Why Capitalism is worth defending

From "Whiskey and Gunpowder":


As Obama demonizes the wealthy and pitches a dozen plans to restructure the economy, opponents of this program need a reminder of what exactly we’re fighting for. We are resisting bureaucracy, central planning, and encroachments on our freedom and communities. Yet this does not get to the heart of the matter. We are not only an opposition movement, countering the president and his partisans’ agenda. More fundamentally, we stand in defense of the greatest engine of material prosperity in human history, the fount of civilization, peace, and modernity: Capitalism.

It is simply a fact that capitalism, even hampered by the state, has dragged most of the world out of the pitiful poverty that characterized all of human existence for millennia. It was industrialization that saved the common worker from the constant tedium of primitive agriculture. It was the commodification of labor that doomed slavery, serfdom, and feudalism. Capitalism is the liberator of women, the benefactor of all children who enjoy time for study and play rather than endure uninterrupted toil on the farm. Capitalism is the great mediator between tribes and nations, which first put aside their weapons and hatreds in the prospect of benefiting from mutual exchange.

Read the full article here: Why Capitalism is worth defending

Congress Critter Moran caught in a contradiction

There are no contradictions in nature. If you find a contradiction, check your premises, you will usually find that one of them is incorrect - John Galt

Armstrong Economic Forecasting

Posting a link to an excellent report by the folks of Armstrong Economic Forecasting. Well worth your time.

http://armstrongeconomics.files.wordpress.com/2011/07/armstrongeconomics-gold-final-frontier-071311.pdf

Economic Armagedon and you

Re-posting a brilliant simplified video I found in you tube. Thank you to the gentleman who prepared it.

The Gold Standard and Freegold – A discussion of freedom

There has been a lot of talk lately on the web about the return to the gold standard. In order to have a rational discussion on the issue, we must first determine what is the gold standard, what are the advantages and disadvantages to it and is there a better alternative.

First, the gold standard is generally defined as a currency fractionally based in gold reserve, not to hard money gold based economy. Not gold coins in circulation, but gold backed currency. In the modern definition of the gold standard, the legal tender currency would be based in gold deposits held by the bank and fully exchangeable for gold in the bank’s vault on demand. A depositor would deposit his gold in the bank and be paid interest on this deposit. The bank, using fractional reserve banking, would loan out gold certificates against the deposited gold. A gold based currency has worked in the past to provide a limitation to the size of currency in circulation. The anti-gold backing pundits use this as its main disadvantage by stating, somewhat correctly, that there is not enough above ground gold in the world to conduct the vast amount of trade that happens in the modern world. This argument is made from a strict static view of commerce and trade.

No, there is not enough gold to back the economy of the world if you value gold at $42.20 an ounce, the laughable “official exchange” rate. Laughable even when the government exchanges gold through its mint to selected dealers at somewhat true market price of over $1500 an ounce. Nor is there enough gold if priced at ten times that price $15,000 an ounce. And if you were to add, not just the currency in circulation, but the credit and derivatives in existence, the task would become even more insurmountable.

FOA and FOFOA have quoted prices of over $50,000 an ounce in order to gain parity with the current amount of currency in circulation. I suspect that once you include the shadow banking and underground economies, the number would be several magnitudes higher. But the fallacy is using the dollar as the reference point instead of using gold as the reference point. It is an easy trap to fall into. We have been conditioned for many years to think of the value of products based on the officially sanctioned currency. We see a 3,000 sq ft home in Houston and think, $250,000 dollars. We see a nice economy car and think $15,000 dollars. So it is easy to see it as impossible to replace this with gold. Imagine if you had to buy a car and could pay ¼ ounce of gold, a small coin, or buy the house for 4-5 ounces of gold. Sounds implausible right? We are conditioned to think in dollars.

Those in favor of the gold standard argue correctly, that the gold standard by its nature, restrains the government from the massive expansion and deficit spending of the welfare state. They argue that without the ability to exponentially create currency out of thin air, it would be impossible for the government to expand beyond the surplus production of its citizens.  This, by the way, it’s the main point of opposition of the gold standard by welfare statists. They argue that the government would be unable to make the “necessary investments” in the “people” if restricted by a hard money standard.

