Chapter 02 The Truth of Capitalism

Exploitation and the Systemic Trap

The world of capitalism is like a meticulously designed game: those who know only how to sell their labor in exchange for depreciating IOUs of fiat currency are the exploited servants; only by turning the tables and buying up equity in the most profitable enterprises can one flip the board and become the master. The difference has never lain in who works harder, but in who can read the rules of this game.

Capitalism is at present the fairest, most just, most open, and most efficient system in human society; yet in its distributional outcomes, it also brings enormous wealth disparity and side effects. Those who cannot read the rules usually end up as the cost the rules extract.

The perspective can be split into two layers, one following the other:

The design of the system long ago determined the outcome of the game: the rich roll money with capital, the middle class trade time for money, and the gap only widens. The entire modern way of life is designed for the consumer, not for the person who owns assets.

The Tax Dividend Reveals the Uneven Distribution of Wealth

In the institutional design of capitalism, systemic uneven distribution of wealth is its most conspicuous feature, and the tax system is an enormous dividend tilted directly toward the rich. For laborers who rely on wage income, no matter how hard they work, their income often faces a comparatively high income-tax rate. For high-earning wage-earners, once the salary has paid out taxes that can reach 30% to 40%, the money left over must still cover living expenses and investment, and in the end very little asset remains to keep for oneself.

The rules of the game for the capitalist, however, are entirely different. Tax systems around the world almost all provide substantial reductions and preferential treatment to long-term investors. Under the U.S. tax code, if a single person’s long-term capital gains fall below US$50,000, or a married couple filing jointly falls below US$100,000, they can even enjoy the dividend of paying no tax at all.

Take the U.S. tax brackets as an example: the marginal tax rate on labor income can run as high as 37%, but the common brackets for long-term capital gains are 0% / 15% / 20% (the current U.S. IRS federal tax brackets). Both are income, yet the tax friction is completely different, and this is precisely the institutional backdrop that allows holders of capital to pull ahead over the long run.

In Taiwan, many people love to collect high dividends, without realizing that they have fallen into a tax trap. According to a worked example: when a high earner is subject to a 30% tax rate and dividend income reaches NT$1.2 million, if the 28% separate-taxation option is chosen, the dividend income tax alone comes to as much as NT$336,000; and if the dividends are instead combined into ordinary income, the government may even skin off more than 30%. Not to mention that any single dividend payout reaching NT$20,000 must additionally be charged the 2.11% second-generation National Health Insurance supplementary premium. When you think you are harvesting, in substance you may only be able to collect about 70% of the original gain. The true capitalist holds growth-oriented, market-capitalization-weighted assets, collects no dividends, pays no tax, and lets the capital gains stay entirely within net asset value, enjoying frictionless compounding.

▲ Figure 2-1 The tax friction between Taiwanese high-dividend and market-cap-weighted ETFs, where high dividends are skinned by heavy taxes while non-distributing market-cap products bear zero friction

Even more worth mentioning is that Taiwan, in principle, exempts the “capital gains” on listed and OTC stocks and ETFs from tax — on the price spread earned from holding 00662 as it soars several times over, not a single cent need be paid to the government. This is an extremely rare institutional advantage for Taiwanese investors within the global tax landscape, and precisely because of it, a capitalist based in Taiwan is better positioned than a holder of equivalent assets in most other places in the world to execute a long-term strategy of “never selling to the death.”

Within capitalism, our job is to go to the bank and haul out money; the tycoons forever borrow and never repay, forever pay no tax. And should you come to condemn me for it, then you are the awakened devil. Under this system of capitalism, if you do not understand financial maneuvering, you will fall into the 99.99% of laborers. (Video 00491)

The rich, by holding assets and not readily selling them, use securities-backed loans to obtain cash flow, and thereby perfectly sidestep the double exploitation of capital gains tax and income tax. While the laborer trades his life for a salary and pays heavy taxes, the capitalist is exploiting the dividend of the system, letting his assets keep rolling and magnifying through compounding under a tax-free umbrella.

