Economic
Value and Billionaires
Economic value refers to the worth of a good or service
determined by the market. It's essentially what people are willing to pay for something.
Implied in this is personal property rights. If something can just be taken, the
value is the effort required to effectively steal that something. An
example is before patent rights, the inventor had little protection from anyone
who could reproduce his/her product. The cost of stealing the idea was lower
than the development of the idea. Not surprisingly, before patents inventors
were not well rewarded and there were far fewer innovations.
Recall from Basic Economics Rule: Everyone
must produce something of value, trade for it, borrow it, be given it or steal
it. In other words, an individual must produce it, trade it or steal it to
survive.
Command and control are more rigid hierarchies
that limit the individual to benefit from their own innovations or labor.
Inclusive are more lassiez-faire allowing individuals more benefit from their
own innovations or labor. In our review of billionaires, they operate
in lassiez-faire economies BUT they become the potentially rigid (command and
control) head of the new organization. Their economic power allows them to
exert property rights and arbitrarily establish value for individuals within that
organization. This may be shared with key contributors to the newly established
corporation/venture. If the employees don’t like the compensation they can
leave and be paid at the market rate for their services in another capacity (which
is likely far below what they might receive in this new venture). Inherent in
this dynamic is that employees in a start up are probably being compensated far
below the market rate as the venture is initially cash poor, with the implied
promise of a larger payout if the venture is successful. Effectively the
employee’s lower compensation is an investment in the success of the new
venture. Trust is critical. If the venture is successful payouts are
expected in line with the level of success. Once the ruling group oversees/directs
a group beyond a dozen full appreciation of the fair value is diminished. This
is especially true if venture capitalists have injected capital to get the
venture moving. Venture capitalists generally view their capital as more
deserving of greater rewards than those who developed the venture initially. The
property rights are easier to enforce for those who have injected cash. Usually their share of future wealth created is spelled out in legal documents.
An example is Elon Musk and Tesla. Tesla was founded by
Martin Eberhard and Marc Tarpenning in 2003. Elon Musk joined Tesla in 2004 as
an investor and later became the chairman of the board. Over time, Musk played
a significant role in the company's growth and development. In February 2005,
Musk led Tesla's Series B US$13 million investment round
which added Valor Equity Partners to the funding team.[20] Musk
co-led the third, US$40 million round in May 2006 along with
Technology Partners.[20] This
round included investment from prominent entrepreneurs including Google co-founders Sergey
Brin & Larry Page, former eBay President Jeff Skoll, Hyatt heir Nick Pritzker and added the VC
firms Draper Fisher Jurvetson, Capricorn
Management, and The Bay Area Equity Fund managed by JPMorgan
Chase.[21][20] Musk
led the fourth round in May 2008 which added another US$40,167,530 in debt
financing, and brought the total investments to over US$100 million through
private financing. History
of Tesla, Inc. - Wikipedia https://en.wikipedia.org/
Each of these funding diluted the stake of Tarpenning and
Eberhard. Musk continued to invest in Tesla becoming the largest investor in
Tesla. Musk became Chairman of the Board. He and other Board members disagreed
with Eberhard. Eberhard served as CEO until he was asked to step down from the
position in August 2007 by the board of directors. Eberhard then took the title
of "President of Technology" before ultimately leaving the company in
January 2008. Co-founder Marc Tarpenning, who served as the Vice President of
Electrical Engineering of the company, also left the company in January 2008. History
of Tesla, Inc. - Wikipedia https://en.wikipedia.org/
In June 2009, Eberhard brought a lawsuit against Elon Musk
for libel, slander, and breach of contract, alleging that Musk pushed him out
of the company, publicly disparaged him, and compromised Tesla's financial
health. It was settled without public disclosure. https://en.wikipedia.org/
Marc Tarpenning estimated net worth is $1.5 billion. Marc Tarpenning
Net Worth 2025: The Truth Behind Tesla Inc - Celebz Net Worth www.machinasphere.com
According to WeathyPersons, Eberhard has an estimated net worth
of around $500 million. https://www.magnifypost.com/
Forbes estimated net worth of Musk is about $400 billion as
of December 2024. He now is worth $359 billion after the Tesla stock slide.
There are numerous other individuals who were in the value-added chain of Tesla, who are not household names nor fabulously rich. The point is that what one adds in value is not always compensated for and that is quite imperfect to determine. Employees are often compensated at the market rate for their services, often with limited upside, unless spelled out by contract bonus clauses. The more recognizable method is to maintain power and property rights that are explicit. Billionaires have been very adept at understanding this. This is not generally or naturally a benevolent trait. Hence it is likely the expectation that billionaires will act for the betterment of mankind is linked to how well the venture will do for the billionaire. If the billionaire had altruistic motivation the distribution of rewards would be less top heavy and other members of the team might have greater compensation than they received.
This analysis applies to much more than the formation of billion-dollar companies. Smaller organizations face the same problem of determining value. In team sports how much is owed to each position for the success of the team?
