7. The Law of Exchange: Money is the medium through which people exchange their labor in the production of goods and services for the goods and services of others.
Before there was money, there was barter. In barter, people exchange goods and services directly for goods and services without the medium of money. As civilization grew and barter became too clumsy, people found that they could exchange their goods and services into a medium like coins, which they could then exchange for the goods and services of others, thereby making the whole process more efficient. Today, we go to work and exchange our work for money, which we then use to purchase the results of the work of other people. The first corollary of the Law of Exchange says: Money is a measure of the value that people place on goods and services. It is only what a person will pay that determines the value of something. Goods and services do not have a value separate and apart from what someone is willing to pay for them. All value is therefore subjective and based on the thoughts, feelings, attitudes and opinions of the prospective purchaser at the moment of the buying decision. The second corollary of this law says: Your labor is viewed as a factor of production or a cost by others. We each have a tendency to look upon the “sweat of our brow” or our work, as something special because it is so intensely personal. It comes from us and is an expression of what we are as a person. However, as far as others are concerned, our labor is just a cost. As intelligent consumers, as -13- 13 employers or customers, we want the very most for the very least, no matter whose labor is involved. For this reason, you cannot place an objective value on your own labor. It is only what other people are willing to pay for your labor in a competitive market that determines what you earn and what you are worth in financial terms. Third corollary of this law says: The amount of money you earn is the measure of the value that others place on your contribution. The way the market for labor works is simple. You will always be paid in direct proportion to three factors: the work you do, how well you do it, and the difficulty of replacing you. How much you are paid will be in direct proportion to the quantity and quality of your contribution in comparison with the contributions of others, combined with the value that other people place on your contributions The fourth corollary of the Law of Exchange says: Money is an effect, not a cause. Your work or contribution to the value of a product or a service is the cause, and the wage, salary or earnings that you receive, is the effect. If you wish to increase the effect, you have to increase the cause. The fifth corollary of the Law of Exchange says: To increase the amount of money you are getting out, you must increase the value of the work that you are putting in. -14- 14 To earn more money, you must add more value. You must increase your knowledge, or increase your skill, or improve your work habits, or work longer and harder hours, or work more creatively, or do something that enables you to get greater leverage and results from your efforts. Sometimes, you have to do all of these together. The highest paid people in our society are those who are continually improving in one or more of these areas to add greater value to the work that they are doing.
8. The Law of Capital: Your most valuable asset, in terms of cash flow, is your physical and mental capital, your earning ability.
You may not even be aware that, unless you are wealthy already, your ability to work is the most valuable asset that you have. By utilizing your earning ability to its fullest, you can bring thousands of dollars each year into your life. By applying your earning ability to the production of valuable goods and services, you can generate sufficient money to pay for all the things that you want in life. The amount of money that you are paid today is a direct measure of the extent to which you have developed your earning ability so far. The first corollary of the Law of Capital says: Your most precious resource is your time. Your time is really all you have to sell. How much time you put in and how much of yourself you put into that time, largely determines your earning ability. Poor time management is one of the major reasons for poor productivity and -15- 15 underachievement in every industry in America. It is the number one problem for both managers and salespeople in every field. The second corollary of the Law of Capital says: Time and money can be either spent or invested. To a certain degree, your time and your money are interchangeable. If you spend them, they are gone forever. You cannot get them back. They become sunk costs in your life. On the other hand, you can invest them, in which case you get a return on them that can go on and on. If you invest your time or money in becoming more knowledgeable and better skilled, you can increase your value. By increasing your ability to get results for yourself and others, you increase your earning ability, your personal cash flow, sometimes for your entire career. One of the smartest things that you can do is to invest three percent of your income every month back into yourself on personal and professional development, on becoming better at the most important things you do. There is nothing that will give you a bigger and better “bang” for your buck than reinvesting some of your time and money back into your capability to earn even more. All wealthy and successful people have learned this sooner or later, and all poor and unhappy people are still trying to figure it out. -16- 16 The third corollary of the Law of Capital says: One of the best investments of your time and money is to increase your earning ability. The purpose of corporate strategic planning is to increase “return on equity”or ROE. This requires organizing and reorganizing corporate activities so that the company is earning a higher return on the capital invested in the organization. In your work life, your personal equity is your mental and emotional capital. Your job then is to earn the highest possible return on your human capital, to increase your “return on energy.” Identify the things you do in your work that represent the highest value uses of your time. Focus more and more of your time on doing those things that represent the greatest contributions you can make to the most important results that you can achieve. Continually look for ways to increase your return on energy.
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