The Secret to Understanding What Money Is: Exchange Your Best Efforts for the Best Efforts of Others

I’m thinking about a line in Atlas Shrugged by Ayn Rand that talks about money being the representation and means of trading “my best efforts for the best efforts of others”. Even though I always knew it, in a few short days, it has clarified and crystallized a great truth that I had never given words.

Take a small part of what I do with my day: Write investing articles. When I write an article and spend hours making it perfect to help people understand how the stock market works, I’m trading the fruit of my mind and the product of my labor. The more helpful my content is, the more people read it and the more money advertisers pay me. Thus, the more people I help, the more money I get.

That means, when I walk into a store like Nordstrom and buy a silk bow tie or Brooks Brothers to get a custom shirt made, I am really exchanging my best efforts (the content I created to help you) for the best efforts of the skilled tailors who created my garments using a lifetime of work and experience that are beyond my abilities. When someone sees me in a $300 shirt or driving a nice car, what they are really seeing is the things I have exchanged with free men, acting without compulsion of their own free will, for services rendered.

Exchange Your Best Efforts for the Best Efforts of Others

Image © Hemera, Thinkstock

The more value I contribute to society, the more money I make. My job is to create things that people want and / or need in their lives. The more problems I solve for them the more they give me to spend on things I want. Even though I enjoy what I do, the money is proof to me that people value my work. If they didn’t pay me, I wouldn’t do it anymore. If no one wanted to buy my books, I wouldn’t waste my time on them.

When you sit in front of your big screen television or carpet your living room, those items are tangible proof of the contribution you’ve made the world.

Your Income Is a Proxy to the Value You Provide Society If It Was Set by the Free Market (Not Manipulated by Extra-Market Forces Such as Unions, Which Make It Impossible to Pay Good Teachers More Than Bad Teachers)

The bottom line: Since I refuse to lie, cheat or steal, the only sure-fire way for me to achieve the kind of wealth I want, the kind that makes headlines in The Wall Street Journal by the time I am the age of the same great men I admire, is to do something for society that they need and have them vote for me with their dollars.

If you want to walk around in $15,000 Brioni bespoke suits, you can but only if you provide an equivalent amount of value to society. Maybe you bake bread. If you are the best baker in the city, you should gain market share and be able to exchange your profit for the skill of the Brioni tailor. If you are a lawyer and you attract a high class client base due to your skill, you can trade your earnings for the skill of the tailor. All exchanges in a free society and free market are trading your best efforts for the best efforts of someone else.

If some great mind found a cure for cancer tomorrow, he would instantly skyrocket to the top spot on the Forbes list … and he should! He would have taken something from his mind – his best efforts – and demanded that we trade him our best efforts, whatever they may be. He would deserve, should he so choose, to have solid-gold toilets and palatial estates because his wealth was created by productive means, not by looting the pockets of others.

Likewise, consider this: Is it excessive for a dentist to spend $100,000 on a Steinway & Sons grand piano? No! He spent years of his life becoming trained to do what very few people can do. In exchange for providing this service for us (his patients), he trades a group of the most talented craftsmen in history, working from a factory in New York, his money. They then take some wire and lumber and turn it into a magnificent instrument using techniques that took more than a century to perfect. Their best effort, creating a piano of incomparable quality, was exchanged for the dentist’s best effort, fixing teeth to improve the quality of life for his patients. The workmen then take their paycheck and exchange it for the things they value, such as new clothes for their kids.

If you don’t provide enough value to society, you don’t have enough to eat or live the lifestyle you want. I, for example, will someday own a Gulfstream jet. They require massive net worth and income levels to support the pilots, insurance, hanger storage, jet fuel and other costs associated with ownership. To date, I am 28 years old. I haven’t provided society enough value yet to afford one … but at my age, neither had Benjamin Graham, Warren Buffett, Walt Disney, Ray Kroc, George Lucas, Steven Spielberg, Charlie Munger, Michael Bloomberg, or Jack Welch! They kept doing something others valued, and were willingly able to pay them, and they were eventually able to own one. They all did it in different ways – hamburgers, movies, theme parks, financial products, investment management, and software!

When you see Bill Gates spend $50 million on something, he is really spending what he received in exchange for creating a company that drastically increased productivity throughout the world, saving countless hours so men and women could do other things, like go to the park or have dinner with friends … whatever mattered to them.

Anyway, it has been exactly one week since I started reading the book and I am on page 803 out of a total of 1168 pages, meaning there are only 365 pages remaining until reaching the end. Although I will reserve judgment until the final page, it is with great certainty I can say that Atlas Shrugged very well may turn out to be my all-time #1 favorite work of fiction. It is really an extended parable discussing the super power of incentive, as Charlie Munger would say, and why it is one of the only things that matters in life.

crabhooves

I don’t think it translates as cleanly as that. Is Tom Cruise worth more than a primary school teacher? He’s many times richer than your average school teacher, but he’s not worth more. Society values his efforts less but he gets paid more because we only need a handful of stars but we need hundreds of thousands of teachers so the money isn’t diluted.

What about someone who fosters children for a living? Are they worth less than a banker? They get paid a pittance and often end up with less from the state than it costs to take care of the child. The work they do is immensely valuable, but the only people it benefits (children and our abstracted society) are in no position to reward them monetarily.

