This is a transcript of episode #048 on Specialization. Check out the episode page HERE.
So, funny story. I was at a sports bar the other day and embarrassed myself. You know…I walked into the place…loud music…a hundred plus TVs plastering the walls…all playing different sports games…and the place was completely empty. Like, I was truly the ONLY guy in the entire bar…and I walk up to the counter and I sit down and a nice gentleman behind the counter greets me… And I don't know…I didn't realize it as I was doing it…but I guess as I was soaking in this really crazy atmosphere I was looking around and smiling. And the bartender guy comes up to me and he says something like, Hey look at this guy! He's feelin' good right now! Why you smilin' man? I said, I can't really think of a good reason NOT to be smiling right now. I'm happy! And he says, why are you happy? I say back…because I'm talking to you right now in this wonderful place. And he get's this serious look on his face and he leans in and says, but no, really…WHY are you happy? Now at this point I'm like…oh my god. This guy's a philosopher! This is the Socrates of the Buffalo Wild Wings! He finds people, asks them why they're happy and then tries to really get to the bottom of what makes them grateful to be alive! I like this guy…and at this point I decide to go into the more honest, FULL answer cause I think this guy isn't satisfied with my disingenuous, non-philosophical answer. So I give him it. I say, you know what it is? I feel like a King right now. In fact, I feel like one of the most privileged kings that has ever lived in the history of man. I just look at my life and I compare what I have at my disposal with what every other generation of humans have had at their disposal and It's impossible not to be smiling. I mean think about it in the context of this one piece of my day. I drove my giant metal horse down here…it took me five minutes. Except it has the power of 200 horses and I can go anywhere I want on a moments notice. I come here to your fine establishment that is well-lit, and safe, and clean and a servant takes my request for what my professional chef is going to prepare for my cheat meal that week. By the way, there's SUCH an abundance of high calorie, professionally prepared food around me that I have to limit myself to one meal a week so that I don't eat myself to death. I sit here waiting for my chef-prepared food and I am constantly entertained by these magic boxes all around. Think about it: 500 channels all competing for my attention, they have a team of people…constantly honing their programming, fine tuning things trying to create the best product they possibly can… so that I watch THEIR channel instead of the other 499 channels…and if I'm bored of these I can go on the internet…an ENDLESS SEA of entertainment competing for my eyeballs. Youtube videos, blogs, podcasts all vying for my attention. And right now, my newest friend, I've chosen to watch sports. I don't even watch sports that much…and despite that…this guy on the TV has been killing himself ALL WEEK LONG for my benefit. This guy's been running laps, lifting weights and pushing his body to it's extreme all week during practice to get to a place where he can show up on Saturday and not just try to perform well…but try to put on the BEST PERFORMANCE he's ever put on in his life…He's going to try to do SUPER HUMAN things so that I will be entertained. So I'm happy and I'm smiling because I feel like a King right now. I'm not rich by society's standards, and yet all of this stuff is available to me on a moments notice. I can't think of a single King from human history that wouldn't trade lives with me in a heartbeat. That's why I'm happy. And the guy says back to me, Yeah…I've heard that you can take like 500 dollars and live like a King for a day in a country like Nicaragua. Well in the moment I felt like taking my own life. I felt like beating my head into the granite bar until I was a senseless vegetable in the hospital. But it was all my fault. This guy just wanted to have a normal conversation…I'm the one that assumed he wanted to hear all the twisted thoughts going through my head in a given moment. This guy may not have been interested, but the sentiment of what I'm saying here is definitely not going to be lost on my closest friends. You guys. In fact, what I'm talking about here is something that the famous economist Adam Smith would have a lot to say about. Adam Smith is one of these enlightenment age philosophers that made his name in the field of economics. Now, just how the enlightenment as a whole is characterized by a fundamental questioning of assumptions that we had made in the past about different elements of living, You know…Rousseau questions government…Voltaire questions the churches moral authority…etc…Adam Smith is the most famous guy in this period that tackled the field of economics. Now, the conventional wisdom that Adam Smith is calling into question here in the area of economics…is what is known today as Mercantilism. We're going to be talking a lot about Mercantilism in the next episode of the podcast when we talk about what it means to be a wealthy nation…were going to apply it to our society that we're building…while stranded on an island…but today we're going to be talking about what it means to be a wealthy person. What does it mean to be a wealthy person? How do you measure