The Three Types of Money In Silicon Valley

I’ve come to believe we can only understand Silicon Valley if we pay attention to the money. This post, from February, articulated the different types of money that contribute to the rise of Big Tech.

there are effectively three distinct types of money that have fueled Silicon Valley’s rise to dominance. There’s (1) government contracts, (2) direct product revenues, and (3) there’s investments and financial speculation.

I suspect that there is some mix of these three inputs that would be, well, healthy. If everything is government funded, we would not have nearly the rate of growth and technological development that competitive markets can spur. If everything was consumer products, we would have no internet access in rural areas, and nowhere close to enough basic research. A great many social goods are only achieved with government subsidy. And with no speculative finance — no IPOs, no VC funding rounds, the inputs for launching and scaling new companies and products would barely exist.

But I am quite confident that the current mix is deeply unhealthy. Speculative finance completely overshadows the other two. Companies are valued on the basis of their vibes — their aura of futurity. If the Keynesian beauty contest is just a sideshow, then it is really just a quirk.