Capital and labor

In One Sentence

Labor trades your time for a paycheck, so when your time stops, your income stops; capital makes money with money and other people's efforts, so it keeps working while you rest.

Why It Matters

John Lee argues in This Is How Wealth Is Built (title translated; no English edition) that what decides whether you end up rich or poor isn't your degree or how hard you hustle, but whether you have capital and know how to use it, and I agree. The two roles don't conflict: while you draw a salary, turn part of it into stocks, and you're a shareholder too. You don't need to start your own company. Using what you save each month to buy a broad-market ETF through dollar-cost averaging is the simplest way to become an owner.

One Number

Piketty points out that over the long run, the return on capital is about 4% to 5%, higher than the economic growth rate of about 1% to 1.5% once population stops growing (Capital in the Twenty-First Century · Chapter II).

In the Book

Section 3 of Chapter I explains how capitalism works and how the two kinds of income differ. Chapter II uses Piketty's r > g to show the power of capital.

Go Further

• Broad-market index ETFs Buy a broad-market ETF, and you become a shareholder in hundreds or thousands of companies.
• Wealth concentration Capital snowballs on its own, so wealth becomes more and more concentrated.
• Pay yourself first The stake for becoming a capitalist comes from the share of your paycheck you save first.
• Passive income When capital works for you, what it brings home is passive income.