According to author Roger James Hamilton, acquiring wealth is as simple as a single equation.
Wealth = Value x Leverage
Value and leverage are the keys to controlling and growing the flow of money, Hamilton says.
He uses the analogy of driving a car to differentiate between the two.
Creating value is like putting your foot on the gas and accelerating. Leveraging that value is like shifting up a gear.
To explain how value and leverage combine to create wealth, Hamilton compares the flow of money to the flow of water in a river, presenting the example of selling homemade prints.
Hamilton started off by creating one original print and then made copies, selling one copy for $US6, and two for $US10. When a tourist wanted to buy his original, Hamilton originally declined, and then realised he could make a whole day’s worth of money off one print. So he sold it to the tourist for $US200.
Water flows where there is a height differential. Similarly, money flows where there is a value differential, based on value exchange.
When people bought my prints for $US6, it meant they valued my prints equal to or more than the price I set. I end up with money, and they end up with my prints. Every day, trillions of dollars of money flows naturally in this way.
… When the tourist bought my unfinished original, he saw greater value in my hour’s work than my leverage was rewarding me for a day’s work. But he may not have paid so much if I was not selling so many of my prints. My leverage led to new value.
According to Hamilton, value (in this example, $US6) controls the speed at which money flows. Leverage (how many copies Hamilton makes of his prints) controls the volume of money flow.
The more copies of his prints Hamilton makes, the more prints he has to sell, and the more money he can make. He is leveraging his value.
Here’s another way to think about it, with the visual depiction of the equation from Hamilton’s book we’ve recreated here: