Regular readers to the blog will remember the “Parable of the Pipeline,” which was created by Burke Hedges. This is an excellent analogy to show how the rich become wealthy and why the “normal” person doesn’t. (You can buy your own copy by clicking on the book cover below.)
To paraphrase:
Once in a town in Spain there were two brothers who were paid for each bucket of water they carried from the spring to the village. They each worked hard and made a reasonable living.
One brother went out at night and had big meals and wine with friends, spending any money he had left after paying for his basic needs. He saw a lot of money go through his hands with little to show for it, but he was not concerned because he was young and healthy. Whenever he needed more money he simply worked harder, carrying more buckets.
The other brother also worked hard, but he spent his nights building a pipeline from the spring. He spent any surplus money he had on materials for the pipeline. While his brother was spending his money on fancy meals and good wine, he was eating a simple dinner he brought from home in the field. While this brother was buying fancy clothes, he was content to buy durable, functional clothes that would last a long time.
The first brother ridiculed the second brother, saying that he was wasting his time and not enjoying life. He and the other men and women in town laughed at his simple clothes and pipe dream. “We have always carried buckets from that well,” they would say. “Our parents were bucket carriers, and their parents before them. Quit wasting your time on this fancy.”
But the second brother continued to work on his pipeline each chance that he got. Finally, he completed the pipeline all the way to town. The second brother was now able to bring as much water to the village as he ever could in his youngest days simply by turning a valve. If he also carried buckets, how could easily sell twice as many buckets as his brother could.
When he was sick, his income did not decline. He would travel and still have the same steady income. He could now buy nicer clothes, using the income from his pipeline, and still have his whole salary to pay for his needs and materials.
Because he did not need to work as hard to provide for his needs, the second brother could now spend more time working on his pipelines. Because he had even more surplus money, he could also hire others to help. As time passed he used his wealth to build more pipelines, eventually becoming very wealthy.
As they grew older, the number of buckets each brother could carry each day decreased. The first brother, no longer able to work, saw his income decline, making it tough to pay for necessities. The second brother, however, was able to live comfortably on his income from the pipelines.
Note in this parable no one was cheated. The second brother did not build his fortune by taking advantage of his workers – he paid them what they considered a fair wage for their efforts. It is true that he worked harder for his income when carrying buckets than when he was using the pipeline he built, but he certainly worked very hard when building the pipelines and he delayed using the fruits of his labor in order to build them. He was using his income in a smarter way than the first brother was using his – something the first brother could have done had he chosen to do so.
There is currently an assault on those who have built their pipelines and are now receiving the fruits of their efforts. Jealousy and envy are being used as tools to divide. So that people will not notice the political promises that have not been kept (because the economics made it impossible to do so), the blame is being placed on those who saved and invested.
Other books by Burke Hedges that you should read:
This nation is great because of those who have built the pipelines. Henry Ford created a way that would allow average people to own an automobile and in doing so created the factory, employing thousands. Sam Walton filled the need for a greater selection of products at prices the average person in rural communities could afford and in doing so raised the standard of living for thousands.
Even those who did not found multibillion dollar corporations, but who did save and invest so that they had a few million dollars by their 50’s benefit society. They ensure that they will not be a burden on others as they age. They also have the means to help individuals and organizations in their communities (as many do).
If we are all bucket carriers who spend every dime we will not be able to take care of ourselves in old age. If we tear down all of the pipelines out of envy there will be less for everyone. Less money, less taxes, fewer jobs, and fewer goods.
We will be like a lake full of frogs who find that the pond is dry. As an old Texan once told me, when the pond runs dry, frogs eat frogs.
Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
Picture Credits: Kevin Abbott , downloaded from stock.xchng.
