Money without value and value without money
We live in a time where a 15-year-old kid can earn more money in six months of selling cartoon monkey pictures online than a carpenter can make in a lifetime of building houses. How does someone spending $20k on a digital monkey picture not question the value of what they’ve just purchased? How does this reality not make the carpenter question the value of the money he receives? Modern society is full of areas where money is being made without producing value, and value is being made without producing money. And complexity is the driving force of this paradox.
Complexity is the descriptor of things that are hard to understand. Things with lots of parts. Parts that affect other parts (a trait known as interdependence). And effects that are unexpected and impossible to predict. Communication amongst people is complex. It involves language, non-verbal cues, domain knowledge, and the particular moods of those involved. And each of these factors is composed of a bunch of other factors, all of which may have unexpected impacts on each other. Depending on the context, a response of “interesting” can be used to communicate genuine interest in what was just said, or it can be a euphemism for “That’s the stupidest shit I’ve ever heard”.
To make matters worse, complex systems have non-linear growth. Meaning each addition to the system increases its complexity more than the previous addition did. If communication between 2 people has a complexity level of 2, the communication people 3 people has a complexity level of 5. And the more complex a system, the more difficult it is to understand. Just because a group of people are talking to one another, doesn’t mean they’re understanding each other. The consequence of this misunderstanding is an unexpected result. You order a cheeseburger but you get a salad instead. You pay an employee $100k/year and they produce nothing. A Finnish programmer makes an operating system that powers the world’s largest companies but isn’t paid for it. Weird things start to happen in complex systems.
Large corporations are filled with people who make tons of money but produce nothing. This dichotomy is enabled by the huge complexity of communication in large groups and the false assumption that production is equally distributed amongst employees. Past a certain point, let’s say 100 people, it’s not tenable for a company to keep tabs on what all of their employees are doing. They need to rely on employees of the company to organize into groups, which then communicate with one another in a hierarchical, tree-like structure. The communication between these groups is often facilitated by the manager of that group. But if the manager of such a group is incompetent, the structure breaks down. An incompetent manager isn’t going to hold employees below them accountable for being incompetent, as they likely don’t care or are unable to identify what incompetence looks like. From this breakdown arises the opportunity for everyone below the incompetent manager to also exhibit incompetence. This is how you get employees of large companies making six-figure salaries while producing nothing. The chain is only as strong as its weakest link. And again, this can only happen in large corporations where the number of employees exceeds any one individual’s ability to keep track of everyone. You rarely see individual incompetence in small businesses, or if you do, it doesn’t last long. Anyone who has worked at a large corporation knows at least a few employees whose daily output is best described as “fuck all”.
Production is not equally distributed. Corporations falsely assume that 100 workers means each worker produces 1% of the output. But in the modern knowledge economy, reality looks more like 10 workers producing 80% of the output, 40 workers producing 19%, and 50 workers producing 1%. I call this the equal output fallacy. Large corporations love to fall for the equal output fallacy, which is part of the reason they became large corporations. A company with $10mil in revenue and 20 employees feels obligated to hire more people. A few years later, the company now generates $50mil in revenue and has 300 employees. The company assumes its revenue growth was the consequence of hiring more people. But did the company grow because it hired more people or did it just hire more people because it was growing? What percentage of the new hires actually contributed to the growth? Could that same growth of been attained by hiring only half as many people?
On the other end of the spectrum, producing immense value but no money, is open source software (OSS). OSS is software that can be used, changed, and distributed to anyone for any reason, without having to compensate or seek approval from its creator. Linux, an open source computer operating system, is likely the single greatest example of producing immense value but no money (for its creators) in human history. As of 2021, 96.3% of the world's top 1 million servers run on Linux. All of the trillion-dollar tech companies in the world, including Alphabet, Apple, and Amazon depend on Linux for the day-to-day function of their businesses, a dependency which they get for free. One could make the argument that no single human has had a greater economic impact than Linus Torvalds, the creator of Linux, yet few people outside of tech know his name.
The formation of crazed asset bubbles is mainly attributed to human greed, the desire to get rich quick, and FOMO. But another factor, completely missing from mainstream discourse, is the immense wealth transfer to a growing class of incompetent corporate employees that don’t work particularly hard, yet are paid exceptionally well. Anyone whose ever been gifted money knows, easy come, easy go. The incompetent tech employee earning an exuberant salary is far more likely to pay $20k for an NFT than a carpenter. And this entire class can only exist because of the complexity of modern systems. The complexity of domains like software, coupled with the complexity of large corporations. A complexity that stands on the shoulders of unsung open source developers whose software is the foundation of the world’s largest companies. A complexity that enables 10% of the people to do 90% of the work.