Both arguments are correct, based on their respective goals. But they both fail in the basic premise. That currency, especially government fiat currency is money. It is not.

All fiat currencies are a mechanism to steal your wealth.

Every day, you and I accept electronically generated digits in exchange for our labor. These electronic coupons serve their limited purpose of exchanging labor for wealth. But the failure is our desire to equate currency with money. We fail to understand that fiat currencies always explode into devaluation. We do not see that, as the currency is devalued by our Federal Overlords, our labor is devalued along with the currency. This is theft. There is no other way to describe it. The Aristocracy of pull is organized into rival gangs whose purpose is to be at the top of the ponzi scheme that is plundering your labor.

They don’t mind slavery, as long as they are the ones holding the whip.

Although the gold standard might restrain the government from indirectly stealing your wealth thru inflation, even under a gold standard TPTB would find a way to keep plundering your labor. The leaches are not going to go away. Their free ride is an accepted way of life and too many of us have come to accept it.

The solution is not to attempt to make currency a simile of money. Fiat currency is an artificial construct designed to keep you in bondage. You cannot make a poison into goodness. A compromise between food and poison always kills the host.  The solution is to understand the limited purposes of currency and then act accordingly.

Divest yourself of the idea that currencies are money or even worst, wealth.

Stop participating in the Ponzi.

You must relearn the meaning of wealth and money. You must rethink your goals and your strategy to get there.

Wealth is the products, tools and knowledge that man needs to live.

Money must maintain its exchangeability with wealth at as a minimum the same rates as to when you saved it.

Investments are wealth purchased that produce residual income above the original effort or the value of the money invested.

Currency is just a method of exchanging your surplus production for another’s surplus production.

Credit is the anti-wealth. Credit borrows from your future production in order to provide wealth today.

The validity of any of those forms is dependent upon two factors, your purpose and timeline.

 If your purpose is just to get by until next paycheck, currency can serve that very limited purpose. Understand that currency is subject to theft by TPTB by design. Your currency will rapidly devalue and be subject to taxation not only at production, but anytime you exchange it thru different forms. Taxed when you first produce it (income tax); taxed when you purchase wealth or money (sales tax); and taxed again if you convert money or wealth back into currency (capital gains tax).

 If your intention is to save your surplus production for your near term use, as in the next 1-15 years, keeping your surplus production in wealth makes sense. Think about it. If you are saving your surplus production in order to exchange it for your most basic needs, then saving it in the form of the actual needs, before it loses purchasing power, is the smartest strategy. Shelter, energy, food, water and clothing are your most basic needs. Why would you store your surplus production in a medium that loses purchasing power in order to purchase those needs in a year or five when you could purchase them now and limit your loses? Purchasing and storing food, as an example, can provide future food. You will need to eat in the future. You are using some of your production for food. Why not buy extra food and store it? This method has the advantage of protecting your surplus production against TPTB. You cannot be taxed on the can of beans in your pantry. As long as it has not expired, it retains its value to you as food. Same is true of clothing, furniture, spare light bulbs, anything you know that you will spend currency in sometime in the future.

If your intention is to store your surplus wealth for over 20 years, to include passing it to the next generation, money is the most efficient method of storage. Money can provide similar protection than stored wealth with some distinct differences. Money is portable. You can take an ounce of gold with you a lot easier than 1500 notes worth of rice and beans. It provides flexibility. It is easier to trade an ounce of silver for five gallons of gasoline than you could trade a 50 pound bag of rice for the same 5 gallons of gasoline. It is also less subject to natural disasters and easier to store. Its timeline extends across several generations. Disadvantages? Money could be subject to confiscation. Money is subject to market disruptions. If there is no gasoline to be had, money will not get you any.        

Can gold and silver be money?

Let us look back at the 1964 example. I’ll quote myself from an earlier post here:

“If your father would have saved 10,000 dollars in silver coin (real money) in 1964, he could have given you $360,000 in Federal Reserve Notes today. And that is at zero risk. He could have stored it in a box in the attic and still increased his ability to exchange money for wealth.”

