Yesterday, I got involved in a little twitter spat where someone attacked Dave McClure to try and censor his company. The conversation is not important, nor is the person who was attacking him and 500 Startups. I won't link to them to give them greater attention, because they don't deserve it, but if you're very curious and you're reading this shortly after publication, you can look through Dave's tweet history and see parts of the sad excuse for a "discussion" that occurred.
In short, it involved someone getting terribly offended at what someone else was doing on the internet, and lashing out with all the verbal violence they could muster (which wasn't all that much, but was vitriolic enough to be quite sad to look upon). Swear words were used and reused and abused (on one side only), and there was a general lack of respect for Dave or his calm, measured, polite responses. Dave came out looking like a hero of good behaviour compared to his somewhat animalistic attackers.
What I find very interesting is that I got very upset at all this. I was clearly angered by part of this discussion. See, I find abhorrent the idea of a person trying to forbid another from doing something just because they find it offensive. It's deeply, deeply repugnant, scary, and ignominious. It brought to my mind this response by Philip Pullman about his book titled "The good man Jesus and the scoundrel Christ", where he responds to one critic who declares himself offended by the title:
No one has the right to live without being shocked. No one has the right to spend their life without being offended. Nobody has to read this book. Nobody has to pick it up. Nobody has to open it. And if they open it to read it they don't have to like it. And if you read it and you dislike it you don't have to remain silent about it. You can write to me. You can complain about it. You can write to the publisher. You can write to the papers. You can write your own book. You can do all those things, but there your rights stop.
That response made me buy and read the book (which was not all that amazing, though intriguing). I felt it was inspiring, and was a very measured and civilised response to a topic which, in me, provokes red, stupid anger. To me, the attempt by one person to censor another based on what they find offensive is a kind of intellectual violence akin to rape (yes, I use the word deliberately - bear with me) - why is it like rape? Because it is the (usually intellectual, but, in some parts of the world, frequently physical) violent imposition of your way of seeing the world on another person, and it is a violation of someone's mental integrity.
Some of you may think that my use of the word "rape" was excessive. In fact, I know that some people will react to this word emotionally, seeing red, feeling very angry that this is desensitising people to rape, and so on. If you feel like that, great - I apologise for making you feel this way, but this is exactly how I feel about the mob censorship described above.
This kind of bigoted censorship is like someone stepping into your head, declaring ownership of your thoughts, and deciding what you're allowed to express, marking some kinds of thoughts as improper, others as allowable, and, fundamentally, imposing their way of thinking on someone who is not them, by force or by threat. To me, this is a straight path to the thought police and the kind of 1984-style world which I do not ever want to set foot in.
Here's the kicker then: because I really care about this topic, I found myself getting angry, and had to make a conscious effort not to devolve into the kind of uncivil, frothing-at-the-mouth nonsensical verbiage that I was deploring in these very attackers!
The line between man and beast is oh, so fine.
Thinking about this further, and looking back at my own history of posting and arguing with people (particularly on the internet, where intellectual violence comes easily since you do not typically get kicked out of internet circles for being an asshole like you would in real life), I have myself descended into this sort of behaviour. I can't even claim it was rare: I'm quite certain it was very frequent, and even recent. Some subjects just get my goat and manage to make me see red, and want to fight, with words, to hurt the other side. It's as deplorable to observe this in myself as in anyone else.
I think it takes supreme self-control to be civilised at all times, even in the face of a heinous lynch mob who wants your blood based on a misunderstanding (often deliberate) or downright fraudulent misstatement of facts. I take my own hat off to the man with 500 hats, for his impeccable behaviour in this particular instance.
But there's a reason for writing this article beyond getting this off my chest and handing Dave a medal. There's a lesson for everyone here, I think, because I really doubt that I'm the only one who feels the lure of the beast in all of us from time to time.
