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Note: This article is an authorized excerpt from Ryan’s upcoming book, Zero to One Million [more information].

The Power of Ideas

At the University of North Carolina, there is an innovative educational program called the First Year Seminar. These semester-long seminars bring together a group of about 20 undergraduate freshmen with an upper-level professor in a specific academic discipline that greatly interests both student and teacher. Though this program I am taking a class with a distinguished economic professor by the name of Dr. Steven Rosefielde.

A few weeks ago at registration, I had to select among sixty-two such seminars and I am sure you as the reader by now understand why I chose the one I did. However, there was another seminar that caught my attention by the name of “Money as an Economic, Cultural, and Social Institution.” But it was not the title that caught my attention the most. It was the first two sentences of the description, “There is no social institution more amazing than money. Over time people have developed the willingness to exchange valuable goods and services for ‘useless’ pieces of paper.”

While I have been aware since high school economics class that U.S. dollars have not been convertible to gold since August of 1971, until I read those two sentences something now obvious did not hit me. Money is only an idea. In fact, everything that man has ever accomplished, everything tangible that we have created, well, it all stems from an idea. Two weeks after reading this seminar’s description, I read the following paragraph in the book Rich Dad’s Guide to Investing by Robert Kiyosaki&ldots;

“One of the most important technological changes in the history of the Western World took place during the Crusades, when Christian soldiers came across the Hindu-Arab system of numbers. The Hindu-Arabic system of numbers, so named because the Arabs found the numbering system during their invasion of India, replaced what we call Roman numerals. Few people appreciate the difference this new system of numbers has made upon our lives. The Hindu-Arabic system of numbers allowed people to sail farther out to sea with greater accuracy; architecture could be more ambitious; time keeping could [be] more accurate; the human mind sharpened; and people thought more accurately, abstractly, and critically.”

Imagine this. Just from a simple idea to use a base of 10 and to simplify the visual representations of numbers came a greatly improved world and many more ideas since. Just think how hard it would have been to read a profit and loss statement in Roman numerals.

The power of ideas has been illustrated vividly over the past century on the economic front. In 1867, a nearly fifty-year-old Karl Marx published Das Kapital. His thesis within was that the working class and wealthy would be in eternal conflict, leading to what he termed as Communism, under which capital would be owned in common and there would be no exploitation of the working class.

This idea, five decade later, caused a revolution in Russia. Intellectuals throughout were impressed by the strong Gross National Product growth of the U.S.S.R (though it was later determined the majority of these numbers were not accurate) and communism quickly spread to countries in Asia, Eastern Europe, and South America. With the market failures of the Great Depression in America, at times, Communism was thought to be the way of the future by a likely majority of the world.

By the 1960s, if a country was not communist, it was surely socialist or at least had a mixed economy. In the early 1970s, conservative Republican president Richard Nixon even put price controls in place in an attempt to lower inflation, a technique often used in socialist countries.

Since, an even greater ideological struggle has taken place. In 1979, a lady by the name of Margaret Thatcher was elected Prime Minister of England. Following the guidance of Oxford graduate Sir Keith Joseph and the ideas of Milton Friedman and Friedrich A. Hayek, Ms. Thatcher began to swing the pendulum back towards Capitalism with “Thatcherism”, a belief in the market economy.

Her premise, influenced greatly by the Chicago school of thought, was based on four beliefs.

  1. While state-owned enterprises may have once been necessary to obtain the economies of scale needed to industrialize, they were now breeding inefficiency and waste since they had no incentive to be profitable.

  2. A market economy was more efficient, better-allocated prices, and created a wealthier society than a socialist or communist economy.

  3. By privatizing the majority of state-owned industries and creating the proper incentives and laws to spur entrepreneurial activity, jobs would be created, there would less dependency and reliance on government, and the economy would be much better off.

  4. With economic freedom comes real freedom.

These ideas, along with the fall of the Berlin Wall in ’89 and the collapse of the U.S.S.R. in ’91, greatly changed the world. These ideas, along with concurrent technological progress, are what have propelled our world into this era of globalization and information age.

I have used the above examples not to leave the topic of business, but rather because if one is to succeed in business they must understand the current state of economic affairs and at minimum the basics of economics. If you find yourself lacking in this area, I would suggest picking up the 2002 edition of Economics by McConnell and Brue, and reading The Lexus and The Olive Tree by Thomas Friedman.

Within business, the power of ideas has been exemplified numerous times. In the mid 1970s a college dropout by the name of Bill Gates came up with an idea that has made him the wealthiest man in world; that computers would need software and an operating system. And it was a computer company started out a dorm by Michael Dell that has dwarfed the goliath at that time, IBM. How? With simply an idea; the idea to sell direct to customers instead of through distributors and retailers.

On a smaller scale, a lady by the name of Ruta Fox started a diamond ring company a few years ago. One would think that the barriers to entry and the competition in the diamond jewelry business would preclude a young lady with just $3,000 in savings from building a successful company. However, it is often not the amount of money, but rather the quality of the idea. Instead of going the usual route (developing a line of products and perhaps putting them in a catalog or trying to get her line picked up by department stores), she decided she would focus on one product.

Ms. Fox had an inspiration one day. She figured, “Married and engaged women had their rings, but what about the single woman?” She decided to do something about this and came out with the “Ah Ring” as she called it, the ring for Available and Happy single women.
Well a few weeks later, friends at fashion magazines invited her to their offices to present the rings for sale to staffs. One day while at the headquarters for “O,” Oprah Winfrey’s magazine, an editor liked the idea and sent a ring of to Oprah. It turned out that Oprah loved the idea and mentioned it in her next issue of “O”.

By the end of that first year, Ms. Fox had turned her simple yet novel idea into a company with revenues in excess of $1 million.

The point of this article is simply this: It is not how hard you work, it is how smart you work and how good your ideas are. For anyone struggling with this concept, I would suggest reading a book by Napoleon Hill by the title of Think and Grow Rich.

RETURN TO: The Economics and Policy Resource Center

This Economics & Policy article was written by Ryan P Allis on 2/9/2005

Ryan P. Allis, 20, is the author of Zero to One Million, a guide to building a company to $1 million in sales, and the founder of Ryan is also the CEO of Broadwick Corp., a provider of the permission-based email marketing software and CEO of Virante, Inc., a web marketing and search engine optimization firm. Ryan is an economics major at the University of North Carolina at Chapel Hill, where he is a Blanchard Scholar. [learn more.