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Capital is one of the factors of production, along with labor. They both get rewarded according to supply and demand.

rorykoehler 5y ago
That's a bit disingenuous considering the scalability and concentration of capital compared to labour. Regardless your point doesn't refute mine. Supplying capital reqires zero personal effort.
- simonh 5y ago
  It’s entirely possible to close this loophole by taxing wealth/capital, and there are countries that do this, and they are still capitalist.
- fighterpilot 5y ago
  It's not disingenuous, it's simply a description of the market reality of both capital and labor and why they both have prices. Supplying capital is compensated by the market because it's a scarce factor of production. It is a scarce factor of production because (i) there are risks associated with its provision, (ii) there's an opportunity cost. Nobody would invest in a startup if there wasn't an expectation of an ROI. Because it's risky, that ROI is high. The ROI is high because the cost base is deflated by the market. This is a risk premium, and it's built into the cost base by supply and demand. This basic mechanism underpins all capital markets and is the reason capital markets function at all. Your statement about the scalability of capital is of course true. Capital offers the owner intense amounts of leverage and scale. The same can in general not be said about labor except in domains where that labor is scaled by technology (e.g. dev), media (e.g. instagram influencer), or being in a managerial position (e.g. decisions impact 1000-person org), which probably covers about 2% of the workforce.
  - rorykoehler 5y ago
    What’s disingenuous is mentioning both as if they are somehow equivalents
    - fighterpilot 5y ago
      Since when are different factors of production equivalent? They're different factors of production for a reason.
      - rorykoehler 5y ago
        I think we’re generally in agreement. Another consideration is that capital creation is controlled by the federal reserve or equivalent so supply is only as scarce as they say it is.
- andi999 5y ago
  If you supply your capital with zero personal effort soon the capital is zero.
  - rorykoehler 5y ago
    Index funds are pretty low effort. Certainly nothing like Working 9-5 and more for 40+ years.
    - fighterpilot 5y ago
      They are low effort, but I'm not sure why that's relevant. Effort isn't what's valued. Scarce and useful resources and inputs are what is rewarded. A talented dev who works 3 hrs/day can earn more than a less competent dev who works 12 hrs/day, despite expending less effort. Effort is only relevant insofar as it pertains to valuable output. On index funds, the reason they are profitable to hold is because of the risk premium embedded in its current price, and this risk premium comes about because of the risk aversion of the average investor. As time passes and the world hasn't blown up yet, the price goes up, as it should. It has nothing to do with effort, it is about risk and opportunity cost. It's the same mechanism underlying the yield spread between corporate bonds and government bonds.

That's a bit disingenuous considering the scalability and concentration of capital compared to labour. Regardless your point doesn't refute mine. Supplying capital reqires zero personal effort.

simonh 5y ago
It’s entirely possible to close this loophole by taxing wealth/capital, and there are countries that do this, and they are still capitalist.
fighterpilot 5y ago
It's not disingenuous, it's simply a description of the market reality of both capital and labor and why they both have prices. Supplying capital is compensated by the market because it's a scarce factor of production. It is a scarce factor of production because (i) there are risks associated with its provision, (ii) there's an opportunity cost. Nobody would invest in a startup if there wasn't an expectation of an ROI. Because it's risky, that ROI is high. The ROI is high because the cost base is deflated by the market. This is a risk premium, and it's built into the cost base by supply and demand. This basic mechanism underpins all capital markets and is the reason capital markets function at all. Your statement about the scalability of capital is of course true. Capital offers the owner intense amounts of leverage and scale. The same can in general not be said about labor except in domains where that labor is scaled by technology (e.g. dev), media (e.g. instagram influencer), or being in a managerial position (e.g. decisions impact 1000-person org), which probably covers about 2% of the workforce.
- rorykoehler 5y ago
  What’s disingenuous is mentioning both as if they are somehow equivalents
  - fighterpilot 5y ago
    Since when are different factors of production equivalent? They're different factors of production for a reason.
    - rorykoehler 5y ago
      I think we’re generally in agreement. Another consideration is that capital creation is controlled by the federal reserve or equivalent so supply is only as scarce as they say it is.
andi999 5y ago
If you supply your capital with zero personal effort soon the capital is zero.
- rorykoehler 5y ago
  Index funds are pretty low effort. Certainly nothing like Working 9-5 and more for 40+ years.
  - fighterpilot 5y ago
    They are low effort, but I'm not sure why that's relevant. Effort isn't what's valued. Scarce and useful resources and inputs are what is rewarded. A talented dev who works 3 hrs/day can earn more than a less competent dev who works 12 hrs/day, despite expending less effort. Effort is only relevant insofar as it pertains to valuable output. On index funds, the reason they are profitable to hold is because of the risk premium embedded in its current price, and this risk premium comes about because of the risk aversion of the average investor. As time passes and the world hasn't blown up yet, the price goes up, as it should. It has nothing to do with effort, it is about risk and opportunity cost. It's the same mechanism underlying the yield spread between corporate bonds and government bonds.