Getting Rich Is a Math Problem! In 1688, British National Debt Surged 40 Times, Yet Interest Rates Plummeted from 14% to 3%—Behind It Lies the Wealth Formula That Supercharged the Nation! When the Chinese Communist Party Substitutes This Formula, the Multiplier Divides Against You; Tutoring and Real Estate Wiped Out with a Single Stroke of a Pen—Without the Chinese Communist Party, China's Economy Would Be Ten Thousand Times Better!

This episode explores the underlying mathematical formula of how nations grow rich, using the historical case of Britain's Glorious Revolution in 1688, which saw a massive surge in national debt alongside a drop in interest rates. The host points out that certainty, property rights definition, and third-party enforcement constitute capital's household registration and leverage multiplier, analyzes the relationship between credit, transaction costs, and technological innovation, and contrasts the predatory operational logic of normal countries with that of the Chinese Communist Party regime, which destroys credit and zeroes out assets through reverse administrative intervention.

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Chinese society absolutely forbids you from doing any creative destruction; what does it allow? Only innovation guided by the government. If you are already the fucking government, what kind of fucking innovation are you talking about?

Observe things as they are, reject fragmented cognition. In the last episode, we wrote poverty as a mathematical equation. Today, we do the reverse, and write wealth as a mathematical equation as well. Let's look at how a nation becomes rich. Let's first look at an event from three hundred years ago. From 1690 to 1730, the scale of Britain's national debt skyrocketed from just 5 percent of total economic output to over 200 percent, multiplying by a full 40 times. According to common sense, borrowing like this should have sent interest rates flying to the moon, right? But instead, Britain's borrowing interest rates crashed all the way from 14 percent down to about 3 percent, creating a very fascinating and abnormal scenario where the mountain of debt grew higher and higher, yet the primary interest on the debt became lower and lower. Look at how abnormal this is! Why did this happen? Because a mathematical machine was ignited that year, and the financial revolution and industrial revolution of the following hundred years were entirely the basic output of this machine. And the ignition.

What Britain did that year had actually nothing to do with mining, colonization, or steam engines; what it changed was merely a list of powers. Through a sample like Britain, we can see how a nation becomes rich. After looking at it, you will find that the gap between poor countries and rich countries has never been about how many resources are buried underground; fundamentally, it is a matter of a few parameters and symbols. Moreover, shrinking that same set of symbols down a few sizes gives you the valuation model of whether your personal effort is worth anything or not. Now, let's smash the term wealth to pieces and reassemble it. Textbooks take per capita output as wealth, which is like taking a single photograph as a life. Why is this thing a photograph? Because it is merely a cross-section, capturing only the output on the assembly line for a certain year. True wealth is a general ledger, or rather, it is a discounted value—that is, discounting the future output year by year down to today's present value across the entire accumulation, and summing it all up; this is wealth.

Regarding the total amount of wealth, let's look at this continuous-time intertemporal discount effect function. This function describes one thing: the more certain the future is, the less of a discount is applied when discounting, and the total ledger will correspondingly become larger and larger. Therefore, certainty itself is an amplifier of wealth; please remember this point first. Thus, the process of becoming wealthy is not about piling up a bunch of goods in a warehouse, piling up cars, or piling up a bunch of fucking stuff that can't be sold, because piling up goods will encounter two funnels: one is the depreciation of machines and factories, and the other is the transaction friction that wears away a layer every time people do business with each other. Only when the growth rate of this total ledger consistently outruns the leakage rate of these two funnels—depreciation plus friction—can this system be considered truly getting richer. Hey, let's look at this; what is this? This is an inequality for the dynamic constraints of wealth accumulation. In macroeconomics and dynamic optimal control theory, what is this thing? It is the net growth condition of capital, or a criterion for wealth expansion.

