(Excerpt from Zero to One by Peter Thiel)
While a definitely optimistic future would need engineers to design underwater cities and settlements in space, an indefinitely optimistic future calls for more bankers and lawyers. Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth. If they don’t go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers. And once they arrive at Goldman, they find that even inside finance, everything is indefinite. It’s still optimistic—you wouldn’t play in the markets if you expected to lose—but the fundamental tenet is that the market is random; you can’t know anything specific or substantive; diversification becomes supremely important.
The indefiniteness of finance can be bizarre. Think about what happens when successful entrepreneurs sell their company. What do they do with the money? In a financialized world, it unfolds like this:
- The founders don’t know what to do with it, so they give it to a large bank.
- The bankers don’t know what to do with it, so they diversify by spreading it across a portfolio of institutional investors.
- Institutional investors don’t know what to do with their managed capital, so they diversify by amassing a portfolio of stocks.
- Companies try to increase their share price by generating free cash flows. If they do, they issue dividends or buy back shares and the cycle repeats.
At no point does anyone in the chain know what to do with money in the real economy. But in an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possibly do with it. Only in a definite future is money a means to an end, not the end itself.