By Ivan Kramer
Three of the most successful American entrepreneurs in recent history are Steve Jobs, Bill Gates, and Elon Musk. All three of these brilliant entrepreneurs invested money to make more money, the primary principle of capitalism, and revolutionized the computer and electric car industries. In addition to making fortunes for themselves, these heroes created thousands of jobs and significantly increased wealth around the world.
In 1977 at the age of only 22 years old Steve Jobs along with Stephen Wozniak created Apple Computer by investing their own savings to produce the personal computer Wozniak designed, the Apple II. The product was a great financial success and, step by step, creating irresistible product after irresistible product, Jobs guided Apple into ultimately acquiring today’s market capitalization of over $2 trillion!
Foxconn, a Taiwanese company, actually builds the iPhone for Apple at Foxconn’s Zhengzhou city plant in Henan province, one of China’s poorest provinces. Foxconn provides entry-level jobs for as many as 350,000 poor Chinese youths, primarily 16-29 years of age, from the surrounding farms who have limited alternatives and are glad to be hired.
Although Karl Marx (1818-1883) lived in England during its era of exponential growth in wealth, being a communist, he hated the entrepreneurs (capitalists) and “Jewish usurers” who were responsible for this growth.
In Marx’s view, a company’s profits should belong to the workers who assemble its products. This would mean, for example, that all of Apple’s profits from the iPhone should belong to the entry-level Foxconn workers who assemble it. To Marx, it would be irrelevant that these workers have no idea how the iPhone works, did not and could not design it, and did not invest any money to produce it. If a country decided to implement Marxist economics, its entrepreneurs would stop investing wealth to produce more wealth, and the country would become poorer. In fact, Marxism is incompatible with the human desire for economic freedom and has been thoroughly debunked.
Marx’s greatest failure was not understanding the connection between wealth and intelligence distribution curves. Having ignored the Bell Curve of intelligence, Marx’s economic model is fundamentally flawed and doomed to fail. Indeed, it has predictably failed in every country that tried it.
Perhaps Marx’s communist economic model reflected how he lived his personal life. To put it bluntly, Karl Marx was a lifelong free-loader, was always in debt, and was constantly begging for money to pay his bills from his mother, his wife’s family, and from a generous, rich Friedrich Engels (whose father was a rich industrialist!). So, while Marx was busy attacking the industrialist class, he was living off the money of a rich industrialist, an extraordinary brazen act of hypocrisy by the “leader of the proletariat.”
Although he lived in poverty in a poor section of London, Marx had a family maid, Helen Demuth, although he really couldn’t afford one. In 1851 while Marx’s wife was away on the Continent begging for money, Marx impregnated the maid and fathered an illegitimate son, Fredrick Demuth, who Marx never saw and totally abandoned. It gets worse. To cover up Marx’s betrayal of his wife, professed principles, and public image, Engels agreed to pose as the father of Marx’s illegitimate son and paid off the maid to keep quiet.
Marx fathered seven children with his wife, but four of them died before reaching adolescence due in part to the family’s poverty, leaving him with three adult daughters, two of whom committed suicide.
While Steve Jobs was not perfect, either, who would you choose as a role model for yourself, Steve Jobs or Karl Marx?
It is important to trace America’s current exponential growth in wealth back to its origins: when, where, and how did it start? Since the Industrial Revolution started in England in the 18th century, let us investigate the history of England’s annual gross domestic product per capita (gdp/c) from 1270 AD to the present, a curve that is reproduced here where the log of the data is actually plotted:
To understand this graph, note that the y-axis label of 1,000 should really be 3 [log(1000) =3] and the 10,000 label should really be 4. By plotting the log of the data instead of the data itself, the curve is compressed, and it becomes much easier to see the dramatic growth that has taken place in the production of wealth over the last millennium.
The gross features of this curve are striking. Up until 1350 AD in England, the wealth produced and consumed by the average citizen (gdp/c or wealth/capita) was below 1,000 pounds per year! Equally striking, from about 1350 to 1660 AD, a period of over 300 years, there was absolutely no increase in per capita wealth at all! It was only around 1660 AD that exponential growth in wealth per capita clearly began in England, at least 100 years before the Industrial Revolution started, and such growth has continued to this very day.
To understand the significance of the exceedingly low average wealth/capita produced in England before 1660 AD, note that famines in England occurred in 1294, 1390, 1555, 1586, and 1623-1624 AD (its last peace-time famine). In fact, famines regularly occurred all over the world throughout history, including 39 in the 20th century alone. Thus, the threat of famine has not disappeared except in today’s advanced industrial countries.
It is extremely important to determine exactly what happened in 1660 AD to cause England to enter an era of exponential growth in wealth/capita. However, let us first investigate the cause of the smaller jump in the wealth/capita curve around 1350 AD first.
The Black Death was a plague that devastated England in the period 1348 – 1350 AD and killed between 30-40% of its 4 million citizens. However, for the peasants who survived, taxes went down, wages went up, and the feudal system was badly damaged. The plague drove the aggregate GDP down, but it drove the population down by a greater percentage so that the gdp/c went up in 1351 as seen in the graph.
If English citizens were to achieve personal, scientific, political, and economic freedom, the dogma of the Catholic Church and the divine rule of the monarchy had to be undermined first.
Ironically, in 1527 King Henry VIII helped in this endeavor by abolishing the Catholic Church in England and setting up the Church of England to replace it. Although his motive was to be able to divorce his first wife, Catherine of Aragon, and marry his sweetheart Anne Boleyn, a switch the Catholic Church opposed, his action undermined papal dogma in England.
From 1603 to 1660 the parliament and the monarchy fought a civil war for control of the country which parliament won. Taxation and economic policy were now firmly in the hands of parliament, and the monarchy no longer was able to arbitrarily confiscate the wealth of the rich by taxing it away. Determined to foster trade, parliament progressively reduced the maximum lending rate to 8% in 1624 and 6% in 1651 (but ratified in 1660-61). It was the low 6% interest rate that finally sparked the exponential growth in wealth; intelligent entrepreneurs now found it profitable to take advantage of the expanding trade opportunities by borrowing low-cost capital to efficiently increase production.
Entrepreneurs do not borrow money at any interest rate unless they are reasonably confident that the net income from this investment will produce a profit. Without the prospect of profit, entrepreneurs would never take the risk of borrowing money. Why would they do otherwise? No intelligent entrepreneur borrows money to invest with the certainty of losing it and going into debt!
Thus, it was the entrepreneurial class of farmers (compromising 80% of English citizens) and other producers of marketable goods that sparked the era of exponential growth/capita that began in 1660; the core principle of capitalism of investing wealth to earn profit was followed, and it worked!
The historic gdp/c curve above clearly shows that from 1818 to 2016 AD the rate of increase in the wealth/c is itself increasing with no end in sight!
Thus, permitting entrepreneurs to invest wealth as they alone see fit, without interference from government (economic freedom), has proven to be a spectacular success. No economic system has been as successful as free-market capitalism.
