HOW TO MAKE WEALTHIf you wanted to get rich, how would you do it? I think your best bet
would be to start or join a startup. That''s been a reliable way to get
rich for
hundreds of years. The word "startup" dates from the 1960s, but what
happens in one is very similar to the venture-backed trading voyages of the
Middle Ages.
Startups usually involve technology, so much so that the phrase "high-tech
startup" is almost redundant. A
startup is a small company that takes on a
hard technical problem.
Lots of people get rich knowing nothing more than that. You don''t have to know
physics to be a good pitcher. But I think it could give you an edge to
understand the underlying principles. Why do startups have to be small? Will a
startup inevitably stop being a startup as it grows larger? And why do they so
often work on developing new technology? Why are there so many startups selling
new drugs or computer software, and none selling corn oil or laundry detergent?Money Is Not
WEALTH 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.
How do you get the person who grows the potatoes to give you some? By giving
him something he wants in return. But you can''t get very far by trading things
directly with the people who need them. If you make violins, and none of the
local farmers wants one, how will you eat?
The solution societies find, as they get more specialized, is to make the
trade into a two-step process. Instead of trading violins directly for potatoes, you
trade violins for, say, silver, which you can then trade again for anything
else you need. The intermediate stuff-- the
medium of exchange-- can be
anything that''s rare and portable. Historically metals have been the most
common, but recently we''ve been using a medium of exchange, called the dollar,
that doesn''t physically exist. It works as a medium of exchange, however,
because its rarity is guaranteed by the U.S. Government.
The advantage of a medium of
exchange is that it makes trade work. The
disadvantage is that it tends to obscure what trade really means. 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.
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