wealth? Ideally, I think we'd all agree that if were creating a society…one thing we might want to at least consider is a strategy for creating as many wealthy people as we possibly can. So how do we do it best? You know it's funny, when most of us think of wealth…we think of it in terms of how much money someone has in the bank…or what their net-worth is if you combined all their assets. But is some dollar figure like that really a complete way of assessing wealth? Now I'm not saying the dollar figure doesn't matter at all…it certainly DOES matter…all I'm saying is that this is idea of wealth is a big topic and by only looking at the dollar figure, you're only looking at one little piece of this discussion. Maybe a good place to start the discussion is to ask the question: What does $1 buy you in today's world? Maybe the better way of looking at it so it translates well across different time periods is ask the question what do you get for one hour of work today, as opposed to fifty years ago. 100 years ago. 200 years ago. This is how things work: we trade hours of our work for money. We use this money to buy things that we want, but how wealthy we consider ourselves..is directly related to how much that money buys us. You know, I'm sure we've all heard the example…well you have a million dollars and I have a cheeseburger…if we're stranded on a desert island with nothing to spend money on, who is richer? Let's look at one example. One of the things we want to spend our money on is light. We want our house to be well lit so that we can actually do things…and most importantly you don't want to be walking through your house in the dark and stub your toe on a chair or an end table…it hurts. Let's look back to the year 1800. In the year 1800 the primary means if you wanted to conjure up some light was a candle. If you wanted to buy a candle from the store…that burned and created one hour of light for you in the year 1800, one hour of light to read your old English philosophical text…that candle would cost you the equivalent of six hours of your work. Now just 80 years later in the 1880's…with the advent of the kerosene lamp making the conjuring of light much more efficient, to get that exact same hour of light to read your 1880's Victorian era magazine would cost you the equivalent of 15 minutes of work. In the 1950's, one hour of light took you eight seconds to earn and in the twenty first century you earn what you need to earn to conjure up one hour of light in just over half a second. In 200 years, the efficiency of your work hours in this small area has improved by 43,200 times. Really, this whole situation doesn't really matter as far as the average person is concerned. Not many people think about their level of wealth in terms of how it compares to the way people lived 200 years ago…they think about how they stack up against everybody else in modern times, their friends…neighbors. If everybody had a castle in modern times, it would be common for people to be complaining that they only have a castle and not a helicopter pad like their next door neighbor. But it's interesting to ask: why does this dynamic exist? In the area of producing light…why are we 43,200 times wealthier than someone living 200 years ago? There are a number of reasons but two of the biggest are technological innovation…you know over the years we've just invented better and better ways of generating light…and this has been done by people who specialize in the field of light generation…if that's what you want to call it. Technological innovation and specialization. These two things are intertwined. …People specializing in a certain field leads to technological innovation…and then the people that specialize in this new innovation create NEW technological innovations. It's a vicious cycle…but a cycle that makes living as an average citizen in the 21st century better than living like a monarch did in the year 1800. And this specialization and the enormously beneficial effects it has on society is something that Adam Smith talks about at length. He uses the example of pins. Not a pen that you write with…a metal pin that you use to sew stuff and stab people…whatever you do with a pin. He says that before humans began specializing in stuff we were doing things REALLY inefficiently. He gives the example of one guy…you know…if one guy decides he's setting out today to make a bunch of pins for his family. That guy has an absolutely giant task ahead of him. Adam Smith talks about how even when we consider something that seems as basic and simple as a pin there are multiple different steps to making it. You gotta lay out the strip of metal. You gotta cut the pin down to size. You gotta sharpen the pin. You gotta buff the pin down to something shiny that isn't going to create friction when you're sewing. You gotta poke the hole at the top of the pin. Adam Smith lays out over a dozen steps that go into the making just one single pin…and if this one single guy spends his day making pins…Adam Smith says he'd be lucky to complete even ONE pin. Think of all the transition time. Think of how inefficiently he's doing all the steps. Think of all the mistakes he stands to make or the unrefined system that he's using on any one step. I mean, we can all relate to what Adam Smith is talking about here. Spend a day trying to make anything around your house and you'll see what I'm saying. You don't make spoons