Transcription
So today I want to expose the secret rules of money used by these people and few others I don't want to mention because of YouTube but basically called the secret societies.
Okay, I will not promise you'll get wealthy but once you see through how it actually works it changes the way you make decisions about your own life. And some of what I'm going to say today is going to be really really uncomfortable.
Um, you have to understand money is a collective hallucination the whole world participate in. I have been teaching this throughout this class using Plato's cave. You have a million people chained to a wall and behind them the elite project shadows. Money is one of the most powerful shadows ever projected. And I want to be very specific about this because I think it's one of the most important things you can understand.
These are the numbers that describe the economy of ordinary people where you trade your time for money while the other economy operates at a completely different level. Te is completely invisible to you. Because if you could see it clearly and see exactly how much wealth is being captured at this level, the political pressure to redistribute would be irresistible. So until you understand that there are two economies, you will keep trying to get rich using the rules of the wrong economy.
Cuz most people think of their salary as compensation for their work. But that's not what's happening. What's happening is more interesting and more revealing. When an employer pay pays you a salary, they are not paying you the value you create. They are actually paying you the minimum amount necessary to ensure that you show up tomorrow. So the labor market is not a fair exchange. It's a negotiation in which the employer almost always has more power than the worker. The moment you understand this, you stop thinking about how to get a better salary and start thinking about how to stop selling your time entirely.
Rule number three is that the purpose of education in the modern economy is to create compliant debtors. Okay? It constrains every major life decision you make for decades. And what do you get in exchange for this? You get pieces of paper that certify you as qualified to participate in the labor market. And you get placed at the beginning of the salary chain. You start your adult life in debt, obligated to a financial institution, dependent on a salary to service that debt, and therefore much more compliant as an employee than someone with no debt. Because if you have no debt, you can afford to quit a bad job. You can afford to take risks.
And this is something that I think is is incredibly important for you guys to understand. Especially those of you who are studying hard, getting good grades, accumulating knowledge, believing that expertise is the path to success. It's not. It helps. It's necessary, but not sufficient. What actually determines outcomes in the economy is not what you know, it's who you know.
So, let me give you a very concrete example. Two people graduate from the same university with the same degree. One of them grew up in a wealthy family with connections to the financial industry. Her father plays golf with a hedge fund manager. Her university roommate's uncle runs a venture capital fund. The other person grew up in a working-class family with no connections to finance. He has no network. He knows nobody in the industry. Who gets access to the better investment opportunities? Who gets the introductions that lead to the next opportunity and the one after that? And what this means is that the most important investment you can make is not in your education. It's in your network with people who have access to resources, opportunities, information, and influence. And these relationships are almost always built through proximity.
Now, let me talk about something that connects the 30 rules to a very specific practical question that I think you guys are probably sitting here asking, which is okay, professor. I understand the system is rigged, but I still have to pay rent next month. I still need to figure out what to do with my life. So, what do I actually do? And I want to answer this honestly with the real framework that follows from everything I've been teaching.
So the first thing I'll say is this. You have to decide where you want to be in the system. And you have your choices are roughly these three. The first choice is you play the retail game. You get a good job. You save. You invest in index funds. You buy a home when you can afford to. And this is not a bad life. This will probably result in a comfortable retirement if if you're disciplined, but it will not make you wealthy in the deeper sense we've been discussing. you will always be at the end of the money chain.
Because I think there's a dimension to this that most economic analysis completely ignores and that is the psychological damage that poverty does to the capacity for wealth creation. Okay. Most financial advice is designed to keep you inside the system not to help you understand it.
Every major wealth transfer in history has happened during a crisis. And I've touched on this before, but I want to go through this in detail today because I I think it's one of the most practically important rules of money. Millions of ordinary Americans lost their savings when the banks collapsed. The Great Depression transferred enormous wealth from ordinary people who held their wealth in banks and small businesses to the wealthy who held their wealth in cash and real assets. And then the second world war created an enormous industrial buildup in America that further concentrated wealth in the hands of the military industrial complex. Crisis are not disruptions to the wealth system. They are the mechanism by which the wealth system resets and reconentrates. Every crisis is an opportunity for those with capital and a catastrophe for those without.
And I want to connect this to something very concrete that you can observe and verify for yourself. So information asymmetry means that some people in a transaction know more than others. And in financial markets, information asymmetry is the primary source of profit. If you know something that I don't know, you can make money from me, not because you work harder, because you have information that I don't have.
So rule number four is that money loves speed. And this is something that most people never think about. It's a simple concept. It's how many times a dollar changes hands in a given period. Okay? So, imagine a small community. There are 10 people and $10. And every week, each a person spends their $10 on goods and services from the other people in the community. Each dollar changes hands once a week. And the total economic activity in this community is $10 times 52, which is $520 per year.