In other words, what is the essence of becoming wealthy? It is a long-term race between the growth rate and the loss rate. It is actually the same comparison as the question about becoming poor in the previous episode; it's just that the inequality sign has flipped. Hey, let's look at this equation. First, the integral on the left side of the inequality represents the total amount of wealth, which is the first derivative of W with respect to time t. What does this represent? It represents the instantaneous absolute rate at which the system generates new wealth at time t. And the delta on the right is the capital depreciation rate, and KPT represents the stock of capital or productive capital. Delta times KPT, the product of the two, represents the decay rate of the value of existing asset scale as time passes. It is the switch that turns dead assets into living capital. For example, take the same house; what is it like in a world without property registration? Isn't it just a pile of stacked bricks? For you, this thing is only useful when you are living in it. You say you want to sell it, but you can't; you say you want to mortgage it, but the bank won't accept it; you want to cut it in half or sell it in portions, that's even more impossible. Its value is just welded to this physical object. However, once it enters the registration process, hey, this house gains a clone in the legal world. What does it become? It becomes a credit certificate that can be operated on infinitely. It can be sold in small portions, for example, like REITs—hey, that's what this is, it's just packaging and restructuring—or what else? It can also be mortgaged to a bank to exchange for money. You say the bricks are still that same pile of bricks, but its value has already detached from its physical form. Its concept, that clone, which is the property registration, is already working for you in the financial system. The switch to complete this transformation, to put it bluntly, is two things: one is clearly written property rights, and the other is a court that truly dares to enforce them. Economics calls this the definition of property rights plus third-party enforcement. What do I call this? I call it the household registration (hukou) of capital. Because an asset without a registration is an undocumented asset, and it cannot engage in any financial activities. This distinction is much, much, much, much more important than it sounds, because in the current economy, what is truly doing the work is never the brick itself; it is the clone of the brick or its household registration in the credit system. Hey, every time it circulates, hey, the faster your same wealth clone rotates, and the deeper you leverage it, the larger the total amount of capital in your system will be. In the last episode, we calculated the account of the clone collapsing; in this episode, we are doing the opposite: calculating the account of the clone standing tall. So now let's imagine, if this household registration didn't exist, what would happen? I will lay out the transaction cost function for everyone to see, and it will become very clear to everyone immediately. If this household registration didn't exist, you would have to spend four types of money to make a deal: first is the money for inspecting the goods, second is the money for finding a buyer, third is the money for bargaining, and the most wasteful cost of all is what? It is the money for preventing the other party from welching on the deal. The first three are actually limited, while the last one depends on a probability, which is the probability that the contract will be enforced. The more this probability...

The lower it is, the more explosive the cost of the risk of defaulting becomes. When the probability approaches zero, this term shoots directly to infinity. Why does the CCP shout about boosting the economy every day, yet it just won't take off? Because whether it's the CCP's state-owned enterprises or local governments, they are fucking used to defaulting on their debts; this is what an infinite transaction cost function looks like. Those who have studied transaction costs deeply are Coase and Professor Steven Cheung. If you are interested in transaction costs, you can check out their works. Anyway, let's continue. Everyone is thinking about a question now: what is the prerequisite for any transaction to take place? First and foremost, what is it? It's that the valuation gap between the buyer and the seller must cover all transaction costs, right? This is the most basic requirement. If the difference between your buying and selling prices can't even cover the transaction costs, the transaction cannot happen. And if this cost is infinite, then even a massive valuation gap won't cover it, right? This leads to what? This leads to the probability of the transaction occurring being strictly equal to zero.

This is very easy to understand. Suppose I want to sell a cow, but I am in a place where no one enforces contracts. You tell me, how can I not feel anxious about selling this cow? To what extent would I be worried? I have to guard against the buyer potentially stealing the cow along with the money. What should I do in this situation? I would simply choose not to sell. If this is the case, then how will the nation's resources end up? They will all be frozen in place, and none will flow into the hands of those who can use them best. And the improvement of total factor productivity relies precisely on the high-frequency flow of resources to those who can use them best. Once transactions are frozen, the engine of technological progress doesn't even have an ignition switch. This might also explain a very old or long-standing puzzle: why are people in some places not lazy—on the contrary, they are extremely diligent—yet they haven't made any progress for hundreds of years? Because the key to measuring a system has never been how diligent the people inside are; it is the probability that contracts will be enforced.

