Making Wealth, Giving It Away
I have just finished reading Paul Graham's "How To Make Wealth," and as his essays often do, it got me thinking. In his essay, he suggests:
A great deal has been written about the causes of the Industrial Revolution. But surely a necessary, if not sufficient, condition was that people who made fortunes be able to enjoy them in peace. One piece of evidence is what happened to countries that tried to return to the old model, like the Soviet Union, and to a lesser extent Britain under the labor governments of the 1960s and early 1970s. Take away the incentive of wealth, and technical innovation grinds to a halt.Wow, that's quite the conclusion. Take away the incentive of wealth, and innovation grinds to a halt? It just doesn't play out that way, in reality. And Graham acknowledges this to a certain degree:
Wealth can be created without being sold. Scientists, till recently at least, effectively donated the wealth they created. We are all richer for knowing about penicillin, because we're less likely to die from infections. Wealth is whatever people want, and not dying is certainly something we want. Hackers often donate their work by writing open source software that anyone can use for free. I am much the richer for the operating system FreeBSD, which I'm running on the computer I'm using now, and so is Yahoo, which runs it on all their servers.Somehow, though, the fact that Yahoo (the company that bought his startup, incidentally), is running an operating system that was developed entirely without the incentive of wealth, doesn't connect in Graham's head as a dangerous exception to his rule. In another location, he says:
A programmer can sit down in front of a computer and create wealth. A good piece of software is, in itself, a valuable thing. There is no manufacturing to confuse the issue. Those characters you type are a complete, finished product. If someone sat down and wrote a web browser that didn't suck (a fine idea, by the way), the world would be that much richer. [5b]Footnote [5b] simply states: "This essay was written before Firefox."
Another dangerous exception. Certainly, there was great innovation in Netscape when it was the little startup that took on Microsoft, but arguably, there has been as much innovation with that browser and its heirs (ie Firefox) since it went open source. In particular, Firefox is the ultimate example of open, community-based innovation that is astonishingly uninterested in the personal accumulation of wealth as an incentive. It was started by an Apple employee and a teenaged Netscape intern, neither of whom had any interest in becoming wealthy from their innovation.
So, what's up with that?
Graham makes several related historical statements in this paragraph (and associated note):
For most of the world's history, if you did somehow accumulate a fortune, the ruler or his henchmen would find a way to steal it. But in medieval Europe something new happened. A new class of merchants and manufacturers began to collect in towns.  Together they were able to withstand the local feudal lord. So for the first time in our history, the bullies stopped stealing the nerds' lunch money.
 It is probably no accident that the middle class first appeared in northern Italy and the low countries, where there were no strong central governments. These two regions were the richest of their time and became the twin centers from which Renaissance civilization radiated. If they no longer play that role, it is because other places, like the United States, have been truer to the principles they discovered.My thesis is that in order for a renaissance to occur, it isn't so important that you stop stealing the wealth of the craftsmen, or the "nerds' lunch money," but that you give the nerds somewhere safe to innovate; you protect them from the bullies, but you also support them financially. You don't have to make them millionaires to do this, I think many innovators, despite what Graham suggests, would be happy to produce excellent work without the promise of great wealth. But they need time and space to create without having to worry about food, or clothes, or housing (or, for that matter, where the next round of venture capital is coming from).
I think any society that wishes to thrive needs to encourage wealth creation through patronage. That is, those with the wealth need to sponsor the creation of more wealth, and, in order to produce maximum results, that wealth should be given away.
A good example of how the desire for wealth can actually stifle innovation and even endanger society is the story of the invention of the forceps by Peter Chamberlen around 1600. The Chamberlen family kept the family secret for three generations, more than 100 years, before it was finally leaked to the public. During that time, they became quite wealthy from their reputation as the best doctors to have attending your birth, although the mother had to be blindfolded during the procedure so she wouldn't see how her baby's life was saved. To me this shows how the entrepreneurial spirit can actually work against innovation, and seriously impede the progress of civilization.
The thing that allowed the modern concept of startups to really come into existence must be the concept of patents. Before patents, anything that was not kept a closely-guarded secret was pirated immediately and there was no real way to stop other people from making money from your ideas. If the Chamberlen family could patent the forceps and then be assured that their invention would not be pirated by others, or at least be assured that they could enforce their patents, they would probably have sold forceps and become very rich, as well as benefiting society much more quickly.
But patents seem to me to be a bit of a band-aid, an artificial way to allow someone to make money from an idea, in the same way that a cage allows you to keep a pet bird. The idea and the bird both want to be free, and both thrive more fully in the wild, but the patent and the cage artificially constrain things in such a way that the user can increase their personal wealth.
I won't deny that wealth can be an incentive to innovation, and that inventions and novel ideas, via the mechanism of patents, are legitimate ways to build wealth; however, I firmly believe that a society that relies entirely on this kind of innovation is not healthy and it will start to show symptoms of sickness, like sailors without vitamin C began to get scurvy. Wealth can work as an engine to drive society, but it should never be used exclusively, because it flows uphill, and in a purely capitalistic society, all the money will end up in the hands of a very few people. And, contrary to Graham's assertion, those people are almost never the creators of wealth. They are often the very bullies that steal the nerds' lunch money.
A thriving society needs "free" innovation, innovation not tied to capital, in order to thrive. There needs to be a part of a vibrant culture that redistributes the wealth, not in a communist way, but in an "open source" way. The Renaissance wouldn't have existed without patronage, and Leonardo da Vinci, among others, would probably never have produced much if he had to figure out how to make money from his work.
In the same way, innovation and progress is fostered when wealthy patrons such as AOL (Mozilla and WinAmp) and Mark Shuttleworth (the Freedom Toaster and Ubuntu Linux) spend some of their wealth on innovations that increase the wealth of society as a whole. Without this kind of incentive to innovation, I believe innovation will grind to a halt.