The Best N Top is reader-supported. When you buy through links on our site, we may earn an affiliate commission. Learn more
Today we about What is the importance of knowledge in wealth creation? Theoretical frameworks are great because they use concise language to allow us to understand the basic face of the complex world. This is like a map. However, like maps, their role is limited. For example, the highway map will not tell you the current traffic situation or update the repair status of the highway.

  A useful way to understand the world economy is through the concise framework proposed by Thomas Piketty in his book Capital in the Twenty-First Century. Piketty divides the world into two basic components-capital and labor. Both are used for production and share revenue.

  The main difference between the two is that you can buy, own, and sell capital, and theoretically, you can accumulate capital indefinitely, just like the super-rich do. Labor is the use of personal ability. You can use it for a fee, but you cannot own labor, because slavery has long ended.
  Capital has two interesting characteristics. First, its price is determined by how much future income it can bring. If a piece of land can yield twice as much wheat or commercial land rent as another piece of land, its value should also be doubled. Otherwise, you can sell the bad piece of land in exchange for a good one. This no-arbitrage condition means that all capital generates the same risk-return when equilibrium is reached. Piketty estimates that the historical level of this return is 4% to 5% per year.

  Another interesting feature of capital is that it can be accumulated through savings. If someone or a country saves 100 units, they should be able to earn 4 to 5 units of income per year. From this, it is not difficult to see that if capital is fully invested and the economic growth rate is lower than 4% to 5%, capital and its rate of return will be much higher than the economic growth rate.

  Piketty believes that because the world's rich countries are growing at an economic growth rate of less than 4% to 5%, they are becoming increasingly unequal. This can be glimpsed from the data. Although inequality in the United States cannot be attributed to this logic to a large extent, it is due to the rise of what Piketty calls "super managers." It is said that super managers can earn super-high salaries (though Piketty did not explain why).

  So, let us apply this theory to the whole world to see if it is applicable. In the 30 years from 1983 to 2013, the United States borrowed more than US$ 13.3 trillion (or 80% of its annual GDP) from the rest of the world. Prior to this, in 1982, the United States made a net financial income of about 36 billion U.S. dollars from the rest of the world, which was generated by capital invested abroad.

  If we assume that the return on this capital is 4%, this is equivalent to having US$900 billion in foreign capital. Based on this calculation, the United States should owe approximately US$12.4 trillion to the rest of the world today (US$13.3 trillion minus US$0.9 trillion). If calculated at 4%, this means more than 480 billion U.S. dollars will be paid annually. Is that right?

  Wrong, and so wrong! In terms of net worth, the United States owes nothing to the debt it owes to the rest of the world. On the contrary, it also made about 230 billion US dollars in 2013. Assuming a 4% rate of return, this is equivalent to having US$5.7 trillion in foreign capital. In fact, if Piketty’s calculations are correct, the difference that the United States "should" pay is approximately $710 billion, or $17.7 trillion in the capital—the equivalent of one year's GDP.

  The United States is not the only exception to this miscalculation. Federico Sturzenegger and I pointed out that the differences are systematic and large.

  At the other extreme are Chile and China. Chile has almost no net borrowing in the past 30 years, but from the perspective of its payments to the world, it seems that it has borrowed debt equivalent to 100% of GDP. In the past 10 years, China has been the world's net lender, with a loan scale equivalent to 30% of its annual GDP, but basically, no return has been obtained. From the point of view of wealth, this savings does not seem to exist at all.

  what is the problem? The simple answer is: Things are not produced solely by capital and labor, as Piketty said. They are also produced by knowledge (knowhow).

  To understand the impact of this negligence, take the United States as an example. The US$13 trillion in net borrowing greatly underestimates the size of gross borrowing. The United States’ gross borrowing may be US$25 trillion, of which US$13 trillion is used to cover the deficit, and the rest is used for overseas investment.

  The combination of this money and knowledge constitutes foreign direct investment, and the return is more likely to be 9%, while the interest rate paid by the United States to lenders is 4% or lower. In fact, 9% of US$12 trillion is greater than 4% of US$25 trillion, and the mystery is easily solved.

  The savings of Chile and China flowed overseas, but they were not combined with knowledge-they were used to buy stocks and bonds-so they could only get a return of only 4% to 5% or even lower as Piketty had assumed. . In contrast, domestic foreign direct investment in Chile and China carries extremely valuable knowledge; therefore, the rate of return on the total inflow of capital is much higher than the rate of return on the total outflow of savings. This return difference cannot be smoothed out by arbitrage, because knowledge is necessary to obtain higher returns.

  The point is that the creation and application of knowledge is an important source of wealth creation. After all, the combined value of Apple, Google, and Facebook is more than $1 trillion, and the initial investment of these companies is negligible.

  Those who get the difference can be said to be rich overnight. Knowledge exists in a united team, not in an individual. Everyone in the team is critical, but outside the team, everyone's value will shrink a lot. Shareholders may want to turn the difference into profit, but they cannot do this without a team.

  Super managers are born like this: They strive to capture part of the value created by the team. Behind the increase in wealth and the increase in inequality, there is not only capitalism but also the appreciation of knowledge.

"Knowledge creates wealth", what is wrong with this sentence?

At the beginning of the 20th century, Ford in the United States was in a period of rapid development. Workshops and workshops were quickly built and put into use. Customers’ orders almost filled the Ford sales office. Every Ford car that just rolled off the assembly line has many people waiting to buy it. 

Suddenly, one of the Ford motors broke down, almost the entire workshop could not be operated, and related production work was also forced to stop. The company called in a large number of maintenance workers to perform repeated inspections and also invited many experts to inspect, but there was no way to find out where the problem was, let alone maintenance.