In places where the probability is zero, hard work can only keep you fed, because it can never accumulate into capital. Moreover, this probability must be one that everyone collectively believes in; it's useless if only you believe it, because a transaction is a bilateral issue. If your counterparty doesn't believe it, the costs will still explode. Therefore, the system must be public, stable, and predictable. Secretly implementing a good policy is mathematically equivalent to having none at all. Next is the most counterintuitive part of the entire blueprint, but this counterintuitiveness applies to humans; the CCP has already transcended the category of humans and belongs to the ranks of scum. Let me first explain what normal humans would do. Under normal circumstances, after a monopoly of violence gains power, it chooses to hold back—this is the early form of a government. Why would a monopoly of violence choose to hold back? Olson has a model of 'stationary bandits' versus 'roving bandits'—I've talked about this with you before. What is a roving bandit? It's a gang of horse bandits; they rob and run, that's a roving bandit. For a roving bandit, their optimal strategy is to rob and burn everything.

But if this group intends to collect taxes on this land for a lifetime, the math changes immediately. The bandit gang that settles down doesn't calculate how much to rob in this single haul; they calculate the total present value of tax revenue for an infinite number of years in the future. They will seek the optimum for this total present value, and mathematics will give them an interior point solution. If you, fucking, set the tax rate too high and production is taxed to death, there will be no tax base tomorrow. Therefore, the optimal tax rate must stop at a point where the chicken is not killed, while simultaneously providing protection for property rights to fatten the chicken that is the tax base. However, the CCP is quite special, I'll talk about that in a moment. The CCP operates under the banner of a stationary bandit but does the fucking work of a roving bandit. This equation is the mathematical expression of Olson's stationary bandit model; it describes how a ruler who monopolizes power in the long term maximizes their own interests by setting tax rates and providing public goods. So, everyone, ponder this conclusion: when a normal person becomes...

They became bandits. Oh, now being able to act as a bandit in one place—this is not because the bandit gang found a conscience, but the result of taking partial derivatives, forcing this bandit gang to act as security guards. Robbing once makes them roving bandits. If they want to rob for a lifetime, what must they do? They have to make you farm in peace first! Moreover, if the tax rate is extracted too heavily, it will result in losses, because taxes inherently come with leakage. When you extract 1 yuan, the output scared away on the production side is often more than 1 yuan. Economics calls this evaporated middle portion deadweight loss. If you want to maximize long-term total income afterward, where must you stop the tax rate? You must stop right before the equilibrium point where the friction consumes the marginal tax revenue. This math doesn't even require the bandit gang to have studied; after a few rounds of trial and error, the market will solve this optimal solution for the bandit gang. Well, the bandit gang has now become security guards. What will happen after these security guards are in place? The game in the micro-world will also flip over. Actually, whether it is worthwhile for a person to default on a debt is just a matter of looking at an expected value calculation. The huge amount of money earned from defaulting, minus being caught—

The probability multiplied by the fine. This is very simple; that is to say, if the probability of enforcement is pushed close to 100%, and the fine is far greater than the little profit from defaulting, this calculation strictly yields a negative number. At this time, defaulting on a debt changes from a smart strategy to a very, very foolish strategy. On the poker table of the prisoner's dilemma, the grid of mutual sabotage is directly passed, and the remaining optimal solution is only cooperation. The entire society's game network flips from a zero-sum game of mutual suspicion into a positive-sum game of making the pie bigger. Therefore, in developed countries, trust is not some virtue; trust is the mathematical result of the fine multiplied by the probability of enforcement. There is a cause-and-effect relationship here that is very easy to get backward. It is not that businesses flourish in places with honest folkways; rather, where the calculation is negative, defaulting on a debt is not worthwhile, and after it has been extinct for a long time, it is mistakenly perceived as honest folkways. If you look at any place with a developed commercial civilization, what underlies it is not some bullshit moral preaching; what is its mechanism? It is a set of mechanisms that make betrayal steadily lose money.

