There Are Two Kinds of Rich

In 1841, a depressed, exiled, eventually-suicidal German economist named Friedrich List wrote a 400-page book complaining how Adam Smith had ruined economics.

His complaint was specific. Smith, he said, had taught everyone to measure the wrong thing.

The state of the affordability crisis in the United States led me to take a look backwards to a time when struggle was the baseline. What I found was the National System of Political Economy. It can be thought of as the anti-Adam Smith opus. It’s about tariffs and 19th-century manufacturing policy and the relative trade positions of Hanseatic city-states (think of it like a cartel of merchant guilds). It is, on its face, completely useless for personal finance.

It is also the best personal finance book I have read in five years.

Here’s why.

The Two Fathers

Buried in Chapter XII, after a hundred pages of List grinding his axe against Smith, he stops to give an example. Two fathers, he says. Both own land. Both save 1,000 thalers a year. Both have five sons.

Father #1 puts every spare thaler into investments earning interest. He keeps his sons working the fields. When he dies, his estate is large. His sons inherit equal shares of the land and continue working it the same way he did. Each of them is a little worse at farming than their father, because they had to split his attention five ways and they never developed any other skills. Their sons will be worse still.

Father #2 takes the same 1,000 thalers a year and spends most of it on his sons. He pays for two of them to become “skilful and intelligent landowners” — he sends them to learn modern agriculture. The other three he sends to learn trades of their choosing. When he dies, his estate is smaller. There’s less land left, less cash, a worse balance sheet.

But his five sons are now better at producing wealth than he was. The two who took the farm produce more from half the land than the original father did from all of it. The three tradesmen are earning their own living and supporting families. Their children will inherit not just whatever’s left of the estate but the capacity their fathers developed.

List’s question: which father was richer?

If you measure net worth at the moment of death, Father #1 wins. It’s not close.

If you measure across two generations, Father #1 produces declining yields and shrinking households. Father #2 produces a family that compounds.

This is the entire argument of the book in one example. List thought economics had been hijacked by a theory of values when what actually mattered was a theory of productive powers. Adam Smith taught everyone to measure wealth. List wanted them to measure the capacity to produce wealth.

Two hundred years later, the personal finance internet is Father #1.

The FIRE Movement Is a Theory of Values

I’ll say something uncomfortable about my own movement.

The thing we’re really good at — the thing this whole blog is built around — is values measurement. Net worth. Savings rate. Withdrawal rate. The 4% rule. FIRE numbers. Coast FIRE numbers. Lean FIRE numbers. Whatever fresh hell “Barista FIRE” is.

All of these measure the same thing List was complaining about in 1841. They measure exchangeable value. They measure the pile.

What they don’t measure is your capacity to produce more pile.

This sounds like a distinction without a difference until you actually try it. Two examples:

Person A has saved aggressively for ten years. $400,000 net worth at age 32. Works as a project manager at a defense contractor. Has done basically the same job for eight years because the savings rate matters more than the career. Hasn’t taken a real risk since college. Doesn’t really know what else they could do for money.

Person B has saved less. $180,000 net worth at age 32. Spent more on grad school, on a coding bootcamp after grad school turned out wrong, on a sabbatical to write something that didn’t sell. But Person B can do four different things professionally, has a network in three industries, and has a track record of figuring out new fields.

If a recession hits and both lose their jobs, who’s actually wealthier?

Person A has more values. Person B has more productive powers.

The personal finance internet will tell you Person A won. Friedrich List will tell you to wait until the recession.

Why Smith Won and List Lost (and Why It Matters Now)

You’ve never heard of List. You’ve heard of Smith. There’s a reason for that, and it’s not that List was wrong.

Smith won because he was easier. The theory of values is measurable. You can put it in a spreadsheet. You can rank yourself against other people. You can hit a number and be done.

List’s theory is harder. How do you measure your productive powers? You can’t. They show up in retrospect, when something breaks and you discover whether you can fix it.

Every personal finance content creator in the world — me included — has a structural incentive to write about the measurable thing. “Track your net worth weekly” is a post. “Develop hard-to-quantify capacities that may pay off in fifteen years or never” is not.

So we all write about the values frame. And we all collectively miss the more important point that List nailed in a sentence:

The power of producing wealth is therefore infinitely more important than wealth itself.

That’s the whole game. He wrote it in 1841. The personal finance industry has spent 184 years pretending he didn’t.

The Three Translations

So what does List’s theory of productive powers actually mean for you in 2026? Three things.

1. The biggest line item in your budget should probably be capability.

List is explicit: spending on education, training, and capacity-building looks like consumption on a balance sheet but functions as capital expenditure. The two-fathers example is literally an argument that spending more and saving less was the better long-term financial decision, because what got spent built productive capacity that compounded faster than the saved capital would have.

