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The average person doesn't need an "investment strategy". They "invest" most of the money buying stuff they actually think might help them, and the rest goes in

The average person doesn't need an "investment strategy". They "invest" most of the money buying stuff they actually think might help them, and the rest goes in a savings account, index or pension fund where businesses that do have a strategy use it to generate returns. On the other hand, it's better for the average person that need access to capital to grow businesses and create jobs that people with significant holdings of capital have some downsides from not letting anybody use it. Imagine a wealthy person in 1635 has 1% of the dollars in the US. Their investment strategy regards actually using those dollars to help people as too risky, so they instead bury it in the ground. Four centuries later, thanks to millions of non-wealthy people working billions of hours and some very clever inventions and investments and no thanks at all to the wealthy miser, 1% of the US comprises many of the world's successful businesses and modern cities full of technology. Does the heir of the wealthy miser have a rightful claim on 1% of four centuries of other people's labour and capital being put to better use if he digs up the dollars? I would say no.

lend000 5y ago
A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking). 2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax). 3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades? Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.
- notahacker 5y ago
  1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.
  - lend000 5y ago
    If we are assuming nothing changes, comparing now to 400 years ago is unproductive, and there is no point hypothesizing if this person was Napoleon-esque. In a more realistic, modern interpretation, Rockefeller sold his assets and buried his wealth circa 1900. Rockefeller did, undoubtedly, push forward industry a huge amount. While he is considered a monopolist, it was never the detriment of consumers. Kerosene prices fell dramatically over Standard Oil's tenure. If he hid 1% of the money supply in a trust after paying all inheritance taxes and fees, to be opened today (let's say 1% of real GDP in his time), his wealth today would be about 0.02% of real GDP. His heir experienced tremendous inflation, in terms of their influence on the economy, whereas their buying power stayed roughly the same, in this hypothetical non-inflationary world.

lend000 5y ago

A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking). 2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax). 3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades? Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.

notahacker 5y ago
1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.
- lend000 5y ago
  If we are assuming nothing changes, comparing now to 400 years ago is unproductive, and there is no point hypothesizing if this person was Napoleon-esque. In a more realistic, modern interpretation, Rockefeller sold his assets and buried his wealth circa 1900. Rockefeller did, undoubtedly, push forward industry a huge amount. While he is considered a monopolist, it was never the detriment of consumers. Kerosene prices fell dramatically over Standard Oil's tenure. If he hid 1% of the money supply in a trust after paying all inheritance taxes and fees, to be opened today (let's say 1% of real GDP in his time), his wealth today would be about 0.02% of real GDP. His heir experienced tremendous inflation, in terms of their influence on the economy, whereas their buying power stayed roughly the same, in this hypothetical non-inflationary world.