Eric Cantor, the House Majority Leader, stirred up quite the controversy on Labor Day when he tweeted:
“Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.”
Of course, Labor Day is a celebration of the worker class, not the capitalist class. But his comments sparked a debate in some circles that has long been raging – this so-called debate about the “job creators” and who really drives job creation in the economy. Unfortunately, the debate often falls on ideological lines as opposed to practical lines. But this is the world we live in. Everything is viewed in black and white when reality is usually somewhere in the middle. This case is no different. I’ll explain briefly.
Late last year I explained the role of the entrepreneur in the capitalist economy. In short, the entrepreneur seeks to provide superior goods and services that ultimately offer consumers a more efficient means of achieving some end. This creates efficiencies which result in greater future consumption, economic expansion and more jobs in the future. The example I’ve used in the past is Alexander Graham Bell, the inventor of the telephone. When Bell invented the phone he destroyed thousands of jobs. Messengers and telegram services were slowly defunct. But Bell created efficiencies through making communication more convenient. And in doing so he helped generate higher economic growth and ultimately more jobs in the future by streamlining what was once an arduous process – long distance communication. Bell created countless jobs by creating this efficiency. In this regard, capitalists, producers and innovators can be seen “job creators”.
But producers are nothing without consumers. Bell’s telephone is nothing without consumers who want to use it. So production and consumption are ultimately two sides of the same coin. You cannot say that producers create jobs without consumers because without the consumers the producer has no revenue stream with which to expand his/her business and hire the workers that allow him/her to leverage the labor into future profits. The capitalists need the consumers before they can ever consider expanding. In this regard, demand is the driver of “job creation” and so consumers can also bee seen as “job creators” because they enable the capitalists to be able to hire in the first place.
So the answer to this silly debate is really rather simple. The real “job creators” are the consumers AND the producers. It’s that simple. Maybe, just maybe, this understanding will help people understand that policies that focus on one side of the coin and not the other, are just as silly as this debate. But I don’t have my hopes up. The ideologies surrounding this debate are far too powerful to be overcome by pragmatism.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.