sell its machines instead of just leasing them, license its patents, and unbundle hardware from software. This directly created the independent software industry. The lingering threat of antitrust shaped IBM’s decision to build the PC with an open architecture in 1981, outsourcing the operating system to a small company called Microsoft and the processor to Intel. Without that forced openness, the personal computer revolution as we know it would not have happened.

The AT&T breakup in 1984 split the largest company in the world. AT&T had over one million employees and controlled 80 to 85 percent of U.S. phone lines. After divestiture, the number of telecom equipment manufacturers increased 56% within four years. Research by Watzinger and Schnitzer found that patents in Bell-affected technologies increased by 19% per year, over 1,000 additional patents annually. The breakup required open standards for interconnection, which directly facilitated the buildout of the internet.

The Microsoft antitrust case in 1998 constrained Microsoft at the exact moment it mattered most. Google was founded one month before the trial began. The legal pressure slowed Microsoft down in key ways that gave upstart companies room to grow. The settlement forced Microsoft to share source code and allow competing browsers, enabling Firefox and later Chrome.

Every time democracy stepped in to prevent a monopoly from calcifying an industry, the result was more innovation, more companies, more wealth creation, and ultimately higher stock market returns. This is not a coincidence. It is the system working as designed.

Here is where the capitalism-democracy engine produces a result that should genuinely change how you think about money.

The goods and services produced by competitive markets get radically cheaper over time. Computing power that cost $18.7 million per GFLOP in 1984 costs roughly $0.03 today. That is a decline of over 99.99%. A modern smartphone delivers more than 2 TFLOPS of computing power, over a thousand times the performance of the 1985 Cray-2 supercomputer, which cost $17.2 million, occupied 16 square feet of floor space, and consumed 200 kilowatts of electricity. You carry a thousand-fold improvement in your pocket for $200.

Solar energy fell from $106 per watt in 1976 to $0.38 per watt in 2019. Television prices have declined at an average rate of 6.57% per year for over seventy years. The iPhone has stayed at roughly the same price point for a decade while the technology inside it has improved by orders of magnitude. This is what capitalism does when competition works. It drives prices down and quality up, relentlessly.

But the currency you use to buy these things moves in the opposite direction. Since the Federal Reserve was created in 1913, the dollar has lost approximately 96 to 97% of its purchasing power. Since Nixon ended gold convertibility in 1971, the dollar has lost 87%. Even since 2000, it has lost 46%. The average annual inflation rate since 1913 runs around 3.1%.

The M2 money supply exploded from $15.4 trillion in January 2020 to $21.7 trillion by April 2022, a 41% increase in just two years. The U.S. national debt exceeded $39 trillion in March 2026. Interest payments on that debt hit $970 billion in fiscal year 2025, surpassing Medicare and defense spending for the first time. Every dollar of discretionary spending Congress appropriated was borrowed. No realistic political path exists to reverse this trajectory, which means the purchasing power of cash will continue to erode.

So the goods capitalism produces get cheaper. But the money you hold to buy them becomes worth less every year. Those two curves are moving apart, and the gap widens with time. The question is which side of that gap you want to be on.

When companies compete, innovate, and grow in a democratically regulated market, the aggregate result shows up in stock prices. The S&P 500’s historical return of roughly 10% annually is not some magical number. It is a direct measurement of the value created by the capitalism-democracy engine.

Over the past twenty years, $10,000 invested in the S&P 500 grew to approximately $44,870. Over thirty years, the same investment would have exceeded $130,000. Jeremy Siegel’s research in Stocks for the Long Run showed that over any twenty-year holding period in U.S. history, stocks have never lost purchasing power.

But here is where the conversation usually goes wrong.

Most financial advice treats this data as an argument for long-term buy-and-hold investing, which it is. Put money in index funds, wait forty years, retire rich. The math works. The problem is not the math. The problem is that this framing turns investing into something that only pays off in the distant future. It creates a psychological separation between your investments and your life. Your money grows in one place. You live your life in another. The two worlds almost never touch until you’re old enough to start withdrawing.

Think about what that actually means. You might spend your twenties and thirties diligently contributing to a 401(k), watching the balance grow, knowing rationally that it is building wealth. But that wealth feels abstract. You can’t use it for the concert tickets you want this month. It doesn’t help you buy the thing you’ve been eyeing. It exists in a parallel universe that you’re told will become real when you’re 65.

And what happens at 65? You have a number on a screen. Maybe it’s a big number. But you’re 65. Your knees hurt. Your energy is different. The things you wanted at 28 are not the things you want anymore. The money served its purpose in a strictly mathematical sense, but it missed the years when you would have gotten the most out of it.

This is not an argument against retirement saving. Everyone should do that. But it is an observation that the conventional wisdom has created a false binary: either your money is “invested” and locked away, or it is “spent” and gone. As if those are the only two options.

Even on shorter time horizons, the stock market tends to outperform cash by a meaningful margin. The average annual return of the S&P 500 over rolling one-year periods has been positive roughly 73% of the time. Over rolling three-year periods, that number climbs to about 84%. These are not guarantees, and shorter time frames carry more volatility. But the expected value of being in the market, even for months rather than decades, is significantly better than the expected value of holding cash.

