payments A Dividend Is Not Money Destroyed
report_off The claim
"Billionaires prefer paying shareholders over hiring: for every euro spent on jobs, LVMH spends 239 euros on shareholders."
The comparison is meant to shock: for every euro LVMH spends on jobs, it spends 239 euros on shareholders. The claim is about one firm’s specific capital allocation, and it only works if the reader accepts an unstated premise, that hiring and paying shareholders are two competing uses of the same euro, so that money going to one is necessarily money refused to the other.
That premise is a false dilemma. Money paid to shareholders does not vanish from LVMH’s productive circuit or from the wider economy. A dividend is a transfer of ownership over the return on capital; the shareholder who receives it can spend it, save it, or reinvest it elsewhere, in another company, another sector, another stage of production. It has not left the productive economy, it has simply changed hands. But showing the money is not destroyed only refutes the framing, it does not by itself prove LVMH made the right call. Whether hiring more people would have created more value than the alternative uses of that capital is a separate question, one the 239-to-1 ratio cannot answer on its own.
That deeper question is the one the framing never asks: why should hiring be preferred to investment in the first place? From an Austrian standpoint, capital exists precisely to raise the productivity of labor. A firm has no reason to hire someone whose work produces less value than it costs; doing so anyway would not be generosity, it would be a bad allocation of capital that competitors, and eventually reality, would punish.
Böhm-Bawerk’s account of roundabout production explains why this matters beyond any single firm. Capital that is preserved, reinvested, or redeployed, rather than spent on payroll for its own sake, lengthens the economy’s structure of production: more machinery, more tooling, more capital per worker. That is exactly what raises output per hour of labor over time, even in sectors that never directly hired the shareholder who supplied the capital. Whether that higher output shows up one-for-one in real wages is a further, distributional question, how the resulting surplus is split between labor and capital, not something capital deepening promises to settle by itself.
Mises’s account of the entrepreneur captures the mechanism directly: capital is constantly steered toward the uses where an entrepreneur anticipates future consumer demand, not toward whichever use happens to employ the most people today. A dividend that gets reinvested into a promising venture is capital doing exactly that job.
There is a sharper version of the shareholder-payout objection worth answering directly rather than waving away. Economists such as William Lazonick describe a real pattern of corporate financialization, a “downsize-and-distribute” strategy where firms cut long-term investment, or even borrow, to fund dividends or buybacks that inflate the share price rather than build capacity. That pattern exists and is worth checking for, firm by firm, on the balance sheet. But it is not established by a single ratio, and it does not describe a profitable, growing company funding dividends out of operating profit while continuing to invest in production, retail expansion, and acquisitions, which is closer to LVMH’s actual position than the “downsize-and-distribute” model.
It is also worth being honest about a real empirical debate here: measured productivity and median real wages have not tracked each other as tightly in recent decades as a naive reading of capital deepening might suggest, a gap left-leaning economists are right to point to. That evidence is relevant, but to a narrower claim than the one this piece is making. The decoupling literature is mostly a story about distribution, declining labor bargaining power, a growing share of compensation paid as benefits rather than cash wages, measurement differences between output and consumption prices, not a story about capital deepening failing to raise output per hour worked, which remains well supported. So the macro evidence cuts against assuming productivity gains flow to pay automatically and one-for-one, an assumption this piece does not need. It says nothing about whether LVMH’s own workers are capturing a fair share of the value their rising productivity creates, which is exactly the kind of distributional, case-by-case question worth asking, and one the 239-to-1 ratio does not settle either way.
None of this rules out cases where dividends really do reflect short-termism, financial engineering, or a management team extracting value rather than building it. But that is a specific governance failure to investigate case by case, not a general law that paying shareholders harms employment.
There is a more serious argument, though, for giving some employees a share of the upside, not a fairness argument, but an incentive one. Shareholders diversify their capital across many companies; an employee cannot diversify their human capital, they put all of it into a single employer, which exposes them to a concentrated shock if they are laid off. And in trades where value depends on tacit, firm-specific skill, such as luxury craftsmanship or brand curation, a strictly fixed salary gives the employee every rational reason to under-invest in acquiring that skill in the first place, since nothing contractually guarantees they will get back any share of the extra value it creates, what economists call a hold-up problem. Giving these employees a share of the upside, through bonuses, profit-sharing, or equity, is then a market response to that incentive problem, not a redistribution imposed from above. And that is precisely why firms that depend most on this kind of non-contractible skill tend, in their own self-interest, to offer this kind of arrangement to key employees, with no law requiring them to. None of this implies, however, that an employee is by default entitled to a share of the surplus they help produce, independent of the contract they signed; it only explains why some firms choose to offer more than a fixed salary, when the incentive problem makes it profitable to do so.
A dividend is not money destroyed: it rewards capital and can be reinvested elsewhere. And hiring is not automatically “investing.” A company creates value by combining capital and labor where it anticipates profitable demand, not by maximizing payroll for its own sake.
Quotes
View full quote"What distinguishes the successful entrepreneur and promoter from other people is precisely the fact that he does not let himself be guided by what was and is, but arranges his affairs on the ground of his opinion about the future...."
Books
Human Action: A Treatise on Economics
Ludwig von Mises' magnum opus and the most comprehensive systematic treatment of economics from the Austrian School perspective. Mises develops pra...
Read MoreCapital and Interest
Böhm-Bawerk's monumental three-volume work establishing the Austrian theory of capital and interest. He demolishes all prior theories of interest (...
Read MorePredatory Value Extraction
William Lazonick's book-length case (co-authored with Jang-Sup Shin, Oxford University Press, 2019) against the 'maximizing shareholder value' ideo...
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