This is not a book review. Michael Masterson's new book, Automatic Wealth: The Six Steps to Financial Independence inspired me to write an article because it illustrates the tremendous potential and performance of the free market economy. With a title such as Automatic Wealth, one would expect the book to describe how to swell your bank account, and it does not disappoint. Mr. Masterson's techniques for becoming financially independent seem very sound to me (who is not, currently, financially independent) and I am already starting to follow his advice. Yet the highlight of the book for me was the non-monetary aspects of wealth. He shows how wealth can take many forms, and it is up to the individual to achieve his own brand of wealth.
The six steps Mr. Masterson outlines include the step of planning to become wealthy. To come up with an overall set of goals, he uses the analogy of Tom Sawyer and Huck Finn viewing their own funeral in The Adventures of Tom Sawyer. Mr. Masterson comments on what an "eye-opening experience" it is for the two young lads to hear what people really thought about them. He then asks the reader to imagine what the reader's family, friends and colleagues would say at the reader's funeral. Mr. Masterson makes it a point to say most people would not like to hear they were very rich. The supposition is that every reader will have a different idea of what they would want to hear. If people are truly wealthy, then they have managed to persuade others that they possess the qualities they hold most dear.
Herein lies the essence of liberty and capitalism. People strive for so much more than money in life. Money is one means among many to achieve what Mr. Masterson calls your personal core values. For many people, financial independence will be one of those values. But there are many other values, each one customized by the individual. To achieve these values, there are goals that must be set. Some examples of goals Mr. Masterson gives include good health, relationships and personal growth and development. Wealth is increased in society when each person achieves their own goals and thus fulfills their core values. In this respect Mother Theresa was as wealthy (if not more so) than Bill Gates.
Freedom provides people with the opportunity to go after those goals. Nobody can align the hopes and dreams of all individuals by force, even if there are common goals and values among large majorities of certain groups. Therefore people must be free to seek goals on their own, based on their own set of values. By achieving these goals, wealth is created. By preventing the goals from being achieved wealth is destroyed.
Once the reader determines their goals, Mr. Masterson goes on to explain how to accomplish your financial goals. I believe he realizes the other goals are more personal, and therefore the reader is the one who should determine how to accomplish them. Mr. Masterson just provides a structural framework for their achievement.
All of the goals, however, are accomplished through the "medium of exchange." Financial goals are achieved through purchases and sales of investment vehicles. Health goals require reading and learning from the research of others, as well as the trading of time spent on other pursuits for time at the gym in order to be around when the grandkids and possibly great grandkids show up. Personal relationship goals drive your behavior to obtain the respect and admiration of others so you exchange conversation with long lost friends. Growth and development goals allow you to become accomplished at some skill which you learn from others, and which others may eventually seek out from you. Each time the individual becomes wealthier in any aspect of his life, he has exchanged something less valuable to him for something more valuable. The exchange may only involve his time, but in each case, each individual walks away from the exchange with larger individual profits than they had before, measured mostly in that individual's mind.
It is true that there is risk. Buying a stock that tanks does not seem like a profitable venture. However, the individual may still have profited in the long run because he learned from his mistake. Individuals weigh the transaction in terms of whether it would be profitable for them to make the exchange, and then either abstain or go ahead depending on the likelihood of that exchange helping him to progress towards one of their chosen goals. When the exchange does not work out as planned, the individual will readjust, examine what he did wrong, and look for a more profitable exchange. While I agree that many people do not seem to do much analysis and continue, for example, to buy lottery tickets, they have still determined that a certain amount of tickets are all right to buy. Even a gambling addict at some point determines they need help. Automatic Wealth is one possible way to perform that analysis and structure the changes necessary.
The destruction of wealth comes in when individuals are forced to behave in ways that are not consistent with the achievement of their specific goals. Prevention of an individual's pursuits through coercion means that individuals are left with less wealth in a transaction than they had before, whether that coercion comes from criminal behavior or governmental interference (is this redundant?). Even if the coercion appears to be compatible with the goals of many people, the ones who believe they have a better way to achieve their goals will give up the difference between what they are forced to do versus what they believe is in their best interest. Wealth is taken away from them. An example would be the idea of Social Security "Privatization." Putting 15 percent of a person's money in the stock market (Mr. Masterson keeps only 10) and in companies that are "approved" puts capital at risk that individuals do not believe is the best use of their money. The choices of bonds and government debt still limits an individual's opportunities and thus destroys wealth.
This is why Von Mises kept repeating that Socialism is the destruction of society. Society is wealthy when people have the freedom to go after their dreams and accomplish their goals. No one group of people can determine the goals of an entire society — goals are an intensely individual idea. People often form groups to accomplish goals, but the goals are ultimately the goals of the individuals in that group, and the group is formed voluntarily. When people are forced to behave a certain way and coerced into joining a group, they are abandoning their goals and thus abandoning their wealth.
I am looking forward to achieving the core values I have laid out for myself, using Automatic Wealth as a tool to do so. It is good to know that by achieving my goals, I am also providing an opportunity for the increase of wealth for others. If I accomplish my goals, they will enrich the lives of those around me. Then, hopefully, people will someday have good things to say about me.
March 29, 2005