for a living. For you to try to do all the stuff associated with spoon making by yourself…is just an inefficient use of your time, and if this seems obvious to you now, it wasn't back in the time of Adam Smith. He offers an alternative to having one guy spend his entire day trying to make pins… by looking at a pin making factory. An operation that dedicates each day specializing in pins. Instead of one person doing all the steps themselves, a different person would specialize in each of the different steps. One person would specialize in laying out the metal, one person would specialize in cutting the metal, one person would specialize in putting the little hole in the top. You guys get the point. Adam Smith says that by his estimation, while the single guy making pins.. only makes one pin per day…this team of specialists…when humans are working together..could make almost 50,000 pins in a day. And when you look at it that way…the potential benefits to growing society are just obvious. Think about it in terms of our growing society…our island. How do we want to do things? Well, one option is to have a bunch of people going at it alone. Thousands of individual, subsistent people all providing for themselves and whenever they need anything to make their lives more livable, they have to make it themselves. Because these people have to make everything and can never specialize in making any one thing, what they end up with is a relegated version of everything…at least when compares to what they could have if the society adopted an attitude of specialization. I'd compare it to a Swiss Army Knife. Like, when you have one person that makes a knife and a nail file and a corkscrew and a GPS machine and all the stuff that comes on one of those things…you could just buy a good knife from somebody that makes knives and a good nail file from someone that makes nail files, but instead you get a mediocre knife, a bad nail file and those little scissors that…Who are these Swiss army people and do they really think anyone has ever used those scissors for anything? Have you ever seen those. Like what am I…am I giving haircuts to insects or something? Why do I need these little scissors? My point is, life pre and post specialization is a very different place. What if instead of living individual, subsistent lifestyles on this island we all find something that we think is going to be useful for everyone and specialize in making it? And throughout this process of specializing in making something… you're going to develop new systems and new technology that makes your job of creating this thing better designed and more efficient. Eventually, you have a stockpile of these things that you make…that are useful to everyone in society… and you go around trading for the stuff that OTHER people specialized in, which in turn will be created with a better design, more efficiency and a higher quality than you could do if you did it yourself. This is all very awesome and very straightforward, but probably the MOST awesome and revolutionary thing about this small section of Adam Smith's thought, is that it creates that vicious cycle that we were talking about. Think about it, people are willingly living their lives each day…improving the world that we live in…not because they're Gandhi or some particularly altruistic person or because a King is forcing them to… but out of their own self-interest! This was MASSIVE at the time. Political philosophers before this time talked all the time about what the duty of a citizen was to their country. Part of this duty, historically, was always to quell their vices. You know, if you want to indulge in too much of any one kind of pleasure, you owe it to your fellow citizens and country, as one cog in this giant machine…to dial it back a bit. For example, you may love bread. You may want to eat 100 loaves of bread in a day. But that might not be the best thing for society. When you go to the bakery and do your best impression of the cookie monster and eat 100 loaves of bread, there may not be enough bread for the rest of the people that need to eat that day. But in Adam Smith's new way of looking at things, people's vices can actually serve to benefit society as a whole. This was giant. For example, what if this person loves bread so much that they decide to specialize in bread making. What if they want to find a way to create a bread surplus so that they can still have their 100 loaves of bread a day while everyone else gets theirs too? And this person takes their bread really seriously…they only want the softest, tastiest bread with the perfect golden brown crust and their new system makes that a reality on every single loaf? The point is: there's a self interested motivation there for improving bread production and it has nothing to do with waiting around for some altruistic person to build a better mousetrap. That strange vice that you have for eating mice is the thing that motivates you to build the better mousetrap. And this is a simple but crucial shift to Adam Smith. He talks about bargains. He famously said that Man is an animal that makes bargains…and what he means by that is that it is a uniquely human characteristic to trade useful things for other useful things. I mean, you don't see zebras trading grass or beavers trading supplies for building their dams. No, it is a HUMAN characteristic to make bargains…and one of the most common tactics