Mind the Gap

May 2004

When people care enough about something to do it well, those who
do it best tend to be far better than everyone else. There's a
huge gap between Leonardo and second-rate contemporaries like
Borgognone. You see the same gap between Raymond Chandler and the
average writer of detective novels. A top-ranked professional chess
player could play ten thousand games against an ordinary club player
without losing once.

Like chess or painting or writing novels, making money is a very
specialized skill. But for some reason we treat this skill
differently. No one complains when a few people surpass all the
rest at playing chess or writing novels, but when a few people make
more money than the rest, we get editorials saying this is wrong.

Why? The pattern of variation seems no different than for any other
skill. What causes people to react so strongly when the skill is
making money?

I think there are three reasons we treat making money as different:
the misleading model of wealth we learn as children; the disreputable
way in which, till recently, most fortunes were accumulated; and
the worry that great variations in income are somehow bad for
society. As far as I can tell, the first is mistaken, the second
outdated, and the third empirically false. Could it be that, in a
modern democracy, variation in income is actually a sign of health?

The Daddy Model of Wealth

When I was five I thought electricity was created by electric
sockets. I didn't realize there were power plants out there
generating it. Likewise, it doesn't occur to most kids that wealth
is something that has to be generated. It seems to be something
that flows from parents.

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.

This is just as true today, though few of us create wealth directly
for ourselves (except for a few vestigial domestic tasks). Mostly
we create wealth for other people in exchange for money, which we
then trade for the forms of wealth we want.
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