Yes, gold and silver do meet the long term preservation of surplus production requirements. Gold and Silver can be used to build intergenerational wealth. You can store gold for 40 years and hand it over to your children for them to store and pass along to their children. Gold can be used to provide capital investments in wealth production tools or instruments. As an example, gold can be accumulated for 20 years in order to buy that bar in Key West you have been dreaming of. Or to provide your grandchild with the education he could use to produce a critical commodity for his future wealth.

And here is where Freegold enters the picture. Freegold is gold unbound to currency. Gold used as money but without a direct relationship to the financial markets. Gold used as pure money. Imagine that you can save ten ounces of gold today. Now imagine that in the future, gold is not valued in currency and not subject to transference into currency before it can be used for the purchase of wealth. You could buy a used car for an ounce of gold and your seller could purchase a year worth of grain for his family with that same ounce. Gold as a universal method of exchange completely separated from government dictates, influence or theft. Gold can provide free men voluntarily trading with freemen a true measure of value.

That is why I am opposed to the gold standard and prefer Freegold instead. The gold standard would only serve as a means to reviving or extending the life of a currency that is controlled by the government and designed with theft in mind.

Currency, even if propped up by gold, serves the money changers; Freegold serves the producers of wealth.

The Alchemists of Money part deux

What is alchemy? Alchemy was a proto-science that focused on turning base metals into precious metals, especially gold (chrysopoeia) and silver (spagyric) by use of a mythical “Philosopher’s Stone”.  Many years were spent in research and experimentation by the early scientists and mystics in their search of the magic stone.

Why would sovereigns across the globe spend treasure in search of the stone?

Power.

Remember from an earlier post that the sovereign maintained power by maintaining the population of serfs dependent on their king. If the king was unable to feed, clothe and house their population, the serfs would lose faith in their king and revolt. Growing populations placed growing burdens to feed and maintain the population. Technological efficiencies were far and few in between. Only those who were sponsored by the king stood to profit of their inventions and there was no natural mechanism or opportunity for innovation and thought to flourish.

The only way for a sovereign to expand his resources was either by conquest or trade. Conquest brought along a new set of challenges. The more territory that was conquered, the more mouths to feed. Trade required that a kingdom had something of value to trade. In effect, in order to gain wealth a kingdom must have surplus wealth. There lies the dilemma. Sovereigns could not give up control of the means of production without losing control and they could not increase production from serfs that had nothing to gain and no means to become more efficient in production of wealth.

The easiest solution was to find a way to convert a worthless and abundant material, such as lead, into a valuable commodity, such as gold. Chance provided the answer.

A bit of History

During the late middle ages, Italian trade of textiles and other consumer goods flourished. Since the goods were sold on credit, merchant ships did not pay directly for the goods. A ship’s captain did not buy the goods, he only transported them. The credit was extended to the merchant’s agent on the receiving port. Because of this credit, bills of exchange became prevalent. A bill of exchange was basically a receipt. The Italian manufacturer selling his wares to a British merchant would load his goods in a London bound ship and receive a bill of exchange for the value of his goods. The bill of exchange was a note from the ship’s captain to the manufacturer guaranteeing the delivery of his goods to London. Once in London, the ship’s captain would receive gold in exchange for the Italian goods and return to Italy were he would exchange the gold for the bill of exchange, extinguishing the debt. This is a very simplified explanation of the process that could involve dozen of exchanges along the trade route and many different bills and ships. But the basic process succeeded in replacing money for a symbol of money, currency, if only for a specific period of time.

Later goldsmiths began issuing vault receipts in exchange for gold. You would store your gold in their vault for safe keeping (for a fee) and receive a receipt for your gold. If you needed to go to the market, you would go to the goldsmith, present your receipt and withdraw your gold. Soon after, people found it more convenient to trade the goldsmith receipts in the market instead of withdrawing the gold. This practice cemented in people’s minds the idea that the paper receipt was as good as the gold in the vault.  So far, no problem. But then the goldsmiths started to notice a trend. Most people would not withdraw their gold and just trade the receipts. If people did not claim their gold, there was no reason why the banker, I mean goldsmith, couldn’t just issue more receipts than the amount of gold he had in the bank, ahem, vault. This was the birth of Fractional Reserve Banking. This was their way to turn a common almost free product, a banknote, into gold. Here was their Philosopher's Stone.

