Paul Graham - Essays

You get paid by doing or making something people want, and those who make more money are often simply better at doing what people want. Top actors make a lot more money than B-list actors. The B-list actors might be almost as charismatic, but when people go to the theater and look at the list of movies playing, they want that extra oomph that the big stars have.

Doing what people want is not the only way to get money, of course. You could also rob banks, or solicit bribes, or establish a monopoly. Such tricks account for some variation in wealth, and indeed for some of the biggest individual fortunes, but they are not the root cause of variation in income. The root cause of variation in income, as Occam's Razor implies, is the same as the root cause of variation in every other human skill.

In the United States, the CEO of a large public company makes about 100 times as much as the average person. [3] Basketball players make about 128 times as much, and baseball players 72 times as much. Editorials quote this kind of statistic with horror. But I have no trouble imagining that one person could be 100 times as productive as another. In ancient Rome the price of slaves varied by a factor of 50 depending on their skills. [4] And that's without considering motivation, or the extra leverage in productivity that you can get from modern technology.

Editorials about athletes' or CEOs' salaries remind me of early Christian writers, arguing from first principles about whether the Earth was round, when they could just walk outside and check. [5] How much someone's work is worth is not a policy question. It's something the market already determines.

"Are they really worth 100 of us?" editorialists ask. Depends on what you mean by worth. If you mean worth in the sense of what people will pay for their skills, the answer is yes, apparently.

A few CEOs' incomes reflect some kind of wrongdoing. But are there not others whose incomes really do reflect the wealth they generate? Steve Jobs saved a company that was in a terminal decline. And not merely in the way a turnaround specialist does, by cutting costs; he had to decide what Apple's next products should be. Few others could have done it. And regardless of the case with CEOs, it's hard to see how anyone could argue that the salaries of professional basketball players don't reflect supply and demand.

It may seem unlikely in principle that one individual could really generate so much more wealth than another. The key to this mystery is to revisit that question, are they really worth 100 of us? Would a basketball team trade one of their players for 100 random people? What would Apple's next product look like if you replaced Steve Jobs with a committee of 100 random people? [6] These things don't scale linearly. Perhaps the CEO or the professional athlete has only ten times (whatever that means) the skill and determination of an ordinary person. But it makes all the difference that it's concentrated in one individual.

When we say that one kind of work is overpaid and another underpaid, what are we really saying? In a free market, prices are determined by what buyers want. People like baseball more than poetry, so baseball players make more than poets. To say that a certain kind of work is underpaid is thus identical with saying that people want the wrong things.

Well, of course people want the wrong things. It seems odd to be surprised by that. And it seems even odder to say that it's unjust that certain kinds of work are underpaid. [7] Then you're saying that it's unjust that people want the wrong things. It's lamentable that people prefer reality TV and corndogs to Shakespeare and steamed vegetables, but unjust? That seems like saying that blue is heavy, or that up is circular.

The appearance of the word "unjust" here is the unmistakable spectral signature of the Daddy Model. Why else would this idea occur in this odd context? Whereas if the speaker were still operating on the Daddy Model, and saw wealth as something that flowed from a common source and had to be shared out, rather than something generated by doing what other people wanted, this is exactly what you'd get on noticing that some people made much more than others.

When we talk about "unequal distribution of income," we should also ask, where does that income come from? [8] Who made the wealth it represents? Because to the extent that income varies simply according to how much wealth people create, the distribution may be unequal, but it's hardly unjust.

The second reason we tend to find great disparities of wealth alarming is that for most of human history the usual way to accumulate a fortune was to steal it: in pastoral societies by cattle raiding; in agricultural societies by appropriating others' estates in times of war, and taxing them in times of peace.

In conflicts, those on the winning side would receive the estates confiscated from the losers. In England in the 1060s, when William the Conqueror distributed the estates of the defeated Anglo-Saxon nobles to his followers, the conflict was military. By the 1530s, when Henry VIII distributed the estates of the monasteries to his followers, it was mostly political. [9] But the principle was the same. Indeed, the same principle is at work now in Zimbabwe.

In more organized societies, like China, the ruler and his officials used taxation instead of confiscation. But here too we see the same principle: the way to get rich was not to create wealth, but to serve a ruler powerful enough to appropriate it.

This started to change in Europe with the rise of the middle class. Now we think of the middle class as people who are neither rich nor poor, but originally they were a distinct group. In a feudal society, there are just two classes: a warrior aristocracy, and the serfs who work their estates. The middle class were a new, third group who lived in towns and supported themselves by manufacturing and trade.

Starting in the tenth and eleventh centuries, petty nobles and former serfs banded together in towns that gradually became powerful enough to ignore the local feudal lords. [10] Like serfs, the middle class made a living largely by creating wealth. (In port cities like Genoa and Pisa, they also engaged in piracy.) But unlike serfs they had an incentive to create a lot of it. Any wealth a serf created belonged to his master. There was not much point in making more than you could hide. Whereas the independence of the townsmen allowed them to keep whatever wealth they created.

Once it became possible to get rich by creating wealth, society as a whole started to get richer very rapidly. Nearly everything we have was created by the middle class. Indeed, the other two classes have effectively disappeared in industrial societies, and their names been given to either end of the middle class. (In the original sense of the word, Bill Gates is middle class.)

But it was not till the Industrial Revolution that wealth creation definitively replaced corruption as the best way to get rich. In England, at least, corruption only became unfashionable (and in fact only started to be called "corruption") when there started to be other, faster ways to get rich.

Seventeenth-century England was much like the third world today, in that government office was a recognized route to wealth. The great fortunes of that time still derived more from what we would now call corruption than from commerce. [11] By the nineteenth century that had changed. There continued to be bribes, as there still are everywhere, but politics had by then been left to men who were driven more by vanity than greed. Technology had made it possible to create wealth faster than you could steal it. The prototypical rich man of the nineteenth century was not a courtier but an industrialist.

With the rise of the middle class, wealth stopped being a zero-sum game. Jobs and Wozniak didn't have to make us poor to make themselves rich. Quite the opposite: they created things that made our lives materially richer. They had to, or we wouldn't have paid for them.