Why Labor Works for Money While Capital Works for Itself
A tale of two feedback loops: one for wages and one for wealth.
I hear it all the time.
A friend of mine, a very smart guy who runs operations at a successful company, said it perfectly. “Matt, how can the inflation be so low when the assets I actually need to live, housing, education for my kids, healthcare, feel like 1000x?”
He’s not wrong.
That feeling is real.
You work hard. You get a raise. You save your money. Yet, you feel like you’re on a treadmill. The finish line (real, secure wealth) keeps moving further away. You see headlines about the stock market hitting new highs, about billionaires minting new billions, and you (if you are lucky) look at your own 401(k) and home equity. It just doesn’t add up.
Perhaps you don’t even have a retirement account or own your home.
This disconnect is not in your head. It’s the single most important economic reality of our time.
The problem is that you’re being told there is one economy. There are not. There are two.
There is the Labor Economy. And there is the Capital Economy.
Most people live their entire lives in the Labor Economy. They are trained for it, educated for it, and their success is measured by its rules. In this economy, you trade your time for money. Your path is linear.
The wealthy, the people who seem to be pulling away at an impossible speed, operate in the Capital Economy. In this economy, they use assets to create more assets. Their path is exponential.
I’ve spent my entire career sitting at the junction of these two worlds. I started on Wall Street in investment banking, watching the machinery of capital from the inside. Then I co-founded a hedge fund where we literally built machines to read financial statements, trying to find an edge. That’s where I fell in love with technology.
For the last 15 years, I’ve been on the other side. I build systems. I invest in people. I use data, machine learning, and strategy to help companies grow. I became obsessed with building, competing in Kaggle competitions, and reading new research every week, applying it constantly.
I’ve seen the code, both financial and digital, that runs our world.
And I can tell you that the Capital Economy runs on a specific piece of code. It’s a powerful, self-perpetuating system I call the Capital Feedback Loop.
This loop is the engine that creates compounding, accelerating wealth. It’s the reason the gap between the rich and everyone else isn’t just wide, but widening. It runs on three pillars: constantly regenerating capital, exclusive access, and a powerful information advantage.
If you feel like you’re falling behind, it’s because you are a laborer in a system designed to reward capital. You can’t just work harder. You can’t just be a laborer anymore.
You have to understand the loop.
Then you have to find a way to get in it.
The First Pillar: The “Dry Powder” Engine
Let’s start with the first, most fundamental difference.
In the Labor Economy, your income is tied to your time. You work 40, 50, 60 hours a week. You get a paycheck. You pay your mortgage, your car payment, your student loans, and your groceries. You try to save what’s left. Your savings are what I call “scarce capital.”
You had to trade a piece of your life, your literal time, to get it.
To invest, you have to stop spending. You have to sacrifice consumption. When you invest that saved dollar, it’s gone from your “use” pile. If you stop working, the entire machine grinds to a halt. Your income is linear. It is 1-to-1 with your effort.
This is not how the Capital Economy works.
For a capital-class investor, returns are exponential. Their portfolio isn’t a “nest egg” they nervously protect. It’s not a “retirement account” they hope to use in 40 years.
It is an engine. A “Regenerating Account”, a war chest that automatically refills.
Let’s use a simple example. An investor has a $10 million public stock portfolio. This could be a simple S&P 500 index fund. It’s not complex. They are just owning a piece of the market. Historically, this market returns an average of around 10% per year.
So, this year, their $10 million portfolio grows by $1 million.
This $1 million is not a “windfall.” It is not a “bonus.” It is the output of their capital engine. It is fresh “dry powder.” It is new, un-allocated investment capital that was created passively by the market.
While the wage earner was trading 2,000 hours of their life to maybe save $25,000, the investor’s assets generated $1 million by themselves.
The wage earner’s savings come from subtracting from their income. The investor’s “dry powder” comes from multiplying their assets.
They now have $1 million in fresh ammunition to deploy into new opportunities. They are always ready. They are always “at bat.”
But it gets even better. This is the part that many people miss.
The smart investor doesn’t even sell $1 million in stock to get that cash. Why would they? Selling creates a tax event. It stops the compounding on those shares. That’s inefficient.
Instead, they go to a private bank. The bank sees their $10 million portfolio as pristine collateral. They will gladly offer a “portfolio-backed line of credit” for, say, $3 million at an extremely low interest rate.
The investor now borrows $1 million against their portfolio.
Let’s review what just happened.
They pulled out $1 million in cash (the dry powder) to go invest in a new opportunity.
Their entire $10 million principal remains invested, still growing and compounding.
The interest on the loan is often tax-deductible, further reducing its already low cost.
This is a system of leverage built on top of a system of compounding.
While the laborer is saving, the wealthy investor’s capital is regenerating on its own. It’s an engine that ensures they always have more ammunition to deploy. This is the fuel for the loop.
The Second Pillar: The “Velvet Rope” Economy
Having that $1 million in “dry powder” is the first step. It’s the key.
