The Financial Philosopher

It Takes Money to Make Money

"Where some people are very wealthy and others have nothing, the result will be either extreme democracy or absolute oligarchy, or despotism will come from either of those excesses." ~ Aristotle

If you don't have money, it's because you don't have money. A philosopher might call this circular reasoning; but it's scientific fact in the financial world, especially in the past five years. 

According to the Federal Reserve, household wealth in the US is at a new record high of $80 trillion, most of which consists of stocks and home equity. Therefore the wealth that evaporated during and immediately following the Great Recession of 2007 to 2009 has been restored, at least in total.

In different words, those fortunates who still had equity of some kind five years ago (and haven't tapped into it since then) have a much higher net worth now than they did prior to 2009. In fact, equity levels in stocks and real estate have grown so much that even the vast number of people not participating in the economic recovery are no longer impacting the national totals negatively. The few pluses are so high that they outweigh the many negatives.

But who is participating in this record wealth?

One could label this financial phenomenon as an example of the "rich getting richer." This is not a moralistic statement but a simple observation of fact. Sure, there are certainly some examples of new wealth being created, but the record high for US household wealth, in total, is primarily a result of extreme growth for a minority and small to negative growth for the majority.

For example, as I write this, the bull market for stocks has turned 5 years old. If you had invested $100,000 in an S&P 500 Index Fund on March 9, 2009, your investment would now be worth over $340,000, assuming 5 years compounding interest at an annualized rate of 25% per year. This is outstanding and nearly unprecedented growth for stocks. But how many people had extra cash sitting around, or the capacity to pump money into their 401(k) plans, 5 years ago?

"The life of money-making is one undertaken under compulsion since wealth is not the good we are seeking and is merely useful for the sake of something else." ~ Aristotle, Nichomachean Ethics.

So it takes money to make money. This, of course, does not include the acquisition of money by means of earning it through a trade: making money is not the same as earning it.

A pure capitalist would disagree with Aristotle, when he says that money should not be used for the purpose of making more money. He would say that the best use of money is for the purpose of the exchange of goods and services but that the use of money for the sole purpose of making more money (i.e. investing and lending) is unnatural and can lead to the degradation of an individual’s character by making them desirous to continue accumulating money, furthermore causing the passions to blindly dominate their reason.

Similarly, the lack of money, especially in a capitalist society, can lead one to falsely beleive they are "behind" or that they are "less than" because they have not participated directly in the economic expansion of a nation. But where is the lesson here? Is there something wrong with making more money with the money you already have, while others are not?

My philosophical observation for this post is that money is not the root of all evil but rather the easiest way to lose oneself. Aristotle may not have been making a prediction about the potential negative outcome of using money for the sole purpose of making more money but he was correct: Financial wealth is not really "the good we are seeking" but it is rather a tool or a means to an end; and that end is to be free enough to be ourselves. But ironically it is difficult to "be yourself" when your first concern is with your money (or lack thereof).

More importantly, neither money nor life are zero sum games. If a billionaire is happy, it doesn't mean that a person with a negative net worth cannot be happy.

All that anyone needs is enough...

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Related: The American Awakening

The Decline of America Part I: What Consumes the Consumers?

"Paradoxically, what keeps the so-called consumer society going is the fact that trying to find yourself through things doesn’t work:  The ego satisfaction is short-lived and so you keep looking for more, keep buying, keep consuming." ~ Eckhart Tolle

There was a time in history when humans only consumed what they needed to survive and reproduce. However, humans have "evolved" to mindlessly consume much more than is needed. In nature, at least as it is explained by humans (science), living things can be either a producer (makes its own food), consumer (gets food from other living things), or a decomposer (breaks down other living things to get nutrients). Human beings are consumers.

But what consumes the consumers? Assuming humans are at the top of the "food chain," the only thing that can consume us is ourselves. And this occurs as a direct result of unconsciousness--the lack of awareness (ignorance). This consumption is not just a physical one; it is also mental, emotional and spiritual.

