Transcription
So, today I want to talk about something very different from what we normally discuss. We normally talk about wars, empires, geopolitics, but today I want to talk about something that is actually the foundation of all of that. Because once you understand this, you will never look at the world the same way again.
Today I want to talk about money. Specifically, I want to talk about the game that rich people play. And I don't mean rich like you have a nice car and a big house. I mean the people who actually own the world. The people who are so rich that most of us don't even know their names.
And the reason I want to talk about this is because most people, even very educated people, they think about money completely wrong. They think that the way to get rich is to work hard, save money, invest in stocks, maybe start a small business. And look, those are all fine things to do, but that is not how real wealth is built. That is not the game that the truly rich are playing. The truly rich are playing a completely different game. And the rules of this game are never taught in school. They are never discussed on the news. In fact, the entire education system, and I say this as a teacher, is specifically designed to make sure you never learn these rules.
So, today that is what we are going to talk about. The game, how it works, why you were never told about it, and what it means for your life. Okay, so let's begin.
First, I want to start with a thought experiment, because I think this is the best way to understand this. Imagine you have two people, person A and person B. Okay? Person A goes to school, gets good grades, goes to a good university, gets a good job, works very hard for 40 years, saves 20% of his salary every month, invests in a pension fund, and when he retires at 65, he has maybe, if he was very disciplined, two or three million dollars saved up.
Person B does something different. Person B doesn't really care about his grades. Instead, he spends his time studying something completely different. He studies how banks work. He studies how governments issue money. He studies how asset prices are manipulated. He studies the relationship between debt and power. And by the time he is 35, person B is worth 500 million dollars.
Now, here is my question. Is person B smarter than person A? Is person B more talented? Did person B work harder? Not necessarily. What person B understood, and person A never did, is the rules of the real game. The game that is being played above the level that most people can even see.
Okay, so what is this game? Let me start at the very beginning, because to understand the game rich people play, you have to understand something fundamental about how money actually works. Most people think money is a thing, like a rock or a tree. They think money has value because it is valuable. But this is completely wrong. Money is not a thing. Money is a relationship. Money is a social agreement. Money is a promise.
Let me give you a simple example. Take a hundred dollar bill, okay? Why is it worth a hundred dollars? Think about it carefully. It's a piece of paper. It costs maybe 10 cents to print. The ink is cheap, the paper is cheap. So, why is it worth a hundred dollars? It is worth a hundred dollars because everyone agrees it is worth a hundred dollars. That is it. That is the entire reason. If tomorrow everyone decided that a hundred dollar bills were worthless, they would be worthless. The paper would be worth 10 cents. The ink would be worth nothing, and all your savings would be gone.
Now, here is where it gets interesting. Because if money is just a social agreement, if money is just a promise, then whoever controls that promise controls everything. Whoever gets to decide how much money exists, where it goes, who gets it, that person has power over everyone who uses that money.
And here is the thing that most people don't understand. In the modern world, the government does not control money. The people who control money are private banks. And at the very top of the private banking system sits something called a central bank. In America, it's called the Federal Reserve. In Britain, it's the Bank of England. And these central banks are, and I want you to really understand this, they are not government institutions. They look like government institutions. They have official sounding names, but they are private institutions. They are owned by private shareholders, and their job is to serve those shareholders.
Okay, now let me give you a bit of history, because this is where it gets really fascinating. The Bank of England was founded in 1694, and I want to tell you why it was founded, because most people have no idea. Before 1694, if you were a rich merchant and you wanted to make money from war, which is very profitable, by the way, you would lend money directly to the king. And the king would use that money to fight his wars. But there was a huge problem with this. The king could die. The king could lose the war. And most importantly, the king could simply refuse to pay you back. He was the king. What were you going to do about it? So, lending money to kings was very risky. Sometimes you made a lot of money. Sometimes you lost everything.