As long as this mechanism is withdrawn, the so-called folkways can be twisted right back in 3 months. Aren't you having honest folkways? Once the mechanism is withdrawn, the default rate rises just the same. Look at Hong Kong now. Inside this, there is also a hidden line that is easy to be ignored—namely, the question of whom to protect. For example, if property protection only targets princes, nobles, or privileged merchants, then all the previous parts will still get jammed, because the people who best know how to use resources and the people holding the resources are mostly not the same group of people, and this admission ticket is not open to the outside world. If this is the case, resources still cannot flow into the hands of the most optimal people. In fact, the issues discussed in economics seem very complicated and dazzling, but in reality, there is only one issue in economics, which is how to allocate resources into the hands of the people who can maximize the resource effect. Therefore, this machine also has a systematic prerequisite, which is that the market must be open to everyone, and the probability of property protection must be equal for everyone. For example, when new technologies beat old giants to death on the beach, your legal system's bias—

Cannot be partial; you must protect this new technology. Even if the new technology really beats the old giant to death in the market, if you fail in market competition, you cannot retrogress politically and then use fucking legal or administrative power to crush this new technology to death again. Because the process of new technology overturning old giants is called creative destruction. Alright, now, if you set up a hood—oh, if you set up an indestructible system, what does that equal? That equals personally pulling out the pipeline of creation! In this case, the market-driven iteration of factor components is completely finished on the spot.

Now, let us go back to that great wealth transformation of 1688, which was the Glorious Revolution. What is the significance of the Glorious Revolution? To put it bluntly, it meant that the Parliament got a tight grip on the king's purse strings, and from then on, the royal family could no longer unilaterally default on debts or arbitrarily confiscate anyone's property. At this point, the probability of property rights being violated plummeted drastically, locked down at a very, very low level, and the marginal cost of contract enforcement was gradually lowered, precedent by precedent, by the common law. After decades of accumulation, after 1760, patent registrations poured in en masse, which was a vote of confidence cast with their feet by inventors. After the Glorious Revolution, Britain built a series of infrastructures. For example, the establishment of the Bank of England in 1694 meant that for the first time, national credit had a dedicated machinery for pricing and circulation. Hence the strange phenomenon mentioned at the beginning: the national debt increased fortyfold, yet interest rates fell from 14% to 3%, because creditors were convinced for the first time that this borrowing could not be defaulted on, even by the king. Once interest rates collapsed like this, the financial gauges of wealth growth all lit up. This engine was the net marginal return condition of capital. What did it say? It stated that the marginal output of capital far exceeded the financing cost. Translated into plain human language, taking on leverage was arbitrage. At this point, money would flood into the economic system, and the economic system would spit out more wealth. Now we have arrived at the heart of the entire wealth-building path, with the entire system entering the mathematical engine of compound interest. To prevent this equation from becoming incomprehensible, let us look at how much capital can actually be leveraged out of a single building, using such a practical example to deepen everyone's understanding. Now, let us assume a building is worth 1 million, and let the loophole rate of the property rights system be denoted as tau—to put it bluntly, it is the mortgage rate, you can understand it that way for now. What does it mean? It means what proportion of the assets cannot be covered by the law; this part is what the bank does not recognize, and the bank can only cover a certain portion. In the first round, you could borrow 1 minus tau multiplied by 1 million. Then the money borrowed was poured into businesses with a positive scissor-gap, and it turned into a new asset. These new assets also had a household registration, so to speak, and could be mortgaged for another round. The next round would borrow 1 minus tau squared, and round after round, iterating infinitely, what is this? It is just a geometric series. After summing it up, the total capital equals the primitive asset divided by tau, which is the reciprocal of tau, namely 1 divided by tau. This tau is the discount rate of the mortgage, and what is the reciprocal of the discount rate of the mortgage? It is the magnification factor of the asset. Therefore, wealth must rely on leverage, and the prerequisite for leverage is based on property rights and credit. For instance, for a building with complete property rights, if the bank lends at a 75% discount, tau is 25%, and the asset multiplier is four times. That means a single building can leverage capital equivalent to four buildings, which is the daily water level of a developed financial body. All right, now suppose it is the same building, but this building is established, or fucking the government always fails to protect your personal property, then what will the bank do? The bank will not lend you a single penny, and tau equals 1. Once this multiplier equals 1, a building until its death remains equal to just one building. Looking at a single building, the four-to-five-fold gap might not seem that scary, or perhaps not that big, right? But if you spread it across the entire economic system, where every round of credit generates assets, and assets generate credit, compounding for decades, doesn't the gap widen completely? The scale of private credit in poor countries is only 20% to 30% of their total economic output, while developed systems can roll it up to 1.5 or even 2 times, a nearly tenfold scale difference. The difference in leverage multipliers in between is the valuation of government credit. There is only one last thing left, and that is technology. Growth theory treats technological progress as mere luck falling from the sky. But what is the reality? Technology is calculated, not dropped from the sky. For example, whether a company wants to pour money into research and development depends on what? It depends on how much the R&D output is worth, which is the capitalized present value of the patent. Suppose in a world where patent protection is zero, a new technology is fucking copied clean the moment it hits the ground, then what is the valuation of this technology? It equals zero. Then how much salary is the company daring to offer R&D personnel? Isn't that also zero? If no one pays for this R&D, even if you are a genius, in China you have to change careers to sell health supplements to scam the elderly, because the technological stock of the entire system is locked dead. If it is the reverse? Once the present value of the patent is positive, it will at least make R&D salaries strictly positive immediately. Moreover, the thicker the technological stock, the higher the salary.

