
How to make wealth (2004) - webista
http://www.paulgraham.com/wealth.html#f5n
======
d23
> Suppose you own a beat-up old car. Instead of sitting on your butt next
> summer, you could spend the time restoring your car to pristine condition.
> In doing so you create wealth. The world is-- and you specifically are-- one
> pristine old car the richer. And not just in some metaphorical way. If you
> sell your car, you'll get more for it.

Wow. I know it sounds obvious, but for some reason this was an epiphany for
me. If I just... do something, I can create value where there was none before.
Suddenly it seems like there's infinite opportunities.

~~~
enraged_camel
The flip side of the coin is that, if we use that definition of wealth, then
that means wealth is also subject to entropy. A car that you restore to
pristine condition will rust and decay over time, even if you don't drive it.
It will lose its value.

So it seems like becoming wealthy isn't just a matter of generating value, but
rather generating it faster than it disappears.

~~~
marcosdumay
Well, wealth is subject to entropy. We usualy call it "expenses".

------
redact207
Good essay. Though I'd err new developers to not be so easily persuaded by
'the multiplier' effect. In a company your $80K job is a specialist role. One
where you focus and get good at one thing. All the million other things are
taken care for you, because you weren't recruited for those roles. Just your
one.

Working on your own product or in a startup is a comparatively generalist
role. Or should I say multiple specialist role as you need to be good at a lot
of different things that are outside of, and dare i say sometimes more
important than, technology.

Believing that your 'working harder' is making more progress isn't necessarily
true. Does that feature you're building excite your customers as it does you?
Working for a month at 3x capacity on something that no one wants equates to
zero value.

~~~
garry
There are two things at play here. One is that not everyone is cut out to be a
multi-specialist or a startup founder. Another is that there are lots of
people who are, but they don't think they are capable of it.

The only way you can find out if this type of startup life is for you is by
trying it. The first type will try and fail, but the second type will succeed
if only they try.

~~~
npsimons
Actually, it's worse than that. There are so many factors beyond your control,
you could try like nine or ten times before you found out whether you are cut
out for it or not. Not saying people shouldn't try, just that it's not as
simple as only trying.

------
davidiach
This is one of those articles I keep referring to my friends although it is
almost 10 years old. It opened my eyes on how the world works, I think I
learned more from it about wealth than from my entire college education (and I
majored in economics).

~~~
suyash
Yes, it had lot of eye openers. I enjoyed it but it's definitely not more
valuable to me than a college degree.

------
otibom
Cool essay, but :

> Many employees would work harder if they could get paid for it.

is just wrong. See <http://www.ted.com/talks/dan_pink_on_motivation.html>

~~~
kamaal
No its very true.

Money remains a big motivation factor for those who don't have it.

In general people don't get motivated by what they already have.

~~~
k__
Motivation/Money is a logarithmic curve.

~~~
devcpp
The original statement is thus valid.

~~~
k__
For small values of money.

------
nirmel
I conceive of the value of a company to be the amount of added efficiency it
brings to processes undertaken by its customers. If the company and product
can either save or give entities time or money, it can theoretically extract
some of those efficiency gains in the form of money. I think the "what people
want" objective misses the mark a bit, since it implies an a priori desire for
the wanted thing in advance of that thing existing. In practice, people just
want efficiency and certain products are better at producing that at scale
than others.

~~~
sillysaurus
A counterexample would be entertainment, e.g. minecraft.

~~~
orangethirty
Good point. Minecraft provides a lot of value for me and my family. It is a
game we play together, even though we live towns apart. It is also a game that
I'm using to teach my girls how to program (on the Rpi). Who knows what my
girls will go on and build? Wealth can be created by things we misjudge.

~~~
skarmklart
_It is also a game that I'm using to teach my girls how to program (on the
Rpi)._

That sounds cool, please explain more :)

------
geebee
I enjoyed this essay immensely when it came out, and it's still worth
discussion.

One thing that isn't discussed much [1] in this essay is the difference
between _rent collection_ and _wealth creation_ (I wouldn't go quite so far as
to say it's _missing_ , which would imply that it should be there and isn't).

PG does conclude in this essay that on critical ingredient to encouraging
wealth creation is allowing people who create wealth to keep (a lot of) it. I
do agree. But looking back at the massive banking bailout (for instance), it's
hard to avoid the conclusion that at least some of the massive fortunes were
obtained through rent collection or even wealth destruction. Even in Silicon
Valley, there are issues as well. The massive wealth of Microsoft was based
heavily on leveraging a pretty aggressive monopoly - I've also read arguments
that Facebook also occupies an incredibly profitable spot as a natural
monopoly - earned fair and square, perhaps, but a monopoly nonetheless.

My guess is that everyone agrees that there is a mix of rent collecting and
wealth creation - the real differences probably come in the extent to which
people believe these two different activities occur. If you believe that most
of the fortunes in the US are based on highly creative wealth generation,
you're probably at ease with inequality and low taxes. If you believe that it
is mainly rent collection, cartel and monopoly building, and an incestuous
relationship with government, you probably aren't at ease with these things.

[1] It is mentioned, particularly in the first paragraph under wealth in
power. I'd be interested in reading a PG specifically devoted to the
difference between rent collection and wealth generation, the extent to which
this is a problem, and what we might do about it.

------
jbert
Thinking about this and defining "value" as "what people want" (i.e. "wealth"
in the essay), it seems to me that every freely-entered-into transaction must
increase overall value. [Since the two exchanged items must be valued more by
their final owners than their initial owners, otherwise the transaction would
not occur.] This seems intuitively sensible to me and suggests that trade is a
good thing :-)

However, this then leads to some, to me, unintuitive conclusions:

1 - "value" can disappear very rapidly. (I valued an ice cream more than £1,
bought it (total value in the world goes up), then ate it (total value in the
world goes down)). Also, simply becoming disillusioned with something destroys
value (I value it less).

2 - the advertising and marketing industries create a lot of "value", by
making people want more. (Yesterday I would only valued a new pair of shoes by
brand X at £20. Today I saw an ad which made me covet them. I now value them
at £100. If I find them for sale at £40 I will buy them and be very pleased.)

I've not studied economics, is this definition of fairly ephemeral and
manipulatable "value" meaningful?

------
npalli
Very good essay with lots of wisdom. A couple of nitpicks, only because they
keep popping up when I discuss this with people

1\. The beginning has an overly technical explanation of wealth in relation to
hours worked. Sort of PG's law of conservation of effort. I don't think the
relationship is that precise. In all likelihood, what you work on (market
opportunity) matters more than the quanta of hours. You can work 16 hours/day
every week for two years and have a failed startup while you can have a pretty
good success with putting in 10-12 hour days (putting aside efficiency
considerations).

2\. 'Make something people want' is perhaps not the most helpful way to frame
what you should be doing in a startup. I mean it is true at a top level way
(surely, nobody would want to work on something nobody wants). However, it
seems like an end result of 'x' things that should be done so you get to
making what people want.

~~~
vlasev
Number 2 will not work without ample advertisement. And you also have to think
which people do you want to want your product.

~~~
suyash
"Number 2 will not work without ample advertisement." I disagree, if people
already want something bad, there is no need for ample advertisement, it will
advertise itself on social media, word of mouth, free press articles etc
(other people will talk about it, if it really is a promising solution).