But a key is useless if all the most valuable doors are locked. This pillar is about those locked doors.
In the Labor Economy, your investment options are “retail.” You can buy public stocks on Robinhood or Fidelity. You can buy bonds. You can buy index funds and mutual funds. This is the public market. It is, by definition, what is left over after the private markets are done.
The Capital Economy operates in a different, restricted space. U.S. securities laws, and similar rules around the world, legally divide investors into two classes.
The “protection” is the mechanism of “accredited investor” laws.
To be an “accredited investor,” you must have a net worth of over $1 million (not including your primary home) or have earned an income of over $200,000 ($300,000 for a couple) for the last two years.
The stated purpose of this law, which dates back to the 1930s, is to “protect” the general public from “risky” investments.
It sounds noble. It’s total bullshit, actually.
The true function of this law is to act as a “velvet rope.” It “protects” regular people from the investments with the highest potential returns. It legally reserves the 100x and 1000x opportunities for people who are already rich.
This is the “Velvet Rope” Economy.
When you are accredited, you get to see the deals that your friend from the introduction was sensing. The 1000x returns. These are not available on the stock market.
These exclusive deals include:
Venture Capital: This is my world now. This is investing $50,000 into a startup that’s just two founders with an idea. If that company becomes the next Uber or Google, that $50,000 can turn into $50 million. You cannot get this return buying public stock.
Private Equity: This is buying an entire company. Taking it private, restructuring it, using data and systems to make it more efficient (this is what I do with my portfolio companies), and then selling it five years later for 5x or 10x the price.
Hedge Funds: These are investment vehicles that use complex strategies. The hedge fund I co-founded used machine learning to find signals no human could. You must be accredited to even get in the door.
Pre-IPO Shares: This is the big one. This is buying shares in a company before it goes public. By the time you read about an exciting IPO in the news, the party is already over. The accredited investors who bought in years earlier are the ones selling their shares to the public. They are exiting. The public is their exit.
The average person is legally restricted to the public market.
The 1000x returns are real. They are just happening in the private markets, behind the velvet rope.
The wealthy aren’t just better investors. They are playing a completely different game, with different rules and vastly different prizes. The dry powder from Pillar 1 is their key to get past the rope.
The Third Pillar: The Information Advantage
So. Pillar 1 is the money (the “dry powder” engine). Pillar 2 is the locked door (the “velvet rope” deals).
Pillar 3 is the most important one. It’s the knowledge of which door to open.
Financial returns are, at their core, the output of information. The person with the better information wins. This is why I built Titan Watch, to layer a CRM underneath this insider transaction data and overlay AI analytics atop it.
When I build machine learning systems, this is the entire game. The model is only as good as the data I feed it. My obsession with reading research and competing in hackathons is a relentless quest for an information edge.
The economy is no different. The two economies run on two different information systems.
Public Markets: The Game of Analysis
In the public markets, the game is analysis. In theory, everyone has the same information. This is called “information symmetry.” When Apple releases its quarterly earnings report, you and the biggest hedge fund in the world get that PDF at the exact same second.
The game, then, is to analyze that public data faster or better than anyone else. This is what my old hedge fund did. We built machines to read and interpret that data in microseconds. It is a hyper-competitive, cutthroat world. You are fighting billions of dollars in R&D for an edge of a fraction of a percent.
Private Markets: The Game of Access
The private markets are the complete opposite.
Information is opaque. It’s scarce. It’s valuable.
Returns are not based on analysis of public data. They are based on access to private information.
This isn’t (usually) the illegal “insider trading” you see in movies, like a CEO calling his buddy before an earnings report. It’s “soft” information. It’s access.
Here is how they get it:
Networks: This is the most powerful source. Imagine you sit on the board of a major hospital system. You hear firsthand every week about the crisis in patient data management. It’s a mess. Then, a young founder, who is the daughter of your college roommate, pitches you a new AI-driven software that solves that exact problem. You don’t need to read a 20-page market report. You have a primary source information advantage. You know the market needs this.
“Deal Flow”: As an investor, my “deal flow” is my most valuable asset. Venture Capital and Private Equity firms are information goldmines. They see hundreds, even thousands, of deals every year. They get the best, most current data on which markets are growing, which tech is real, which business models are working, and which teams can execute. The process of seeing all the “bad” deals gives them a massive information advantage in spotting the “good” one.
Social Access: This is the unquantifiable part. It’s being in the right rooms. It’s knowing the founders, the bankers, the lawyers, the politicians. It’s the dinner party where you learn that a specific industry is about to be deregulated. It’s the golf game where a founder complains about a problem, and you know another company in your portfolio that just solved it.
The wealthy don’t guess. They don’t throw their capital at random “risky” startups.
They deploy their “dry powder” (Pillar 1) into “exclusive deals” (Pillar 2) that they are “highly confident” will succeed because of their “proprietary information” (Pillar 3).
They use information to de-risk the “risky” assets.
The Synergy: How the Loop Accelerates
This is the core of the entire argument. These three pillars are not separate. They are not a 1-2-3 checklist.