that we use to try to get what we want from the other person is by appealing to their self-interest. You know, you say here's the reason why it benefits you greatly to make this deal with me. Now note the distinction here…we aren't begging this person to give us what we want by appealing to their altruism. We aren't asking them to make this bargain because it would be a really nice thing for you to do for me and it would make my day… We tell them that the way they can have this thing that they want is to give you what you want. And this process, while done on a small scale with these individual transactions, is simultaneously being done on a large scale with society. We don't wait around for some knight in shining armor to create the iPhone for us… you know…I'm doing this so that people can text each other and finally be happy! No, Steve Jobs builds a team of people that creates the iPhone for self-interested reasons…whatever reason it may be…maybe he wanted glory…maybe he wanted to go down in history as someone that drastically improved the lives of billions of people. Who knows…and Adam Smith's point is who cares? His vice of wanting to be put down in the annals of history ultimately is a great thing for everyone. As humans, as soon as we realized that we could make these bargains with each other that are in the self-interest of both parties involved…that led to a massive change. Because now, every single person doesn't need to be self-sufficient. So what does it mean to be a wealthy person? Let's go back to the beginning of the episode with my overly-sanctimonious proclamation that I made at the alter of Buffalo Wild Wings to the bartender. This long explanation for why I'm happy, referencing all this stuff…is honestly just a love sonnet written to Adam Smith's writing on the benefits of specialization and these self-interested bargains that humans make. Think about it: one of the things I talked about was the professional sports player…this guy that spends his days running laps, eating a perfectly clean diet and pushing his body to it's physical limits simply so that I can sit down in my modern day Colosseum and be "entertained" by the show he's putting on for me. Well, in reality, that's not what's happening at all. This guy doesn't even know who I am…couldn't care less about me. The reason HE'S doing all this stuff is because it's in his self-interest to. Maybe he loves his job…he loves playing the game. Maybe he is doing it because he likes the idea of making 20 million dollars a year. Maybe he's doing it to etch his name in the sports history books and become immortalized as a star. There are a lot of reasons why he could be doing it, but effectively…to me…it doesn't matter. I'm still living the life of a King that has people training all day every day to put on a show for me at the end of the week. In fact, I would say the show that self-interest and specialization produces is actually much better than anything a King could get. Let's consider the alternative. Let's say I was a ruthless monarch in the 1500's and I could somehow gaze into the future and see the life that Stephen West has in the year 2015…and I decide that I too want a bunch of people doing a grueling training regimen so that I have a show to watch on the weekend. Let's say that as King, I take 1500 people, force them to train all week long and I call this group of people the NFL. I'm still getting a vastly inferior product than what we're getting in 2015. First of all, they have no motivation to push their bodies to the absolute max…when you remove the meritocracy of professional sports there's no reason for them to try as hard as they can, I mean why risk long term injury? They aren't going to like what they're doing…that's going to shine through. The game is just going to be less exciting all around. Consider for a second just how incredible it is that not only do we get a better product in 2015, but these professional athletes aren't doing this job because they're forced to…or because they are altruistic…you know…competing because they're nice guys that want society to have something to entertain them. We don't have to wait around for any of that…they do it because it is in their own self-interest to give everything they have in this area they specialize in. By the way, this applies to EVERYTHING from that long-winded example I gave to the bartender. Cars, buildings, light fixtures, professionally prepared food, bar stools, TV's, entertainment channels, TV shows and yes even sports stars. Just a few short generations ago, people would look at what we have at our fingertips on a daily basis and think that we were God-Kings. That…is pretty incredible. And it's only possible because of things like specialization and the self-interested bargains that we make with each other. So the takeaway from this is that when we're shipwrecked on an island…TV and movies have kind of shaded our expectations of how we expect things to go once we have to fend for ourselves. It's very easy to imagine us all living individual, subsistent lifestyles just trying to collect enough stuff to survive from day to day. But if we apply these basic ideas from Adam Smith…things might not be that bad for very long. Because by us working together with each other…eight hours of you working hard might not produce one pin…but closer to the 50,000 number. Thank you for listening. I'll talk to you next time.