Authored by C.Jay Engel via The Mises Institute,
It is becoming increasingly fashionable to agitate against the very existence of billionaires. Recently, for instance, Business Insidersummarized a statement of Congresswoman Alexandria Ocasio-Cortez as follows: “[she] said a society that “allows billionaires to exist” while some Americans live in abject poverty is “immoral.” Echoing this sentiment, Elizabeth Warrenrepeated a very popular sentiment among the mainstream and far left; namely, that it was time that billionaires pay “their fair share in taxes.”
While both of these narratives are commonly held and frequently expressed, they are completely wrongheaded and misunderstand the role that billionaires actually play in society.
Government-Made Billionaires vs. Market-Made Billionaires
We must be clear in our analysis that the State often has a hand in the creation of billionaires; not because it “allows” billionaires to exist, but because the western world suffers from a framework that actually redistributes resources – via taxation and monetary expansion – from the poor and middle class to the well-connected.
These recipients of State redistribution, often called “crony capitalists” are excluded in our praise of billionaires and to whatever extent a billionaire (or millionaire) is a net recipient of government redistribution, to that extent we are critical of them.
Given the complexities of the owners of big business and their relationship with the state, the consideration of whether a wealthy CEO of a company is to be criticized or praised becomes a difficult exercise. Nevertheless, the libertarian position on this is to eradicate the confusion by unraveling the involvement in industry that characterizes the modern United States Federal Government (and most other western governments). Any positive subsidies that are transferred, via the government, from the taxpayers to the capitalists must be eliminated if we are to benefit from the role of the billionaire capitalist, as discussed below.
Now that we have that out of the way, we can analyze the existence of billionaires who have achieved such a status on the market. Far from being the cause of inequality and poverty, it is actually the billionaire who has contributed, in one way or another, to the well being of society. It is the billionaire, who has bestowed upon his fellow man the goods and services that raise their standard of living.
On the market, the source of the billionaire’s billions is the hundreds of thousands, perhaps even millions, of people who have decided that whatever the billionaire was offering was more important to them than the money it cost to obtain it. But even before the consumers made this judgement, the billionaire had to anticipate their preferences and he had to risk the prospects of a loss in order to bring forth the goods and services that the people desired.
The Role of the Billionaire in the Marketplace
On the market, there are no guarantees. As Ludwig von Mises once noted, the consumers do not offer assurances as to their commitment to the goods and services that the billionaire produces— they change their minds, they shift their preferences, and they choose goods of alternative quality at their own whim. The billionaire then, before he makes his billions, faces the prospects of a loss; that is, the market has a built in set of financial consequences as a penalty to the capitalists who choose unwisely in their allocation of resources.
Capitalists either succeed in providing things that people want or they do not. If they do, then not only are they rewarded, but by definition other people’s lives are improved. This improvement is not politically determined and judged, but determined by actual and demonstrated preferences of the consumers. If the capitalist does not succeed in making people better off, he is penalized and suffers the financial and other consequences of his poor decisions.
In this way, those politicians and commentators who push the idea that billionaires need to “give back” or pay their fair share do not understand that there is nothing to “give back” and that the “fair share” has already been contributed to society. There is nothing to “give back” because an exchange took place; value for value, with the capitalist giving a good or service and the consumer reciprocating with a transfer of funds. There was an even exchange such that there is no deficit or surplus in what one party continues to owe the other.
Further, the idea that billionaires must pay their fair share via taxation is similarly interpreted. The fair share, the wealth that the capitalist created on the path toward his billions, has been bestowed upon society in the course of his receiving the reward for his accurate anticipation of the wants and needs of consumers he has likely never even met.
If a capitalist earns billions of dollars in the course of his investment and subsequent selling of the goods and services he produces, he paid out his fair share in the form of the very goods and services he sold! If the capitalist earns a billion dollars, he contributed a billion dollars worth of goods. If he earns a million dollars, he contributed a million dollars worth of goods. If he earns a negative return (a loss), he has contributed nothing and is therefore penalized for this.
Thus, a wealth tax, by its very coercive nature is not only a breach of the private property rights that a capitalist has in his wealth, but it is also definitely not about “fair share.” It is an additional obligation above the fair share and diminishes the future investment capabilities that the capitalist has. And to diminish the capital stock is literally to undermine the potential wealth-creating activities of the capitalist billionaires.
The future of western civilization depends on the socio-economic framework of capitalism and free markets. It depends on people understanding that the wealth we see around us is a result of capitalism – of the “rich” seeking profits by investing their capital into the structure of production to produce goods for people and profit as they do it. In the words of George Reisman, “the protesters and all other haters of capitalists hate the foundations of their own existence.”
Thus, to launch an attack against the capital stock of capitalists of all wealth levels, is to undermine the very tool that mankind has in fighting impoverishment long term. If we want to overcome poverty, nothing is more important than investment into the structure of production; this is how goods are made more affordable to more people that have never before been to attain them. To siphon capital in preference for consumption is to siphon the very goods that bring mankind out of its natural state of impoverishment. In order to address the eternal struggle over scarcity of resources, we need capitalists and billionaires. They are the providers of a better tomorrow.