Old systems fail, and new ones have to be developed to sustain growth and human life. When there is a market collapse, it is nothing but part of the evolving of trading, of the exchanging of values. The existence of big companies was the best thing when it happened, as it brought with it a lot of wealth. But it is becoming outdated – a new growth path has to be established, small enterprises needs to be prevalent, more individualised value needs to be created, to avoid people depending on a few people who lead big organisations, making financial decisions which results in market collapse. The world economy is shouting for more independence; for individuals to be independent in their creations, for more people to be entrepreneurs, to be able to establish new wealth, where other people’s financial mismanagement doesn’t affect everybody. It is shouting for independence. It starts with you, by creating your own value.
Know what recession is, so that you are not discouraged to invest when it is mentioned. It is just when there is more supply than there is demand, because of high prices, high interest rates or people being in debt. When the economy outgrows the demand, companies have to retrench as a result, which ends up with putting more pressure on the economy through unemployment. It is a product of industrialisation, big corporations and people’s dependence on employment. There is nothing to scare you, nothing to say there is lack in the world. Understanding this will inspire you to take actions, knowing that there is wealth to be made, as long as you create value for the next person.
How is money created?
This is one of the things that fascinates me the most about money. I used to wonder why we didn’t just print money, why did we have to stay in poverty when we could just print lots and lots of money for ourselves and spend as we wish? I used to be frustrated, very angry, when I heard news of the government spending billions of money on some projects which failed, and wonder why they just didn’t give every person one million rands. There is enough to give to everyone; one million each will be enough for everyone to have a fresh start, but yet they choose to spend billions on unsuccessful projects. This is all to do with the basics of money. If you get this section right, if you understand it, I can say enjoy your wealth already, I know you will make it.
Keep in mind that money is value. Remember the structure of the economic system, with the government’s Reserve Bank, other financial institutions and big corporates. Here is how it is created. Money is basically value, produce. Everything starts with the manufacturing, production, creation of products and services. This is where we first see money, value, existing in the products that are produced. As a way of exchanging that value, money is created, a representative object that measures the value of the produced goods according to what value is placed on them by people, the producer or the marketplace, willing buyers.
As explained in the past sections, people who used to store gold and keep it safe for the owners, gave out receipts that represented the amount of gold that they had stored in the storehouse. People later traded their receipts to other people in exchange for what they wanted to buy from them, just like you would buy something with paper money. This resulted in the change of ownership of gold in the storehouse without it being taken out. Just by changing the receipt and assigning it to the new owner, people who now had ownership of that gold are those who traded values with the initial owners. This is how paper money was introduced. From this, banks and financial institutions as we know them today were born. The gold storehouse is now the banks we save our money in. Indeed, as much as things seem to change, the more they stay the same. Things just evolve; we still use a storehouse, where we store our money today, banks.
There are several ways in which new money is brought into circulation, which is why there is growth. New money is made available through the printing of money by what is called the money supply. Firstly, when there is economic growth, reflected in the gross domestic product figures, which means a growth in produce and consumption, more money is needed to facilitate the trading, and money is printed. Please note that money is also taken away from circulation, through taxes or increased interest rates to manage inflation. The Reserve Bank is always trying to balance the supply with demand, to maintain a good and positive growth with the economy feeding everyone.
And yes, money is printed, and here is the reason why they can’t just hand it out: If we all possessed a million rand, we would all go shopping, and the demand would cause prices to skyrocket, because there would not be enough supply to meet the demand. This is what they call inflation. We will be requesting value that we never created, which will result in a disaster, with empty stores, and one loaf of bread costing half a million rands. Just like the Zimbabwean currency, the money will be worthless. This proves that money is nothing without value.
Another time they print money is to facilitate growth, through debt, just by printing money into circulation; making money out of thin air, by way of debt. It is when they loan banks printed money to loan out to producers, corporates or anyone who has applied for a business loan at the banks. These loans have interest rates attached to them, with faith that you will use the money wisely and productively to end up with more, so that you can pay them back, with interest. So, here, something interesting happens. Valueless money is given value by the producer, who uses it to produce goods and services, which results in economic growth. Valueless money is used to produce food, clothing, shelter, and so on; human needs we all use.
This emphasises the importance of creating value. It is the produce that gives money any value – money alone is valueless. It is only when it is used to facilitate the production of values, goods and services that it is validated, and gains some value, some worth. You can have all the money in the world, but if there is no food you will starve to death. It is what it can buy that gives value to money; the power of money is in the creation of value. As long as you create value, money will follow you around.
