The Illusion of “Making Your Money Work”: Why Investing Does Not Change Your Position

Introduction: An Appealing Phrase With Something Hidden Inside It

Make your money work for you. In the world of investing this is raised often as an attractive slogan. You do not work; even while you sleep, money increases of its own accord. Few people are unmoved by the sound of it.

This article does not deny the appeal. Dividends and interest really are paid into accounts. But one illusion is lodged inside that sentence. The appearance that money begets money quietly removes from your field of view the actual site where value is produced. And in that vanished site lies the root of why investing does not lead to freedom. Let us unpick the illusion carefully.

A Banknote in a Safe Is Still One Banknote a Year Later

Start with a plain question. Does money really increase by money alone?

Suppose you lay a single banknote in a safe. A year later, is there a second one? There is not. Ten years on, it is still one note. Money in itself possesses no power to multiply. Hold that too-obvious fact in your hand first.

Why, then, does money placed into shares or bonds come back larger? The notes in the safe do not multiply, and the funds committed to the market do. Where does the difference come from? The answer: somewhere your money went, someone is producing something. At the company whose shares you bought, workers are making products, delivering services, generating new value. A portion of that value flows to you as a dividend. The increase was not begotten by money. It was begotten by production somewhere else.

The Increase Was Produced Somewhere Else

The nineteenth-century economist Karl Marx called this way of seeing — in which the site that produces value becomes invisible — the fetishism of capital. The term is forbidding; what it points at is simple. Value that human labour and production in fact created appears instead as though money itself possessed a natural power to multiply. That is the illusion. The appearance that money begets money is nothing other than the most vivid expression of that fetishism.

Take an analogy. You buy the right to receive the harvest from one plot of an orchard. Every autumn, boxes of apples arrive. You have never grown an apple. You did not till the soil, or water, or prune. The apples arrive regardless. It would be strange to conclude that the certificate is producing the apples. What produces them is not the certificate but the people working the orchard, and the trees. The certificate is merely a right to a share of the harvest. Money begets money has exactly the same structure as the certificate begets apples.

Why does this misperception matter? Because it erases the site where value is produced. Once the site is invisible, so is the question of whose hands move it and whose decisions it follows. For as long as it feels as though money is increasing on its own, you can forget that your revenue depends entirely on someone else’s production and on the market’s valuation of it. A comfortable illusion quietly covers over the fact of dependency.

What You Hold Is Not a Means of Production but a Claim

Remove the misperception and the nature of a financial asset comes into view. A financial asset is not a means of production.

A means of production is the wherewithal for generating value. For a baker: the oven, the shop, the daily order of preparation. Whoever holds the oven decides what is baked in it. Whoever holds shares, by contrast, is in no position to decide what the company makes, how it sells, or where it is headed. Hold tens of thousands of shares and you can neither halt the factory line nor determine next season’s product. What you hold is not the site of production but only a claim on a share of the fruit that site has borne. You do not own the oven; you own a certificate entitling you to a slice of the bread it baked. That is close to what a financial asset actually is.

Here sits the hardest core of why investing does not lead to freedom. A claim hangs, in two senses, on conditions outside your hands. One is whether production continues. The other is how the fruit is priced by the market. Neither of the two can be moved by you. So when matters stop going well, no move exists to be made in the first place. This article calls that financial dependency. The same structure, seen from the side of labour, is analysed in what it actually takes to stop depending on an employer.

A note on attribution: the treatment of interest-bearing capital, the fetishism of capital, and claims was created and named by Karl Marx (Capital, Volume 3). The economist Kozo Uno systematically reorganised it in Principles of Political Economy. It is set down here so that the originator is not misidentified — this was not “proposed by Uno”.

You Do Not Have to Believe the Labour Theory of Value

A sharp objection may be forming. I do not accept Marx’s labour theory of value. Doesn’t that make this argument irrelevant to me?

The worry dissolves. The conclusion of this article does not depend on the strong claim that is the labour theory of value. It uses only a far more modest weak fact: the source of any fruit you receive from a financial asset always lies in production or business activity being carried out somewhere real.

The source of a dividend is the profit a company actually earned. That profit arose because somebody made a product and a customer paid for it. Whether that value is determined by quantity of labour or by how much people want it — there, opinions may divide. But the single point that the profit arose out of some real economic activity is undeniable from either position. Notes in a safe fail to multiply under any theory of value. No strong theory is required. On this weak fact alone, the conclusion stands as it is: what you hold is merely a claim, and the decision rights are elsewhere.

Conclusion: It Is Not Money That Is Working

Why is making your money work an illusion? Because it is not money that is working. Somewhere else, where your money went, somebody is standing at an oven. You simply receive, through a claim, a share of the bread that somebody baked.

None of which means this article tells you to stop investing. Mechanisms for circulating funds are necessary to a society. The problem is not investing itself but mistaking a claim for a means of production, and a wager for ownership. The first step is to re-sort the assets already in your hands by a single criterion: whether the decision rights sit on your side or the market’s.

▸ To take in the whole argument first, begin with Why Passive Income Does Not Lead to Freedom.

The route toward being the one who holds the source of value and the decision rights is set out in digital content as a means of production and in the analysis of economic structure.

References

Books

• Karl Marx, Capital, Volume 3 (Das Kapital, 1894)
• Kozo Uno, Principles of Political Economy (1964)