The genius of the Bank of England, and I say genius because it genuinely was brilliant, even if it was also extremely clever in a way that benefited the rich at the expense of everyone else. The genius was this. You no longer lent money to the king. You lent money to the nation, to parliament, to the state itself. And when you lend money to the nation, not the king, but the whole country, something completely different happens. Because now it is not just the king who has to pay you back. It is every single citizen, every taxpayer, every worker, every person born in that country for the next 100 years has to pay you back. The debt becomes national. It becomes permanent. It becomes almost impossible to escape.
Do you see how brilliant this is? You have taken personal risk, the risk of the king dying or refusing to pay, and you have spread it across an entire nation and all future generations. The rich lender now has almost zero risk, and the people who had no say in the matter, who were never asked if they wanted to take on this debt, they now have to pay it back forever. This is the foundation of the modern financial system. And once you understand this, you start to understand why governments are always in debt, why taxes never seem to go away, why the gap between rich and poor keeps getting wider, no matter what policies governments implement. Because the entire system is designed this way from the very beginning. Okay?
So, now I want to talk about what the game actually looks like today, because the Bank of England was 1694, a long time ago. What does this mean for you right now in your life? Let me explain the game in simple terms. And I'm going to use an analogy that I think makes it very clear. Imagine a Monopoly board. You know the game Monopoly, right? Everyone starts with a certain amount of money. You buy properties. You charge rent. The person with the most property eventually wins, because everyone else runs out of money paying them rent.
Now, here is the key question. Have you ever wondered, where does the money in Monopoly come from in the first place? Before the game starts, before anyone buys anything, someone has to give everyone their starting money. In real life, that someone is the banking system. The banks create the money that everyone uses to play the game. And here is the thing. When a bank creates money and lends it to you, you have to pay it back with interest. So, the bank always gets back more than it created. The money that you pay as interest, that extra money has to come from somewhere. And where does it come from? From other people in the economy, from their savings, from their labor, from their productivity.
In other words, and this is the key insight, in the economic game we are all playing, the bank is like the Monopoly banker who starts with extra money, charges everyone to use the money, and then slowly pulls money back out of the game through interest payments. The players, ordinary people, they work, they produce, they save. But a portion of everything they produce flows back to the bank as interest, every single day, without stopping.
And who owns the banks? Not ordinary people. The shareholders of major banks are the wealthy families and institutions that have been accumulating capital for generations. In America, when you look at who owns the Federal Reserve member banks, who owns JP Morgan Chase, Goldman Sachs, BlackRock, you find the same names again and again, old money, generational wealth, families that have been playing this game for 200 years.
Okay. So, now let me talk about the second level of the game. Because what I just described, the banking system, that is actually the first level, the basic level. The game goes much deeper than that. The second level of the game is something called asset inflation. And this is where things get really interesting. So, let me explain what this means.
In any economy, there are two types of things you can own. You can own things that you use, like a car or food or a phone. These things get used up. They depreciate. They become worth less over time. Or you can own assets, land, buildings, stocks, bonds, companies. These things don't get used up. And here is the critical thing. The value of these assets goes up over time.
Now, why do asset prices go up? There are many reasons, but the most important one is this. When the central bank creates new money, when the Federal Reserve prints money, in simple terms, that new money has to go somewhere. And where does it go first? It goes to the banks and the financial institutions, not to ordinary people. And the banks take that money, and they use it to buy what? Assets, stocks, real estate, bonds. So, when new money is created, the first people to receive it are the rich, the people who own banks, the people who are connected to the financial system. They use that new money to buy assets, which drives up asset prices. And then, by the time that money trickles down to ordinary people in the form of wages or benefits, the asset prices have already gone up. So, ordinary people can no longer afford to buy those assets. The rich got there first.
This is not an accident. This is the design of the system. It has a technical name. Economists call it the Cantillon effect, after the Irish-French economist Richard Cantillon, who described it in the 1700s. And it means that whoever receives new money first benefits the most. And whoever receives it last, ordinary working people, actually become poorer in relative terms, because by the time they get the new money, prices have already risen. Think about house prices. Think about why, in almost every major city in the world, young people today cannot afford to buy a house that their parents could have bought on one salary. It is not because houses suddenly became more expensive to build. It is because decades of money creation have flowed into real estate, driving up prices, making the people who already owned houses extremely wealthy, and making it nearly impossible for people who don't own houses to ever get into the market.
