The Marginalian
The Marginalian

How to Get Rich: Paul Graham on Money vs. Wealth

“The moral challenge and the grim problem we face,” Alan Watts argued in his superb 1970 essay on the difference between money and wealth, “is that the life of affluence and pleasure requires exact discipline and high imagination.” Hardly anywhere is this urgency manifested more vibrantly than in startup culture. So argues English programmer and writer Paul Graham — who went to art school studying painting after finishing grad school in computer science, and whose timelessly wonderful meditation on prestige vs. purpose remains a must-read — in an essay titled “How to Make Wealth,” found in the 2004 anthology Hackers & Painters: Big Ideas from the Computer Age (public library). Echoing Watts, Graham defines a startup as “a way to compress your whole working life into a few years” and begins his exploration of “how to make money by creating wealth and getting paid for it” with an essential distinction between the two:

If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money. Wealth is as old as human history. Far older, in fact; ants have wealth. Money is a comparatively recent invention.

Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn’t need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn’t matter how much money you had.

Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.

Money is a side effect of specialization. In a specialized society, most of the things you need, you can’t make for yourself. If you want a potato or a pencil or a place to live, you have to get it from someone else.

Illustration from ‘Henry Builds a Cabin,’ a children’s book about Thoreau’s philosophy. Click image for more.

Unlike Buckminster Fuller, who saw specialization as a social evil, Graham considers it the natural progression of an exponentially advancing society. It first gave rise to trade between specialized forms of wealth (e.g., my homegrown tomatoes for your carpentry), then eventually sparked the creation of an intermediate stage — money (my tomatoes for a shilling, a shilling for your carpentry). Somewhere along the way, Graham argues, we lost sight of the fact that money is just an intermediary. He writes:

People think that what a business does is make money. But money is just the intermediate stage — just a shorthand — for whatever people want. What most businesses really do is make wealth. They do something people want.

From this, in turn, stems one of the most toxic fallacies we subscribe to — something legendary graphic designer Milton Glaser so eloquently debunked in considering the manifestable kindness of the universe. Graham writes of “the pie fallacy”:

A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that’s not the same thing. When wealth is talked about in this context, it is often described as a pie. “You can’t make the pie larger,” say politicians…

What leads people astray here is the abstraction of money. Money is not wealth. It’s just something we use to move wealth around. So although there may be, in certain specific moments (like your family, this month) a fixed amount of money available to trade with other people for things you want, there is not a fixed amount of wealth in the world. You can make more wealth. Wealth has been getting created and destroyed (but on balance, created) for all of human history.

Illustration from ‘How People Earn and Use Money.’ Click image for more.

What’s more, Graham points out, the relationship between wealth and money isn’t always a linearly transactional one:

Wealth can be created without being sold. Scientists, till recently at least, effectively donated the wealth they created. We are all richer for knowing about penicillin, because we’re less likely to die from infections. Wealth is whatever people want, and not dying is certainly something we want.

But this is where Graham loses me a bit: The way to make wealth, he argues, is “to start doing something people want.” And yet this falls closer to on-demand manufacturing than the kind of wealth-creation that happens when people are presented with something they didn’t yet know they wanted. Buzzfeed gives people what they want — most frequently, what their lowest selves want. Buzzfeed is making money. But is Buzzfeed creating cultural wealth? After seven years of Brain Pickings, I side even more wholeheartedly with E.B. White and believe what he once said of journalism — that the role of the writer is “to lift people up, not lower them down” — applies equally to every field of cultural endeavor. To create wealth is not to give people what they want, but to help them figure out what to want by making sense of what is worth having. There is a moral element to the marketable deliverable.

Graham takes this point in an even more worrisome direction in a footnote, where he writes:

There are many senses of the word “wealth,” not all of them material. I’m not trying to make a deep philosophical point here about which is the true kind. I’m writing about one specific, rather technical sense of the word “wealth.” What people will give you money for. This is an interesting sort of wealth to study, because it is the kind that prevents you from starving. And what people will give you money for depends on them, not you. When you’re starting a business, it’s easy to slide into thinking that customers want what you do. During the Internet Bubble I talked to a woman who, because she liked the outdoors, was starting an “outdoor portal.” You know what kind of business you should start if you like the outdoors? One to recover data from crashed hard disks. What’s the connection? None at all. Which is precisely my point. If you want to create wealth (in the narrow technical sense of not starving) then you should be especially skeptical about any plan that centers on things you like doing.

What a heartbreaking proposition. If we didn’t invest so much of ourselves in what we do — which includes what we ourselves believe, what we wish existed, and what direction we want to move the world in — then why bother doing it at all? As John Green put it, it’s about making gifts for people and putting them into the world, hoping those gifts might bring them joy and eventually bring us some form of “wealth,” but not putting them into the world because they will bring us wealth and with the primary aim that they do so.

Illustration by Maurice Sendak from ‘I’ll Be You and You Be Me’ by Ruth Krauss. Click image for more.

And yet, though Graham himself might confuse money with wealth at times, he does offer excellent insight into the advantages of startups — of being “part of a small group working on a hard problem” — over traditional companies. He writes:

A big company is like a giant galley driven by a thousand rowers. Two things keep the speed of the galley down. One is that individual rowers don’t see any result from working harder. The other is that, in a group of a thousand people, the average rower is likely to be pretty average.

If you took ten people at random out of the big galley and put them in a boat by themselves, they could probably go faster. They would have both carrot and stick to motivate them. An energetic rower would be encouraged by the thought that he could have a visible effect on the speed of the boat. And if someone was lazy, the others would be more likely to notice and complain.

But the real advantage of the ten-man boat shows when you take the ten best rowers out of the big galley and put them in a boat together. They will have all the extra motivation that comes from being in a small group. But more importantly, by selecting that small a group you can get the best rowers. Each one will be in the top 1%. It’s a much better deal for them to average their work together with a small group of their peers than to average it with everyone.

(It’s worth pausing here to note that the carrots-and-sticks method isn’t really what motivates us — a trifecta sense of autonomy, mastery, and purpose is. Even in Graham’s boat analogy, this is likely the underlying force propelling the rowers.)

Graham continues:

That’s the real point of startups. Ideally, you are getting together with a group of other people who also want to work a lot harder, and get paid a lot more, than they would in a big company. And because startups tend to get founded by self-selecting groups of ambitious people who already know one another (at least by reputation), the level of measurement is more precise than you get from smallness alone. A startup is not merely ten people, but ten people like you.

He concludes with a piece of advice, both practical and philosophical, on how to choose the direction in which the energetic rowers steer the boat. In a sentiment that parallels Steven Pressfield’s assertion that “the more scared we are of a work or calling, the more sure we can be that we have to do it,” Graham urges:

Use difficulty as a guide not just in selecting the overall aim of your company, but also at decision points along the way… Suppose you are a little, nimble guy being chased by a big, fat, bully. You open a door and find yourself in a staircase. Do you go up or down? I say up. The bully can probably run downstairs as fast as you can. Going upstairs his bulk will be more of a disadvantage. Running upstairs is hard for you but even harder for him.

All the essays in Hackers & Painters: Big Ideas from the Computer Age make for a provocative read. Complement it with Anna Deavere Smith on discipline and how to stop letting others define us.

Published July 2, 2014




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