An exercise in economic reasoning

I wrote previously about the importance of reason and rationality. Let's go through an exercise to see how it works.

1. You work in order to receive money.
2. Money is necessary in order to live in society. However, you don't spend all your income, but do save a certain amount which you invest (in bonds or stock or revenue-generating real estate) in order to "make money work for you."
3. The more money you have which "works for you" (this type of money is sometimes called "capital"), the more passive income you get.
4. If you had enough money working for you, it would generate an amount of passive income that would cover all your living expenses. You would no longer have to work.
5. Let's call this the "magical amount of money." To be clear, this is the amount of money that, if invested in a reasonable portfolio of investments, would generate passive income that would cover your living expenses, so you no longer have to work. For instance, your portfolio could bring a return of 10% on $300,000, or $30,000. With 30K per year, you estimate that you can live comfortably. $300,000 therefore is the magical amount of money.
   
6. The key to financial freedom, therefore, is to work in order to accumulate this "magical amount of money."
7. This magical amount is different for different people, since it depends on your particular lifestyle. Some people live extravagantly, others live frugally.
8. It might take a person 40 years to accumulate this "magical amount of money."
9. So a person who has been working for 10 years might think: "In the next five years, I want to generate 75% of the magical amount of money. This way, I won't have to work for 25 years."
10. This means that he has to earn 6 times more what he is currently earning every week.
    
11. The only way for him to do this is to give his current employer 6 times more value than he is currently giving. (Assuming that the employer rewards productivity and that the compensation system is fair; that is, an increase in productivity results in a proportional increase in salary).
12. But to do this, he has to clearly identify the value he is currently providing to his employer.
    
13. He also has to negotiate and capture, in the form of a contract, the agreement whereby his sixfold increase in productivity will result in a sixfold increase in salary.
14. However, there is one problem: there are only 8 hours in a day. Our man -- let's call him John -- cannot work five times more per day, since that would require 40 of work per day!
15. His only solution, therefore, is to increase his productivity per hour.
16. For instance, if he is currently earning $30 per hour, he must somehow find a way to earn $180 per hour.

(to be continued)