Billionaires Know Capitalism Has Changed; The Rest of Us Need to Get with the Program

Capitalism is no longer driven by the 'profit motive'

Profit has been the historic driving force behind capitalism.

Adam Smith and later Milton Friedman and Ayn Rand all opined extensively about the “profit motive.”

The pursuit of profit has historically driven competition, innovation and the efficient allocation of resources.

Profit has motivated business experimentation and adventure leading to further economic development and growth.

However, the wealth of billionaires today is not driven by corporate profits. It’s driven by corporate equity value – the value of stock ownership.

Jeff Bezos and Elon Musk were billionaires as a result of their founding stock ownership in Amazon and Tesla well before either Amazon or Tesla ever turned a profit.

They are certainly not the only individuals to become billionaires without first (or ever) delivering a profit. Mark Cuban sold Broadcast.com to Yahoo for $5.7 billion in Yahoo stock. At the time, Broadcast.com was losing $16 million on $22 million in sales. Yahoo ended up shutting down the acquired services of Broadcast.com.

Corporate equity value reflects market sentiment regarding the anticipated future value of a corporation, not the corporation’s current fundamental financial performance. The anticipated future equity value is at best a speculative projection based on a theoretical calculation.

General Motors (GM) reported revenue of $187 billion in 2024 while Tesla reported $97 billion. GM’s profit last year grew 21% to $15 billion. Tesla’s profit went down to $7 billion. GM has an enterprise value of $215 billion. Tesla’s enterprise value is $65 billion. Conservatively, Tesla’s market capitalization based on share price today is well over $700 billion. GM’s is around $45 billion. Tesla’s equity value is at least 15 times greater than GM’s.

The potential value of equity is not limited by corporate fundamental financial performance.

The value of corporate equity ownership has displaced the “profit motive” as the driving force behind innovation, development and growth.

The value of stock ownership in a market environment where share price is disconnected from fundamental financial performance exponentially accelerates the earning potential of corporate shareholders.

Stock ownership is at the root of the wealth divide. 93% of all stock is held by the wealthiest 10%.

Corporate stock also becomes a much more valuable tool for the corporation itself than corporate profit. For instance, Tesla has far more to invest in growth than its $7 billion in profit. It can use its equity as a currency to invest in growth. It can also use its equity to eliminate competition.

Traditionally, for a corporation to increase profits it must produce and supply a cost competitive product to meet consumer demand. With the benefit of an equity valuation that exponentially exceeds fundamental financial performance based on existing profits, the corporation can leverage its equity to finance the acquisition and elimination of any competition. In turn, the surviving corporation can unilaterally set the price for its products.

The shareholders can also use the corporate equity they own as a currency to diversify and expand their sphere of influence. Elon Musk used Tesla stock to acquire X. Jeff Bezos used Amazon stock to acquire the Washington Post.

The disconnect between profit and corporate equity value has also upset the balance of the traditional capitalist equation that ties the benefit of corporate ownership to the value the consumer derives from the product or service produced by the corporation.

The wealth divide illustrates that the capitalist equitation is weighted heavily in favor of the shareholder over the consumer. The exponential equity value enjoyed by shareholders today far exceeds the value realized by a consumer through the purchase of a product or service.

When profit is the driving force behind capitalism, shareholders of the corporation are motivated to deliver the most profitable product and service to the consumer. The most profitable product will inherently be the best and most competitive product.

When equity valuation is the driving force behind capitalism, shareholders of the corporation are motivated to focus their efforts on a speculative future rather than delivering the best and most competitive product today. Remember, equity value is based on a theoretical calculation of a projected future value.

Hence, Facebook changes its name to Meta to illustrate a focus on the speculative future value of the metaverse. Amazon is all in on AI, and Tesla plans to deliver a fully autonomous car and a robot for every household.

To realign the interests of shareholders and consumers, consumers need equitable access to corporate equity (stock ownership) within the consumer relationship.

Consumers are the most important asset of any corporation. Without consumers, there would be no equity value. Consumers should be compensated for their asset value contribution to overall equity value.

A patent pending process called Consumer Equity provides consumers with access to corporate equity as part of the purchasing transaction.

The Consumer Equity process is not a stock give away. First, a small portion of the profit from every sale to a consumer is earmarked to a reward issued to the consumer. Over time, the consumer can accumulate cash (from profit) backed rewards through recurring purchases. When a consumer decides to redeem rewards, the cash backing the rewards is used to purchase corporate stock in the name of the consumer.

The benefits of capitalism are rebalanced between owners and consumers. Profit is reconnected to equity value and both owners and consumers have access to the benefits of equity value.

Democracy alone does not make America the greatest country in the world. Capitalism has played an essential role. Capitalism has made the U.S economy the largest economy in the world. The capitalist economy has given the U.S. the ability to put its money where its democratic mouth is by investing more globally in peace and equality than any other country in history. The expansion of capitalism can have similar benefits beyond the U.S. The sustainability of a capitalism depends on the evolution of capitalism to include consumers in the benefits of the equity value that depends on their purchases.