Now imagine that one person in this community hoards their dollars. They take $5 and put it under their mattress and refuse to spend it. Now there are only $5 circulating. But the economic activity they support decreases enormously, not just proportionally. This is what happens in a recession. People stop spending. Economic activity collapses in a cascade. Now apply this to the modern global economy and you understand why the game masters are so desperate to keep money moving. This is the reason why central banks print money not to make people wealthy but because a dollar that doesn't move.
Rule number five is that never sell what you can rent. Okay. And this is one of the most pract practically important rules of money and it applies across almost every domain. So let me explain the logic. If you sell something, you get money once. If you rent something, you get money continuously, indefinitely, for as long as you own the thing. So, a developer who builds a building and sells it gets money once. A developer who builds a building and rents it out gets money every month for decades. Recurring revenue is the holy grail of business. It means you don't have to sell every month. You sold once and the revenue keeps coming.
And the most dangerous financial decision you will ever make is taking financial advice from someone who doesn't bear the consequences of being wrong. Okay? And I've been building toward this all class. And I want to make it very explicit.
So economists talk about intergenerational mobility. This is the idea that in a fair society, a person's economic outcome should not be predetermined by the economic circumstances of their birth. A child born poor should have the same chances as a child born wealthy if they work equally hard and have equal talent. This is the core promise of meritocracy and it is almost entirely false. In America, a child born in the bottom 20% has about a 7 to 8% chance of reaching the top income quintile. In Denmark, which is supposed to be one of the most the most equal societies in the world, it takes on average five generations for a family born at the bottom to reach the average income 150 years. And in more unequal countries, it takes longer. In China, it takes seven generations. The economic address of your birth is the single most powerful predictor of your economic outcome. It's even more powerful than your education and your work ethic.
We are living through a transition from the industrial financial economy to the digital AI economy. And this transition is as profound as the transition from medieval to early modern. The primary form of wealth in the industrial financial economy is financial capital. And the institutions that manage this capital, the banks, the insurance companies, the pension funds, the sovereign wealth funds are the dominant powers of this era. Just as the aristocracy was the dominant power of the medieval era and the new form of wealth that is emerging just as credit emerged in the 15th century is data and AI. The ability to collect, process and act on information at scale. The ability to model human behavior and optimize systems and make predictions that were previously impossible. And just as as the bankers of the 15th century captured the wealth of the age of exploration, the people who control data and AI are going to capture the wealth of the digital age. And the people who are holding the equivalent of land, who are invested in the financial instruments of the industrial era, are going to find their relative power slowly eroding. Now, this doesn't mean that financial capital becomes worthless. just as land didn't become worthless in the 16th century. But it does mean that the new wealth, the extraordinary wealth is going to be captured by the people who understand and control the new instruments.
Now, let me show you something about how the wealthy think about freedom versus how ordinary people think about it because I think this contrast is really revealing. So, for most people, freedom is something you earn after a long period of compliance. You work for 40 years, you save, you pay off your debt, you build your retirement account, and then at 65, you get freedom. And this model, the deferred freedom model, is the dominant model in most societies. Work now, be free later. And it's specifically what the financial system wants you to believe because while you're deferring your freedom, you're participating in the system. You're earning a salary and consuming and paying taxes and making mortgage payments and contributing to your retirement account.
But the wealthy think about freedom completely differently. The wealthy think about freedom as the starting point, not the destination. The wealthy ask, "How do I structure my financial life so that I have the maximum freedom now, not at 65, now?" And the answer is almost always the same. Build assets that generate income without requiring your direct labor. Build things that pay you while you sleep. The toll collector doesn't have to work every time someone uses the road. The road generates income passively. And once you have enough passive income to cover your expenses, you are free.
The greatest investment is in understanding how the system works. And I want to push this further because understanding the system is necessary but not sufficient. You also have to be able to act on that understanding and acting on that understanding requires something that is in very short supply and that is psychological independence from the hallucination. Okay?
Cuz here's the problem. Even if you understand intellectually that money is a hallucination, even if you can articulate all 30 rules, you still have to live in the hallucination. You still have to pay rent in it, buy food in it. And the pull of hallucination is enormous. It's not just financial, it's social, it's cultural, it's emotional. Your sense of status, your sense of security, your sense of belonging, all of these are deeply intertwined with the financial system. The game masters have built a system in which your social network, your sense of belonging and status is tied to your participation in the financial system. Your job is not just a source of income. It's a source of identity. And when you try to step outside the system, when you try to build wealth in ways that the system doesn't sanction, you are making a social choice. And most people cannot make that choice. The social cost is too high. The hallucination holds them not just through financial obligation, but through social belonging.
