Making Wealth
Paul Graham's article, How To Make Wealth, literally changed my life and my perceptions about technology, compensation and hard work. It's one of those pieces that reframes everything you thought you knew about wealth creation (at least for me).
His central insight is deceptively simple: wealth creation is about doing something people want. But he unpacks this idea with surgical precision, revealing why startups, measurement and leverage matter so much.
Lesson #1: Startups Compress Time
Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast.
The key insight here isn't about working harder, it's about escaping the averaging that happens in large organisations. But Graham is clear about the tradeoffs:
Startups are not magic. They don't change the laws of wealth creation. They just represent a point at the far end of the curve. There is a conservation law at work here: if you want to make a million dollars, you have to endure a million dollars' worth of pain.
Lesson #2: How To Create Wealth, Summarized
The advantage of creating wealth, as a way to get rich, is not just that it's more legitimate (many of the other methods are now illegal) but that it's more straightforward. You just have to do something people want.
This sounds simple but it's profound. Most people think about "making money" in terms of extracting value from existing systems. Graham reframes it as creating new value that didn't exist before.
Lesson #3: Wealth Is NOT Money
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.
This distinction matters more than it first appears:
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.
When you focus on creating wealth (things people actually want) rather than capturing money (claims on wealth), you think differently about problems and opportunities.
Lesson #4: 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.
Graham's car restoration example perfectly illustrates wealth creation:
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.
This zero-sum thinking kills so many good ideas before they start. The pie gets bigger through creation, not just redistribution.
Lesson #5: What Is A Job, Really?
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.
This reframes the entire career mindset from fitting into existing systems to creating value directly.
Lesson #6: The Problem with Big Companies
That averaging gets to be a problem. I think the single biggest problem afflicting large companies is the difficulty of assigning a value to each person's work. For the most part they punt. In a big company you get paid a fairly predictable salary for working fairly hard.
The result is systematic undervaluation of high performers:
It turns out, though, that there are economies of scale in how much of your life you devote to your work. In the right kind of business, someone who really devoted himself to work could generate ten or even a hundred times as much wealth as an average employee.
But companies can't reward this because they can't measure it:
You can't go to your boss and say, I'd like to start working ten times as hard, so will you please pay me ten times as much? For one thing, the official fiction is that you are already working as hard as you can. But a more serious problem is that the company has no way of measuring the value of your work.
Lesson #7: Measurement and Leverage
Salesmen are an exception. It's easy to measure how much revenue they generate, and they're usually paid a percentage of it.
This reveals the formula for making significant wealth: you need both measurement (knowing how much value you create) and leverage (being able to amplify that value).
Most jobs provide neither. That's why salespeople and CEOs can make outsized money ... their performance is measurable, and their decisions have leverage.
Lesson #8: Smallness = Measurement
A company that could pay all its employees so straightforwardly would be enormously successful. Many employees would work harder if they could get paid for it. More importantly, such a company would attract people who wanted to work especially hard.
Small companies can provide the measurement that large ones can't:
In a startup you're not just trying to solve problems. You're trying to solve problems that users care about.
Lesson #9: Technology = Leverage
What technology gives you is leverage. You're solving problems that affect many people, and solving them fast.
Technology is particularly powerful because it can scale without proportional increases in cost:
If you write software to teach Tibetan to Hungarian speakers, you won't be able to generate much revenue. But if you write software to teach English to Chinese speakers, you're in big business.
The Real Insight
What struck me most was Graham's reframing of work itself. Instead of thinking "I need to join an institution," think "I need to start doing something people want." The institution is just a means to an end, not the end itself.
This shifts the entire frame from optimising your position within the game to changing the rules of the game entirely. It's the difference between finding a better job and creating work that didn't exist before.
Graham also tackles the common objections: Won't you get crushed by big companies? What about the risk? How do you know if your idea is good? Each answer comes back to the same principle: focus on creating genuine value for real people, and the rest tends to work itself out.
Why This Essay Matters
Years later, this essay still influences how I think about work, value creation, and building things that matter. It's not just about startups ... it's about understanding how wealth actually gets created in any context.
The insights apply whether you're building a company, choosing a career, or just trying to understand how the economy really works. The fundamental question isn't "How do I make money?" but "How do I create value that people actually want?"
- Quotes are from an excerpt, which was from a book he wrote called 'Hackers & Painters'. I'd encourage you to still read the original or better yet, buy the book, if you can.
- Anything in quoteblocks is the same as what is in the original article - other than the emphasis (i.e. Italics).
- You could comment on the original article reddit.com/info?id=20775 as per the author suggests, but the link on reddit seems to be down.
- Finally, here's more essays by Paul Graham.