Letting people enjoy the wealth they create is key to development

Naturally wealth had a bad reputation.

Two things changed. The first was the rule of law. 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. [10] 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. This was naturally a great incentive, and possibly indeed the main cause of the second big change, industrialization.

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.

via How to Make Wealth

By allowing those who made a lot of money to keep it, people who want to get rich can do it by generating wealth instead of stealing it

Understanding this may help to answer an important question: why Europe grew so powerful. Was it something about the geography of Europe? Was it that Europeans are somehow racially superior? Was it their religion? The answer (or at least the proximate cause) may be that the Europeans rode on the crest of a powerful new idea: allowing those who made a lot of money to keep it.

Once you’re allowed to do that, people who want to get rich can do it by generating wealth instead of stealing it.

via How to Make Wealth

Mind the Gap

In more organized societies, like China, the ruler and his officials used taxation instead of confiscation. But here too we see the same principle: the way to get rich was not to create wealth, but to serve a ruler powerful enough to appropriate it.

This started to change in Europe with the rise of the middle class. Now we think of the middle class as people who are neither rich nor poor, but originally they were a distinct group. In a feudal society, there are just two classes: a warrior aristocracy, and the serfs who work their estates. The middle class were a new, third group who lived in towns and supported themselves by manufacturing and trade.

Starting in the tenth and eleventh centuries, petty nobles and former serfs banded together in towns that gradually became powerful enough to ignore the local feudal lords. [10] Like serfs, the middle class made a living largely by creating wealth. (In port cities like Genoa and Pisa, they also engaged in piracy.) But unlike serfs they had an incentive to create a lot of it. Any wealth a serf created belonged to his master. There was not much point in making more than you could hide. Whereas the independence of the townsmen allowed them to keep whatever wealth they created.

Once it became possible to get rich by creating wealth, society as a whole started to get richer very rapidly. Nearly everything we have was created by the middle class. Indeed, the other two classes have effectively disappeared in industrial societies, and their names been given to either end of the middle class. (In the original sense of the word, Bill Gates is middle class.)

But it was not till the Industrial Revolution that wealth creation definitively replaced corruption as the best way to get rich. In England, at least, corruption only became unfashionable (and in fact only started to be called “corruption”) when there started to be other, faster ways to get rich.

Seventeenth-century England was much like the third world today, in that government office was a recognized route to wealth. The great fortunes of that time still derived more from what we would now call corruption than from commerce. [11] By the nineteenth century that had changed. There continued to be bribes, as there still are everywhere, but politics had by then been left to men who were driven more by vanity than greed. Technology had made it possible to create wealth faster than you could steal it. The prototypical rich man of the nineteenth century was not a courtier but an industrialist.

With the rise of the middle class, wealth stopped being a zero-sum game. Jobs and Wozniak didn’t have to make us poor to make themselves rich. Quite the opposite: they created things that made our lives materially richer. They had to, or we wouldn’t have paid for them.

via Mind the Gap