Here's a thought: beyond the fairly advanced disagreement hierarchy proposed by Paul Graham, or beneath it, rather, there is a more fundamental principle at play: conversation between civilised individuals should always begin, proceed and end with mutual respect. Without this, there is no discussion, no argument - merely the noise of dogs barking at each other.
So here's my challenge, for myself and for any others who lack the buddha-like peacefulness of a still pond, which can never be disturbed by the barking of dogs or wolves nearby:
When someone challenges you by engaging you on a subject which really gets you, which makes you want to hurl words at them for no productive purpose other than getting your anger out - take a deep breath, calm down, and find a respectful way to proceed.
Even if the other side is not being respectful, you owe it to yourself to be so. After all, a gentleman remains a gentleman even in the gutter.
If I ever fail to do so in the future, please do call my attention to it.
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Money and wealth
First, a disclaimer: I am not an economist. However, most people misunderstand money and its purposes and uses so badly that I feel compelled to write out my understanding of it. Perhaps because I am not an economist, this might help some.
My context: I am running a successful, profitable company that I started with my wife. I spent a number of years broke, but I have never been poor. I've always had the safety net of a middle class family and a top education (provided and paid for by my parents) to fall back on. I've lived in not-so-great accommodations, but it always seemed temporary in my life. Now for the first time I have enough money that I don't need to worry about it. I can afford the things I want (though I typically don't buy them, because once I can afford them, they no longer seem so desirable, just wasteful). Perhaps this is temporary, but at this point in my life I have enough money.
Thirdly, I am in this article discussing material wealth. There are many other potential variations for the meaning of wealth in other contexts. I'm not talking about these. Just the good old fashioned material wealth that society keeps telling us to chase.
With all that in mind, let us begin…
Money is a medium of exchange
The first and perhaps most important mistake people make is to confuse money for wealth. This is not too surprising when the dictionary itself proposes this misleading definition of "wealth":
1 . a great quantity or store of money, valuable possessions, property, or other riches: the wealth of a city.
It's worth including the "Economic" definition on that page though, it does change things somewhat:
3 . Economics:
a. all things that have a monetary or exchange value.
b. anything that has utility and is capable of being appropriated or exchanged.
You'll notice the Economists don't define wealth directly as money, but as the ownership of things that are worth exchanging for other things of value or for money.
The more I earn, the more I realise that wealth is not money, but the ability to generate money (and other things of value). This is akin to the difference between saying "I am a dancer" (i.e. I have the ability to dance) and "I was a dancer" (i.e. I once had it but I no longer have it). Being wealthy is equivalent to the first statement, while having money is equivalent to the second.
Having money does not make you wealthy, but having the ability to make money, through net income generating assets such as businesses, investments, or even just your own skills, that makes you wealthy. This is perhaps why those with a solid education are never really poor, but merely broke: they have the potential to make money, even if they don't have money right now.
But surely, having a lot of money, say a billion dollars, is the same as being wealthy? In theory, perhaps. In practice, it seems people who know how to maintain wealth would never keep a large sum in cash around, but quickly turn it into net income generating assets, and those who do not (e.g. lottery winners) often quickly find that the seemingly infinite pile of cash has evaporated into nothing.
Having a lot of money is at best a very temporary form of wealth.
Wealth is measured in net income generating assets, in things that allow you to generate money: skills, stock investments (if they generate profits), profitable businesses you own, cash-flow positive lands and properties, etc.
Money is not a net income generating asset. Money is not wealth. Money is a medium of exchange. By reading about rich people, you'll notice they generally try to avoid having a load of cash lying around, because money is not a place to store wealth. It is and has always been, historically, a very, very poor store of wealth. Currency, since its invention, has been a fantastic tool to facilitate exchanges of things of wealth. That is what it is, nothing more, nothing less. Our economy could not function without money, but its value is not in the money. The relationship between value and money is like that between a community and a message board, or a bicycle and its tires. The first can exist without the other, but the second without the first is mostly useless.
