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One recent question was “Why do individuals or families (such as the Walton family) need or deserve millions and billions of dollars in personal wealth?”
Why do we allow and justify this level of wealth accumulation? Why is it possible in our economy?
There's a stat that reports that 85 people in the world collectively possess more wealth than half the human population. That's seriously disturbing.
In short, because they earned it.
But first, we must distinguish between political fortunes and market fortunes. (Let's leave aside, for now, inherited fortunes.) Political fortunes are appropriated through political power and connections. Market fortunes are earned through productive work and trade. It is market fortunes that I will explain and defend.
Trade is the voluntary, mutually beneficial exchange of value for value. Money earned in this fashion enriches everyone and harms no one. Successful producers (capitalists, entrepreneurs, businessmen, workers, and the like) earn their money in the market by creating value that others are willing to buy. The size of the fortunes of successful capitalists is a measure of the value they create and disseminate through trade.
Surveys such as the one cited above (“85 people in the world collectively possess more wealth than half the human population”) are grossly misleading because they don’t distinguish between money and wealth. Money is not wealth: It is a store of value waiting to be exchanged for wealth. When you trade your money for Microsoft Word, you get wealth. Bill Gates gets money (leaving aside, for simplicity’s sake, that the cost of the product must first cover employee compensation, suppliers’ bills, raw materials, and other costs of production, as well as stockholder dividends, corporate taxes, and other company expenses). Contrary to that survey’s implications, the value of the wealth gained by consumers typically is immeasurably greater than the monetary fortune gained by the producer. For example, Microsoft founder Bill Gates is worth some $80 billion. But what is the sum of the value, in dollar terms, of all of the Microsoft products bought by consumers? Just in 2014 alone, Microsoft earned $86 billion in revenue; that’s how much consumers valued Microsoft products by their voluntary choice to buy them—more in one year than Gates’s entire fortune. And that doesn’t tell the whole story. Consumers typically value the products they buy more than the money they surrender for it. Otherwise, why spend the money? Those products bring years of use to consumers—for business, education, personal finance, or just plain personal enjoyment (I’m using Windows 8.1 right now, and enjoying it immensely). How do you put a value on that? Gates’s fortune is small next to the tens of trillions of dollars in direct and indirect economic value spread through the economy over the decades resulting from the creation of his fortune.
Mega-billion dollar market fortunes are, in essence, no different from anyone’s savings nest egg. The Bill Gates’s of the world use some of their money to buy their extravagant personal wealth (yachts, mansions, etc.). What is not spent on personal purposes is savings, which is Gates’s own surplus production. It’s essentially the same for everyone up and down the income scale. Anyone who does honest work exchanges some material value, be it a service or a product, for money. He then spends his money covering the costs of living and generally satisfying his needs and desires. To the extent one spends less than one makes, one acquires savings—surplus production—just like Bill Gates. Whether $1 or $80 billion, the source is the same; it is surplus earned by the worker through trade in the market. The capitalist tycoon’s surplus is monumentally greater than the average worker’s surplus only due to the tycoon’s ability to create much more material value for many more people.
If you measure only monetary accounts, the great capitalist fortunes seem outlandish. But, in reality, fortunes like those amassed by the likes of John D. Rockefeller, Henry Ford, Bill Gates, Steve Jobs, et al, are not disproportionately large. They are the small tip of a vast iceberg of wealth creation that benefits millions and billions of average people—the sum of which dwarfs the creators’ fortunes.
Market fortunes are not merely economically practical. They are moral and noble, and rightfully belong to the capitalist entrepreneur who built it. A nation’s or the world’s wealth is not a tribal product. It is the sum of the efforts of individual producers trading in the market. “Society” has no claim on fortunes large or small, and no right to determine whether or how much the creators may keep of their fortunes, any more than it has a right to determine how much of anyone’s earnings he may keep. Only the market—the cumulative voluntary choices of consumers—can justly make the determination on the proper “distribution” of wealth. Monetary nest eggs, no matter how large, rightfully belong to those who earned it so long as it really is market-earned.
Remember, we’re talking about market fortunes—fortunes built by enriching others’ lives. In pre-capitalist ages, fortunes were acquired mainly by theft and conquest. They were political fortunes. Today’s version of the political fortune are those appropriated in our mixed economies by businessmen who gain by using political connections to get government economic favors or legally hamper competitors. (Political fortunes—or the political parts of hybrid political/market fortunes—are definitely unfair: But political fortunes are a consequence of the mixed economy, not a capitalist economy.) As to inherited fortunes—assuming the original fortune is rooted in the market—it rightfully belongs to the heirs based on the original creator’s right to dispose of his property as he sees fit. If Sam Walton wills his fortune to his family, it’s his right, and the inheritance is rightly the Walton family’s, regardless of whether they continue to productively grow the fortune or are worthless parasites. (If the Walton kids have no claim on the inheritance, then who does?)
“Why do individuals or families . . . need or deserve millions and billions of dollars in personal wealth?” Because, assuming it’s a market fortune, they earned it, and deserve it every bit as much as any average person deserves his modest bank account.
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One thing I didn’t directly address is the issue of need vs. deserts. In a capitalist society, justice reigns. Justice doesn’t consider need, which is undefinably subjective anyway (one person may need a loaf of bread, while another may say he needs a yacht). In justice, the only thing that matters is how you acquired your wealth. If you received it through your own effort and in voluntary dealings with others, such as through trade, inheritance, or voluntary charity, you deserve it no matter what anyone judges to be your needs. If you got your wealth through rights-violating activity, such as armed theft, fraud, murder, or government favors, you don’t deserve it, no matter how much you may think you need it.
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