Let the theft begin!

Bankers began loaning receipts for gold to businesses and merchants for all kinds of things. The customers would pay a small fee for the loan (interest) and the banker would make money on the transaction. As long as not everyone claimed their gold, no one would know that the receipts held no value. And if the customers became wise to the game or the banker made bad loans that went unpaid? The banker would shut his doors and run. That was the birth of the bank run.

These practices continued, with small changes, for hundreds of years. Bankers would create receipts for gold they did not possess, collect interest on loans of money that did not exist and run away once the customers began claiming their gold.  Banker’s power grew exponentially. Since they held the gold, they made the rules. Need to buy some sailing ships to go to the new world? Talk to the banker. Need money to finance a war against your neighboring country? Talk to the banker.

By the time that the American colonies broke away from the crown, the founding fathers were well aware of the game and fought to control it or kill it entirely. The US constitution reserves the power to coin money and establish the value thereof exclusively in Congress, not at the banks. It also forbade the States from making anything but silver and gold as money. You would think that this would have ended the scam, right? No Siree, too much money to be made. Local banks continued the practice of issuing notes (receipts) on gold and silver they claimed was in their vault. This practice caused the inevitable panics (bank runs). Many a banker was hung from the nearest tree for defrauding their customers. By the 1860’s banks held control of a vast majority of the gold and silver available in the US. Yes, their customers held receipts for all that money, but the merchants depended on the banks for credit.

President Lincoln, in the months leading to the Civil War, attempted to borrow money from the banks to finance the war. The banks refused. After all, if the US was divided into smaller States, it would make it easier for France and England to reclaim the continent. And guess where the biggest banks were based? London. President Lincoln decided to take a page from early colonial days and began issuing his own fiat currency, the greenback. He financed the war with this currency and by the end of the war the greenback was in broad circulation. Bankers did not like the competition. They bribed congress critters into recalling the greenbacks from circulation limiting the currency circulation to banker issued currency. Happy days are here again (for the bankers)!

Legalized Theft

But bankers continued to have a problem. If enough customers redeemed the banknotes for gold or silver, it would break the bank and lead to a bankruptcy (see how all these term have an actual meaning?). In order to solve the problem the banks worked to establish a central banking authority. With a Reserve Bank, bankers could place a percentage of their gold and silver into a vault and, in case of a run on the bank, borrow enough gold and silver to stay solvent. The problem was that after Andrew Jackson killed the Second Bank of the U.S. the idea of a central bank was not too popular. The bankers began a propaganda campaign that rivaled Tokyo Rose. They purchased reporters and newspapers to create fear in the general population. They financially backed (or outright bribed) congress critters that would toe the line. The most powerful bankers met at a private resort off the coast of Georgia, called Jekyll Island, to once and for all protect their power. Finally, in 1912, their chosen Presidential candidate, Woodrow Wilson, won the Presidency of the US and in 1913 pushed the Federal Reserve Act thru congress giving bankers a monopoly charter to all money in the US.

From Freedom to Slavery

Two problems remained. One, since the Federal Reserve Notes were still tied to money (silver and gold), there was a limit of how many notes could be issued. Second, since the notes are not actually money, how would the banks make money?

Let me go a bit deeper into the second one. If I print a note and loan it to you at interest, where is the interest coming from? Put another way, if I print a million notes and loan them to the government at interest, let’s say 10%, where is that 10% coming from? After all, I loaned you a million dollars in notes (monopoly money) and I expect you to pay me with real money. Where is the government going to get the additional one hundred thousand to pay me back?

Easy, by stealing a portion of the production of its citizens. In 1913, the same year that the Federal Reserve Act gave a group of private banks a monopoly on the creation of currency, the US congress passed the sixteenth amendment and the Income tax. This was the source of revenue for the bankers.  

