Ironically, one of the ads this morning at Cafe Hayek was a criticism of Apple for not creating more jobs in America. I clicked on the ad and found what is shown here in this screenshot.
This ad inadvertently reveals a major difference between those who understand economics and those who don’t. Those of us who understand economics judge a company by how cost-effectively and how well it satisfies consumers. From the standpoint of society, the purpose of a company is not to create jobs or to create a stream of profits or capital gains for owners or investors; the purpose is to satisfy consumers. A company that satisfies consumers, and does so at as low a cost as possible, is a good and praiseworthy company. Entrepreneurs and investors who make this company possible deserve to reap whatever financial rewards their creativity, risk-taking, and efforts make possible. And this company, in its operations, employs workers who are paid for their efforts. But labor is a scarce resource – which is why it’s paid. And high-wage labor is an especially scarce resource, which is why it is paid especially highly.
Those of us who understand economics celebrate the fewer are the amounts of resources – including the fewer are the number of workers – that a company uses to produce any given amount of output. A company that manages to produce a cornucopia of valuable outputs by using only one minute of human labor is a socially more praiseworthy company than is one that produces the same amount and quality of output but at the cost of using more than one minute of human labor.
If private businesses really are to be judged by how many jobs they create, then the most praiseworthy companies by that criterion would be those businesses that destroy – destroy homes, offices, and factories, destroy machinery, destroy infrastructure, destroy goods and disrupt the provision of services. Thugs, Inc, Destruction’R’Us, Wewreakhavoc, Ltd. – these businesses would create lots of jobs.
I’m reminded of this letter that I sent almost nine years ago to the Boston Globe:
Derrick Z. Jackson reasons that among mass transit’s benefits is the fact that, dollar for dollar, its provision requires more workers than do investments in the auto, oil, coal, and gas industries (“The transformation of transportation,” Feb. 24). Mr. Jackson’s reasoning is flawed.
The number of workers required to supply a good or service is not a benefit of that good or service; it’s a cost. Societies become more prosperous only as they succeed in using fewer workers and other inputs to supply any given amount of output. Only then are inputs made available to produce outputs that otherwise could not be produced. If Mr. Jackson were correct that a project’s benefits rise with the number of jobs it creates, then an even better system of public transportation would be rickshaws, for they require one worker for every passenger-ride.
Donald J. Boudreaux
Reprinted from Cafe Hayek