The TMG third Law of Money is very simple "Money is not Wealth; it is only a Medium of Exchange."

What that means is simple.  Wealth is the Owning of Capital, which means you have title to the land, or the machines that produce something that can be exchanged for other goods or services.

Now where does Money fit into all of this?  It is just a means of exchange.  That means it is the go between from one good or service to another.  The only thing that gives money value is the amount of goods or services it can Purchase.

Many people confuse the meaning of Capital and Money.  They equate them in their head, but they are not the same.  Capital is the ownership of the means of production, money is just paper that is passed around.

The value in money is only the value that it can be exchanged for it terms of Capital.  I.E how much land or commodity can it buy.  

So, let me get to the Point a friend of mine stated to me that she recently sold a land investment for around 4 times what she paid for it. Now the question is has she indeed created more wealth for herself?

The Answer is a resounding maybe! Let me dissect this into scenarios in order to make this clear as mud.

Land is traditionally considered a hedge investment against inflation, similar to Gold. Meaning that the value increase is due to the fact that there is more money in circulation, by that I mean 1 acre of land represents a fixed percentage of land ownership that cannot change therefore the change in price means the value of money must have decreased.

If you inflation adjust today's sale price into the dollar value paid in the year purchased, is that number still higher than the purchase price?

If it is, then maybe she has increased her investment, there are still some other factors. It is easy to see things in terms of price paid versus price sold, but there is more. The cost of ownership must be fully calculated before deciding if profit is made. The cost of ownership is how much money and time she put into keeping the investment, as well as her tax burden.

On a raw land investment Tax Burden is the most likely cost of ownership. Most of the things people think their income tax pays for are actually paid from property tax leveled at the county level.

This tax pays for the schools, the police, the fire, the countyHospital, the parks, the people who pick up the road, and of course all the support people's salary as well.

This can become a huge burden on raw land as it most likely does not generate an income to offset this value. Now if my friend adds up all the expenses, and then inflation adjusts the dollar amounts, then she can say she has turned a profit or not.

As a general rule she will not have, she will most likely be at about the same number, which is why it is called a hedge investment.

Don't think this bad though, since most people speculate in stocks or bonds and find out they have lost considerable sums after the inflation factor, taxes, and other hidden costs of ownership are figured in, my friend has most likely done quite well against the average speculator.

Now, what she does next will determine, how wealthy the outcome will be. Now to be wealthy she needs to increase her holding of Capital, she needs to have a business, or land that generates income. She needs to create wealth.

Let's say she did a good job, and she negotiated a good price when she bought the land and she struck a hard deal when she sold the land, and she has in fact retained all of her value, what she does next is crucial to increasing her wealth.

If she spends the money on non productive items like food and mortgage then she has simply given her wealth away. If she uses it as a down payment on a loan for a non productive item such as a car or new home to live in she has squandered her wealth in the worst possible way.

Now if she buys a lucrative business that has a net income then she has purchased Capital and she is increasing her wealth. If she buys land and makes improvements and sells it for many times the value of the cost of labor she has increased her wealth. If she just slaps a trailer on it and rents it out, then she has created wealth. If she leases it to a farmer or a hunter then she has created wealth.

If she puts it into the stock market, or commodities market she will most likely lose her wealth as these are not productive purchases.

Now, what about this FOREX thing? What if she puts her money there? First what is FOREX, it is a computer based trading market that allows a speculator to do what is called arbitrage trades in various currencies.

What is Arbitrage, it is where you buy something in one market or exchange while simultaneously selling it in another market or exchange for a profit. It is how large traders make lots of money on the big boards by selling large blocks of stock or whatever exploiting the price difference.

Simply put when your job gets outsourced to China that is called Labor arbitrage. They are exploiting the price difference. The amount the Chinese charge for an hour of labor versus the Amount that can be fetched here in the USA.

So, that is FOREX in a nutshell, it allows a person to trade Currencies in large volume to exploit small price differences. It accomplishes this task by allowing a large amount of leverage somewhere around a 100 to 1.

The Danger is this, if the price swings the other way as it must, there is always two sides to a trade there is an equal number of winners to an equal number of losers, then you stand to lose many times more than your actual investment amount. Literally, it is the same as flipping a coin.

So who really makes money, the bank as this is a great way to create huge amounts of debt that people must pay within a very short period of time or their assets get liquidated.

Now to the heart of the FOREX, can you even make money if you are on the winning side of the trade? Well since the change in value of currency is entirely supply and demand i.e. inflationary, the answer is no! No matter what, the money will be what the money is whether it takes 100 today or 1000 tomorrow to buy the same thing, the value is still only what it can buy. Therefore you cannot profit in the money exchange. By trading your giving liquidity to a market that only takes value from the speculators and never gives.

Why do I say this, if you cannot increase your value in the trade, and you must use a margin account to trade that bears interest, it therefore siphons your money off and never gives profit.

It is like a craps table, if you have perfect play and make the best bets, for every 100 dollars you gamble you are sure to lose 3. That means given enough time you will lose all of your money regardless of the wins versus loses, the law of large numbers always wins.

Money is not wealth it is only a Medium of Exchange!