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The resentment of big capital is not entirely without a reason. Most money right now is "passively" deployed into pre-existing securities. This means it's used

The resentment of big capital is not entirely without a reason. Most money right now is "passively" deployed into pre-existing securities. This means it's used to extract existing value by market cornering / scarcity generation / rent seeking / monopolies / oliglopolies. On the other side there is new value / securities creation. This is what people like Elon Musk are doing. He took circa $50mln of his own money, added a couple of billion from investors. Added 1000 highly skilled jobs and result is $50bn company. Extractive capital alocation is offering much easier profits, but jobs working it are mostly the "bullshit" type. As a democracy we have control of the laws, we can "nudge" the big capital away from rent seeking into new value creation by changing the tax code.

hikarudo 7y ago
How exactly does money "passively" deployed into pre-existing securities become "extractive"? If I invest some money in a passive index fund, what does that have to do with market cornering / scarcity generation / etc? What are "non-extractive" ways of investing money, aside from starting new companies?
- helen___keller 7y ago
  Passive investments like index funds allow you to buy some ownership of a productive investment vehicle (public companies usually, or rental properties through REITs), an in exchange you collect rent on that vehicle in proportion to earnings and your share of ownership, for all eternity. It's extractive in that you are literally bidding up ownership of a rent-seeking vehicle, rather than creating any new value at all. In theory you might say bidding up asset values creates something like "potential energy" for productive investment: if an entrepreneur (or venture capitalist to-be) wants to liquidate stock to use as capital for starting a new company, inflated asset values would then contribute to a larger pool of capital for that entrepreneur. Still, I argue that's a stretch. The existence of extractive investment vehicles are the main motivation for capital to invest in new value, yet their continued existence for all eternity leads to an entrenchment of wealth that may threaten the entire system. This is what Marx is all about (although he seems to presuppose a revolution is the end result, rather than say a wealth tax like Bernie / Liz would promote).
- ak217 7y ago
  It's extractive to the extent the economy at large is extractive. Your index fund invests indiscriminately in profit-seeking enterprises proportionately to their size. A lot of profit-making economic activity is dependent on things like cornering a market for trucks through the chicken tax, scarcity generation in housing through restrictive zoning, etc. etc. - government regulations which, for better or for worse, interfere with the "free market". Want to invest non-extractively? Invest in companies that you truly believe provide value without explicitly engaging in such activities. Most index investing is incompatible with such a thesis. Some index funds try, for example VFTAX.
buboard 7y ago
The valuation of his companies doesnt translate to societal value necessarily. As much as i love Musk, Rockets and battery cars are aspirations. I d much rather he was leading a couple of biotech companies instead
a_puppy 7y ago
Whether a company is "rent seeking" vs. "value creating" has nothing to do with whether it's a pre-existing security or a startup. If investors put $1B into a company that manufactures commodity widgets, and the company spends that $1B on a factory that produces $100M worth of widgets per year (with no market cornering, monopoly, etc.), this is obviously a value-creating business model. If the original investors sell their shares to passive index investors, that doesn't magically make the underlying business rent-seeking. Twenty years later, the company might still be doing basically the same thing, and the securities might have changed hands many times, but it's still a $1B company producing $100M of genuine value per year. Conversely, if investors put $1B into a startup whose business model is to build a monopoly, starve the competition, and then jack up the prices (as Uber is allegedly doing), then that's obviously a rent-seeking business model. It's a rent-seeking business model from the very beginning. It doesn't have anything to do with how long the company has been in business. There's a valid debate to be had over what fraction of the returns on stocks come from value-creation vs. rent-seeking, but the "pre-existing security vs. startup" distinction has nothing to do with it. Personally, my hunch is that the majority is genuine value creation. Every factory, farm, train car, power plant, office building, etc. is an asset that creates genuine value.
aguyfromnb 7y ago
>This is what people like Elon Musk are doing. Elon Musk signed the most lucrative CEO pay package in history (tied to company market cap, not anything of actual value), SWATed a whistleblower, is being sued by shareholders for self-dealing in Solar City, gleefully built a factory in one state with a horrible human rights record (China) while trying to sell the company to another (Saudi Arabia), and his factories in this country don't look great, either: https://www.wivb.com/news/former-tesla-workers-describe-hostile-workplace-at-buffalo-facility/ https://www.wivb.com/news/former-tesla-workers-describe-host... He's your example of "good capitalism"? This is what makes Silicon Valley seem so out-of-touch.

