A generation ago, it was Barack Obama saying, “You didn’t build that.” Now we have Alexandria Ocasio-Cortez saying, “You can’t earn a billion dollars.” According to AOC, people who purportedly earn a billion dollars do so only by exploiting others (e.g., by underpaying workers).
This idea reflects the labor theory of value as expressed by Karl Marx. Workers, in justice, claim the entire value of production, according to Marx. Managers and—for that matter—all middlemen, are just leeches on society.
This idea has been the constant refrain of socialists (and slave owners) forever. According to such thinking, ordinary (i.e., stupid) people need others (meaning, the smart socialists and the slave owners) to run their lives. People who are slaves live better than free labor, they say. People in Cuba live better than those in the US, they say; if not now, then in the future. So-called mainstream economists have charts to show when.
According to this view, the underground railroad must have run from the north to the south. The Berlin Wall must have been to keep desperate West Germans out of the workers’ paradise of East Germany. The Statue of Socialism beckons to the world, “Give me your tired, your poor, your huddled masses yearning to be socialists.”
For a time, the collapse of the Soviet Union proved that capitalism was more productive than communism. But, after a while, the hopeless ideologies of the Left reverted to their old way of thinking.
Including earnings as entrepreneurs, managers, inventors and investors, many people have earned a billion dollars (in the money of today). John D. Rockefeller—son of a traveling salesman—and Andrew Carnegie—an immigrant to this country—are among the many self-made billionaires of the 19th and the early 20th century.
More recently, we have seen selected “workers” earn a billion dollars. Among the first such workers have been Tiger Woods (golf winnings and endorsements), J.K. Rowling (author), and Oprah Winfrey (a veritable conglomerate unto herself).
Reginald Lewis—a lawyer for the junk bond king—and Michael Milkin, might also be mentioned. He—with his ability to work with various people and across borders—took an assortment of European subsidiaries private upon the break-up of Beatrice Foods. LeBron James is the first professional athlete to have earned a billion dollars while still playing. The youngest self-made billionaire of today is Shunsaku Sagami of Japan—an investment banker who uses AI to match companies for merger and acquisition. Kylie Kardashian, at 21, was the world’s youngest ever self-made billionaire.
If the labor theory of value doesn’t explain earnings, what does? Adam Smith argued (incorrectly) that there was a paradox of value. The values of goods that could be produced would be driven by competition to their cost of production. With infinite regress, this would imply something like the labor theory of value. But, for non-reproducible goods, value would be set by supply and demand (and not by the cost of production). Water, which is necessary for life, might be so abundant as to be free. Diamonds, which might only be used for ornamentation, might be so scarce as to be very valuable.
The error in this thinking was exposed in the marginal revolution of economics, and most clearly by Carl Menger. Value is determined by the prospective or next imagined use of a good. Entrepreneurs, innovators, and inventors—by bringing new and better goods into existence and by reducing the cost of production of already-existing goods—can make fortunes, capturing fleeting opportunities to sell at prices higher than cost. Thus, Rockefeller and Carnegie made fortunes not merely while reducing the prices of oil and steel, but because they reduced those prices.
Furthermore, for many products, cost can be reduced through economies of scale. This isn’t only true for industrial goods such as oil and steel, but for an ever-widening array of goods. With the aid of mass communication, an exceptionally good talk show host can entertain millions and millions of people. And, an exceptionally good manager can improve the productivity of tens of thousands of workers.
As for AOC, does she really believe the nonsense she spouts, or does she spout her nonsense simply to gain the votes of ignorant and greedy voters? Which would be more scary?
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