Learn to be a capital allocator

Capital and labor are dual sides to our economic system.

In the past, labor was crucial to productivity. Companies had to find labor to weld metals on the factory line to make Ford trucks. This meant a factory worker in Detroit was paid a wage meaningful enough to provide housing and healthcare for their family.

Sadly the value of labor is down. Which subsequently increases the value of capital. This divergence will only grow wider with emerging technologies like robotics and AI.

An example where we see this today is inflation. People think inflation devalues money but who has inflation hit the hardest? Laborers who struggle to keep up with inflation. Meanwhile the wealthy accumulate a larger share of the increasing money supply by putting capital to work.

Obviously if you’re already rich, it doesn’t matter. But if you’re not, what you need to learn is how to be a capital allocator. That takes in the form in either of two ways:

  1. Outperform as an investor: This is at the top of mind when people think capital allocation. As long as you can drive strong returns, you’ll be on the last chopper out of ‘Nam.
  2. Manage capital as an operator: Managing a business is all about capital allocation decisions. Business is a form of leverage. Management makes capital decisions for operational costs, capex, R&D, etc. with the intent to drive profits. If you can build a business or know how to run a business, your labor is irrelevant.

This isn’t a new relevation. Our modern world just imposes it on us with a bit more urgency.

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