The surplus production, the wealth, of every citizen of the Republic was now to be transfered to the bankers.

Let’s pause for a second. The banks created banknotes (monopoly money) based on some gold and silver (real money) holdings in the bank. They loaned this currency to the Federal Government and received interest on the loan based on a percentage of the surplus production of every citizen. We had effectively and legally become indentured servants to the banks.  

Slavery died: 1864 – reborn as a zombie: 1913

 But wait, it gets better. In 1932 President Roosevelt found himself in dire need of money. He had decided, incorrectly, that the only solution to the depression that had begun in 1929 was complete management of the economy and a generous public works program. All this requires money. But Federal Reserve notes were backed by gold and there was not enough gold available in the banks to massively expand the available currency. President Roosevelt did what any other dictator would do. He nationalized all gold, made it illegal to be owned by US citizens and turned the gold over to the Federal Reserve at a fixed rate of $20 notes per ounce. Then, after confiscating the gold, he devalued the notes to $35 an ounce effectively doubling the US supply of currency.

At this point the bank receipts for your money became backed, not by the expectation that you could get your money back, but by a promise that you could not. Paper was now more valuable than gold.

Gold, a valuable commodity used as money, that retained its purchasing power thru generations, was replaced by paper currency backed by nothing and immediately devalued. In one stroke, your stored surplus production was converted into worthless inflating currency. You could no longer depend on the stability of money in order to store your surplus production for the future. Now your surplus production was stolen twice; once by taxation in order to pay interest to the bankers, and second by the purposeful devaluation of the currency.

Let’s return to the wampum. Your 20 hours worth of surplus production, the ones you traded for wampum, were now traded by edict for 20 wampum receipts and could only purchase half a bushel of wheat!

You could no longer save your surplus production with the assurance that it could be turned into wealth at a later date.  You could no longer depend on that surplus labor to purchase the same amount of wealth it did when you first saved it. As an effect, your wealth was destroyed by the government and the bankers.

Enter inflation, stage left

As the funding needs of the Federal Government increases, the printing of notes also increases. This is exponential in nature. The more the Federal Government borrows from the bankers, the more interest they owe the bankers and the less each note is worth.

Now you know why the harder you work, the less you can buy. Why, even with generational increases in production efficiency, the price of wealth when compared with your production; increases more and more. It takes you more hours of production today to have the same wealth your parents enjoyed.

This is not an idle claim. Let’s look at just one critical product, gasoline. In 1964, the last year where 90% silver quarters were issued, a gallon of gasoline cost an average of .27 cents a gallon or about ¼ ounce of silver. Today a gallon of gasoline is about $3.60 a gallon, a 13 times increase in price. You would think that with technological advances in the last 47 years, it would actually be cheaper. It actually is cheaper, when measured in silver. One quarter of an ounce of silver today is worth $8.93. So the same quarter of an ounce of silver can buy you 2 ½ gallons of gas! Efficiency has made gasoline 2 ½ times cheaper than it was in 1964.

Wait. What?

Yes my friend, the laws of efficiency are alive and well. Gasoline is 2 ½ times cheaper today, in money, than it was in 1964. The laws of inflation are also alive and well. Gasoline is 13 times more expensive, in currency, than in 1964.

If your father would have saved $1,000 dollars in silver coin (real money) in 1964, he could have given you $36,000 in Federal Reserve Notes today. And that is at zero risk. He could have stored it in a box in the attic and still increased his ability to exchange money for wealth.

Remember what I said in our last conversation about the difference between money and currency. Money holds its value at a generational level. Currency looses value at a daily basis.

Let’s look at it a different way. Let’s say that your dad had a car that gave him 15mpg in 1964 and worked at a minimum wage job at 1.25 an hour. He would have had to work 216 hours to buy enough gas at .27 cents a gallon, to travel 15,000 miles. Today at $7.25 an hour, you would have to work 496 hours to pay for the gas, at $3.60 a gallon, to travel the same 15,000 miles on the same 15mpg car. You have to work more than twice as long, even after increases in productivity, to purchase the same wealth!

Feel free to take that to your next family reunion. You are welcome.