I haven’t read Atlas Shrugged (or any of Ayn Rands work) so I can’t comment on it as a whole. All I know about it is from secondhand sources, people who already disagree with her works and her philosophy or people who are already enamored of it like yourself. I have noticed that it tends to appeal to people on an emotive, psychological level instead of a rational, economic one. Make of that what you will.

http://www.joshuakennon.com Joshua Kennon

Great point but not quite complete. My response required its own article …
http://www.joshuakennon.com/the-average-school-teacher-is-paid-more-than-tom-cruise-a-basic-lesson-in-economics/

vinay

joshua, hey…i recently discovered your blogs and have become an avid reader….i am an college student about to graduate this academic year…i admire the way you have developed your life and would like to build a similar base fro myself..i have an engineering background…i would like your advice about which degree to go for regarding my postgrad so i too can gain an entrepreneurship/investing knowledge….i would like to mention that i belong to the body of thought where an mba is considered to be a little unnecessary to gain real world knowledge….i was considering a masters in finanace so i do not need work experience between degrees…your thots and comments will be much appreciated…thank you

http://www.joshuakennon.com Joshua Kennon

Vinay,

It depends on whether or not you want to work your way up through an institution or start something on your own. If you want to become the CEO of an existing huge corporation, you are going to need an advanced degree or an MBA. If you want to establish your own company, build it into something huge and profit from it, you just have to outperform your competition, no degree required.

My own opinion is that someone who wants to be successful should identify the field in which he wants to work (e.g., architecture, finance, retail, banking, construction, lawn service, lamp making … it doesn’t matter, just know what business you want), and then learn everything possible about the “best” in that industry. If I wanted to own a bank, I would study every regulatory filing of every bank in my home nation (in this case, The United States), and find out why they were successful, what I could emulate, and what should be avoided. Then, I’d find a way to get my hands on a bank to control.

As simplistic as it sounds, there is one great truth about success in the business world. It is this: Profit = Revenue – Expenses

If you want to increase profit, you figure out how to generate more revenue and less expenses. Everything that is left over is cold, hard cash for you if you are in a good business. The more cash you have, the more options you have. The more influence you have. The more you get “your way”. Figure out how to generate cash, in whatever business you desire, and generate more than the next guy but do it ethically, honestly, and without cheating. If you operate a business, the idea of revenue – expenses = profit should consume your thought process.

Bill Gates is the perfect example of this. He never graduated from Harvard after taking a leave of absence. Yet, he started a business that generated more cash than almost any other company in the world and he is one of the most influential men to ever live and can have almost anything he wants. His money is his advanced degree.

So I can’t tell you which advanced degree is best for you. It comes down to what you want to learn. I purposely chose to do my undergraduate as a liberal arts major after reading about Peter Lynch and Charlie Munger during my youth, both espousing the value of a broad based education (Lynch, the greatest mutual fund manager of all time, was a philosophy undergraduate). That is why my specialization came from a classical vocal performance scholarship in music. My class days were filled with studying Bach and Mozart, performing with the chorus at Lincoln Center, and going to accounting classes in the evening. But I gathered more knowledge about business than even the business majors, generated more cash, and now I get to write my own work rules. Why? Because I generate more cash.

He who generates the most cash makes the rules. Everyone else works for him. He designs his day and gets to do what he wants with his life.

So figure out how to be that guy.

JustSomeGuy

Hi Joshua. I am also a Joshua. Someday you will own a Gulfstream. Wow. And I thought my goal of driving an Aston Martin was up there! I’m a 26 year old chemist working in the nuclear industry, so I’m really not that well versed in finance. However, as I learn more and more and become better with my money, I’ve found that the hardest thing to deal with is discipline. I can’t be the only one to struggle with this. Just having the discipline to save instead of spend or to invest or even just to make good decisions in general. I found this text one day and thought it would be worth sharing with everyone:

“Self discipline is most visible by its absence.

Think of it this way: self discipline is a skill, like knife skills in the kitchen. Did you ever see one of those TV chefs showing off his knife skills? He would chop an onion razor thin with a knife as sharp as a scalpel without even looking at his hands. Did he always have this skill? No, he simply practiced and developed it. He probably cut himself a few times as he developed his skill with the knife, but the more he used it, the better he became.

Another example: imagine you’re in Italy with your spouse and you want to find your way to the Colosseum. You don’t speak Italian, but you have a tool … an Italian dictionary! Though you sound ridiculous to the cab driver, you’re able to muddle through and communicate your desired destination. As with the knife, the more you use Italian, the better you become at it. The more you use it, the more you can make happen. The same is true for self discipline.

And the more you use it, the easier it will get. Just like with a language or with a knife in the kitchen, it gets easier and easier with repeated usage. The phrases come more naturally and the onions are chopped so thinly! Pretty soon, others think that skill is something you “have,” something innate, something that’s “inside you.” But you’ll know the truth.

If you can understand that self discipline is something you use and not something you have, then you can use it to accomplish almost any goal you set. You can use it whenever you want or leave it whenever you want.

Most people recognize this truth when it comes to learning a language or learning a new skill, but when it comes to self discipline, why do we want to believe it’s beyond our control? Why do we want to blame other people? Why do we want to say, brag even, that we don’t have it? Most people think it’s a simple character trait or a permanent part of their personality, but that’s a profound mistake.

Have you ever heard someone say, “She has such great potential, if only she had self discipline.” The fact is, everyone has access to self discipline, most people just haven’t chosen to use it. Just like everyone has access to an Italian dictionary or to a chef’s knife, everyone has access to use self discipline. We even teach it to dogs!

Instead, most people stress and worry if they “have what it takes,” They wonder if they have “it” in them, as if “it” was put there by experience, wisdom, parents, or genetics. But self discipline is never “put there,” it’s just a tool like an Italian dictionary or a chef’s knife.

You already have what it takes to succeed. Use it!”