Inventing something valuable is not the same as getting paid for it
The man behind relativity never became a millionaire, and textile mills got better for 70 years without making their owners rich.
YC Root Access · Lecture 5 - Competition is for Losers (Peter Thiel)Peter Thiel, the investor speaking to a group of aspiring founders, argued that creating something useful for the world and keeping some of the reward are two different jobs.
His test, in his words, is that "X and Y are independent variables." By X, Thiel meant the dollars of value an invention creates for society. By Y, he meant the share of that value the inventor keeps.
His exhibit is science. Thiel argued that the history of science is a history of Y at zero percent, where scientists believe, in his words, "they live in a just universe that will reward them" and are almost always wrong. Albert Einstein, the most famous physicist of the 20th century and the author of relativity, never became a millionaire, let alone a billionaire.
Technology, he said, is not much better. Railroads were enormously valuable, but Thiel said most railroad companies went bankrupt because there was too much competition. Wilbur and Orville Wright, the brothers who built and flew the first airplane, did not get rich from doing it.
As an example, Thiel turned to Britain's first Industrial Revolution. From about 1780 to 1850, he said, textile makers improved efficiency by 5 to 7 percent every year, year after year, for 60 or 70 years. Yet in 1850, Thiel said, most wealth remained with the landed aristocracy because the gains had been "competed away" among hundreds of factory owners.
Thiel said there are just two main groups in the last 250 years where people invented things and grew rich, chiefly the tightly controlled monopolies of the Second Industrial Revolution like Ford and Standard Oil. Those successes, in his account, are the exception, and a breakthrough that helps everyone is usually not good for the business behind it.
Questions people ask
Did Einstein really die without much money?
No. Einstein worked in academic and later research institute posts in Switzerland, Germany, and the United States, and he received a Nobel Prize in 1921. His income came from salaries and prizes, not from ownership of companies that used his theories, which is why his scientific value never translated into business wealth.
Why did railroads go bankrupt if they were so useful?
They were intensely competitive to build and operate. Different lines raced to lay track, offer service, and cut freight rates, and construction required heavy borrowing. When rates fell and debts remained, many lines failed and were reorganized, while farmers, merchants, and travelers kept much of the benefit.
Did the Wright brothers really make no money from the airplane?
The Wrights earned some money from contracts and patent lawsuits, but prolonged legal fights over control of airplane patents consumed time and cash, and better funded rivals and governments soon overtook them. Thiel uses them to show that being first with a breakthrough does not guarantee a lasting business.