Ford’s leadership was really furious. Not to mention stopping for one day, or stopping for one minute, is also a huge economic loss for Ford. At this time, someone proposed to ask the famous physicist and electrical expert Steinmenz for help. Everyone heard the reason and hurriedly sent someone to invite Steinmetz.

Steinmetz asked for a mat to spread next to the motor and listened attentively for 3 days. Then he asked for a ladder. After climbing up and down for a long time, he finally drew a line with chalk on a part of the motor and wrote it down. "The coil here has been wound 16 more times." People followed suit, and surprisingly, the fault was eliminated! Production resumed immediately!

The Ford manager asked Steinmenz how much he would pay. Steinmetz said: "Not much, only $10,000." $10,000? I just simply drew a line! At that time, Ford’s most famous salary slogan was "$5 a month", which was a high salary at the time, so that many experienced skilled workers and excellent engineers in the United States flooded the country for this $5 monthly salary. Come. 1 line, 10,000 US dollars, the sum of the income of an ordinary employee for more than 100 years!

Seeing everyone bewildered, Steinmetz turned around and opened a bill: Draw a line, $1; Know where to draw the line, $9,999. After seeing it, the Ford manager not only paid the price but also hired Steinmenz with a lot of money. Many people tell the story here and it ends, including our high school political textbooks that are also said, and came up with an extremely exciting slogan- knowledge is wealth.

Accompanying this slogan is how to acquire knowledge and then grab wealth through knowledge!

In fact, this story has the following:

Steinmetz was originally an engineer in Germany. He was unemployed due to the economic downturn in Germany and later came to the United States. Because he was unaccompanied, he couldn't stand at all and had to wander around until he was lucky enough to be favored by a small factory veteran and hired him as a technician for making and selecting machine motors. Siemens is very grateful to the boss. He worked hard and quickly mastered the core technology of motor manufacturing, and helped small factories to receive many orders.

When Mr. Ford, the President of Ford, learned about it, he admired Stemenz very much. He happily gave him a remuneration of $10,000, and then personally invited Stemenz to join Ford. But Steinmetz told Mr. Ford that he could not leave the small factory because the owner of the small factory helped him when he was most difficult, and now once he leaves, the small factory will close down. Mr. Ford felt regret at first, then sighed with emotion. Ford is a large and powerful company in the United States. People are proud of being able to join Ford, but this person has given up such an opportunity because he is responsible for others...

Soon, Mr. Ford made a decision to acquire the small factory where Stemenz was located.

The members of the board of directors found it incredible. How could such a small factory enter Ford's vision? Mr. Ford said meaningfully: "Because there are people like Steinmenz who know how to be grateful and have a sense of responsibility!"

So, because of this acquisition, Steinmenz's worth doubled. Because the two parties have become a "merger and acquisition" relationship, rather than a simple "employment" relationship!

Do you understand? Does "knowledge" change fate? Or does "personality" change destiny?!

Knowledge can indeed create wealth, but knowledge is not suitable for the direct exchange of wealth. Our purpose of learning knowledge is to improve our sentiment, ability, vision, and even pattern, and then create wealth on this basis.

In other words, there is another link between knowledge and wealth: personality, or being a person.

But many people always think that if they have the knowledge, they should make money first, and then talk about contributions and ideals when they have money. The key problem is: due to the lack of personality, they quickly degenerate after they have money.

More importantly, if you treat knowledge as a thing to manage and make money, then the so-called knowledge will deteriorate.

For a long time, what our media preached and political textbooks taught were "knowledge is wealth" and "science and technology are the primary productive forces", but the fundamental principle of "people-oriented" has been ignored.

Since the reform and opening up, due to the eager desire for money, many people are eager to go to the sea and turn themselves into businessmen. Whether they are knowledgeable or courageous, they are eager to realize. They have become the trendsetters of the times. The argument that the building of the atomic bomb is worse than selling tea eggs came into being at this time. Society also gave them a halo. As a post-80s, I remember studying when I was young. Most of my classmates' ideals were to become scientists. When we grew up, our ideals were gradually revised to become entrepreneurs.

Since knowledge is directly linked to money, the remuneration of teachers in colleges and universities is directly linked to professional titles. This has led to an unprecedented emptiness of cultural thoughts in the USA and an unprecedentedly developed cultural title evaluation system. The job title is directly linked to salary and income. How can intellectuals not rush for quick success?

Therefore, even today, even if the US still has academia, culture, and art; there are universities with high-rise buildings; there are various academic institutions, but these are prematurely changed, and they support a group of "pseudo-intellectuals". The above is delving into knowledge, in fact, they are all seeking national money.

Knowledge creates wealth and embarks on a thorough secularization of US culture. Because the mainstream intellectuals in this society have their eyes fixed on one word-wealth. They think that only with money can they be a man and be responsible. So they are all thinking about how to sell their "knowledge" and how to turn knowledge into wealth. Experts and professors are busy walking on the platform, publishing famous books, making money on TV, and so on. Because there is no personality, once you have wealth, you will quickly degenerate, and then begin to enjoy material life, villas, mansions, small three and four...

Therefore, our gratitude, our responsibility, and our faith are lost in this way!

Establish a person first, then a career. Fame and fortune are just a by-product of talent!

The logic of many people is this:


And the real logic is this:


Why do we lament the decline of the world, lament the moral corruption, lament the unrest of people, is that we have reversed the positions of "wealth" and "being a person".

Previous Post Next Post


Thanks for reading my article. Please Bookmark or Share this article with Colleagues, Friends and Family!!

Email Subscriptions

"Best N Top" would like to send you the latest post notifications.