So there's research by two economists Sendill Mulanathan and Eldar Shafir and they wrote a book called scarcity why having too little means so much and what they show is that scarcity not just financial scarcity but any form of scarcity time scarcity social scarcity captures cognitive bandwidth. What they mean by this is very simple. If you're worried about money, if you're anxious about whether you can pay rent, if you're stressed about debt, your brain is constantly running a background process that is consuming enormous cognitive resources. And this cognitive burden reduces your IQ effectively by about 13 to 14 points. This is the equivalent of functioning as though you haven't slept for a night permanently because of the cognitive burden of financial stress. And this has enormous implications. It means that poor people are not making bad financial decisions because they're less intelligent or less disciplined. They're making bad financial decisions because the stress of poverty is impairing their decision-making capacity. The scarcity is causing the bad decisions. The bad decisions are not causing the scarcity. It's a trap. And this connects back to what I said about fear.
The second choice is you try to become an administrator. You position yourself as close as possible to the mechanisms of money creation. You go into finance, technology, real estate, energy. You build the network. You make yourself useful to the system. And this path can lead to significant wealth. But it requires compromises. You have to maintain the hallucination. You have to play the game by the rules of the administrators.
The third choice is you try to build something outside the system, something that doesn't depend on the financial systems approval, a business that produces real value for real people, skills that are genuinely useful.
So, we have Trump in Beijing right now negotiating what I'm calling the grand bargain. And what is the grand bargain really? The grand bargain is the application of the 30 rules of money to a new geography. Okay, so rule one says money is belief. China has 1.4 billion people whose belief in the renmi is strong. The grand bargain is about transferring some of that belief from the renmi to the dollar through the opening of the Chinese capital account. The grand bargain is a mechanism to distribute that debt to Chinese consumers through stable coins backed by US treasuries. America manufactures scarcity in semiconductors by controlling the supply chain.
Now, let me talk about something that I think is really critical for your generations specifically because you're going to be navigating a financial world that is more complex, more surveiled, more controlled, and more volatile than any previous generation has had to navigate. And I want to give you some specific ways to think about this.
So the first thing I want to say is that the most important financial skill of your generation will not be picking stocks. It will not be real estate investment. It will not be cryptocurrency speculation. The most important financial skill will be understanding the difference between financial wealth and real wealth. Okay? So financial wealth is numbers on a screen, a bank balance, a cryptocurrency valuation. These numbers can go to zero overnight. I've shown you multiple examples of this. The inflation in Venezuela, the collapse of the Chinese real estate market. Financial wealth is the most fragile form of wealth because it exists entirely inside the hallucination. The moment the collective belief in those numbers weakens, the numbers change.
Real wealth is relationships, networks of people who trust you and will work with you. Real wealth is knowledge, actual understanding of how the world works. Because without physical and mental capacity, nothing else is possible. The ability to make decisions about your own time and your own life without being dependent on an employer or a financial institution. These forms of wealth are much harder to create than financial wealth. They take time and intention and discipline, but they are also much harder to destroy.
So throughout human history, before there was money, before there were bonds, wealth was land. Whoever owned the land owned the means of production. This is why the British aristocracy maintained its wealth and power for centuries. The aristocracy were toll collectors. They owned the infrastructure through which all economic activity had to pass. Amazon owns the logistic infrastructure through which e-commerce must pass. Visa and Mastercard own the payment infrastructure through which commerce must pass. These are all modern versions of the same thing. Don't produce the thing. Control the channel through which the thing must flow. And real estate is still the most direct expression of this principle available to ordinary people. If you own a property in a location where people need to be, you are the toll collector. The tenant is paying you for the right to use the infrastructure you own. And if you leverage that property correctly, if you use debt wisely, as I described before, real estate is still one of the most reliable mechanisms for building real tangible productive wealth.
Rule number 18 is that the purpose of poverty is to make wealth meaningful. Okay? And I want to explain what I mean by this because it's a deeply counterintuitive idea. So in a society with genuine poverty, wealth means something much more powerful. And this transforms wealth from a comfort into a necessity. It creates a powerful psychological drive to accumulate wealth not just for luxury but for security. And it creates a powerful social hierarchy in which wealthy people are not just more comfortable but fundamentally safer and more powerful than poor people. And this fear drive to escape poverty is one of the most powerful engines of economic activity. It keeps people compliant.
Okay. So every era in history has its dominant financial instrument. In the medieval period, it was debt and credit instruments issued by the Italian banking families. In the 20th century, it was government securities, corporate bonds. And in the 21st century, it is digital assets, stable coins, AI, and data. And each time the dominant instrument changes, there's a period of enormous wealth creation for the people who understand the new instrument first. The people who understood joint stock companies in 1600 made enormous fortunes. The people who understood railroad bonds in 1850 made enormous fortunes. And each time the mainstream, the ordinary people, the chained arrive late. They arrive after the early fortunes have been made. And each time the same story repeats. Early adopters get rich. Late adopters get burned. The people who are positioned to be early adopters of each new financial instrument are always the same people, the game masters and their administrators because they have the information networks to identify new instruments early and they have the political connections to shape the regulatory environment to favor their positions.