They are a synergistic, accelerating feedback loop.
As a systems thinker, this is what I see. The output of one stage is not just the input for the next. The output magnifies the input for the next cycle.
Let me walk you through one full rotation of the loop.
1. Start (Pillar 1): Your $10 million public stock portfolio (your “dry powder” engine) passively generates $1 million in new capital. You are “at bat” with fresh ammunition you didn’t have to work for.
2. Access & Info (Pillars 2 & 3): Your network (Pillar 3) gives you an information advantage. Your former partner from your old PE firm calls you. She’s raising a $5 million seed round for a new AI-native logistics company. The founders are two brilliant engineers she’s worked with before. They already have a pilot program with a Fortune 500 company. This is an “off-market” deal (Pillar 2). It’s not being shopped around. You are only seeing it because of who you know.
3. Deploy (The “Dry Powder”): You trust your partner’s information. You meet the founders and your own experience confirms the tech is real. You use your $1 million in “dry powder” to invest.
4. The Exit: Two short years go by. The logistics company is a massive success. It’s acquired by a global shipping giant. Your $1 million investment is now worth $10 million.
5. Regenerate & Repeat (The Loop): What do you do with that $10 million? You don’t buy a $10 million house. That’s what a laborer would do. You are a capital-class investor. You put that $10 million back into your public stock portfolio.
This is the magic. This is the acceleration.
Your “dry powder” engine (Pillar 1) was $10 million. It is now $20 million.
Your engine just doubled.
Next year, it doesn’t generate $1 million. It generates $2 million. You now have twice the capital to deploy into the next deal.
And it gets better.
Because you were an investor in that successful $10 million exit, your network (Pillar 3) is now stronger. Your reputation is better. More people, better founders, bring you better deals (Pillar 2).
This is the mechanism.
Capital begets access. Access provides information. Information directs capital. And the capital it creates is larger than the capital it started with.
The loop spins faster and faster. The gap doesn’t just grow. It compounds.
Two Games, Two Outcomes
Let’s go back to my friend. That feeling of “falling behind” isn’t a feeling. It’s an observation.
It’s a rational response to observing two completely different economic games being played on the same field, by two different sets of rules.
The Labor Economy is the game you were taught to play.
You trade your time for money.
Your growth is linear.
You are a consumer of assets. You buy a house. You buy stocks at their public market price. You pay for your education. Your path is to work, save, and reduce debt.
The Capital Economy is the other game.
You use assets to generate new assets.
Your growth is exponential.
You are a creator or early owner of assets. You fund the company that builds the houses. You invest in the stock pre-IPO. You build the education-tech platform.
The central economic story of the last 100 years isn’t just inflation. It’s the compounding, accelerating power of the Capital Feedback Loop. It’s the chasm it creates between those who are in it and those who are not.
You have been trained your entire life to be a laborer. To be a cog in the machine. To optimize for a salary.
That path is a trap. It’s a linear path in an exponential world.
You cannot win the game by playing the linear-growth, labor-based version.
You have to find a way to get into the loop.
This means you have to change your entire orientation. You have to stop thinking like a laborer and start thinking like an owner.
You have to build. You have to invest. You have to gain ownership. You must relentlessly hunt for an information advantage. You must build your network not as a social exercise, but as a primary source of information and access.
You have to find a way to build your own engine, however small, that generates capital for you. Build wealth systems. Constantly engineer improvements to them, and your network.
The system is not going to change. You must. Your only choice is to see the machine for what it is and find your way inside.
Friends: in addition to the 17% discount for becoming annual paid members, we are excited to announce an additional 10% discount when paying with Bitcoin. Reach out to me, these discounts stack on top of each other!
👋 Thank you for reading Wealth Systems.
I want to learn what topics interest you, so connect with me on X.
…or you can find me on LNKD if that’s your deal.
I started Wealth Systems in 2023 to share the systems, technology, and mindsets that I encountered on Wall Street. I am a Wall St banker became ₿itcoin nerd, ML engineer & family office investor.
💡The BIG IDEA is share practical knowledge so we can each build and optimize our own wealth engines and combine them into a wealth system.
To help continue our growth please Like, Comment and Share this.
NOTE: The content provided on this blog is for informational purposes only and does not constitute financial, accounting, or legal advice. The author and the blog owner cannot guarantee the accuracy or completeness of the information presented and are not responsible for any errors or omissions or for the results obtained from the use of such information.
All information on this site is provided 'as is', with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied. The opinions expressed here are those of the author and do not necessarily reflect the views of the site or its associates.
Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise. Readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.
The author is not a broker/dealer, not an investment advisor, and has no access to non-public information about publicly traded companies. This is not a place for the giving or receiving of financial advice, advice concerning investment decisions, or tax or legal advice. The author is not regulated by any financial authority.
By using this blog, you agree to hold the author and the blog owner harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries as a result of any investment decisions you make based on information provided on this site.
Please consult with a certified financial advisor before making any investment decisions.