Graham on the Gap Between Rich and Poor

by on December 27, 2006 · 12 comments

I’ve linked to several Paul Graham essays in the past. His new article on inequality isn’t especially technology related, but it’s extremely good, so I’m going to quote it anyway:

Because of the circumstances in which they encounter it, children tend to misunderstand wealth. They confuse it with money. They think that there is a fixed amount of it. And they think of it as something that’s distributed by authorities (and so should be distributed equally), rather than something that has to be created (and might be created unequally).

In fact, wealth is not money. Money is just a convenient way of trading one form of wealth for another. Wealth is the underlying stuff–the goods and services we buy. When you travel to a rich or poor country, you don’t have to look at people’s bank accounts to tell which kind you’re in. You can see wealth–in buildings and streets, in the clothes and the health of the people.

Where does wealth come from? People make it. This was easier to grasp when most people lived on farms, and made many of the things they wanted with their own hands. Then you could see in the house, the herds, and the granary the wealth that each family created. It was obvious then too that the wealth of the world was not a fixed quantity that had to be shared out, like slices of a pie. If you wanted more wealth, you could make it.

I think this intuition that wealth comes from a fixed pool is at the root of most concerns with inequality. When people see a rich guy and a poor guy, they assume that somehow, the rich guy must have somehow (perhaps indirectly) taken the money from the poor guy. But if wealth is really created by individual initiative, it becomes hard to see why inequality, per se, should be a source of concern.

Graham makes many more good points, so I encourage you to read the whole thing.

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