A lot of dumb letters appear in my New Jersey Star-Ledger. I usually ignore them. But every so often one appears that, though dumb, touches on something important that deserves attention. The following letter is one such letter, because the view presented is destructive yet widely believed, including by prominent people who should, and perhaps do, know better. A letter titled What billionaires do is count their profits appeared in the Star-Ledger on April 8, 2022. Written in rebuttal to the letter In defense of billionaire job creators by Bruce Papkin, Charlie Hagel opines
Jobs are created by consumer demand for goods and services, to which profit-seeking companies respond. Can we finally put an end to this canard that billionaires create jobs — although they do profit from creation of jobs?
This implies that profit-seeking companies spring up like weeds on the whims of consumers. These companies have no cause whatsoever. They magically spring up like weeds out of sidewalk cracks, followed by jobs that magically appear for workers to fill, whose individual work is magically coordinated to result in goods and services that fill the “demands” of consumers—all without any intelligent design or direction whatsoever. Somehow, would-be billionaires appear, apparently out of nowhere, to somehow mindlessly profit from the magically “created” jobs—created, how?—until their profits add up to 10 figures!
This view is a denial of brains. It holds that there is no vision, risk assessment, thinking, planning, decision-making, prioritizing, or intelligence behind the production of consumer goods and services. Yet, that intelligent design is precisely what capitalists/businessmen/entrepreneurs provide. The idea that consumers’ mere desires, rather than innovation, drive production is a toddler’s view of economics. Toddlers want, and their desires are provided. Like the toddler, Hagel has no clue how those desires are met. To Hagel’s worldview, like the toddler’s, stuff consumers “demand”—which they somehow know about before they’re created—just appears out of nowhere—or out of magical job-filled companies.
The idea that goods and services originate with consumer demand is comical. Rather, they originate in the innovative minds of entrepreneurs, who then take the steps necessary to bring their product ideas into being. They create the companies, secure and allocate the capital, assess the employment needs, judge the skills, and hire the employees needed to complete the production and offer it to the consumer market, among many other decisions and actions. Hagel is wrong. Consumers are not responsible for the product or the related jobs created. They are the beneficiaries. The businessman created the product and the jobs.
Consumers, in fact, rarely know what they want until they see it. Inventors conceive. Capitalists/businessmen/entrepreneurs decide how much consumer demand, if any, there may be for the invention—and then figure out how to manufacture the invention at scale. Often, they are the same people. Often, the risk doesn’t pay off. But when it does, and when the new consumer market for the new product or service amounts into the millions, the businessman gets rich. And in the most successful cases, a billionaire results. It is the now-rich Capitalists/businessmen/entrepreneurs who created and are responsible for the products and the jobs, not the consumer, who is the end, not the beginning, of the productive process.
At this point I’ll concretize this process to demonstrate my point by recounting a personal real-life experience. I often watch CNBC, the financial market channel. Usually, it’s on as sort of “background noise”, since not everything covered particularly interests me. Often, they have interviews with prominent market individuals. In 2019, I was watching when they brought on Ben Silbermann, a founder of a company that had just gone public. The public offering made Silberman, and his co-founder Evan Sharp, billionaires on paper. I’m mildly interested in this type of interview, because I love entrepreneurialism. But my ears really perked up when the name of the company was mentioned, Pinterest. Why perk up? Because I’d been hearing that name mentioned in my household regularly. You see, my wife is an active subscriber to Pinterest, visiting almost every day. As it turns out, she was one of 250 million—yes, million—such subscribers at the time of the public offering. (The company’s active monthly subscriber list has since grown to over 400 million.)
Now, I asked my wife about what she thought of Pinterest in 2010, the year the company was launched. According to Hagel’s “consumer demand” theory of jobs, there should have been massive demand for Pinterest in 2010. Of course, my wife had never heard of Pinterest in 2010. Pinterest came first, thanks to Silberman and Sharp. It was the product that generated the consumer demand. Hagel has it backwards.
Of course, the founders had no idea how much demand there would be, either. That’s the risk entrepreneurs take. And that’s the point Hagel’s simplistic worldview misses. Capitalist business entrepreneurs become billionaires because they create new goods that consumers didn’t know they wanted, if they wanted it, until they are offered to the marketplace. And, of course, a simple idea, though a vital starting point, is not enough. The entrepreneur then must start and build a company that can figure out how to make the innovative product not only of interest to consumers, but also at a price that consumers are willing and able to pay, yet still high enough to exceed the cost of production so the company can earn a profit. This takes the vision, brains, and actions that the special people who become billionaires provide. It is not consumers who provide it. The myriad products in the market don’t originate with consumers. Goods and services, and the myriad incremental improvements that follow, originate as an idea in the minds of extraordinary innovative individuals. So, too, the related jobs that businesses create to help advance the productive process that results in the products reaching the consumers. The consumer is the last, not the first, step in the productive, job-creating process.
True, the job needs of the established company are subsequently influenced by consumer demand, once the product and company have been created. And true, the original capitalist/businessman/entrepreneur can “count his billions” as the value of the company grows. But, good for him or her. She earned it. Keep in mind that someone still has to do the thinking, planning, and crucial decision-making that keeps the established profit-seeking company going and growing. That’s the indispensable job of the capitalist/businessman/entrepreneur.
Many creators, of course, go on to new ventures, relinquishing management controls to others. But if the company continues to prosper after the original creator moves on, then that’s thanks to the ability of that original creator—the Prime Mover—to pick competent successors. Apple’s continued success following the death of Steve Jobs is thanks to Job’s ability to pick a great successor, Tim Cook. Billionaires profit from the goods and services they create. Jobs are a secondary social benefit.
But if the now wealthy original creator wants to keep his shares sit back, kick up his heels, and count his riches as the company stock rises, the original creator should still be lauded for his hugely socially beneficial productive achievement[s]. It should always be kept in mind that the company and jobs owe their existence to the original Prime Mover—the Ben Silbermans and Steve Jobs of the world—not to “consumer demand.” .
Hagel’s worldview is a 2 year-old’s worldview. It is comic book economics, divorced from reality, probably an offshoot of Karl Marx’s absurd “exploitation theory” of labor. Hagel’s view ignores the role of intelligence, and individual minds, in the creation of profit-seeking companies and the jobs that result. Perhaps Hagel can be partially excused, given that prominent politicians like Alexandria Ocasio-Cortez and Bernie Sanders peddle these destructive myths to further their own scandalous socialist political purposes. But only partially excused. Ignorance of this magnitude is never innocent, given the deep injustice implied.
Related Reading:
Quora: ‘Is capitalism based on the exploitation of others?’
The Prime Movers by Edwin Locke
The Moral Injustice of the Assault on the Space Billionaires
QUORA: 'How is becoming a billionaire even possible, chronologically?'
Marx and His Exploitation Theory BY GEORGE REISMAN
Atlas Shrugged—Ayn Rand
To Whom Does the American Worker Owe His Prowess?
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