As we contemplate the possibility of Jeff Bezos being the first person worth 12 figures, let’s review what wealth is.

by w3woody

A complaint of mine is that we don’t really seem to understand what wealth is–and in the process we tend to lump three types of wealth into a single bucket. Certainly any item in any of the three buckets can be translated (with some effort) into a different bucket–but there really are three kinds of wealth.

First, is capital goods. Those are things used to make other things. This is a hammer used by a construction worker, or a sewing machine used by a third world worker to help make clothes.

Capital goods are things used to help someone make money. So, for example, my desktop computer is a capital good: I use it to write software for a living. If I lost my computer, and couldn’t buy another one, I’d lose my job.

The third world, by the way, needs more capital goods in order to help its residents produce more things. And, if civilization were to collapse, our ability to reconstruct capital goods from scratch would be instrumental in reclaiming and rebuilding a modern civilization.

Second, is wealth that represents deferred consumption. This is what you have in the bank account. This is, to some extent, the equity in your home and the property you own. (Though I guess you could argue this represents a different class of asset.) This is what we think of, in other words, when we think of wealth.

It’s what you can lay hands on to pay for your lifestyle after you retire. It’s what you have on hand you can sell to pay the bills if you lose your job. Deferred consumption is how we set ourselves up to retire: by saving money we defer consumption to another day. And sometimes some of that deferred consumption can be passed onto our children, for them to spend.

Third, is corporate control. It represents, in other words, ownership in a company which permits you to control that company. In Jeff Bezos’s case, if his net worth reaches $100 billion, it won’t be because he owns thousands of personal homes or millions of expensive sports cars. It’s because he owns control of Amazon.

He can trade that control of his company for control of other companies. He can sell off some of his stock (and thus, some of his control of that company) for cars and homes and expensive toys. (Though note: if he sells off too much stock he loses control of his company.)

Most of the billionaires in our world do not own stuff. They own companies. Or rather, they are in charge of corporations–and one could consider their net worth the amount of money the market is willing to pay them to walk away, stop controlling their company, and allow someone else to drive.