This post will serve as the first in a series of three or four posts that philosophically observes the decline of Western Civilization, especially in America.  Here are some initial points to provoke and prepare your and my thoughts:

• Humans consume information but information consumes attention. The wealth of information that exists today equals a poverty of attention. The mind is the gateway to authenticity, productivity, spirituality and thus the mind is the enabler of the overall well-being of individuals. But without attention, the mind is not awake. Therefore the decline of attention translates into an increase in entropy--an increase in useless energy--and thus the figuritive light of the individuals that make up the society fades... and thus the society fades...
• The term consumer is not just a scientific one. It is most commonly known today as an economic one that refers to the end users of products and services in economic and social systems. These consumers and their collective economic activity make up the vast majority of the economy, as measured by Gross Domestic Product (GDP). Therefore the vast majority of economic energy is spent keeping the consumers well-fed with food, money, and media messages to continue their growth and thus the growth of the economy. However, this effort translates into the interior deterioration of the economy itself over time, much like the body, mind and spirit of the consumers (individuals in society) deteriorates..
• The increase in the capacity to connect people together has paradoxically divided the world into tiny cultural segments. Connectivity is diminishing into segmentation.
• The increase in the availability and accessibility of luxury and convenience makes bodies and minds lazy. Therefore we grow physically overweight, mentally weak and spiritually dim.
• When people grow accustomed to illusion, they require greater illusions to be satisfied. Therefore only a "better illusionist" will succeed in this environment. This partially explains why politicians have evolved to be more magician and less leader in recent decades.
• The need to be satisfied cannot be fulfilled if the appetite for satisfaction can grow without limit. Consumption increases the appetite and thus there is no means of "satisfaction" in absence of consciousness.

These are just some of the themes that will be addressed in this series of posts that I currently foresee as my next book project (the current one is near completion, which provides excuse for my light posting lately).

I hope you'll join the conversation as we work to awaken ourselves, our friends, our families, our nations and the world. This may sound a bit grandiose in nature but such is the nature of a "crisis in consciousness," as Jiddu Krishnamurti so aptly labeled the modern sickness of society.

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Related: The American Awakening

A Reflection: Shedding Light on Darkness

"My life has been full of terrible misfortunes--most of which have never happened." ~ Michel de Montaigne

Having written in this blog for more than 6 years, I have the opportunity to look back and revisit what I had observed about the world during interesting times. One such time was 4 years ago, in March of 2009, when the stock market was at its lowest point following the Great Recession. Stock prices had fallen more than 50% from the high point set in October of 2007.

Today, those "losses" have been erased, as stocks now stand at new records on the Dow Jones Industrial Average, rewarding patient investors willing to look through the challenge.

To look back at posts published 4 years ago, I keyed "March 2009" into the handy search tool at the top-right of the TFP blog site. Here are some observations I was making at that time:

March 2, 2009, on the post, All We Have to Fear is Fear Itself, I wrote:

Either we are not students of recession history or we are giving too much attention to media reports.  If the media weren't telling us "how bad things are," would we really perceive things to be as bad as we do?...

If I can make my tiny contribution toward a brighter future, I will ask anyone and everyone to stop watching, reading and listening to mainstream media.

March 9, 2009, on the post, Finding Beauty in Ugliness, I wrote:

In essence, the greatest human fear is that of the unknown. We would prefer to see something ugly in plain view than to feel and see the nothingness of the dark--and often the picture painted by one's imagination is an extended and magnified version of whatever emotion one is currently experiencing.

For example, in "bad times," as we are experiencing now, one's imagination will likely fill the empty spaces of information (unknown) with extreme pessimism and horrific images. Similarly, in "good times," one's imagination will likely fill in any existing empty spaces with over-confidence and positive images.

On March 18, 2009, in the post, Are Financial Plans Illusions?, I wrote:

While there is nothing inherently wrong with using the past to make certain assumptions about the future, financial plans become increasingly illusory when these assumptions are made in the presence of extreme emotion...

We can not change the past so there is no use in complaining or despairing over it; and much of our future success depends upon how we learn from our past mistakes; therefore it makes perfect sense to consider examples of faulty assumptions (illusions) made in the past that are colliding with reality now...

"All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse." ~ Benjamin Franklin

I summarize with a point: This exercise in reflection is not one of ego but rather one of humility. The presence of fear and panic in late 2008 and early 2009 was palpable and it certainly was not popular to say, "Things are not as bad as they seem."

Some of the greatest mistakes, both in finance and in life, are making faulty assumptions about the future based upon pattern recognition and emotion today: "If bad things are happening to me, there must be more bad things coming next." Equal and opposite, a string of fortunate events is no guarantee of more good things to come.

The greatest virtues in this regard are humility and contentment. When you realize that you do not know the future, and when you can be content with what you have now, you will not look into darkness and imagine either a treasure or a monster. In fact, you won't even look there because you have no desire to know; you reside in the light of the present.

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Related:

Quotes on the Unknown

Quotes on Contentment