The Alchemists of Money

Before we begin our journey, I need to establish some definitions. Without a clear understanding of what things are, it becomes impossible to examine them.

I want to clear some misconceptions and misinterpretations of the actual nature of money. There are several terms that are generally used interchangeably and incorrectly so. This, my dear reader, is by design and demonstrably so.

The first concept I want to define is currency. Currency is not money or wealth. Currency can be used to purchase money or wealth but it is not either by itself. 

What is currency? Currency is any agreed upon medium of exchange.

Casino chips, Chuckee Cheese bucks and airline reward points are all currencies. The value of a currency is your ability to trade the currency for actual money or wealth. You can voluntarily accept this medium of exchange either by the apparent benefits of accepting the currency or by your desire to participate in an activity that requires the use of such currency to participate. Monopoly “money” is a good example of a currency. Although it has no value outside of the game of monopoly, while playing, you behave as if it had value because it has value for the limited duration of that activity.

The first disadvantage of currency is that it is generally based on faith; on your faith that you can exchange the currency, at a later point, for money or wealth. The problem is that the value of the currency is subject to the desires of the issuing authority and the agreement by the trading party of the value of it. You could choose a particular airline because you believe that you will accumulate enough miles to trade the bonus points (currency) for free flights (a tangible benefit). Of course, the airline has the ability to change the terms of the program, therefore the value of the reward points (currency) as it wishes and reducing the expected benefit that you based your original decision on.

I have no philosophical disagreement with currencies. As long as they are used by two parties in a free agreement to the value and usage, they can provide benefit to all parties involved. Casino chips provide the casino with a captive audience that fails to psychologically connect monetary losses in chips with losses in wealth. Casino patrons gain the advantage of the entertainment gained by participating in the casino.

My opposition to currencies begins when the currency becomes a fiat standard. Fiat, a Latin word meaning “let it be so”, is a government imposed medium of exchange. Governments decree that a particular medium of exchange will be used for all transactions as “legal tender” and removes the voluntary element from the transaction. Let’s forget for a moment that government’s involvement in voluntary commercial transactions between free people is an abomination. The fact that a government can decree the method of exchange and the value of such method is ripe with the opportunity for theft. More on that later.

Money, the second concept we need to discuss, can be used as currency and it is by itself a tangible good. As an example, in early colonial days, tobacco was used as money. Tobacco, a valuable export crop could be used as a method of exchange and then traded for gold or other goods. Since tobacco has an inherent value in and of itself, it is money fulfilling the role of currency.

In general money must have inherent, widely accepted value, it must be easy to recognize and divisible into smaller units and it must retain its value for a reasonable period of time. Beads, gold, silver, spices, tobacco and other consumer goods have been historically used as money. Please understand that for a commodity to be money, even if used as currency, it must meet its general value, divisibility and longevity requirements. It must also, ideally, be rare and require work in order to exist.

Sea shells picked up on the beach could be used as currency but are not money. The ease of collecting them and its wide availability make them inherently worthless. Diamonds, although somewhat rare and requiring work, are not easily divisible or recognizable (cubic zirconia anyone?)

Certain commodities fill the role of money better than others. Thru history, men have chosen gold and silver as ideal forms of money. Gold and silver are relatively rare, limited in availability (cannot be manufactured), divisible, durable and inherently valuable. For centuries, men have known the medicinal properties of silver. Gold, although we have only recently discovered many of its advantages in electrical and thermal conductivity, it’s extremely durable and malleable.

The next term that demands clarification is wealth. What is wealth? Wealth is not money or currency. Money and currencies are vouchers for future wealth.  Wealth is, in essence, the tools and supplies needed to support your quality of life. A plot of farm land is wealth, when owned by a farmer. A steel lathe is wealth, when owned by a machinist in the production of goods. A loaf of bread or a bushel of wheat is wealth. Any item that can keep man alive, healthy or assist in that man’s production is wealth. The can of beans in your pantry is wealth. The Federal Reserve Note in your pocket stamped “one dollar” is not. You use currency or money to purchase wealth. The car you fully own in your driveway is wealth. The $20k balance in your 401K is not.