Therefore, innovation density is never a matter of national character; it is a function of patent pricing. So, if we bring this down to the individual level, how can an ordinary person hitch a ride on the positive trend? The first step you need to take is to anchor certainty. For example, if you are focusing on macroeconomic liquidity, what should you watch? Exactly, watch the place where arbitrage opportunities occur. This could be a certain type of asset or a certain type of skill. For instance, suppose a certain type of asset is currently not protected by law and is in a stage where it is being sold off at a market discount as an 'unregistered' entity, but at this moment, the legislative trend is already pointing toward granting legal status to such things. Once the confirmation of property rights is implemented, the arbitrage will jump from a high point to a low point, and the collateralizable ratio will skyrocket. At this time, the present value of discounting will double along with the credit multiplier. A large part of China's economic growth over the past twenty years was created by the confirmation of real estate property rights, plus the credit multiplier created by banks based on real estate. In fact, every instance of asset rights confirmation and credit release in history has followed the same curve: first discounting, then confirmation, and then the multiplier. Conversely, what is it? It's a mine detector. For example, if you see that the legal status of a certain type of asset is about to be revoked, and the proportion of it that the law cannot cover is also increasing, then no matter how cheap it looks on paper, do not touch it, because the multiplier will divide you in reverse. Therefore, using compliant contracts to anchor 'unregistered' assets into your own balance sheet during the discount period is the only legitimate entry point for ordinary people to reap the dividends of the system.

The next step is to turn yourself into a low-cost node. Because in a positive-sum game network, everyone who interacts with you incurs a cost to verify whether you are reliable. If you can maintain integrity and information transparency, the cost for others to verify you will approach zero. The dynamic equation of evolutionary game theory gives such a node a title: an attractor. This means that transaction traffic and capital will irreversibly converge toward you. To put it bluntly, reliability is not a virtue; it is a compound-interest asset that automatically attracts traffic.

But what is the CCP doing now? You have blocked all the data you could, and not only the data, but also the channels for releasing data, and even the sources of the data. What is this equivalent to? It is equivalent to driving up the transaction costs for everyone dealing with the CCP, and driving them up very high. Moreover, this asset has a characteristic that other assets do not have: it gets thicker the more it is used. That is, every time you fulfill a promise, the cost for the outside world to verify you drops by a notch, and the transaction traffic grows by a large chunk. This is also an asymmetric transaction, because the number of times you keep your word grows linearly, but the attractiveness explodes exponentially. Then the new traffic gives you more opportunities to fulfill promises, and a positive feedback loop is created. It starts spinning on its own. Conversely, if you act like the CCP, constantly smashing your own reputation, blocking data for no reason, then your verification costs will return to the pre-liberation level overnight. This is why an asset like credit rises like climbing stairs, but collapses like taking an elevator. The last thing is the question of where to invest your time. For example, for homogenized physical labor and simple repetitive labor, its wage curve is decoupled from macroeconomic technical factors. The growth slope of such labor approaches a constant. The further you go, the less valuable it becomes. However, the pricing of complex skills is the technical factor multiplied by the technical stock. These are two quantities that are both rising being multiplied together. What you get is a convex curve with a second derivative greater than zero. If you solve for the optimal time allocation for an individual, there is only one optimal solution mathematically: withdraw your time from that flat line of selling physical labor and throw it all into the curve of irreplaceable skills. Oh, by the way, this step does not conflict with the defensive strategy from the last episode. In the last episode, in a negative-drift world, you had to pay off debts first to save your life. This episode is about a positive-drift world, where you must dare to leverage yourself. The two pieces of advice share the same mechanism of the scissors gap: when the rate of return is higher than the cost of capital, leverage is an elevator; conversely, leverage is a noose. Therefore, whether to borrow money is never a question of courage, but first looking at which environment you are currently standing in.

