Leverage explained
In today’s evolving society
In a time where we have a ridiculously large amount of free time (compared to our ancestor counterparts), it’s fascinating to think about how all this free time comes about.
Humans are some of the only creatures that endeavour to fill time beyond their basic duties. Even counting the bare necessities: eat, sleep, cook, clean, bathe, work (the list goes on). We humans born into the 21st century should grant ourselves lucky to not be spending enormous amounts of time hunting the food we eat or farming the electricity we consume.
Self sufficiency is far from the route to wealth.
Business dealings, in particular, define the importance of having leverage. Leverage allows you as an owner/operator to meaningfully allocate your time to situations where your skillset is relevant and desperately required.
Think, you have a background in hospitality; however, you have a cafe to run. You know the in’s and out’s of the general operations of the said cafe, is your time best utilised making coffees or is it best utilised hiring incredible baristas who can take care of making coffees whilst you grow the business?
‘Which would have advanced the most at the end of a month,’ Henry David Thoreau asked: ‘the boy who had made his own jack-knife from the ore which he had dug and smelted, reading as much as would be necessary for this – or the boy who had attended the lectures on metallurgy at the Institute in the meanwhile, and had received a Rodgers’ penknife from his father?’ Contra Thoreau, it is the latter, by a mile, because he has far more spare time to learn other things.
Leverage grants you the ability to earn without exchanging time for money, without selling your time; the one thing you won’t get back.
Now imagine
For thousands of years, one of the only ways people got rich was to lower someone else’s standard of living, e.g. buy a slave.
They would do things that you didn’t have ‘time’ to do, even the slightest improvements in your life would come from getting someone else to do them for you.
Think of this, you employ no chef: yet never in history has the average person been able to afford the privilege of having someone else prepare his/her meals.
You employ no tailor yet you have an infinite range of affordable clothes that fit you and look good on you. They also originate from factories ranging every continent on the globe.
You employ no chauffeur, yet you can afford the privilege of being driven between places at the press of a button.
You employ no wick trimmer, yet your light switch gives you instant lighting that is the sum of work individuals at a distant power station are putting in.
You employ no messenger who’s running around with your messages to your relatives and friends.
My point is, you have more people working ‘for’ you than you immediately realise. Yes, these people work for many other people too, but that's the beauty and magic of democratisation, trade and specialisation that the human species has developed. Also, what difference does it make to you?
These systems don’t just work, they’re the sum of a network of interdependence which almost always amounts to a positive sum game for every party involved.
Leverage extends beyond just its financial implications. It's easy to get stuck in the rut of assuming that there's always someone ‘losing’ in a situation where one party is depicted as ‘winning’.
The origins of trade tell us that everyone wins, why is trade in today's society any different? If anything, leverage teaches us that we can exist in a society where the average person can afford to have an insane number of individuals working for them at any given time.
As Friedrich Hayek first clearly saw, knowledge ‘never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess’.
This short piece was inspired by the book The Rational Optimist by Matt Ridley
