Back in ancient history and ancient civilizations, the mines were the object of attention for generations and generations of enterprising men, cities and kingdoms.
The Chinese mined gold, the Egyptians mined gold, Alexander the Great had gold, the Romans mined and extracted gold. Every important historical figure it seems, has had something or other to do with gold.
If you study the mining of gold closely enough, you will get an excellent model, in simplified terms, about a most common manner of conducting entrepreneurship.
What is it about gold that makes it be mined in the first place? Why do people mine gold?
Well, gold looks nice, right! You can make nice ornaments out of it, you can make excellent gifts that look costly and valuable, conveying a prestige that’s hard to match. And as this becomes more and more apparent, more and more prestigious and wealthy people who want to flaunt their wealth and convey status (similar to how our businessmen today might choose to charter a flight, seeing first-class as somehow “beneath” them), and so as the demand for gold goes up, so does its price, and scarcity, and it quickly becomes not just a conveyor of value, but also, a store of value.
Now you’re guaranteed that not only does having gold items show you to be someone of significance in society, but it also is a good way to store your wealth and significance. At any one time, you’re guaranteed to sell off a chunk of your gold now for a significant sum indeed. So that’s how gold became gold, how it came to be mined and to signify value, and to store value, and also, even, to be used as currency.
What about the actual utility of gold? You might say, but that’s why it’s traded, because it’s useful. No! Hold on.
Warren Buffet is fond of trashing gold. He says he’d rather own a good company, land, plants, any other, to use his own terms, “productive” or “useful” thing than gold.
And he’s right, absolutely?
What you gonna do with gold? Eat it? No you can’t! Let’s see, ride it like a horse so you can go into town? No way! Lie next to gold to keep you warm at night? No, gold is cold.
So, gold by itself is fairly useless, remarkably so for something that has a ton of value. Notice the difference here between value and utility in the sense of first-object use, i.e what good does the thing by itself do to you in the absence of other intermediaries.
With an egg, the answer is obvious: you can eat it. With a dog, even, the answer is obvious: when all else fails he can guard your house. Even a knife, because you use that to cut your food, and with yet a bigger knife, a battle sword, you can defend yourself. So you have all these things that have immediately obvious usefulness, but of course much less value than their weight in gold. But in a tight spot with a lion on your tail, would you rather have the weight in gold of any of these things, or the thing itself?
Now, on to the actual mining of gold. We have here established why anyone would WANT to mine gold. But why does gold HAVE to be mined in the first place?
Well, no doubt some gold has existed right in the open, and may be found just by stumbling upon it.
But gold offers us a lesson in the natural principle of scarcity, which underpins entrepreneurship and human existence from the beginnings.
There is very little gold on the surface of the earth, and whatever there is, is not enough to go around so everyone would quickly fight for it if it were found, and quickly, the easy sources of gold would be dispensed.
I don’t know about you in Arkansas, but here in Accra, Ghana, where there is a lot of gold in the ground, I can’t walk around and see any gold at all anywhere. Believe me, and I’ve been in this country for a while. So gold is scarce.
Now, extend this principle to any useful, or desirable thing. Us humans, and the animals, are faced with a scarcity of anything worth having, anything that could better our lives or improve our enjoyment of our lifetimes. Entertainment, fun, shelter, clothing, water, food, medicine, safety, whatever, the scarcity of gold gives you the clue from which you can extrapolate the next big lessons. I mean, animals eat other animals, that’s how scarce things are!
So then, you quickly discover if you look around the cheap sources of gold, that there’s other gold just underneath wherever the easy gold was. Yes, there’s other gold there, but you need to do a little bit more to get.
Surely you smart entrepreneurs out there can see now how this all ends, right? Anyone care to buy a shovel from me!
Okay, you take the gold just there, and then you discover, the key word is “down”. Yup, you got the gold under the easy gold, and then, to get even more, you realize you’ve got to keep digging a little bit more, just a little bit more cause there’s more gold down there! And when that’s done, you go: down, and down, and down.
And if you keep digging all this gold, you’ll realize that, while at first you were stunted by a stunning curse of the scarcity, you quickly realize if you keep digging, well, there’s no limit to the amount of gold you can have!
But you just have to keep digging, and going down and down and down.
But, of course, there is actually a limit, depending on your abilities, and strength, and drive, and so on. Past a certain depth, you are getting more and more gold than you could have seen on the surface ever, and so, you’re now seeing more gold than you ever thought could exist in the whole world!
Wonder upon wonders, surely you must write home about this! But it’s not all sweet things and nice things, because, now you’re come so deep, you’re now discovering water. Yes, it’s down here too, just like all that gold you lugged up to the surface. And at first it’s nothing but probably a refreshing puddle on your feet, but soon, you discover there’s streams, and even flows and currents of water the deeper you’ve dug, til, finally, you stand waist deep in water and you realize you’ve come about as far as you can go with this. You’ve discovered the limits of gold. Time to pack it in, go home and sell all that gold.
Except of course, you have the brilliant idea that if you could bring a water pump to suck all that water out, you could get even more, and now, possibly ever higher quality gold, just the finest anyone has seen. And so you do, til at last you’ve got a whole multi-stage industrial process of gold mining and it’s a huge gigantic vocation in itself, above all the other things you have to do in life.
You reached the limits of gold, then you broke through the barrier using technology, inventiveness, strength, brains, and anything else at your disposal. But now, every extra ounce of gold you get is always going to be a result of pushing against the barriers at the limits.
You’re operating at the limits of gold, and every further gold you get is no longer coming from improvements in your efforts anymore, but improvements in your ability to improve the technology and machinery of gold mining, and this process is now much much slower than all the road you took to arrive at this point.
You’re now at the limits.
Yes, there’s still a ton of gold down there, you, now an expert on gold, know that better than anyone else, but you’ve now reached the limits and you know many of these will never ever be broken through in your own life time. You daydream and wonder what sort of abilities would exist, if only, another 20 years in the mines and developing new abilities, another 100, 1000 years, you can foresee some great developments but they are mostly beyond you, you’re constrained at the limits.
So that’s the process and the value of gold.
And this is also, not surprisingly, the process and value of entrepreneurship.
What is your art? What is your field? Accounting, law, dentistry, medicine, engineering? It’s all like this. We’re all out to solve and address the human problems due to scarcity. You start, and certain solutions, the basic ones, are easy and light, but quickly things progress as you dig more and more and advance and provide ever more value, until you have to expend more work than you have ever done to improve things and meet even more needs, til at last you are at the limits, and any improvements at all, if any, come very slowly in a humbling little trickle that sees breakthroughs only most once in a blue moon.
Now, the thing with the gold-mining model of entrepreneurship is that it has one fatal flaw.
Can you see what the fatal flaw of the gold-mining model of entrepreneurship is? Leave a comment in the section below this post, and I will personally review your answers.
To find out the flaws in this storied model of entrepreneurship and discover the ways you can improve upon this very useful approach, you will need to go on to the second part, which covers the “water-diversion” model of entrepreneurship.