Debt Enslavement, the Jiufen Miners of the Modern Age

This trap does not begin the moment you receive your first credit card; it was planted much earlier, in the socialization process itself. The education and workplace training most people receive focuses over the long term on punctuality, obedience, performance reviews, and job stability, and rarely teaches systematically about how capital operates, how to recognize risk, or how to allocate assets. Over time, people grow more familiar with “how to be a good employee,” yet unfamiliar with “how to make capital work for oneself.”

Beyond the plunder of taxation, capitalism further locks the middle class and laborers firmly into the yoke of work by encouraging consumption and bad debt. The social atmosphere and traditional notions relentlessly brainwash the public, prompting people to pour their hard-earned salaries into buying big houses and expensive cars, and to shoulder heavy loans stretching over decades. In the felt experience, this mechanism often resembles a swindle, and also a long process of enslavement.

When these mechanisms stack together, the rat-cage cycle emerges: work to earn money, pay taxes, repay loans, consume, and then return to the next round of work. If part of the cash flow is not converted into accumulable assets, the cycle only spins faster and faster.

This behavior of pouring all one’s funds into heavy debt and material enjoyment strips people of their capacity to resist risk. The crux of the system lies not only in “how much was borrowed,” but in how it binds a person’s career choices, family pressures, and cash-flow risk to the same rope, forcing one to remain for the long term on the existing track.

Many of us laborers are just like those old Jiufen miners, digging in the mines; what they dug out went to food and gambling. In the end they lost again to the capitalist, and at night, worn out, they slept, and the moment the sky brightened they had to go back down into the pit. You can never escape the laborer’s fate. (Video 00166)

The modern laborer is just like the early gold-panning miners of Jiufen, by day using labor and health in the pit to exchange for meager wages, and after work spending that money at the shops and entertainment venues opened by capitalists, so that the money in the end flows right back into the capitalist’s pocket. As long as one cannot convert labor income into quality assets that produce compounding, people can never break free of this vicious cycle of “earn money, consume, earn money again.”

What decides the fate of one’s class is not how diligent one is, but whether the rules of the game one finds oneself under are “inclusive” or “extractive.” Under an extractive system, society is designed as a machine by which a small clique of elites legally plunders the wealth of the masses. In this kind of environment, the more diligent one is, the more savagely one is extracted from. True awakening is understanding that under extractive rules, all pure-labor churning is ineffective, and that only by converting resources into hard assets that can cross the cycles of the system can one break out of the dead loop of turning the millstone.

Capitalism is in essence driven by “borrowed money”: every time a bank makes a loan, the currency in circulation increases by that sum out of thin air. When one diligently saves cash and does not borrow to buy assets, this purchasing power is slowly diluted by those who do borrow to buy assets. In other words, the honest saver is in fact, through inflation, silently repaying the interest on the capitalist’s debt.

This “increase out of thin air” is not a metaphor but has an explicit statutory mechanism — the “required reserve ratio.” Take the current rules of Taiwan’s central bank as an example: the reserve ratio for demand deposits is 10.525% (11.500% for checking deposits). The following uses whole numbers as a simplified illustration (the actual lendable proportion is higher; this is only for ease of understanding): when Jia deposits NT$100 with Bank A, Bank A need only retain NT$10.525 as reserves, and the remaining roughly NT$89.475 can be lent out; suppose it lends only NT$80 to Yi, and Yi then deposits that NT$80 into Bank B, and Bank B in turn lends out about NT$60 of it to Bing — and so the cycle continues. At first glance the original base money is only NT$100, but after multiple rounds of the deposit-and-loan cycle, the broad money supply created in the market can reach NT$240 or even higher. If estimated by the theoretical deposit multiplier (1 ÷ 10.525%), the ceiling is about 9.5×; actual money creation remains constrained by bank credit approval, capital adequacy, and central-bank policy, and is not an unlimited printing of money.

“Bank lending = printing money” is not rhetoric, but the mathematical result of the system running with precision. When the laborer deposits money in the bank to earn 1% interest, the bank is using that very money to lend, at a ratio above 90%, to capitalists, earning an interest spread several times the deposit interest — this is the exploitative bedrock by which the banking system transfers the saver’s wealth to the capitalist.