Let's substitute the Chinese Communist Party (CCP) into the formula and see what jumps out—it is definitely an abnormal parameter not found in any textbook. First, looking at the subsequent functional, the CCP has completely changed all of its target lines. What is the CCP playing at now? It's not the maximization of tax revenue limits; what is it? It's the maximization of the probability of regime survival. Tax collection is merely a constraint for the regime. Once this fucking changes, China's entire judiciary is completely screwed. Anyway, China's judiciary has always been in a screwed state; now it's just even more screwed. As for the long-term impact on tax revenue, it's a completely negative score. Now, stability maintenance, surveillance, and self-preservation are what constitute a positive score for the CCP. This is why the stability maintenance budget in the fucking expenditures can overshadow national defense. I've chatted with you guys before: normally, if it were a human, shifting from a stationary bandit to a roving bandit would change their behavioral pattern. But what is the CCP? The signboard the CCP fucking hangs is that of a stationary bandit, but the cadres underneath or the ones doing the work are all carrying out the tasks of roving bandits. Look at how cadres change every three to five years, and moreover, they are all floating officials, or otherwise they end up in jail for corruption within a year or two. And furthermore, this year it's not even about deep-sea fishing anymore; now it's coastal fishing, plus offshore fishing, plus staring at e-bikes every day to collect fines. The confiscation rate of the CCP bandit gang is simply as high as that of roving bandits. Look at land finance again: they basically sold off the tax base for the next fifty years all at once. And what about the enforcement probability? What is it here? It's an indicator function. Contract fulfillment among ordinary Chinese people is indeed improving. But the biggest default party is fucking the CCP government, as well as those fucking Chinese institutional enterprises. Their defaulting has literally become predictable; they are predictably defaulting. What else? They use the judiciary to write themselves directly out of this equation; the cost of default for these assholes is basically equal to zero. Under such circumstances, the probability of property rights being violated can never be suppressed. This is why the development cost of China's economy is extremely, extremely high, and why I always say that if China didn't have the CCP, the economy would be ten thousand times better than it is now. Now the loophole rate is exploited even more fiercely; it's a piecewise function, you see. City apartments have certificates, but the land is just leased. Rural housing is simply roughly equal to one. Hundreds of millions of people hold nothing but dead capital in their hands. The most awesome thing is that the CCP's formula can even work in reverse. Look at how those assholes destroy industries with just a piece of paper; an entire industry is gone just like that. Tutoring, real estate—they are assets of entire industries being fucking wiped out on the spot. It should have been a multiplier, but the CCP insists on using it to divide you in reverse. Just look at how fucking terrifying these things are under the CCP every day. Under such circumstances, how the hell could there be any private credit? Anyone adding leverage at a time like this must have their brain fried, seriously. Those fucking CCP banks also lend based on status; the signs cutting into state-owned enterprises and private enterprises are completely reversed. What does this lead to? Total factor productivity is being bled dry year after year. Then looking at innovation, the CCP's innovation is basically just subsidies—subsidizing car manufacturing, photovoltaic manufacturing, and then fucking getting overcapacity once subsidized. But once your private enterprise tries to touch anything related to finance or ideology, the probability of you even being able to touch it is basically zero. Chinese society absolutely forbids you from doing any creative destruction. What is allowed? Only innovation under government guidance. When you are already the government, what the fuck kind of innovation are you doing? So the CCP should stop pretending to stabilize the economy—stabilizing what the fuck? When will land destruction plus the CCP hanging itself from a tree in the southeast happen? Only then will we see the light.

Alright, let's close for today. If you like the program, remember to join the membership channel. The membership channel features daily serialized programs; welcome to join the hardcore group. See you in the next episode.