This is heresy on a FIRE blog. I’m aware.

But before you close the tab, notice that you already believe a weaker version of this. You believe a 401k match is “free money” you should max out. You believe a Roth IRA is worth funding even when the math is ambiguous. You believe in HSAs. These are all bets that future productive capacity is worth current dollars.

List is just asking you to extend that logic to the productive capacity that lives inside your skull. The $15,000 you spend on a real credential, on a sabbatical to retrain, on a coach who actually moves your career — those are the same kind of bet. They look like consumption. They function as capital.

The catch is that you have to actually use the credential, finish the sabbatical, do the work the coach assigns. Spending money on capability isn’t the same as building it. (More on this in a second.)

2. Compounding works on capacities, not just capital.

Everyone in personal finance loves the compound interest chart. The one where Sally invests at 22 and Bob invests at 32 and Sally ends up with 2.3x more money even though Bob saves more total dollars.

List’s point is that this same chart applies to skills, reputation, networks, judgment, and physical health.

The thirty-year-old who has been doing focused, hard work in a real field for ten years is not the same person as the thirty-year-old who started two years ago, even if their bank accounts are identical. The first has a decade of compounded judgment. The second has two years.

The early years matter disproportionately for the same mathematical reasons they matter in investing. And the same way you can’t make up for a missed decade of investing by saving harder later, you usually can’t make up for a missed decade of capability building by trying harder later.

This is why the “grind in your 20s” advice is annoying but mostly correct. Not because grinding is virtuous. Because productive powers compound, and 22 to 32 is the part of the curve where that compounding does the most work.

3. Don’t let cash-flow optimization wreck the things that actually generate cash flow.

This is List’s deepest point and the one most relevant to the readers of this blog.

He spends a lot of pages on Spain. Spain, he says, had everything. Internal peace, vast territory, rich silver mines, the same sun shining on the same people. And Spain got poorer. Why? Because over a century or two, Spain destroyed its productive powers — the Inquisition wrecked its intellectual capital, the expulsions wrecked its commercial capital, the imperial extraction wrecked its industrial capital.

Spain optimized its values frame (silver! gold! treasure fleets!) while destroying its productive powers frame. Two centuries later it was an economic backwater holding a pile of metal.

The personal version of this is everywhere on FIRE blogs and I have written some of it myself.

• The side hustle that wrecks your sleep and your judgment is a values-frame win and a productive-powers loss.
• The aggressive frugality that destroys your marriage is a values-frame win and a productive-powers loss.
• The career stasis you accept because the benefits are good and the savings rate is high is a values-frame win and a productive-powers loss.
• The decade of “I’ll exercise after I hit my FIRE number” is a values-frame win and the largest productive-powers loss most readers of this blog are currently making.

Your body is productive capital. Your relationships are productive capital. Your reputation is productive capital. Your capacity for focused work is productive capital. None of it shows up on the net worth spreadsheet. All of it is what creates the numbers on the net worth spreadsheet.

If you’re optimizing the spreadsheet by burning the underlying capital, you’re being a Spaniard.

What List Doesn’t Say

I want to be careful here, because there’s an easy misreading of List that turns into a license to spend money on yourself indefinitely and call it “investing in productive powers.”

That’s not the argument.

List’s two fathers both saved 1,000 thalers a year. Father #2 didn’t spend more than Father #1. He spent it on different things. He still had a savings discipline; he just deployed the savings into capacity rather than into interest-bearing assets.

The argument isn’t “spending more is fine if you call it an investment.” (We have a whole genre of self-deception around that one — see the sophistication trap.) The argument is that within a disciplined budget, you should bias your discretionary deployment toward things that build capacity rather than things that throw off interest, especially in your first two decades of earning.

You’ll know the difference because of how it feels in five years. Real capability investments produce someone different. Sophisticated consumption produces the same person with nicer stuff and better justifications.

The Real Lesson

Friedrich List died in 1846. He shot himself in a hotel in the Tyrolean Alps, broke and out of political favor. By the values frame, his life was a failure. By the productive powers frame, his ideas built nineteenth-century Germany, twentieth-century Japan, and most of postwar East Asian industrial policy.

He was, in the most literal sense possible, richer dead than alive.

I’m not recommending that as a personal finance strategy. But I am recommending the underlying observation:

The thing you’re measuring is not the thing that matters. The thing that matters is harder to measure. And the personal finance industry, including this blog, has been quietly nudging you toward the easier frame for your entire adult life.

Stop tracking your net worth weekly for a month. Track instead what you can do now that you couldn’t do a year ago. Track what you’ve learned. Track what you can build, fix, sell, write, ship, or teach that you couldn’t before.

If those numbers are going up, your spreadsheet will eventually catch up.

If they’re flat, no spreadsheet is going to save you.