Essays

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I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood. This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you plan to start a startup, then whether you realize it or not, you're planning to disprove the Pie Fallacy.

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.

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.

In restoring your old car you have made yourself richer. You haven't made anyone else poorer. So there is obviously not a fixed pie. And in fact, when you look at it this way, you wonder why anyone would think there was. [5]

Kids know, without knowing they know, that they can create wealth. If you need to give someone a present and don't have any money, you make one. But kids are so bad at making things that they consider home-made presents to be a distinct, inferior, sort of thing to store-bought ones-- a mere expression of the proverbial thought that counts. And indeed, the lumpy ashtrays we made for our parents did not have much of a resale market.

Craftsmen

The people most likely to grasp that wealth can be created are the ones who are good at making things, the craftsmen. Their hand-made objects become store-bought ones. But with the rise of industrialization there are fewer and fewer craftsmen. One of the biggest remaining groups is computer programmers.

A programmer can sit down in front of a computer and create wealth. A good piece of software is, in itself, a valuable thing. There is no manufacturing to confuse the issue. Those characters you type are a complete, finished product. If someone sat down and wrote a web browser that didn't suck (a fine idea, by the way), the world would be that much richer. [5b]

Everyone in a company works together to create wealth, in the sense of making more things people want. Many of the employees (e.g. the people in the mailroom or the personnel department) work at one remove from the actual making of stuff. Not the programmers. They literally think the product, one line at a time. And so it's clearer to programmers that wealth is something that's made, rather than being distributed, like slices of a pie, by some imaginary Daddy.

It's also obvious to programmers that there are huge variations in the rate at which wealth is created. At Viaweb we had one programmer who was a sort of monster of productivity. I remember watching what he did one long day and estimating that he had added several hundred thousand dollars to the market value of the company. A great programmer, on a roll, could create a million dollars worth of wealth in a couple weeks. A mediocre programmer over the same period will generate zero or even negative wealth (e.g. by introducing bugs).

This is why so many of the best programmers are libertarians. In our world, you sink or swim, and there are no excuses. When those far removed from the creation of wealth-- undergraduates, reporters, politicians-- hear that the richest 5% of the people have half the total wealth, they tend to think injustice! An experienced programmer would be more likely to think is that all? The top 5% of programmers probably write 99% of the good software.

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. Hackers often donate their work by writing open source software that anyone can use for free. I am much the richer for the operating system FreeBSD, which I'm running on the computer I'm using now, and so is Yahoo, which runs it on all their servers.


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