Paul Graham: How to Make Wealth

Here is another wonderful Paul Graham essay, this one is from 2004:

(…) If 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.

(…) 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.

(…) Someone graduating from college thinks, and is told, that he needs to get a job, as if the important thing were becoming a member of an institution. A more direct way to put it would be: you need to start doing something people want. You don’t need to join a company to do that. All a company is is a group of people working together to do something people want. It’s doing something people want that matters, not joining the group.

(…) Startups are not just something that happened in Silicon Valley in the last couple decades. Since it became possible to get rich by creating wealth, everyone who has done it has used essentially the same recipe: measurement and leverage, where measurement comes from working with a small group, and leverage from developing new techniques. The recipe was the same in Florence in 1200 as it is in Santa Clara today.

Understanding this may help to answer an important question: why Europe grew so powerful. Was it something about the geography of Europe? Was it that Europeans are somehow racially superior? Was it their religion? The answer (or at least the proximate cause) may be that the Europeans rode on the crest of a powerful new idea: allowing those who made a lot of money to keep it.

Once you’re allowed to do that, people who want to get rich can do it by generating wealth instead of stealing it. The resulting technological growth translates not only into wealth but into military power. The theory that led to the stealth plane was developed by a Soviet mathematician. But because the Soviet Union didn’t have a computer industry, it remained for them a theory; they didn’t have hardware capable of executing the calculations fast enough to design an actual airplane.

In that respect the Cold War teaches the same lesson as World War II and, for that matter, most wars in recent history. Don’t let a ruling class of warriors and politicians squash the entrepreneurs. The same recipe that makes individuals rich makes countries powerful. Let the nerds keep their lunch money, and you rule the world.