▲ Figure 2-2 The required reserve ratio and the money-multiplier effect, where bank lending cycles layer upon layer, magnifying base money into several times the broad money

Source: Taiwan central bank reserve ratio (demand deposits 10.525%), data as of 2025-Q4

In its modern version, this cycle often takes the form of the combination “high total-price housing + long-term mortgage + rigid insurance premiums.” On the surface it is asset accumulation, but in reality it locks down the cash flow of the coming decades in advance, so that even when one sees a better career or investment opportunity, one lacks the room to adjust.

The reason real estate is often called an invisible cage is not that the asset itself is sinful, but that when over-concentration, over-long terms, and rigid expenditures appear at the same time, they lock down a person’s career choices. When a mortgage becomes an uninterruptible pressure on cash flow, many people no longer dare to change jobs, dare not cut losses on a wrong job, and dare not bear the necessary risks of growth.

Cash Flow Is the Core of the Bank’s Scoring

In the eyes of the bank, personal identity and job title are not the core; whether one can continuously produce cash flow is the core. The essence of a commercial bank is the interest-spread business: absorb deposits at low cost, then lend at a higher rate, steadily collecting the spread. This means the bank naturally prefers cash flow that is “predictable, sustainable, and recoverable,” rather than a narrative of subjective effort.

Therefore, if one uses only “working hard” as the source of financial security, one often ends up in a weak position in the credit market. To truly turn the tables, the point is not to take all your cash and clear out your consumer debt to zero and start over, but to build sustainable asset cash flow and a safety buffer, so that within the system the individual gradually shifts from a passive borrower into someone who can wield the rules.

In practice, the bank’s scoring does not consist of listening to the customer say “I work very hard,” but of looking at verifiable cash flow. There was a couple in their sixties preparing for retirement, sitting on a NT$30 million detached house, two plots of land, and NT$10 million in stocks; they wanted to take out a wealth-management mortgage to borrow and invest. But wealth-management mortgages are typically on a seven-year term, and the bank retains the initiative to renew at any time. By the time they reach 70, if they have no proof of fixed salary, then once the bank refuses to renew and demands repayment of principal in a lump sum, and if a stock-market crash happens to hit at that moment, they can only be forced to cut positions and sell stock. This is “starving while clutching gold bricks”: with no cash flow, one’s lifeline is pinched in the bank’s hand.

To crack this predicament, one must learn to convert assets into a virtual monthly salary that the bank recognizes. The true capitalist knows how to use the stock positions in hand, converting them within the bank’s credit-verification system into a stable annual-income recognition, and through the legally prescribed multiple, magnifying the credit line. Maintain positive free cash flow, and borrow the bank’s money out to buy assets — only then can you open up the two great meridians of finance.

The Middle Class’s Most Fragile Triple-Concentration Disaster

One structural blind spot the middle class most easily overlooks is placing the three most important assets of life in the same basket. This kind of allocation can be called Triple Long Risk, that is, triple same-direction concentration risk: active income, stock assets, and one’s own home are all tied to the same company, the same industrial chain, and the same regional economic cycle at once.

When the economy is on the upswing, this kind of allocation looks highly efficient: salaries grow, stock prices rise, house prices lift, three lines rising at once; but in the downward cycle, the blows also land at once. Company layoffs cause income to fall, a weakening corporate outlook drags stock prices into correction, and a deterioration in regional employment further drags down housing transactions and valuations, ultimately forming a continuous triple pressure.

This system is the triple-concentration disaster: income source, investment risk, and property risk exposed in the same direction. Rather than pressing the down payment, the mortgage, and the cash flow of the coming decades all onto the same region and the same industrial chain, it is better to invest first and buy the house later — before owning a home, first own a cash-flow system that is not locked down.

The Rule of the Game Where the Rich Get Richer

To break this predicament of class replication, the key lies in recognizing the essence of currency and assets. In an age when the government keeps up quantitative easing and prints money in vast quantities, the purchasing power of fiat currency will inevitably keep depreciating. The cash the laborer works diligently to earn, if not invested, will if left in the bank become nothing but ever-shrinking “garbage.”