A typical high-yield savings account right now might offer 4%. That sounds decent until you account for inflation running at 2.7%, which gives you a real return of about 1.3%. A standard savings account at 0.39% gives you a real return of negative 2.3%. A checking account at 0.07% gives you negative 2.6%. These are not neutral positions. Holding cash is an active bet that you will lose purchasing power. You are paying for the privilege of doing nothing.

Meanwhile, a diversified portfolio of ETFs might return 8 to 12% in a good year and lose 5% in a bad year. The bad year stings. But averaged over time, even over relatively short periods, the math favors participation in the market over sitting in cash. And the key word there is participation. Not speculation. Not day trading. Just being in the game while the capitalism-democracy engine does what it has done for over a century.

The gap between how institutions handle money and how individuals handle money illustrates this perfectly. Norway’s sovereign wealth fund, the largest in the world at over $2.2 trillion, holds 71.3% of its assets in equities. Its cash allocation is effectively zero. It earned 15.1% in 2025. U.S. pension funds allocate an average of 46% to public equities. Even Warren Buffett, the most famously patient investor alive, doesn’t hold idle cash. Berkshire Hathaway’s $382 billion “cash” position is invested almost entirely in Treasury bills earning 4 to 5% annually. Buffett held more T-bills than the Federal Reserve.

Every sophisticated financial actor on the planet operates on the same principle: money should always be working. The returns might be large or small depending on the time horizon and the market, but money sitting idle is money losing value by definition.

If the math is this clear, why doesn’t everyone participate?

Behavioral economics has a precise answer, and it has nothing to do with intelligence.

Daniel Kahneman and Amos Tversky’s Prospect Theory, published in 1979 and arguably the most influential economics paper ever written, established that people feel losses roughly twice as intensely as equivalent gains. A 2019 study replicated this finding across 19 countries with a 90% success rate. This is not a cultural artifact. It is a feature of human cognition. The pain of seeing your portfolio drop $500 outweighs the pleasure of watching it gain $500, even though the math is symmetrical.

This asymmetry explains why so many people keep money in checking and savings accounts despite knowing, at some level, that they’re losing purchasing power. The fear of a visible loss in the stock market is more emotionally powerful than the invisible, gradual loss of inflation. You don’t get a notification when your cash loses 3% of its value over the course of a year. You do get a notification when your portfolio drops 3% in a week. The psychology punishes participation and rewards inaction, even when inaction is the worse decision.

Status quo bias compounds the problem. Samuelson and Zeckhauser showed in 1988 that people overwhelmingly stick with defaults even when alternatives are objectively better. Money lands in a checking account via direct deposit. It stays there. Not because someone made a deliberate choice, but because moving it requires effort, and the default wins almost every time.

Choice overload paralyzes the next step. With over 7,000 mutual funds and 3,000 ETFs available, the investment landscape overwhelms people who might otherwise act. Sheena Iyengar’s research showed that people were ten times more likely to make a purchase when offered 6 options versus 24. The more choices, the less action.

Richard Thaler won the Nobel Prize in Economics in 2017 partly for demonstrating that these biases can be overcome by changing defaults. When companies switched 401(k) enrollment from opt-in to automatic, participation jumped from 37% to 86%. Thaler and Shlomo Benartzi’s Save More Tomorrow program nearly quadrupled savings rates from 3.5% to 13.6% in 40 months. The principle is straightforward: if you want people to do the right thing, make it easy. Make it automatic. Remove the friction.

The capitalism-democracy partnership creates enormous value. Antitrust keeps that value creation competitive and open to new entrants. The result, measured across decades and centuries, is that the companies operating within this system grow, innovate, and produce returns that far outpace the declining purchasing power of cash.

Every institutional investor and every wealthy individual already participates in this system continuously. Their money is always working. It is never sitting idle. The gap between them and the average person is not knowledge or talent. It is infrastructure. The systems that exist for institutions to keep money invested and liquid at the same time have not existed for regular people.

That is what Coinage is built to change.

Coinage connects your existing brokerage account to your everyday spending. You invest in curated ETF portfolios called Nests, and when you spend on your credit card, Coinage automatically sells gains to offset your expenses. Your money stays in the market, participating in the growth that capitalism and democracy produce, until the moment you actually need it. Then it works for you at the point of purchase.

This is not about locking money away for retirement. It is not about picking individual stocks or timing the market. It is about closing the loop between the wealth the economy creates and the life you actually live. The same principle that drives sovereign wealth funds and pension funds and corporate treasuries, applied at the individual level, automatically.

You keep investing. You keep spending. The returns happen in between, and they show up as real reductions in what your purchases cost you. Instead of your money sitting somewhere doing nothing while inflation chips away at it, it participates in the growth engine that competitive, democratically regulated capitalism has been producing for over a century.

The system works. It has always worked. The only question is whether your money is part of it.