Forbes magazine has published its annual list of the world's billionaires. On the Web site, there are convenient links to sermonettes in Forbes over the years about how the population explosion at the tippy-top of the wealth scale demonstrates the power of human gumption and the glory of the capitalist system. Twenty years ago, according to Forbes' lists, there were 140 billionaires. Three years ago there were 476. This year there are 793; each has an average net worth of $3.3 billion.
Nevertheless, billionaires remain a mystery. And it's a mystery at the heart of our economic system. There isn't six times as much gumption in the world as there was two decades ago. Free enterprise, or something like it, has spread to Third World and former Communist countries, and this is reflected in the appearance of Russians, Chinese, and Indians on the Forbes list. But that cannot explain the large increase in American billionaires.
A more likely explanation would include various factors. Death, a malady for which money is only a partially effective therapy, has broken some humongous fortunes into multiple huge ones. Second, despite two decades of relatively low inflation, a billion dollars today equals $600 million in 1986 dollars. Third, real general economic growth has pushed some individuals fairly effortlessly over the magic billion line. And fourth, the increase in billionaires is part of the larger trend of growing income inequality. Economic growth used to shrink the top and bottom while expanding the middle. Now, for reasons that are also partly mysterious, it does the opposite.
Some people automatically associate great wealth with evil, and they deserve the ridicule they get in Forbes and country-club bars everywhere. But the automatic association of great wealth with virtue is equally fatuous. It's probably true that most billionaires have acquired their wealth in ways that make life better for the rest of us. Among American billionaires, the top of the list is dominated by computers, Wal-Mart, and Mars bars: all mixed blessings, perhaps, but blessings nevertheless.
But the Forbes list includes plenty whose only contribution toward their own wealth was choosing rich parents. While there are only a few outright crooks or sociopaths on the list, there are many whose accumulation of vast wealth, however gumptuous in method, does not fit the Adam Smith model of individual drive and greed being channeled into activities that benefit all. The rising value of exclusive franchises that the government originally gave away cheaply or free, such as railroad right-of-ways in the 19th century or cable-TV and cell-phone licenses in the 20th, continues to create billionaires without generating any general social payoff. Real estate investors are some of the savviest and hardest-working billionaires around, but even their most strenuous efforts have not created a square inch of new land.
Meanwhile science undermines the notion that people deserve moral credit for their smarts, daring, vision, dedication, and similar virtues, even when these are applied in socially beneficial ways. Intelligence was the first to go: Whether nature or nurture, how smart you are is beyond your control. Why should you get the credit if your brains help to make you a billionaire? Increasingly, neuroscience and evolutionary psychology are showing that the same logic applies to other admirable qualities.
The question of how and why people become billionaires ought to be especially interesting to those, like Forbes, who tout billionaires as crucial to the world's prosperity.
But the billionaire touts tend to be satisfied with the Adam Smith invisible-hand theory in its most primitive form.
This makes no sense. Even in its most primitive form, the invisible hand is a brilliant explanation of what motivates most of us, and how our efforts serve the common good. We work to produce things that can be traded for things we want. That trade makes us better off than we would be if we made everything we consume ourselves. The first exchange of one caveman's dinosaur meat for another's rather attractive decorative rock started a process that, after millions of years, leads to DVD players at Wal-Mart that cost less than DVDs. Or something like that.
But billionaires are generally long past the point where the desire for more goods and services can be a motivation. Just look at Forbes' consumer-porn sidebars about the billionaire lifestyle. These might inspire the world's most thing-oriented individual to go for a few hundred million. But not $3.3 billion: The billionaire's lifestyle just doesn't cost that much.