"In a properly functioning capitalist economy, rich people don't 'create jobs' for workers; workers...

“In a properly functioning capitalist economy, rich people don’t ‘create jobs’ for workers; workers, upon having jobs, create rich people.”

This is a fantastic read from Baltimore City Paper, on the “fact” that Maryland’s number of millionaires dropped to 4,910 in 2008 from 7,067 in 2007. It includes a basic primer on how business works, which is so delightful we must excerpt it here.

Critics of the millionaire tax say they’ve never heard of a poor man hiring a worker. Only the rich do that; therefore, to render the wealthy less so by taxation is to destroy jobs.

The theory presumes that the wealthy hire people out of charity. In this model, jobs are bestowed upon lucky workers by the industrious entrepreneur, who derives his own wealth from some magical practices (having nothing to do with the workers he may hire) which are anyway unfathomable to outsiders.

To hear self-proclaimed capitalists make this argument is irritating, because it suggests they don’t understand how our economic system is supposed to work. They have the process exactly backwards.

In a capitalist system, investors make money not despite hiring workers, but because they hire workers who, if they are adequately managed, create value in excess of the wages and benefits they are paid. This value is called “profit,” and the business’ owner gets to keep that, after paying taxes.

In a properly functioning capitalist economy, rich people don’t “create jobs” for workers; workers, upon having jobs, create rich people.

That’s how the system works, in theory.

But the reality is different from the theory. In today’s marketplace, the super-rich have become richer in large part by destroying jobs.