12 Hidden Economic Laws You Must Know

Oct 17, 2024 | Education | 0 comments

Do you ever wonder why it feels like no matter how hard you work, your money just doesn’t stretch as far as it used to? Or why the rich seem to get richer while everyone else is left trying to keep up? It’s not a coincidence. The financial system is rigged in ways most people don’t understand, and that’s exactly why you need to pay attention to these 12 economic laws. If you don’t know how the game is being played, you’re destined to lose—and it won’t be pretty.

Let’s face it: inflation, rising living costs, stagnant wages, and growing debt are all signals that something is broken. But here’s the catch—it’s not broken for everyone. The wealthy and well-connected are thriving because they understand these hidden economic principles. If you don’t learn them, you’ll be at the mercy of a system designed to benefit those who play by different rules.

Ignore these laws, and you risk becoming a victim of inflation, seeing your savings lose value year after year, and watching helplessly as the cost of living outpaces your earnings. Meanwhile, those who understand these principles are borrowing strategically, investing wisely, and growing their wealth—often at the expense of people who don’t know what’s happening.

Knowing these economic laws isn’t just about making a little extra money—it’s about protecting yourself from being squeezed by forces beyond your control. The financial system isn’t set up to look out for you, so you need to look out for yourself. If you don’t, the value of your hard-earned savings will evaporate, your purchasing power will dwindle, and the wealth gap will continue to widen with you on the wrong side of it.

These laws can empower you to take control of your financial future. If you understand how inflation really works, how money flows through the economy, and how to leverage debt and assets, you can protect yourself and even thrive in a system that’s built to benefit the few. It’s time to learn the rules so you can play—and win—the game of money. If not, you’ll find yourself constantly running uphill, working harder for less, while the wealthiest continue to pull further ahead.

By paying attention to these 12 laws, you’ll not only safeguard what you already have, but also position yourself to grow your wealth and achieve financial independence. Learn the laws, use them to your advantage, and take back control before the system leaves you behind.

1. Inflation is a Wealth Transfer from Lenders to Borrowers

Inflation isn’t just about prices rising—it’s the devaluation of money. When you borrow money, you’re spending it at today’s value. But when you pay it back, inflation has eroded the dollar’s worth, so you’re returning less valuable currency. For example, if you borrow $100,000 today to buy a house, 10 years down the line, inflation reduces the value of that $100,000. When you repay it, you’re essentially paying back with “cheaper” money while your home’s value may have appreciated. It’s a subtle transfer of wealth from the lender to the borrower.

2. The First to Get the Money Wins (Cantillon Effect)

When new money enters the economy, the first ones to spend it benefit the most because prices haven’t yet adjusted. By the time it reaches the average person, inflation has kicked in, and prices have risen. Imagine a farmer’s market where the first customers buy strawberries at $3 a basket. As more people show up with more money, the seller raises the price to $5. The early birds got the deal, but everyone else is paying inflated prices. That’s how new money works in the economy—big institutions and government get the cash first, while consumers feel the pinch later.

3. All Dollars Are Loaned into Existence

Every dollar in circulation was loaned into existence, meaning all money originates from debt. Banks loan out money they don’t actually have, creating money from nothing. This is how fractional reserve banking works. For instance, if you deposit $10,000 in a bank, the bank loans out most of it to others. But what’s crazy is that all these loans are still counted as being in everyone’s accounts at the same time. The system depends on trust that not everyone will try to withdraw their money at once.

4. Interest Rates Are the Cost of Money

Interest rates reflect how much it costs to borrow money. When interest rates are low, money is cheap and borrowing is encouraged. When they’re high, it’s expensive to borrow, and people hold onto their cash. Think about it like a loan shark—when everyone in town has cash, they’ll lend to you at 2% interest. But if cash is tight, they might demand 15%. The cost of money goes up when it’s scarce, and down when it’s plentiful. Understanding this helps you time when to borrow and when to save.

5. Leveraged Assets Are Simply Dollar Shorts

When you use leverage to buy assets, you’re effectively betting against the dollar. Take real estate as an example: you borrow money (leveraged dollars) to buy a property. Over time, inflation reduces the value of the dollar, but your property appreciates in value. You’re essentially shorting the dollar because you’re using money that’s losing value to buy something that gains value.

6. You Can Only Consume What Has Been Produced

Wealth is produced through creating goods and services; you can’t consume what hasn’t been made. If you want to build wealth, you have to produce more than you consume. Think of someone who earns $100,000 a year but spends the same amount annually. They’re just breaking even. Wealth is accumulated by producing value—whether through work, products, or investments—that exceeds your consumption.

7. Infinite Growth Happens with Finite Resources

Economic growth isn’t limited by the physical resources on Earth; it’s about efficiency—getting more from less. For example, one gallon of water used to hydrate you for one day could now last two days thanks to better water purification technologies. In a broader sense, growth happens when we innovate ways to stretch finite resources, making life better with the same or fewer inputs.

8. That Which Is Taxed Will Shrink, and That Which Is Subsidized Will Grow

Tax something, and people will do less of it. Subsidize something, and it will explode in size. Consider health care and education—both have seen costs skyrocket over the years due to heavy subsidies, which drive up demand and prices. Meanwhile, the middle class, heavily taxed, has been shrinking. This principle explains why the cost of living keeps rising for certain services while middle-class incomes stagnate.

9. Losses Are Stronger Than Gains

Losses pack more punch than gains. If your portfolio drops 50%, you need a 100% gain just to get back to where you started. Consider a stock investor who loses half their $10,000 investment. To recover that $5,000 loss, they don’t just need a 50% return—they need their remaining $5,000 to double. This is why minimizing losses is far more critical than chasing gains.

10. 90% of Gains Come from 10% of Choices

The vast majority of your financial success will come from a few key decisions. For instance, picking the right job or investing in the right stock could shape 90% of your wealth, while most other choices won’t have nearly as much impact. This principle is similar to how a small number of stocks account for most of the S&P 500’s gains. Focus on getting the big decisions right, and don’t sweat the small stuff.

11. Value Is Subjective and Ordinal

What’s valuable to one person may be worthless to another. Think about how you might happily pay $100 for a concert ticket for your favorite band, but wouldn’t even pay $10 to see another artist. The same principle applies across the economy—value is determined by individual preferences and circumstances. It’s not fixed or absolute. The first few T-shirts you buy might feel like a steal, but at some point, even a $5 shirt isn’t worth your money if you already have enough.

12. The Death Tax Is Always 100%

At the end of the day, you can’t take your wealth with you. Whether it’s taxed or passed on to your heirs, everything you’ve accumulated will go to someone else when you die. Think of the old saying, “You never see a U-Haul behind a hearse.” This principle highlights the importance of using your resources wisely while you’re alive—because once you’re gone, your wealth is redistributed, whether through the government or your descendants.

These 12 principles provide a foundation for understanding how to navigate the world of money and make smarter financial decisions. The key takeaway is to play by the rules that truly govern wealth, not the ones you hear about in the mainstream.

 


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