"you can't earn a billion dollars"

One of the hardest things for children to understand is “where does wealth come from?”

They are taught by some people that the only way someone gets rich is by stealing from someone else. Sure, some people do get rich that way. We have a term for them, criminals.

But most people make wealth the old fashioned way. They create value. Value is created when you make something that other humans want sooooo much that they give you their money or labor to get it.

This is the hardest part for kids to understand. The “where is the value created?” Part. They can only think in “zero sum” - meaning, if someone gives me $10 that means I’m $10 richer and they are $10 poorer.

But that isn’t how it works at all. So this is the example I use.

Let’s say a father and son love antique cars. As a leaning project, they go out and they buy a $1,000 car chassis from a junkyard. They spend $10,000 on parts and they spend 2 years restoring it.

Along the way they make a bunch of choices. Instead of putting in the original engine, they put in a new model engine. Instead of putting in a mechanical dash, they use a new digital dash board made by Chris Strandt. They do this because they think it’s cool. But there is a risk no one else will like it. They don’t care, they aren’t making this car for anyone else. They are making it as a father son bonding experience.

2 years later they are done. They love their new car made from antique parts. All-in they have spent $30,000 in parts and labor. That is their investment.

They take it to Derek’s annual car show at McDonald ford and everyone loves it! One woman even offers them $100,000 on the spot to buy their car and add it to her collection. They accept the offer and sell the car to her for $100,000.

$100,000 minus $30,000 = $70,000 in wealth created. That $70,000 wasn’t stolen from anyone. It was created out of thin air because of the value that the father and son made that added $70,000 of value to the purchaser.

Buy why do the father and son “deserve” that money? Because they took the risk, the time, the effort to make something and it turned out they made something that other humans valued. That’s why they made the $70,000. And if no one wanted it, they would have just had a car they dreamed about and would have “lost” the $30,000 they invested.

We are taught “zero sum” thinking from a young age. That for someone to use my toys, that means I can’t use them. For someone to win a game, I must lose. And vice versa. But the magic of free market capitalism is that there is no fixed pie. It’s not “zero sum” - it’s positive sum. It’s not “If I win, you lose” it’s “I win, you win, everyone wins”.

As always, this is not a lecture, it’s a reminder to myself.