Peter Thiel is turning out to be a very, very original thinker. In today’s New York Times David Brooks mentions a lecture he gave at Stanford on starting up a company. Thiel’s main point is subtle and incredibly interesting: he says that people are confused when they think capitalism is about competition. In fact, with perfect competition there is no profit and you are forced to reinvest all the money you make to stay in place. Capitalism is about doing something in a large market where there is very little competition, and thus making huge profits. And then he adds that this is a consequence of many people confusing what is hard with what is valuable. There is so much sheer insight in these lecture notes that Blake Masters have put up that there is no excuse not to read them. Favorite quotes below:
The usual narrative is that capitalism and perfect competition are synonyms. No one is a monopoly. Firms compete and profits are competed away. But that’s a curious narrative. A better one frames capitalism and perfect competition as opposites; capitalism is about the accumulation of capital, whereas the world of perfect competition is one in which you can’t make any money.
On value and difficulty as a proxy for value
Intense competition makes things hard because you just beat heads with other people. The intensity of competition becomes a proxy for value. But value is a different question entirely. And to the extent it’s not there, you’re competing just for the sake of competition. Henry Kissinger’s anti-academic line aptly describes the conflation of difficulty and value: in academia at least, the battles are so fierce because the stakes are so small.
That seems true, but it also seems odd. If the stakes are so small, why don’t people stop fighting so hard and do something else instead? We can only speculate. Maybe those people just don’t know how to tell what’s valuable. Maybe all they can understand is the difficulty proxy. Maybe they’ve bought into the romanticization of competition. But it’s important to ask at what point it makes sense to get away from competition and shift your life trajectory towards monopoly.
On why life is not war
The perfect illustration of competition writ large is war. Everyone just kills everyone. There are always rationalizations for war. Often it’s been romanticized, though perhaps not so much anymore. But it makes sense: if life really is war, you should spend all your time either getting ready for it or doing it. That’s the Harvard mindset.
But what if life isn’t just war? Perhaps there’s more to it than that. Maybe you should sometimes run away. Maybe you should sheath the sword and figure out something else to do. Maybe “life is war” is just a strange lie we’re told, and competition isn’t actually as good as we assume it is.
Artificial Intelligence is probably an underrated field. People are burned out on it, largely because it has been overrated and overstated for many decades. Few people think AI is or will soon be real at this point. But progress is increasingly relentless. AI performance in chess is increasing. Computers will probably beat humans in Go in 4 or 5 years. AI is probably a good place to look on the tech frontier. The challenge is that no one knows how far it will go.
The fascinating thing with Thiel’s argument is that it contains a tip on how to live your life as well on how to start your business. And maybe the trick is not viewing your life as very different from an investment in a startup. And realizing that life is not war, difficulty is not a good proxy for value and competition is opposed to capitalism.