Okay, so now I want to talk about the third level of the game. And this is where it connects to everything else I normally discuss, empires, wars, geopolitics, because here is what I want you to understand. The game I am describing, the banking game, the asset inflation game, this game only works if you can control the rules. And to control the rules, you need power, political power, military power, and ultimately imperial power.
Let me go back to Britain for a moment. I talked earlier about the Bank of England. After Napoleon was defeated, after Britain won the Seventh Napoleonic War, Britain had dominance over global trade. Its navy controlled the sea lanes, its banks controlled the financing of global trade, and the British pound became the world's reserve currency, meaning that if you wanted to trade internationally, you had to use British pounds. Every country that wanted to participate in global trade had to hold British pounds in reserve. This was enormously powerful because it meant that Britain could essentially print money, and the whole world would absorb that money and use it. Britain could run deficits. It could spend more than it earned, and everyone else had to hold British pounds to participate in the global economy.
Now, after World War II, this system transferred from Britain to America. The dollar became the world's reserve currency under something called the Bretton Woods Agreement in 1944. And after 1971, when Nixon ended the gold standard, the dollar became, and I want you to understand this, the dollar became backed by nothing except the military power of the United States, and the agreement of the Gulf states to sell oil only in dollars. That is the petrodollar system. That is why America went to war in the Middle East, not for democracy, not for freedom, not for WMDs, to maintain the system by which the dollar remains the world's reserve currency. Because if the dollar loses reserve currency status, America can no longer print money and have the world absorb it. And if it can't do that, the entire American financial system, the stocks, the real estate, the debt, everything collapses.
Now, do you understand why I say the game that rich people play is connected to everything? The wars are not separate from the financial system. They are part of the financial system. The wars are fought to protect the rules of the game.
Okay, so now I want to bring this back to you, to your life, because I don't want this to just be an interesting lecture. I want you to actually understand what this means for ordinary people. There is a concept in game theory called information asymmetry. It simply means that one player in a game has more information than another player. And in almost every game, whether it is poker, business negotiations, or war, the player with more information wins.
The game that rich people play depends entirely on information asymmetry. The rules of the game are deliberately hidden from ordinary people. The way money is created is not taught in schools. The Federal Reserve System is not explained to children. The relationship between asset inflation and wealth concentration is not discussed on mainstream television. Why? Because if ordinary people understood these rules, they would be very angry. They would demand changes to the system. They would understand that a significant portion of the wealth they create every day flows not to them through wages, but upward through the financial system to the people who own assets and banks.
And so the educational system, and again, I say this as a teacher who deeply cares about education, the educational system teaches people to be good employees, to follow instructions, to work hard, to save money in a savings account that earns 2% interest while inflation runs at 7%. It does not teach people to understand the system they are participating in.
Now, I am not saying this to make you angry or hopeless, I am saying this because understanding the game is the first step to playing it differently. Let me tell you what the people who understand this game actually do. And again, I am not endorsing this as morally right. I am describing what actually happens, because the purpose of this class is always to understand reality, not to tell comfortable stories about reality.
The people who understand the game do several things consistently. First, they own assets, not just money. They understand that money sitting in a bank account loses value over time through inflation. So they convert money into assets as quickly as possible, real estate, businesses, stocks, anything that goes up in price when new money is created, because they know that new money will always be created, and they want to be holding assets when that happens, not holding cash.
Second, they use debt strategically. This is the thing that most confuses ordinary people. The rich borrow enormous amounts of money. A businessman with a $10 billion company might have $8 billion in debt. And ordinary people look at this and think, "But that's crazy. That person is basically bankrupt." But actually, what the rich person understands is that if you borrow money at 3% interest and invest it in assets that go up 10% per year, you are making money on money you don't own. And the interest payments, those are tax deductible. So the government is essentially subsidizing your debt. Think about the biggest corporations in the world, Apple, Amazon, Google. These companies have hundreds of billions of dollars in cash, but they still borrow money. Why? Because the debt is cheap, especially when interest rates are low, and the interest payments reduce their tax bill. The tax code in every major country is written in ways that benefit people who own businesses and assets. And who writes the tax code? Governments. And who has the most influence over governments? The people who fund political campaigns former politicians as lobbyists.