Overall, the money in circulation is increased through interest rates, sometimes called the money multiplier. The banks charge interest rates on lent money, and businesses loan money to create value, products and services, creatively using a small amount of money to create more value. This enables them to afford to pay their workers, pay back the banks plus interest rates, pay tax and still make profits and grow their business. The only problem arises when the producer fails to pay back the loaned money. When he is unable to use this money creatively to create value, this will cause financial crisis for the banks. Another scenario is when the banks get greedy and charge high interest rates, which the producer is unable to pay back. The money placed in circulation causes the inflation rates to go up, and this still results in financial crisis. Banks plays a big role in the economy; their conduct is what drives most of the economy.
The GDP growth is simply how much new money is being validated, by production of goods and services in the country. Figuratively speaking, every one rand in circulation must have an orange produced to go with it. When one rand is added into circulation, another orange must be produced to validate the added rand, to give it value. That’s the ideal economic condition which financial institutions struggle to achieve. They simply fail at this because of greediness. They focus more on money services and making profits and ignoring the fact that everyone needs to create real value to give value to the money in circulation. There is a lot of mismanagement of finances. The bankers get greedy; they give more emphasis to financial services and ignore the creation of value, forgetting that money alone is worthless. It needs everyone to produce consumable values, to create real value that meets human needs to validate the money in circulation.
What you should take mostly from this is the understanding that wealth exists in the creation of values. Money is increased to facilitate trading and therefore the amount of money in circulation is controlled by the productivity of the population. If less and less people are creating value, less and less money will be available in circulation or prices will have to increase. By you doing your part, creating val
ue for the next person, you are in fact creating a wealthy environment to live in. An environment with everyone creating value becomes a wealthy environment. More money gets validated, there’s GDP growth, we achieve more comfort, and the quality of life increases. It all depends on people creating value.
If enough values are created within us, and within a nation, prices will be stable or will have to drop, which means your money gets to do more. This is achieved simply because enough value is created. There is a surplus of value created. Only individually created value can achieve this. When a few people are creating value, when they provide the most value in their society, they easily hold people to ransom. They easily manipulate prices, and they easily charge higher prices for profit or lower their production to influence the prices, so that people pay higher prices. They simply bully the consumer because the consumer has no choice but to turn to them for that specific product or service.
Now, imagine if everyone was producing some value. If we had more entrepreneurs than job seekers, in no time commodities like oil would have serious competition, and they would have no choice but to lower their prices to stay in business. This is achieved by people finding a better way of doing things, a solution to price hikes, corporate domination, bullying of consumers, and so on. All this is caused by big corporates, a working class driven economy. This is hierarchy wealth, with the workers being servants to the hierarchy. It will never be fair, it will never bring any equality, and this is why I preach self-employment. Start with finding a solution to these higher prices, on any service or product. Seek a way to meet the same needs or wants for a lower price; for example, a different form of energy which is cheaper. That’s the only way wealth moves, from hierarchy wealth to common wealth. Don’t get confused; common wealth still doesn’t exist.
For common wealth, we must have more people working independently, there must be more self-employment, a more entrepreneur-driven economy than corporate driven, and less people in the working class. It starts with you. You must create value, so concentrate on that. Money is nothing without value. More money will be printed, as long as there are people who create value and want to trade. It is when everyone brings something of value to the marketplace, that exchange will take place. Where there are people there’s business, and money to be made. We also see this in jails where money is not allowed. People still trade values, using cigarettes, food, and so on. Even when money is unavailable, as long as there are values to be exchanged, people find a way to facilitate the trading.
2.CAPITALISM AND SOCIALISM
The difference between capitalism and socialism
We see people trying to distinguish between the two. There are people who say they are socialists or communists and those who are said to be capitalists. The socialist is believed to say, ‘Let’s help each other. We must work together to help the ones in need. Give them food parcels, and share what you have with everyone else, no matter how hard you’ve worked for it. They will look at you like you owe them something. Give back’, they say; don’t be greedy.
The capitalists are believed to think that everything is about money. You can starve to death; if you don’t have cash you don’t get any food. You are lazy; go and work you bum. You must earn your way here. Nothing is for free, and you pay all the way. The capitalists are greedy and want to take ownership of everything. They own the land, and the water resources. They take ownership of everything in the world that is valuable. You can fall sick and die, but a capitalist will not heal you unless you have paid your medical aid.
The problem with this is that it confuses a lot of people. People start thinking that you must have killed a few guys to have so much money. That’s where the rich are evil in the poor person’s eye and the poor are lazy in the eyes of the rich, which are both wrong conceptions. The truth is in knowing exactly what money is and how to create money. It is the lack of knowledge and confusion that causes lack and poverty.
There are no capitalists or socialists. What you must aim for is to balance the two; they work well together. Most of the big business deals are based on ideas of socialism. Business relationships prosper on socialism; you won’t do good business with someone you hate. The financial success of a business prospers on capitalism and so will you if you combine the two.
