Mises Wire

Jeff Bezos Got Rich By Giving His Customers What They Want

Last week, founder and CEO of Amazon.com Jeff Bezos surpassed Warren Buffet to become the second richest man in the world. His net worth is now estimated to be $75.6 billion dollars. If Amazon continues its upward trend, it won’t be long before Bezos surpasses the software giant as the wealthiest man on the planet.

Any time a person makes headlines for his wealth, there is the predictable outcry against it. “The rich get richer, while the poor get poorer” goes the common maxim of the left. But Jeff Bezos proves that when the rich get richer (outside the realm of government graft), it is by making everybody else richer as well. This is exactly what Amazon has done.

Amazon.com first went live in 1995. It started as an online bookstore, signaling the decline of book retailers years before the invention of the e-reader, but it wasn’t long before the company expanded into any shippable commodity it could sell. But this company was no overnight success. As hard as it is to imagine today, the internet giant did not turn a profit for six years. This meant six years of operating in the red, all while continuing to pay employee wages every two weeks just to be able to continue operations.

But eventually, of course, Amazon took off. Since 2001, the first year Amazon operated in the black, it has become one of the largest companies on the planet, and easily the largest online shopping center. And it did this all by offering more goods to people all over the world at cheaper prices than they could find in stores.

Brick-and-mortar retailers are understandably not fond of the website. When Circuit City went bankrupt in 2008, it seemed to many that Best Buy had bright days ahead as the only major electronics retailer to survive the recession. But Amazon filled the void left by Circuit City so well that Best Buy, after replacing its CEO following several lackluster years, started price matching Amazon in stores. Most major retailers have followed suit.

Herein lies the beauty of online shopping. Internet stores like Amazon have offered consumers instantaneous arbitrage. With my smartphone, I am able to price check any good I’m considering buying without even leaving the store. In the pre-internet shopping days, if something was cheaper in Oregon than it was in Florida, that was just tough luck for Floridans. Now, the lowest prices in the country are a computer-click away.

These innovations have been painful for retailers, but they have been good for the rest of us. And this competition has meant that any retailer who doesn’t want to suffer the same fate as Circuit City or Borders must compete to stay alive. This translates to lower prices, a wider variety of goods, and better service.

Amazon offers us another lesson in economics, as well. No other major company better demonstrates the brilliance of extending trade. Prior to this revolution, even while products may have been shipped across state lines or imported into the country, consumers were still at the mercy of whatever local retailers were available. Amazon, along with the thousands of other internet stores that followed, effectively extended the reach of the consumer to access more products and better prices where distance would have previously been an impassable roadblock.

This lesson is particularly relevant in light of the current debate on international trade. Any talk of tariffs and quotas is effectively a strategy to reverse the kinds of benefits that companies like Amazon confer to consumers. By expanding access to goods, Amazon made traditional retailers like Wal-Mart suffer, but only by benefiting the poor and middle-class. International trade restrictions to protect domestic industry would be no different than the government taking action against Amazon to protect brick-and-mortar retailers.

Amazon has effectively raised the standards of living for every human being in any country where it has a presence. Even people who do not shop online are able to benefit from the increased competition and pressure to lower prices. Jeff Bezos is now rivaling Bill Gates for the richest man in the world title, but only after decades of making everybody else a little bit richer first.

Image Source: Matteo Penzo www.flickr.com/photos/matteopenzo/
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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