Third, and this is perhaps the most important, the rich understand that the real competition is not between individuals, it is between people who understand the system and people who don't. And so they do everything in their power to make sure their children understand these rules. They send their children to the best schools, not just for the education, but for the network, because in the game of real wealth, who you know matters as much as what you know. The old boys network, secret societies, private clubs, these are not romantic fiction. They are real mechanisms by which the people who control the game maintain continuity. They pass the game down to the next generation.
Okay, so now I want to talk about something that I think is very important, and it connects all of this to the bigger picture of history. Every major empire in history has had this same structure. At the core, you have what I call the finance, the money power, the banking system, the people who control the creation and flow of money. Around the finance, you have the empire, the military and political power that protects the system and enforces the rules globally. And around the empire, you have the ideology, the stories that justify why the system is fair, why it is natural, why it has always been this way and will always be this way.
In medieval Europe, that ideology was religion. The church told people that poverty was virtuous, that suffering in this life was the path to heaven, that the hierarchy of rich and poor was ordained by God. And this kept people from questioning the system for centuries.
In the modern world, the ideology is different. It is the idea of meritocracy, the idea that if you work hard enough and are smart enough, anyone can become rich, the American dream, the self-made man. And these stories are important because they shift blame. If you are poor, it is not because the system is rigged, it is because you didn't work hard enough, you didn't study enough, you didn't make good enough choices. The system is fair, you just failed.
Now, and I want to be very careful here because I am not saying that hard work does not matter, it absolutely matters, and I am not saying it is impossible to improve your life. Obviously, it is possible, but I am saying that individual hard work within a rigged system can only take you so far. The game has a ceiling, and that ceiling is set by the people who own the rules.
Okay, so I want to end today's lecture with what I think is the most important question, the question that all of this leads to. If the game is designed this way, if the rules of the financial system are written to benefit the few at the expense of the many, why do ordinary people accept it? Why don't they change it?
And this question has been asked throughout human history, and the answer is always the same, because the people who benefit from the system are also the people who control the narrative. They control what is taught in schools. They control what appears in the media. They control which political parties receive funding. They control which ideas are considered reasonable, and which ideas are considered dangerous or crazy. And so the average person who works hard, pays taxes, saves money in a depreciating savings account, and watches asset prices rise beyond their reach, that person is told that this is normal. This is the free market. This is capitalism working as intended. And if you question it, if you say, "Wait, something is wrong here," you are told you are a communist or a conspiracy theorist, or simply that you don't understand economics. But actually, it is the people asking these questions who understand economics best, because they are willing to look at what the system actually does rather than what it says it does.
Now, as I always say at the end of class, this is not meant to make you despair. This is not meant to make you feel powerless. The first rule of any game is to understand the rules. You cannot win a game you don't understand. Most of human history, the rules of this game have been kept hidden from ordinary people. But we live in an extraordinary time. The internet, whatever its problems, has made it possible for information to spread in ways that were impossible even 30 years ago. The ideas we are discussing today in this classroom, these ideas are being discussed by more and more people around the world. The awareness is growing.
What does this mean? I don't know exactly. History suggests that when the gap between rich and poor becomes too large, when the information asymmetry collapses and ordinary people begin to understand the game, one of two things happens. Either the system reforms itself, either the people who own the system decide it is safer to share a little more of the wealth than to risk losing everything. Or the system breaks down and something new is built in its place. Which of those outcomes happens depends on what ordinary people do with the understanding they gain. And that is why education, real education, not the kind that teaches you to be a good employee, real education matters because you cannot change a game you don't understand.
Okay, so that is what I want you to think about, not just today, but going forward. Every time you pay your taxes, every time you make a financial decision, ask yourself, what are the rules of this game? Who wrote those rules? And who do they benefit? Because that is the question that separates the people who play the game from the people the game is played on. Okay?