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The True Virtue of Steve Jobs

The recent passing of Steve Jobs, co-founder and CEO of Apple, brought forth a wave of sadness and sympathy from competitors and consumers alike. Facebook users posted their respects en masse via “status update”, and iProduct owners held nightlong vigils at the Mecca of modern technology, the Apple store. Newspapers eulogized Mr. Jobs from cover to cover, his death marking not only the end of a man, but of a business mogul, a tech genius, an artist, and an influential world figure.

His achievements are so easy to catalog because they are so identifiable. The glossy veneer and savvy software of his products only serve to amplify their mesmerizing ubiquity. And the popular reaction to Jobs’ death can probably be attributed to the remarkable proliferation of this “stuff,” these incredible shiny objects that exist in space.

But Steve Jobs deserves as much praise for that which cannot be seen as for that which can. His economic accomplishments can be found in places hidden to the naked eye, and it is in these areas that his virtues can be uncovered. These economic crawl spaces reveal the true accomplishment not only of Steve Jobs, but of anyone who has ever produced anything of value.


The Story of Consumer Surplus and Virtue at the Margins

Many critics of capitalism claim that money fetishism and accumulation are defining features of capitalist systems. By association, successful industrialists or capitalists propagate this fetishism by creating the illusion that “money” equals “value”.

The truth is that the critics of capitalism are partially right. “Money” does not equal “value,” and the fact that Jobs had a lot of money (about 8 billion dollars of it), does not make him a more valuable person. In fact, “value” equals “value”, and the fact that Jobs increased the amount of value in the world makes Jobs a more valuable person. Let me explain.

Consider the following story. Before the iPod burst onto the scene, I had $400 of spending money that I could have spent many different ways. $400 could have bought me a one-way ticket to New Zealand, a cheap Monet lithograph, a week’s worth of Prime Grill steaks, or a lifetime supply of pencil erasers. But I personally valued these things differently. I was willing to spend up to $1000 for a one-way ticket to New Zealand, $750 for a Monet lithograph, $500 for a week’s worth of steak, and $5 for a lifetime supply of pencils. Unless I chose to save the money for something more valuable to me in the future, I would spend it on the thing that I valued the most – namely, the ticket to New Zealand. Buying the ticket would have given me $600 of “surplus value” or the value that I attached to the product minus its market cost.

But then a bunch of dancing silhouettes with alt rock musical taste introduced me to the iPod, and I immediately gave it a personal appraisal of $1500. It out-valued the New Zealand ticket by $500 dollars and created surplus value for me that had not existed before. I purchased that iPod with my $400, thereby actualizing the surplus value I had assigned to it. I essentially gave Apple $400 in exchange for a $1500 value. More importantly, my life became $500 better than it would have been in an iPod-less world. I left the Apple store with a hop in my step and a bud in my ear.

Now imagine this calculus performed by millions of consumers all over the world, each of whom experiences an increase in personal surplus value because of the intrigue of the iPod. Each consumer’s appraisal of the iPod and the marginal increase in value over the next best thing will differ, but total “world value” will undoubtedly increase.


The Story of Externalities and Unintended Virtue

Who benefits from a MacBook purchase? The answer, at first, might seem obvious: the buyer. The buyer receives many benefits. He gets a lightweight laptop with a foolproof interface, sleek design, and many incredibly addictive and useless apps. He obtains an object that doubles as a study aid, notebook, and status symbol. And he acquires the awe and jealousy of those poor souls fighting viruses on their Compaq PCs. The buyer certainly pays for what he gets, and Steve Jobs is amply rewarded for creating such a valuable product.

But the benefits of the MacBook accrue even to those who do not pay for them. In economics, this effect is called an externality. Externalities come in many shapes and sizes, and when it comes to computers and software, the most important externality is called the “network effect”.

The network effect takes place when the value of participating in a network increases as more people participate in that network. When the first person bought a MacBook, the value of the product was probably quite low to him. After all, very few software programs were compatible with the MacBook, most programming being tailored to Microsoft Windows, and there was no social benefit to buying the MacBook because it had not yet become hip. But as more people began to purchase the MacBook, the value of owning the product rose. Software companies began to produce Mac-friendly software, and to own a Mac became a symbol of social status. Heck, wouldn’t you add value to your Mac if you knew that Tom Cruise and Nicole Kidman were Mac users (and they are)?

The important thing to note here is that the additional value created by the increased participation in the network is not reflected in the market. You do not compensate Steve Jobs for the uptick in value of your product that results from someone else’s purchase of their product. Steve Jobs basically worked pro-bono when it came to creating “cool” at the margins.


The Story of Creative

Destruction and the Virtue of Failure

Have you ever heard of Lisa? NeXT? The Power Mac G4 Cube? You probably have not because these are just a few of Steve Jobs’ failed inventions. The Lisa, released in 1983, contained such novel features as the “mouse”, “windows”, and “menus.” At ten thousand dollars, however, no one could afford it. The NeXT, developed in 1988, was the device on which the World Wide Web was created, yet it crashed and burned because of its exorbitant price. The Power Mac G4 Cube revolutionized the sleek translucency that many of today’s Mac products feature, but its hardware and software were prone to fits and cracks.

Each of these products failed for various reasons, but their destruction laid the groundwork for better, more efficient products to come to market. For example, the Lisa’s software featured a “document-centric approach” to word processing by which you could create a document without opening an application and save it directly to your computer. It was also the first publicly sold computer with a “Graphical User Interface”, a system where the user could simply click on an icon to open a program rather than type in a command. Future computers, by and large, used the latter feature and scrapped the former. But the failure of the Lisa was necessary for manufacturers to realize which features appealed to consumers and which did not. The failure or “destruction” of Jobs’ invention played a role in the creative process of technological development.

Steve Jobs, even in failure, contributed more to society than any of us can imagine. He sold a product that people cherish, launched a network teeming with value, and set the stage for the next great wave of mind-blowing inventions. We all love our iPods, iPhones, MacBooks, and iTunes stores. But the next time you download an app to your iPhone, think about the value you attribute to your device. Think about the impressive network to which you belong. Think about what today’s technology allows us to do and what tomorrow’s might bring. Think about the economics of it all. An industrial icon can receive no greater tribute.