First, we need to define “wealth.”

by w3woody

The Myth That Billionaires “Hoard” Wealth

The view that billionaires are “hoarding” wealth at the expense of the rest of society is becoming increasingly more common. Critics paint this picture of billionaires with Scrooge McDuckian vaults where they swim around in a sea of money. Their perception is that billionaires are hiding this money away without regard for the rest of us. But this perception is not true. Whether it’s through investment, consumption, or philanthropy, the vast majority of wealth billionaires hold is anything but stagnant.

The essay is a good one, but it misses an extremely important point about wealth–something that many on the Left and the Right increasingly miss.

And that is, there are three different types of “wealth”, though we often conflate the three and assign it a single dollar number.

The first type of wealth is deferred consumption.

This is the type of wealth most of us are familiar with, and when we hear about Bill Gate’s billions it’s where our minds go.

Deferred consumption wealth is essentially the money you park in your savings account or your checking account. It’s money you’ve passively invested in the stock market; it’s money you’re ‘saving’ for a rainy day or for your retirement.

It’s money that you could have spent on consumption: money you could have used to buy a car or a series of expensive dinners–but instead of consuming it now, you’ve elected to wait to consume it tomorrow.

But that is not the only kind of wealth out there, rolled up into a single “net worth” dollar amount.

The second type of wealth is productive wealth.

When we think about “wealth” in third-world countries, we are not talking about some person in some poor part of Africa having a banking account. Instead, we talk about a sewing machine that can be used to make clothes. A plough which can be used to turn a field. A smart phone that can be used to access knowledge.

Productive wealth is both working capital and tools that are used in working–in allowing someone to make something which ultimately allows them to maintain or even increase their lifestyle.

Your desktop computer, if you write software for a living, is productive wealth. The house over your head, if you own a house, is ‘productive’ in the sense that it is ‘wealth’ that has a purpose and isn’t just the first type of deferred consumption. Your car allows you to get to work more easily than using public transportation. The tools in your truck, if you’re a carpenter, is vital to your profession.

And productive wealth can be money as well: capital used to buy goods for resale if you run a store, or can be used to buy land in order to build homes if you’re a home builder.

The key here, however, is that “productive wealth” is not “deferred consumption.” It is a tool you use in your work to make a living. It allows you to sew clothing or plough a field or write an iPhone application.

And while here in the United States–one of the wealthiest nations on Earth–most of us are familiar with deferred consumption than we are with productive wealth, in poorer areas of the world, the wealth is productive. The sewing machine may make the difference between if a woman in a poor country eats and has a job, or starves without a job.

The third type of wealth is corporate control.

Bill Gate’s billions are not in a checking account, nor are they in a gigantic vault full of gold coins.

His billions are tied up in his ownership of Microsoft Corporation.

Or rather, Bill Gates does not have billions of dollars. Bill Gates owns a chunk of Microsoft–a corporation he founded–that is worth billions of dollars.

And the same can be said of all billionaires: they don’t actually have a checking account with billions of dollars in it. Instead, they have ownership (and, as a result, stockholder control) in large publicly traded companies which, for many of those billionaires, they helped to found.

And unlike deferred consumption, these people cannot simply write a check for everything they have, as you or I could (theoretically) do if we were to close out our savings, checking and investment accounts. If Bill Gates were to attempt to sell his holdings in Microsoft all at once–because he owns so much of it, he would only see pennies on the dollar as his sale in Microsoft would tank the stock price and, ultimately, destroy the company he founded.

Costing thousands their jobs in the process.

It’s why, by the way, Elizabeth Warren’s proposal for a 2% tax on the wealth of billionaires is a mistake. Because Bill Gates would be forced each year to sell a 2% stake in Microsoft in order to pay that tax–or turn over ownership of Microsoft, 2% at a time, to the Federal Government.

Warren Buffet would be forced to sell off 2% of his stake in Berkshire Hathaway.

And in many cases these billionaires would be forced to give up control of the companies they founded–to whom? Who would buy that stock so they could make their tax payments on time?

The Chinese?

So long as we conflate these three types of wealth: deferred consumption (or savings), productive wealth (also colloquially known as the “means of production”–that is, the tools used by people to make a living), and wealth tied up in corporate control, our debates over the 1% will be forever broken.