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Tuesday, January 22, 2008

Profits are Better Than Wages

In addition to homeschooling two of our three kids, part of what I do in our business is educate people on the economy and money. I am by no means an expert, but over the last couple of years, I have learned a thing or two. One of the most interesting things I have studied is the concept of capitalism.

Capitalism is one thing colleges don't teach young people about. What is the first thing that parents and even teachers tell you regarding college? "Study hard, get your degree so you can get a good ____" Job. Right. A good job. That's an oxymoron if I've ever heard one, right there. Before you think I'm against going to college, let me assure you that is not the case. College teaches kids how to see something through to the end, but it doesn't necessarily teach them skills they will need to succeed in life.

Case in point: in 1900, only 5-10% of people actually worked for someone else, the other 90-95% were business owners or worked for themselves. Today, we find the opposite. So we only have 5-10% of people working for themselves? Everyone else works for someone else? That's right. And let me explain why I think that's not necessarily a good thing. Capitalism wasn't designed for employees - it was designed for the business owner.

There are only two ways to make money in capitalism:
  1. Wages -- hourly, salary, or commission.

    • This is how 95% of the population gets paid.
    • Your worth is determined by your employer.


  2. Profits -- Revenue - Expenses = Profits. There are only two ways to get profits up:
    • Increase the money coming in or
    • Decrease expenses.
So if I go to work for someone else, I get stuck being an expense for them. What is one of the things employers have to do to turn a profit? Keep expenses down, right? So if the cost of electricity goes up (or fuel), where is the employer going to be looking to cut expenses? They can't control the cost of electricity or fuel, but they can control how much they pay me and how often I get to work.

So think about which side you are on. How much control do you really have? How much control would you like to have?


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