1. What Money Is
    • This blog post isn’t “Why you should be rich”
    • When most people think about money, they think about buying power
    • Money is used to purchase goods and services
  2. What Capital Is
    • Unlike money, capital is allocated, not spent
    • Capital is accumulated
    • Capital is used to make more capital
  3. Capital As Power
    • Capital is power over the future
    • Capital allows you to participate in the debate over the future of humanity
    • This gets to the ideals of democracy, it’s pay to play in terms of time, intelligence, and focus
    • Capitalism spreads power among the rich and the politicians, this is why capitalism wins over communism, distribution of power
    • Distribution of power is democracy, so a wide distribution of capital is synonymous with democracy (don’t confuse this with equality of outcome, equity isn’t evenly distributed)
    • One of the issues with democracy is you have even say in all issues
    • With capital you can focus all your power in a particular field, far more efficient - and you decide to enter the game
  4. Conclusion
    • This blog came from the sauna and thinking about kids and my impact on the future
    • Buying power (money) is shared with my wife, capital is mine
    • How you accumulate capital is left as an exercise to the reader, this is just the why and what to do once you have capital
    • Capital vs. Time & Genius as a method of increasing the prosperity of humanity can be debated (Blue Origin vs. SpaceX)
    • If you just listen to economists for dozens of hours, you’ll learn economics through osmosis

What Money Is

This blog post is not “Why You Should Be Rich.” When most people think about being rich the first thing that comes to mind is buying power. “I want to win the lottery so I can live on a yacht with a Lamborgini and an expensive watch.” This is fundamentally spending your money to purchase goods and services - you do not get this spent money back. This spending is used to increase your quality of life or for other mainly hedonistic reasons.

Many self-made millionaire types (Real estate brokers / builders, sweaty startup founders, etc.) often call this hedonistic spending “burning capital.” The transactions described above are not net positives for your bank balance. You spend money to recieve goods that depreciate or for services that are consumed. For the purposes of this blog post, I will use this colloquial definition of money.

Fundamentally, prices are a mechanism for the allocation of scarce resources. You spend money to purchase these scarce goods/services. This basic economic principle is why spending money is a net negative for your bank balance.

For this next section it’s useful to temporarily remove the word money from your vocabulary. We need to solve the problem of allocating scarce resources. You require food, shelter, a mate, etc. to live and all these resources are scarce. This poses the problem of how best to allocate these resources to individuals. Under almost all economic systems you earn the right to scarce resources through providing value - even under Communism this basic meritocratic principle exists. You provide value through your work and are paid in currency that can be exchanged for resources. For example, in feudal times you could work to produce wheat which is exchanged for other goods and services or given to your lord for the right to produce more wheat. Our modern economic system uses money as a measurement of both produced and consumed value. For this reason, in edge cases it is possible to gain the right to scarce resources (eg. winning the lottery) without providing value (working).

What Capital Is

Money is an input into production processes. Just like all the other inputs - people, materials, land, etc. - it is consumed. However, the most important difference between money and other resources is that money is both an input and an output of all production processes. Unlike wood or steel, money doesn’t contitute any physical object because money is a measurement of value. You cannot recoup the exact wood and steel that were used to build a factory, but you can recoup the exact money that was used to purchase those materials because every dollar is the same as every other dollar - dollars are measurements, not anything physical.

Because money is fundamentally both an input and output, you don’t need to consider it in the same way we consider other inputs. The most important element of capital is that it can gain value over time. Unlike money - which is spent and never returns to your bank account (mostly) - allocated capital can turn into more capital. An investor can put capital into a project and receive more capital in return - they recieve the same exact resource they put in. This is not also true of lumber because lumber is consumed and not used as a currency. Fundamentally, money is spent on goods and services while capital is used to make more capital. Unlike money, capital is allocated, not spent. Put more simply, capital is money that turns into more money over time.

Capital is fundamentally productive because each production step adds value. If this isn’t true, there is a negative return on invested capital. For any production done in a competitive free market, the value of the output must be greater than the value of the inputs. This is an axiom that applies to all production. If this axiom isn’t satisfied, the market quickly corrects itself and either the producer adapts or goes bankrupt.

It should be clear why capital is more useful than money from the perspective of individuals (using the colloquial definitions as described above). Capital makes more of itself and can be converted into money at any time by making purchases. This is fundamentally why investing works. Instead of spending your entire paycheque, you can invest in the S&P 500 and bet on the absolute productivity of those 500 companies increasing. Later, you can withdraw your capital and spend it on more goods and services than you could have purchased otherwise.