At its essence, wealth is the product of your efforts.

Wealth is produced by you or traded for freely with those that produce other goods in exchange for yours. If you are a machinist, you trade the products of your labor (a new engine part) for the products of someone else’s labor (the wheat produced by the farmer who needed the new engine part). Since you still need to eat and the farmer does not always needs a new engine part, currency serves a valuable means to measure the value of your production to others and as a means to trade for the production of others.

Money, in the other hand, serves as a storage mechanism for future wealth. You store your surplus production as money in order to exchange it for someone else’s future production. That is why it is critical that the value of money be stable thru generations and free from outside interference. Let’s say that you spend 20 hours of labor in order to earn, by your production, 20 units of wampum.  You save these 20 units of wampum with the expectation that in a future date, the 20 units of wampum will purchase the same amount of wealth that it could have purchased when you earned them. If your wampum would buy you a bushel of wheat today, you know that 20 hours of your labor are worth one bushel of wheat. You should reasonably expect that one year from now, if you have an accident or disease, that you can still trade the stored surplus production, the 20 wampum, for a bushel of wheat. You should also reasonably expect that, at the end of your life, you are free to pass along you wealth (land, factories, cars) or your money, the accumulated wampum, to your progeny in order to build multi generational wealth. Your surplus production today can be added to the surplus production of your children to benefit your grand children. Their surplus production, when added to yours, can amount to a fortune of wealth in the benefit of their grandchildren.

When you take into account improvement in efficiencies of production created by the minds of men, the storage of your surplus production should actually be exponential. The farmer that could only plow 10 acres of farmland with a plow and an ox is exponentially more efficient than the savage that plowed 1 acre with a stick or a hand plow. The farmer that can plow 100 acres, in the same amount of time, with a tractor, is 10 times more efficient than the farmer with the ox and 100 times more efficient than the savage with the stick. It stands to reason, that as the technological efficiencies created by the minds of men increase production, generational wealth would also grow exponentially. Yet it doesn’t.

Credit or debt is a lien on your future production. A farmer that borrows in order to purchase seed or buy a tool to increase his production; does so on the expectation that he can pay back the debt with a portion of his surplus production. If the farmer is wise, his debt can be easily eliminated with the increased efficiencies gained by the wealth purchased on credit and his new efficiency will, within reason, improve all future production well beyond the extinguishing of the debt.

Debt is not wealth.

 Debt borrows future wealth in order to provide it today. If the debt results in increased production above and beyond the cost of the debt, it is a useful tool. A man borrowing money from investors to purchase a factory that can reasonably be expected to produce many times more money than it cost, is engaging in productive borrowing and using an available tool efficiently. A bum borrowing money to buy a bottle of whiskey is not. Using your credit card to buy a new computer that can improve your efficiency as a writer or accountant is using debt wisely. Purchasing a new laptop on credit to surf for porn is not. A student loan taken in order to learn a critical skill that you can reasonably use to earn, by means of your production, many times more wealth than the cost of the education and the difference between having the skill or not having the skill can be a wise investment in your future. An $80,000 dollar student loan to get a degree in women studies in order to gain the “college experience” and ending up working in Wal-Mart is not. President Jefferson borrowing money to purchase the Louisiana territory from the French in order to gain a large amount of arable land for the nation is smart borrowing. The Federal Government borrowing 100 million dollars from the Chinese government in order to give it as a gift to the” Palestinian” authority is not.

The last concept I want to discus today is investment. This widely misused word has a specific meaning.

An investment is wealth acquired today for the purpose of increasing future production or wealth.

The home you purchased on credit to live in is not an investment. The home itself is wealth and the mortgage is a liability (debt). A commercial property purchased as a rental unit that can reasonably produce long term residual income is an investment. Purchasing new clothing in for a job interview is an investment. Spinner rims and a killer radio system for your Gremlin is not.

It is critical that you understand these concepts before we venture down the rabbit hole. The Alchemists of Money have worked very hard in confusing the real meaning of these terms to their advantage and are using your confusion to rob you blind.

... to be continued