Rich enough to make bad choices

Although I’ve never read any Terry Pratchett, one idea from his writing that’s penetrated my consciousness is the Vimes “Boots” theory of socioeconomic unfairness.

In The Men at Arms, Samuel Vimes earns thirty-eight dollars a month as Captain of the Watch. A really good pair of leather boots, that would last for years and years, cost fifty dollars – more than he can afford. He has to settle for a cheaper pair of boots that cost ten dollars, which have to be replaced every year. Over the course of a decade, he pays out a hundred dollars for boots, whereas somebody who could afford the nice boots has only paid fifty.

He concludes: the reason that the rich were so rich was because they managed to spend less money.

This idea isn’t unique to Pratchett, although it’s how many of us first encounter it – economists call this the ghetto tax. If the boots don’t convince you, there are plenty of examples outside fiction:

These are all sensible, reliable ways that a rich person can spend less money. Nobody would argue that these aren’t a good use of money. But they’re not the whole story.

Being rich doesn’t just mean you can make good investments; it also means you can try some bad ones. You can invest in a risky venture if there’s a higher potential reward. If it succeeds, you’re much better off than before. If it fails, you can absorb the loss.

It’s good to try bad things, because it’s a way to learn about ideas we might have ignored otherwise. If you try lots of ideas that sound bad or risky, you’ll discover that some of those ideas were actually good, and those are the ones you keep.

Being rich gives you a safety net to make bad investments, which helps you find more good ones. Over time, the rich don’t just spend less money, they find new ways to earn more money. In terms Samuel Vimes would understand: they don’t just invest in a pair of sturdy boots, they invest in experimental boot-making startups.