Paul Stivers, 5/20/2025
This article presents a model for understanding financial wealth—how it is created, how it is destroyed, the entrepreneur's contribution, and some misconceptions.
Bernie Sanders cites the statistic that the top three wealthiest individuals in the U.S. own more wealth than the bottom half of the population. This is true, but misleading.
Here's a few more statistics. The top 3 wealthiest people in the U.S. own about 0.4% of the nation's wealth.1 Also, the top 50% of U.S. households own about 98% of the nation's wealth2—with the bottom 50% owning about 2% of the nation's wealth.
The sleight of hand here is that the bottom 50% of households, in relative terms, have almost no wealth—meaning little to no equity or savings.3 As a result, almost any group with a significant amount of wealth will have more than the bottom 50% of the population. This is of course a problem, but billionaire entrepreneurs are not the cause.
Money is sometimes referred to as power or freedom. I think the most direct definition of money is that it's a proxy—or placeholder—for work. This becomes most obvious when we realize that we work for money. When we buy something, we trade our work-proxies for the work required to provide that product or service. For example, when we purchase a vacation cruise package, we exchange some of our work-proxies for a portion of the work it takes to build and maintain the ship, produce the fuel, staff the vessel, manage the company, and so on.
Whenever something can be accomplished with less work, the saved work can be used elsewhere—and wealth is created. When people create and grow large companies that deliver products or services more efficiently than before, tremendous amounts of new wealth are generated. Good examples include Amazon and SpaceX.
The work saved through these efficiency improvements can then be applied to other products and services. Money—saved work—is literally created. Approximately a quarter-trillion dollars of new wealth per year is generated by just 5 of the larger tech companies in the U.S. (See Table 1).
| Company | Yearly Revenue | Efficiency Increase (estimate) |
New Wealth (yearly, Revenue × Efficiency) |
|---|---|---|---|
| Amazon (Retail + AWS) | $575 billion | 20% | $115 billion |
| Google (Alphabet) | $350 billion | 15% | $52.5 billion |
| Apple | $400 billion | 10% | $40 billion |
| Microsoft | $240 billion | 15% | $36 billion |
| SpaceX | $15 billion | 50% | $7.5 billion |
| Total | $1,580 billion | — | $251 billion |
Hugely successful companies require huge amounts of at least six ingredients; innovative insight, capital investment, extreme entrepreneurial determination, risk-taking, diligent management, and diligent labor. Laborers of course provide one of those ingredients. Without the structure of the company though, laborers wouldn't have any work to do. It's more of a partnership than a one-sided deal.
The company generates wealth per employee equal to many times the salary and other financial benefits of the employee—and that's exactly the point: to generate wealth. I'm sure that the software I have written for companies has generated much more value than my salary and benefits. Similarly, when I was a busboy and bartender at a thriving nightclub in my youth, my labor generated much more in revenue than I received in wages and tips. However, I am grateful for every one of my employers. I simply do not have the entrepreneurial skills, extreme fortitude, nor risk appetite, to create and grow such companies. One could view the relationship as the company riding on my back—or as my riding on the company's back. I think the most fitting model is that it's a partnership.
Direct work for money.
Any adult in the U.S. can buy a piece of any publicly traded company, or groups of companies, and share in that creation of wealth. One need only provide two of the six key ingredients: investment and risk. If the individual invests in a diversification of companies for the long term, then reward is high and risk is very low.6 Without billionaire entrepreneurs, many of the greatest wealth-generating companies would not exist. And yes, they retain a portion of the tremendous wealth they help generate.
Thieves do work to steal other's wealth. The victims, in turn, must expend additional work or spend money (work-proxies) to replace what was lost and often to repair additional damage. Wealth is consumed in this process. This is before considering money spent on locks and theft insurance to deter or compensate further theft.
Enterprises with declining efficiency drain wealth from the economy. The argument is similar to that for increased efficiency but in the reverse. Causes might include increased bureaucracy, unnecessary or ineffective regulation, corruption, or lack of modernization. Certain private industries may come to mind—ineffective government agencies as well. Where enterprises consume rather than create wealth, the remedy is to correct the negative factors mentioned, or to shut down the enterprise. In a free economy, ineffective public enterprises tend to be self-cleansed through consumer preference. In government enterprises, it requires honest, bold leaders to reduce the negative factors or eliminate the enterprise.7
Buying and selling are just exchanges of work proxies. They neither net create nor destroy wealth. Buying however does stimulate the economy. Buyers will look for ways to get more value for their money and companies will look for ways to provide that additional value. In that sense buying does stimulate the creation of wealth.
In short-term market trading, such as day trading and arbitrage,7 wealth is merely transferred between market traders. No net productive work is done. No wealth is net created nor destroyed—it's just transferred. There's nothing wrong with short-term trading from an individual perspective. It's just that there's a big difference between entrepreneurs who create great businesses that improve productivity, and those who make their money through short-term trading. One generates tremendous wealth for the country—the other mostly just skims wealth from the markets.8
Money is best thought of as a placeholder for work done. When companies enable products or services to be delivered more efficiently and cheaply, value is created. Large, successful companies that deliver such products or services generate a tremendous amount of wealth for customers and investors. Conversely, enterprises that reduce efficiency consume wealth.
Any adult in the U.S. can take part in the tremendous wealth generation of publicly traded companies simply by buying a piece of those companies and holding them for the long term.
1. ChatGPT: In the U.S. what percentage of wealth is owned by the top 3 wealthiest people?
2. ChatGPT: What percent of U.S. wealth is owned by the top 50%?
3. The median net worth of the bottom 50% of households in the U.S. is roughly under $10,000 (ref ChatGPT).
4. This website runs on AWS S3 for $0.50/month.
5. Rough estimate based on available financial reports and efficiency approximations from ChatGPT by issuing the following instructions.
Create a table with the following headers:
Company
Yearly Revenue
Efficiency Increase - estimate of efficiency increase versus the way things were done before the company
existed.
New Wealth (yearly) - Yearly Revenue x Efficiency Increase
Include the following companies:
Amazon (retail plus web services)
SpaceX
Apple
Microsoft
Google (Alphabet)
Rank New Wealth in ascending order.
Add a row at the bottom with Total for Revenue and New Wealth.
6. In his book, The Simple Path to Wealth, JL Collins suggests no matter what one's income, one should try to hold aside at least 10% toward investment in a diversified stock portfolio, and increase from there. He claims that wealth doesn't come from earning a lot of money—it comes from spending less than one earns, and investing regularly in the stock market for the long term.
7. See On Reduction of Federal Agencies
8. Arbitrage trading is the short-term buying and selling of the same or equivalent assets in two different markets at slightly different prices. The buy is done in the less expensive market. The sell is done in the more expensive market. Commodities and currencies are often the target of arbitrage trades. One benefit of arbitrage trading is that it keeps markets "honest." By the law of supply and demand, buying in a lower priced market and selling in a higher priced market will tend to drive the price in the two markets closer together. Arbitrage trading may also expose flaws in price setting algorithms.
9. George Soros is a noted example. He made his fortune through his very successful hedge fund and arbitrage trading mostly in British pounds. His arbitrage trading of British pounds did expose flaws in Britain's setting of exchange rates, so there was that benefit.