Some people will perk up at this and say "aha, this is because of the evils of inflation, and a return to the gold standard or a switch to Bitcoin would solve that".
To which the only valid answer is: bullshit.
Those who think money used to be stable need to read the book Money: whence it came, where it went (if you can't find a copy, send me an email). It is very instructive to look at the history of money and realise just how unreliable it is as a store of wealth. Historically, every few decades, money used to lose all its value in some kind of disastrous bubble that affected currency itself. Any wealth that was stored in money simply evaporated into nothing at all. Even gold suffered enormous ups and downs - for example, the importation of large amounts of pillaged south-american gold into Portugal destroyed its economy through hyper-inflation; the difficulty of moving gold between central banks during the gold standard era caused massive deflation in some parts and massive inflation in others.
The deep irony is that all those people calling for an end to inflation (and usually a return to a gold-like standard) because of the evil erosion of money, have lived their entire lives in a period of unprecedented monetary stability. Money is so stable nowadays that it sort of looks like a store of wealth, enough so that people get incensed that the state would dare allow inflation to affect it. The reality is that the current system has resulted (in some parts of the world, by far not all) in fairly steady and predictable inflation for almost a century.
Given the perils of deflation, a small, steady, controlled inflation is really the ideal situation for a medium of exchange. Not only that, but a moderate rate of inflation is generally considered a very good property for a medium of exchange for wealth, since it encourages people not to treat money as wealth, and to instead look to store their wealth in things that actually have value (ideally investments that enable the economy to work better, putting the accumulated wealth to use as capital).
But enough about misguided gold-standard bitcoin purists. How does this affect you, dear reader?
To get wealthy, build net income generating assets, don't accumulate money
Robert Kiyosaki, author of Rich Dad, Poor Dad (worth reading along with its sequels), proposes that rich people get rich by building their net income generating assets column (i.e. things that generate positive cash flow each month, not "buy and pray" investments like most stocks or houses), and that middle class people fail to get rich because instead of buying or building net income generating assets, they buy loss-making assets (e.g. by buying a bigger house with larger mortgage payments, or a new car with monthly payments) that drag them down.
I won't try and summarise Robert's entire philosophy in a blog post, but a common misconception (and my misconception, earlier) about "getting rich" is that it involves accumulating money.
As I hope I've made the case, having piles of money may occasionally happen on the way to getting rich, but it's not the goal, nor a desirable thing.
To get rich, what you want is net income generating assets, including the skills to generate those net income generating assets. Learning how to turn business opportunities into functioning businesses is an invaluable net income generating asset: I believe you can exploit that net income generating asset in almost any economic context, even war. But, as a more generic category, the fundamental pillars of wealth seem to me to be health (including youth, energy, endurance), education (including work ethic, general knowledge, wisdom, self-knowledge), intelligence and relationships (connections to useful people, trust, reputation, power). If you have those (at least the first three), and you truly desire wealth, it is yours for the taking, in this world at least (so long as you don't let your own beliefs hold you back).
The key takeaway should be that instead on focusing on how to accumulate money, you should instead focus on how to turn money (or other things) into things that create more money. A wealthy person doesn't set a goal of saving up a million dollars, and if they find themselves with a million dollars in cash, they quickly set to work finding a better format to store that wealth into.
Instead, figure out how much income you want and create things that will generate that income for you.
In that context, saving large amounts of money seems very ill-advised. Of course, at age 33, my perspective on this is limited, and perhaps I'm getting it all wrong, but it seems to me that the idea that the best preparation for retirement is to save up a load of money is a horribly noxious lie that has likely led to the bitter disappointment of hundreds of millions if not billions of people.
In the distant past, people "saved up" for their retirement by creating net income generating assets - out of their loins. Grown children can create wealth to sustain you when you can no longer do so yourself. A similar approach seems sensible today: instead of saving piles of cash that can depreciate rapidly or even be lost when the stock market turns sour and the bank or government turns around and slashes your retirement fund, create net income generating assets that will generate the wealth you will need to live on.