Capital Is Power

Allocate Capital to Issues You Care About

“A market economy allows accurate knowledge to be effective in influencing decision making even if 99% of the population does not have that knowledge. In politics however, the 99% who do not understand can create immediate political success for elected officials and for policies that will turn out in the end to be harmful to society as a whole.”
Thomas Sowell, Basic Economics, Chapter 15

Under our current democracy, every voter has roughly even say in all issues. This is inefficient because not every voter has sufficient knowledge in every field to make an effective decision. Representitive democracy tries to solve this by having the voter elect a representitive to make decisions on their behalf. The reason this fails is that if you know less than someone in a particular field, you are not the best judge of their skill in that field. You cannot grade a math test if you know less than the students taking the test.

Instead of evenly allocating decision making on all issues among all voters we can allocate decision making with those who have capital allocated in a particular field. This solves the problem of having a lack of focus in a democracy where you have a say in all issues. There are likely only a small subset of issues that actually affect you and that you care about. The vast majority of decisions to be made in your country are likely uninteresting and irrelevant to you. If instead you could allocate your votes to the particular issues you care about, you could have far more of an impact.

This system of allocating your vote to a particular issues exists today. If you want to steer a corporation in a particular direction, you can buy stock and vote as a shareholder. Anyone can acquire enough shares of any company to have more of a say in the management of that company than they do in the management of their country. For example, there are 161 million voters in the US. To acquire one 161 millionth of Tesla, you would need to spend ~$5,000. It’s important to notes that your interests may more closely align to a company of a smaller market cap, making your capital more powerful in that company.

Battling in the Free Market Of Ideas Leads to Better Results

“The best way to predict the future is to create it”
Peter Drucker / Alan Kay

This system of allocating decision making with capital invested in a particular field is even more powerful if you work in that field. Those who have the most power to steer a particular field in a certain direction are those who work in it. If you have your life savings invested in your field, you are likely to have a tremendous knowledge over the field and a great incentive to steer it in the direction you believe is right.

The participants in this kind of democracy are the most invested and most knowledgeable. They battle in the market to see which ideas are the best. Because this is an idea that gets to economic markets, economic principles decide who wins. By extension, the agents in a field that produce the most value are the ones that win. This is an extremely important point to understand because the winners in this battle of capital and ideas are those who will benefit the market - and by exention humanity - the most.

Capital is Meritocratic Allocation of Power Over The Future

“You may not be interested in politics, but politics is interested in you.”

Capital allows you to participate in the debate over the future of humanity. What’s more important than this is that you aren’t being allowed to participate by some other power. You aren’t at the behest of the government, which has a monopoly on violence and can forcibly take away your vote if suboptimal events transpire. Your capital is power, and you are the one who decides to enter the game.

This system of allocating power is fundamentally meritocratic. To accumulate a large amount of capital you must first invest a large amount of time, intelligence, and focus into your particular field. These are table stakes to enter the debate over the future of humanity. This is unlike a political class where if you only get in the door if you kiss enough ass and back stab a critical mass of individuals. Your success in a free market is dependent on you, and by extension, your influence on the future of humanity is completely dependent on you. Under extremely political systems, power is allocated to those who have the right connections and not those who have demonstrated their ability to do the job. Stalin did not come to lead the Soviet Union through proving his skills in managing a nation.

Distributing Power Is a Moral Good

Under capitalism, power is concentrated under the rich and under the political class. Under communism, there is only the political class. Concentrating power in the hands of a small number of people is how we get evil and suffering. For this reason, distributing power is extremely important to have a bright future for humanity.

  • Think more, then expand this seciton, write the bullet points

Concluding Thoughts

Get The Fucking Money

Chamath Palihapitiya did a great talk at Stanford in 2018, before the All-in Pod. This was the first place I was exposed to these ideas about gaining capital to be able to steer humanity into the path you see as the best possible future. The most memorable quote of his from this talk is, “Get the fucking money.”

This is all on you. No one is going to implement your vision of the future for you. There’s this idea from democracy that you can influence the future just by being given a vote. That is not true. There are vast currents in politics that you have very little control over by design - a tiny drop in a tsunami. You can either work hard to gain political power and become a member of this system that concentrates power, or work hard to accumulate power and compete in the free market of ideas.