The truly rich know this rule of the game well; what they play is the infinite loop of “Buy, Borrow, Die” (never sell — borrow against assets, pass on at stepped-up basis): first “buy” quality productive assets; when cash is needed, absolutely never sell the stock, but go and “borrow”; and finally never sell to the death, passing it directly on to the next generation. This move not only lets one enjoy asset compounding, but also avoids heavy taxation.

The money the government prints, we do not hold; we borrow it, borrowing garbage to exchange for gold, borrowing garbage to exchange for assets. We turn the money the government prints into garbage, borrow other people’s currency, and exchange it for our own assets — that is the highest-grade capitalist. (Video 00467)

The wisdom of refusing to be enslaved lies in no longer relying on labor as the sole means of accumulating wealth, but learning to “make money with money,” and even to “make money with other people’s money.” The difference often lies not in who works harder, but in who holds the assets that appreciate over the long term. When one holds the stock of quality companies, one crosses over the laborer’s class and becomes a capitalist. For example, the employees of the world’s most top-tier high-tech contract manufacturers work overtime day and night, but the ones who in the end reap the greatest benefit are the shareholders and foreign investors who hold the stock of these enterprises. To recognize this point, and to choose to stand on the side of the capitalist, is the only way to avoid being invaded and exploited in a silent financial war.

The rate of return on capital (r) is over the long run higher than the growth rate of labor wages (g); this is not a form of social injustice, but a “physical law” of how capitalism operates. Labor is limited by physiological limits (a day has only 24 hours), while capital benefits from the compounding effect and digital leverage (zero marginal cost). This forking is irreversible, and any attempt to narrow this gap through “working harder” is, in mathematical logic, futile.

Within the global financial order, those who hold fiat currency (especially US-dollar IOUs) are in essence reduced to the “invisible colony” of this system. Thinking they are saving money for safety, they are in fact providing a buffer for the structural bad debt of the global financial system. When a crisis breaks out and the printing press starts up, the capitalists who get the money in the first wave have long since swept away the quality assets, and what remains in the hand is only the diluted dregs of fiat currency. In this game, the silent saver is the one who ultimately foots the bill.

Making Good Use of Capitalism’s High Efficiency

Although capitalism brings wealth disparity and class rigidity, and is considered a system that is not moral in its distribution of wealth, it is undeniable that it is at the same time the most efficient system for driving human technological progress and economic development. Through the motive of self-interest and the elimination mechanism of market competition, capitalism achieves the optimal allocation of resources.

Facing this objectively existing and powerful organism, cynicism or complaining about the government cannot change an individual’s fate. The correct attitude is to awaken and profoundly understand this rule of the game, and to turn it into a tool that helps oneself and one’s family attain financial freedom. If you cannot beat the rules, then you must learn to join the rules and use the rules.

Even more crucial is that Taiwan, China, and Korea may be among the few places in the world that can, by buying the U.S. NASDAQ-100, break free from the bottom of the fate of long-term hegemonic exploitation. Today’s US-dollar system is a financial order backed by political and military power, in which numerous developing countries are forced to play the role of producer yet cannot become the price-setter. But in the cracks of this order lies a legal channel of escape: buy the index shares of the top-tier tech giants that command global pricing power, and let the expansion of these enterprises’ computing power work for the investor. It does not matter that you cannot beat the organizers of this global financial war; join it, and use its own rules to turn them around and serve yourself. This is not a compromise; this is the most brilliant awakening.

Wealth is a gift — the money is simply already there, and you can catch it by the handful, more than you can ever finish. Happiness is a human right; you must understand that you are to live each day happily and joyfully, and not become unhappy over one word from someone else, or over one incident, or over a stock falling. (Video 00166)

In the great flood of capitalism, ignorance is the greatest risk, while cognition is a solid economic moat. By thoroughly discarding the laborer’s mindset, ceasing blind consumption and the accumulation of wrong debt, and turning instead to exploit the dividend of the tax system and the compounding effect of quality assets, anyone has the chance to turn their fate around in this highly efficient system. To understand the truth of capitalism is not only for the sake of obtaining money, but even more for the sake of reclaiming the right to choose in one’s life, truly embodying the ultimate meaning of “wealth is a gift, happiness is a human right.”