hikarudo 7y ago

How exactly does money "passively" deployed into pre-existing securities become "extractive"? If I invest some money in a passive index fund, what does that have to do with market cornering / scarcity generation / etc? What are "non-extractive" ways of investing money, aside from starting new companies?

helen___keller 7y ago
Passive investments like index funds allow you to buy some ownership of a productive investment vehicle (public companies usually, or rental properties through REITs), an in exchange you collect rent on that vehicle in proportion to earnings and your share of ownership, for all eternity. It's extractive in that you are literally bidding up ownership of a rent-seeking vehicle, rather than creating any new value at all. In theory you might say bidding up asset values creates something like "potential energy" for productive investment: if an entrepreneur (or venture capitalist to-be) wants to liquidate stock to use as capital for starting a new company, inflated asset values would then contribute to a larger pool of capital for that entrepreneur. Still, I argue that's a stretch. The existence of extractive investment vehicles are the main motivation for capital to invest in new value, yet their continued existence for all eternity leads to an entrenchment of wealth that may threaten the entire system. This is what Marx is all about (although he seems to presuppose a revolution is the end result, rather than say a wealth tax like Bernie / Liz would promote).
ak217 7y ago
It's extractive to the extent the economy at large is extractive. Your index fund invests indiscriminately in profit-seeking enterprises proportionately to their size. A lot of profit-making economic activity is dependent on things like cornering a market for trucks through the chicken tax, scarcity generation in housing through restrictive zoning, etc. etc. - government regulations which, for better or for worse, interfere with the "free market". Want to invest non-extractively? Invest in companies that you truly believe provide value without explicitly engaging in such activities. Most index investing is incompatible with such a thesis. Some index funds try, for example VFTAX.

buboard 7y ago

The valuation of his companies doesnt translate to societal value necessarily. As much as i love Musk, Rockets and battery cars are aspirations. I d much rather he was leading a couple of biotech companies instead

a_puppy 7y ago

Whether a company is "rent seeking" vs. "value creating" has nothing to do with whether it's a pre-existing security or a startup. If investors put $1B into a company that manufactures commodity widgets, and the company spends that $1B on a factory that produces $100M worth of widgets per year (with no market cornering, monopoly, etc.), this is obviously a value-creating business model. If the original investors sell their shares to passive index investors, that doesn't magically make the underlying business rent-seeking. Twenty years later, the company might still be doing basically the same thing, and the securities might have changed hands many times, but it's still a $1B company producing $100M of genuine value per year. Conversely, if investors put $1B into a startup whose business model is to build a monopoly, starve the competition, and then jack up the prices (as Uber is allegedly doing), then that's obviously a rent-seeking business model. It's a rent-seeking business model from the very beginning. It doesn't have anything to do with how long the company has been in business. There's a valid debate to be had over what fraction of the returns on stocks come from value-creation vs. rent-seeking, but the "pre-existing security vs. startup" distinction has nothing to do with it. Personally, my hunch is that the majority is genuine value creation. Every factory, farm, train car, power plant, office building, etc. is an asset that creates genuine value.

aguyfromnb 7y ago

>This is what people like Elon Musk are doing. Elon Musk signed the most lucrative CEO pay package in history (tied to company market cap, not anything of actual value), SWATed a whistleblower, is being sued by shareholders for self-dealing in Solar City, gleefully built a factory in one state with a horrible human rights record (China) while trying to sell the company to another (Saudi Arabia), and his factories in this country don't look great, either: https://www.wivb.com/news/former-tesla-workers-describe-hostile-workplace-at-buffalo-facility/ https://www.wivb.com/news/former-tesla-workers-describe-host... He's your example of "good capitalism"? This is what makes Silicon Valley seem so out-of-touch.