Saving for your retirement instead of creating net income generating assets seems like piling up potatoes in your cellar instead of keeping the potato farm running. The potatoes will go bad over time, you'll almost certainly miscalculate the amount of potatoes required, and if you run out, you're really properly screwed, because you don't have a farm to grow new potatoes anymore.
Pensions changed this somewhat - they were equivalent of handing the potato farm over to the state in exchange for a steady supply of potatoes until your death. In theory, this was a great idea. Unfortunately, history is showing that the state is a stingy, cruel, unfair and generally grossly incompetent manager of potato farms. Any people my age who, today, trust that the government will provide for them in their old age through pension schemes, are, in my opinion, delusional. Perhaps something else might change this situation, but who knows when such revolutionary ideas will actually take hold. In the meantime, Caveat Emptor.
The best kind of net income generating asset would be one that can adapt to changing circumstances, that has the lasting power to survive through dramatic world events (which no one can guarantee the future to be free of). The net income generating assets need not be imperishable: they merely need to have a very good chance of surviving you. Strangely enough, from this perspective, well educated, healthy, intelligent and loving children are probably still the best retirement net income generating asset you can possibly create, as they have been for thousands of years.
The purpose of wealth
Some people reading the above may think to make wealth their fundamental goal in life. I believe that's very misguided. As Paras Chopra said recently, the real use of money (or rather, wealth) is to buy freedom.
As Bob Dylan put it:
A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do.
Wealth can help with that, depending on what you want to do. Lack of wealth can definitely hurt that goal. I took some acting courses, and one acting teacher once declared that a "successful actor" earned about £5,000 a year from acting. The rest of their living costs came from odd jobs like being a waiter or working in a supermarket. I politely kept silent, but my thought was, this is not a successful actor, it is a successful minimum-wage worker with an acting hobby.
Wealth, to me, serves as a platform to enable you to do what you want without so many distractions. Fooling oneself into pursuing wealth as a fundamental objective is as limiting as failing to consider wealth at all.
Importantly, in this context, wealth is highly relative to the person. You are wealthy not if you exceed some social threshold, like being a millionaire or a billionaire, but simply if you have enough wealth to meet all your needs. This points to an obvious way to increase your wealth: reduce your needs. Some take this to the extreme. Some take this to even further extremes. The fact is, if you believe you need a castle and a ferrari to be happy, your bar for wealth will be much higher than if you are happy wherever you are and don't particularly care for owning cars.
Unfortunately, if you work surrounded by people who make lots of money, chances are they spend lots of money too, and by spending so much time with them you will learn to need to spend a lot to be satisfied too. This is why high-paying jobs seem, in practice, to fairly rarely result in creation of actual wealth. Instead, we end up reading stories in the New York Times of couples who earn $500k a year and feel poor. Those stories are usually made fun of as disconnected from reality - but there is no contradiction between earning money and being poor. Money is not wealth. Poverty in your mind cannot be cured with pay raises.
A final summary about money
If you want to avoid falling into some of the most devious traps that wrong-thinking about money can lead you into, keep the following principles in mind:
- Money is a medium of exchange for wealth, it is not a store of wealth.
- Money is transient and unreliable, and expecting it to display permanence will only lead to disappointment.
- Wealth is not an accumulation of money, but the ability to generate it when you need it.
- The fundamental building blocks of wealth are health, education and intelligence. Money is a side-effect of combining these building blocks with a wilful effort to create wealth.
- Any aggregation of lots of money is a risk. Turn it into net income generating assets as soon as possible to reduce that risk.
- Any aggregation of assets also is a risk! It can have maintenance costs, if they're not net income generating assets. Sometimes those costs outweigh the value of the assets in which case the assets are a net negative. Be careful what assets you invest in.
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