You are in fact able to read this because of capitalism. Money commands people to create the value we use every day. We must balance the two and apply them. We are both capitalists and socialists; there is just a place for socialism and a place for capitalism. You can’t tell me to give you something for free when it is what I do for a living. There are many people who give their value for free or close to nothing because of their socialist background, and then they wonder why they are broke.
The role of capitalism
With the birth of industrialisation, we are able to get our bread and milk every morning, even when we are many kilometres away from the cattle farm, living in a concrete jungle. If you look at the bread, and the many hands it passed through before it gets to you, you can see that many people get involved in the creation of value of the same thing than you will ever be able to afford. You wouldn’t be able to pay all those people if you were on your own, and if the whole value was provided to you only. It is capitalism that makes it possible to produce wheat and turn it to flour, then turn flour to bread and bring it to your doorstep.
Take into consideration the farm workers, the transportation, the processing into baking flour, the baking of bread, and the distribution to your nearest store at that price – it takes a lot of people working together to make that possible and only a huge investment of capital makes that organisation of people and value chain work. We see a lot of people blaming capitalism for everything, but you must abide by the rules of capitalism to be able to make the money you want to make and live your dreams.
It is vital to civilisation and makes it possible for humans to enjoy the luxuries they enjoy these days. We just wouldn’t be able to have the luxuries that we have today if it wasn’t for capitalism. It commands people to work and create value. In this book it commands you to go and create value, to stand a chance of living your dreams. It is very important that we change our beliefs about it if we were against it. We must apply the rules that come with capitalism to achieve financial success. Money is the tool of exchange and capitalism is born by the use of money to create and exchange values between people.
Capitalism plays a huge role in our lives these days. When there is any disturbance in the value chain, our lives become totally disrupted. The value chain is dependent on capitalism to work well, otherwise we have to vacate the cities and start planting our foods and creating our own power and all the other values we get from other people because of exchanging values. Given the world population, this would cause a lot of lack if that was even possible. It would mean making people islands, which is impossible. We live by sharing our values, which is why we need each other.
Industrialisation, civilisation and specialisation
The economy we live in today is built under these pillars – it is forced by the growing population to divide working areas and develop urban areas, to be able to share resources and be away from farming areas for better farming methods. It is the only way forward. To be able to feed and meet all this growing population’s needs, a specialised way of farming needed to be developed and applied.
Everything has a good reason to exist. Industrialisation is vital to supply the demands of the growing population. Everything has weaknesses; they usually catch up and cause evolution, which is a change in the way we do things, resulting in an improvement of a system. Bad situations happen if we ignore the outdated systems as everything gets outdated. If we hold tight to the same old system even when there are obvious signs that it is starting to fail, we crash.
There’s a need to maintain a balance between formal employment and self-employment; there’s a need for more independence, more self-employment, entrepreneurship, and people creating value independent o
f big companies. If you are still employed by a big company at least hold a powerful position; be a partner, own shares in that company, be able to move to a position that doesn’t leave you vulnerable to anybody. This is the only way you can have some control over your future. Of course the most important thing is that you are happy working there.
People need to understand this; at the core of existence is evolution. Nothing will stay the same without evolving. What works today will probably not work in the future and this is why. The big driver of evolution is population growth. Now as you must be aware, the world population is always growing, and the way of doing things today will be outdated by the new challenges that accompany population growth. This is the basis of all things; this is where all the challenges of the world stem from, which is the inability to cope with the growing population. Financial systems and the economy have to evolve and adopt new ways of doing things to cope with the growing market, growing population and growing challenges.
If you study this carefully, you will see where the world gets it wrong, and where the world economies fail the most. It is in moving with the times, knowing that old economic systems need to be changed, to adapt to the changing world. This is the only way the economy will be able to accommodate the growing population in the ever-growing and changing world. If we hang on to old educational systems and old financial systems, just because they worked in the past, we will find ourselves in financial crisis; there will be more uncertainty and world unrest.
Everything always needs to be reviewed and changed to adapt to the changes in the world. The old educational systems might have worked then, but that doesn’t mean that they will cope with the new challenges of today’s world. We need a new educational system, a new financial system, and a new government system, to meet the challenges of today. A new way I propose to you, individually, is independence, especially financial independence. This will enable you to be active in economic decisions, and you will get some power back. We all have to influence the economy and the financial decisions made on our behalf, and we can only achieve this by being economically active citizens, independent of the system, to have opinions and influence it for the better. It starts with the knowledge you’ve just learnt here. NOW, apply it to your life.
Money- Wealth Creation Guide Page 3