When wealth is talked about in this context, it is often
described as a pie. "You can't make the pie larger,"
say politicians.
When you're
talking about the amount of money in one family's bank
account, or the amount available to a government from one
year's tax revenue, this is true.
If one person gets more, someone else has to get less.I can remember believing, as a child, that if a few
rich people had all the money, it left less for everyone else.
Many people seem to continue to believe something like this
well into adulthood. This fallacy is usually there in the
background when you hear someone talking about how x percent
of the population have y percent of the wealth. If you plan
to start a startup, then whether you realize it or not, you're
planning to disprove the Pie Fallacy.What leads people astray here is the abstraction of
money. Money is not wealth. It's
just something we use to move wealth around.
So although there may be, in certain specific moments (like
your family, this month) a fixed amount of money available to
trade with other people for things you want,
there is not a fixed amount of wealth in the world.
You can make more wealth. Wealth has been getting created and
destroyed (but on balance, created) for all of human history.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.In restoring your old car you have made yourself
richer. You haven't made anyone else poorer. So there is
obviously not a fixed pie. And in fact, when you look at
it this way, you wonder why anyone would think there was.
Blog mentions of a presentation where Charles Plant spoke about Venure Capital and how you need to have a compelling business case to maximize and obtain favourable conditions from VCs. March 3, 2009
