Make Money Or Create Wealth?

As a small business owner or entrepreneur is your objective to make money or to create wealth? There’s a difference.

Bernie Madoff made money. The investment bankers on Wall Street made money. A construction worker who built a road paid for with government stimulus money made money. The Federal Reserve printing 2 trillion dollars out of thin air literally made money. They didn’t create wealth.

Capitalism is starting to get a bad name. But, if you are a small business owner you are a capitalist. Whether it’s a bread slicer, an ebook or a wedding cake, you are creating a product. You are adding value.

Steve Forbes wrote a recent editorial called Capitalism: A True Love Story. He decries the theory that

capitalism is fundamentally based on greed and is immoral; that it enables the rich to get richer at the expense of the poor; that free markets are Darwinian places where the most ruthless operators unfairly crush smaller competitors and where the cost of vital products and services, such as health care and energy, are almost beyond the reach of those who need them; and that capitalism unchecked breeds corruption à la Bernie Madoff and Enron and encourages obscene bonuses, excessive pay packages and unwarranted golden parachutes. Capitalism is also being blamed with renewed vigor for a range of social ills, from air pollution to obesity.

He goes on to say that if it weren’t for capitalism there would be no personal computers, no cell phones, no Internet. People of all income levels have benefited from capitalism.

Our first computer cost $5,000 and was a step up because it had a 10 MB hard drive and didn’t need to run off of floppy disks. Look at the computer you can buy now for $500.

A terabyte hard drive is less than $100! The price of a hard drive 20 years ago was about $20/MB. That terabyte hard drive would have cost 20 million dollars. If the government was making hard drives, it still would.

Let me be clear… any government spending, “stimulus” or not, does not create wealth. Again, from Steve Forbes:

…there’s a deep belief that government itself can create wealth. It can’t. It can bestow wealth by taking resources away from others. It can redistribute wealth, but it can’t create it as the private sector can and does. Stimulus programs à la President Obama’s? They have rightly been compared to using a pail to move water from one end of a pool to another. The exercise doesn’t increase the amount of water in the pool.

When government gets too intrusive with taxes and price controls black markets spring up to continue commerce without interference. In an article today by Paul Tustain in Whiskey & Gunpowder he describes the effect 25 years ago in the USSR when the government set the price of gasoline at 1 ruble/litre when it cost 8 rubles/litre on the open market.

Rather than letting everyone purchase petrol at a discount and going broke, the government limited sales to “favored clients” who in turn siphoned the gas our of their tanks every night and sold it to teenage entrepreneurs for 6 rubles/litre. They in turn sold it on the black market for 8 rubles/litre.

People were making money, but were they creating wealth? No. The discounted price was paid for by the taxpayers. Those who made money made it off of the taxpayers. You know, the producers, the ones creating the wealth, people like you.

Jim Rogers, the “adventure capitalist”, while traveling the world on his motorcycle looking for countries and businesses to invest in, would always check out the black market currency exchange to see of it was close to what that country’s government claimed the currency exchange to be. If it differed, the government was trying to rig the game.

When creating wealth, you don’t do it with the help of the government, but in spite of government.

What do you get from government? Rule and regulations ad infinitum. Oh yeah, infrastructure. Roads that you pay over 50 cents a gallon gas tax for. Electricity, that governments regulate and tell how much profit they can make. A place of business that you pay impact fees to build and property tax to “rent” from the government.

Employees? You pay a payroll tax. You collect income tax withholding “on behalf of the government”. The number of hours, the minimum pay, the working conditions, whether you can fire them, all controlled by the government. You may soon be required to provide health care or pay the government a fine. The list goes on and on.

But, in spite of it all, you can create wealth. Imparting knowledge, providing a service, creating or improving a product, all are means of creating wealth.

Leftists have usually maintained that wealth is like a pie. If you get a bigger piece, that means someone else gets a smaller piece. The economy doesn’t work that way. A growing economy grows the size of the pie. Wealth is created by entrepreneurs and producers.

So don’t be afraid of wealth, don’t be afraid to make money. As a small business owner, you are creating that wealth.