Bill Gates’s net worth is about $72 billion, having made his money in the market through voluntary exchange. Bill Gates is America’s richest human being, measured in monetary terms. What does this fact mean?
Actually, it’s more useful to begin by asking what this fact does not mean.
- Because Gates created his wealth by making millions of other people better off,* his wealth would not have existed were it not for his own creativity, enterprise, and efforts.** Therefore, this fact does not mean that Gates’s wealth is taken from other people. In other words, this fact does not mean that other people are today poorer because Gates is so rich.
- This fact does not mean that Bill Gates’s relative economic well-being is as large as is his relative monetary wealth. Bill Gates has has about 120,000 times more financial wealth than I have. But Bill Gates does not consume 120,000 times more food or calories than I consume. His food is not 120,000 times tastier than is my food. His children aren’t schooled by teachers who are 120,000 times better than are the teachers who school my son. Gates will not live 120,000 times longer than me. His house is not 120,000 times larger, or more comfortable, than is my house. He does not travel 120,000 times faster than I travel, or enjoy 120,000 times more days of leisure than I enjoy. Indeed, nothing save Gates’s financial statement is 120,000 times larger or longer or better than anything that I consume.
- This fact, therefore, does not mean that I would be made 120,000 times happier if Bill Gates were to give me every cent of his net wealth. I’d be much richer of course, and (likely) somewhat happier, but nowhere near 120,000 times happier. Ten times happier, maybe. Ten times more “subjective utility,” perhaps. But even this estimate strikes me as outlandishly large.
- This fact does not mean that Gates reveals to an observing, envious populace grandeur 120,000 larger than I reveal to that same public. In fact, surprisingly little about Bill Gates’s existence reveals the size of his financial wealth.
- This fact also does not mean that I could, if I were to somehow get all of Bill Gates’s net wealth, consume 120,000 times more consumer goods and services. (Note that this point is different than the one in the previous paragraph.) I would not buy 120,000 times more goods and services than I buy now. I’d certainly buy more stuff, and higher-quality stuff. But neither the quantity nor the quality of my ‘new’ stuff would come remotely close to being 120,000 times greater than quantity and quality of stuff that I buy and consume today. A hundred times more stuff, perhaps. But even this estimate strikes me as outlandishly large.
- This fact does mean, therefore, that much of Bill Gates’s wealth is likely invested in capital assets*** – R&D training for Microsoft employees; bulldozers; factories; inventories; delivery vans; retail stores. Most of his wealth, in other words, is being used to produce more wealth! More wealth for him, yes, but also for others – for the consumers who will have access to an expanded variety of goods and services, and to goods and services sold at lower prices and of higher qualities.
- And this fact does mean, therefore, that taking money from Gates and giving it to other Americans will – if these Americans spend all or most of this transfer on consumption goods – reduce the productivity of the economy. It will diminish the economy’s capacity to produce material goods and services over time. Over time, it will make all of us less able to consume. (The only way to avoid this outcome is if Americans who receive the money ‘transferred’ from Gates invest these funds as wisely and as prudently as Gates invests these funds. Such an outcome is conceivable, but to the extent that such an outcome is even conceivable, it means that the people who get the transferred funds are not desperately poor; they are not in need of having their consumption augmented.)
* I understand that people can raise legitimate questions about the role that intellectual-property law might have played to enhance Gates’s wealth. Perhaps some of that role is illegitimate. I do not wish here to explore that issue, for it is irrelevant to the point of this post. Unless you believe that Bill Gates’s wealth would today be no more than middlin’, by modern American standards, had intellectual-property law been to your liking, then the substance of my point is unaffected.
** I understand that we can quibble about some hypothetical other people who, in Gates’s absence, might have created consumer products of nearly equal value as those that were created by Gates. So perhaps some portion of Gates’s wealth should be subtracted from his net wealth when calculating the monetary figure that captures the portion of Gates’s net wealth that represents his net addition to human prosperity. But remember: (1) competition ensured that Gates captured only a relatively small portion of his net addition to human prosperity; (2) Gates paid billions of dollars in taxes, and, in addition, has given a great deal of his wealth to charities (thus making his net wealth today lower than it would otherwise be); and (3) the net value of the other stuff that these hypothetical other people produced instead (of producing close substitutes for Microsoft products) should be subtracted from the sum that would otherwise be subtracted from Gates’s net worth.
*** If Gates is literally hoarding the bulk of his fortune in cash, then he’s still not consuming $72 billion worth of stuff. Not remotely close. And what he doesn’t consume is available for the rest of us to consume.