Is Inequality Caused by Capitalism or Statism?

Townhall.com ^ | June 15, 2014 | John Browne

[Sherman Logan]

Financial capital is a necessary but not at all sufficient factor in the growth of these immensely valuable high-tech companies.

If you were to go back and look at the venture capital invested in Microsoft or Google prior to their going public, I suspect you would find that the capital invested was an itsy-bitsy proportion of the value produced.

I read a book about Google recently. I may be misremembering the numbers, but I think something in the vicinity of $25M was invested as venture capital. When the company went public its market cap promptly became $23B, which has continued to increase since.

So was that $25M in financial capital the critical factor in generating the $23B in value? No, it was the ideas and their execution of the founders and the initial employees. They were rewarded not for their investment of money, but for their creative contributions.

To my mind just calling this 1000:1 increase of value in five years “financial capital” wildly distorts the returns on financial capital that Piketty decries.

I’m going to give up the argument now, because I was in over my head several posts back. But it does seem to me that this enormous change in what is rewarded financially by our society is not covered in the usual discussions of inequality.