6 ms·

Yes, I did. The answer is "because they are assuming risk so that other people don't have to". None of those risks fall on people actually doing the work - thei

by cheald 11y ago

Yes, I did. The answer is "because they are assuming risk so that other people don't have to". None of those risks fall on people actually doing the work - their future jobs are at risk, but they'll have been paid for time and labor spent. They will have been compensated for their input, even if the company ultimately fails. By comparison, the investor who invests capital has no guarantee of compensation for his input; he eats the risk inherent in the venture, in exchange for a return on his investment if it succeeds. If it fails, he is out of his input and has not received any compensation for it. That is a level of risk that many people can't take. Lenders, likewise, assume risk of default. It is not the act of having money which is rewarded - simply sitting on a large pile of cash doesn't magically spawn more money. When money is lent to other people, the lender assumes the risk for the loss of that money - the beneficiary of the loan may not pay that money back. Interest charged is payment for assumption of that risk. We've not yet even touched on the fundamental aspect of the capital economy - mutually-beneficial exchange. Those employees that work for the startup that ends up making the investor a ton of money? They've gotten jobs and compensation that they wouldn't have otherwise. Nobody willingly and rationally enters into a transaction that doesn't provide benefit to them over the available alternatives; if it was not better than the alternative to take investment or a loan, then nobody would do it.

crimsonalucard 11y ago
Setting reward as a function of risk definitely makes things seem more fair when viewed from that perspective. However, their are many super rich investors who deploy their capital into assets that are low risk, and just sit on it while it grows compounding 7% every year. When this happens it is no longer fair, it becomes a form of exploitation.
- cheald 11y ago
  "Low risk" is not "no risk". I mean, heck, look at 2008. People invested in index funds - frequently considered one of the lowest-risk, most stable stock vehicles - lost 50%+ of their invested value in a hurry. It grows compounding at 7% year-over-year because it's invested in companies and people that are growing their own businesses because of it. Money doesn't just grow on its own; capital accounts don't accumulate by virtue of their own gravitational pull. The degree of risk doesn't really change the fact that that capital is risked as investment hopefully helping other people succeed, rather than just sitting in a Scrooge McDuck swimming vault somewhere. You can still lose it, and it has to be somewhere that someone else is using it to produce wealth in order for your own accounts to grow.
  - crimsonalucard 11y ago
    >It grows compounding at 7% year-over-year because it's invested in companies and people that are growing their own businesses because of it. Money doesn't just grow on its own; capital accounts don't accumulate by virtue of their own gravitational pull. The degree of risk doesn't really change the fact that that capital is risked as investment hopefully helping other people succeed, rather than just sitting in a Scrooge McDuck swimming vault somewhere. You can still lose it, and it has to be somewhere that someone else is using it to produce wealth in order for your own accounts to grow. This is my entire argument. Lets not consider risk for a moment... If someone else is producing wealth in order for your accounts to grow and you as the owner of the accounts are the beneficiary of this growth then that means you are exploiting someone else's work. This is NOT fair. Now lets take a look at the equation with your statement involving risk. >"Low risk" is not "no risk". I mean, heck, look at 2008. People invested in index funds - frequently considered one of the lowest-risk, most stable stock vehicles - lost 50%+ of their invested value in a hurry. Low risk is not no risk but does low risk justify extravagant returns? No. If I have 20 million dollars in a stable fund that grows 10% a year, that means I get 2 million a year sitting on my ass. The majority of people in the US will not never even touch 2 million in their lifetime. You want to justify that kind of compensation by saying that index funds still involve certain risk? Let's be real, bubbles pop and industries heal, the economy goes up in aggregate, and many rich people stay rich or get richer in extreme and extravagant ways that are grossly un-proportional to the amount of work they output.
    - cheald 11y ago
      > If someone else is producing wealth in order for your accounts to grow and you as the owner of the accounts are the beneficiary of this growth then that means you are exploiting someone else's work. This is NOT fair. You are the partial beneficiary; the person who has used your money has also benefited from it. They have accomplished business goals and produced goods and services that they could not have without capital, and the price of that capital (a percentage return on the funding raised) is worth access to that capital without access to its associated risk. This is a fundamental tenet of capitalism - exchanges and transactions are only entered into when they are mutually beneficial. Somehow, the whole is greater than the sum of its parts! > If I have 20 million dollars in a stable fund that grows 10% a year, that means I get 2 million a year sitting on my ass. The majority of people in the US will not never even touch 2 million in their lifetime. You want to justify that kind of compensation by saying that index funds still involve certain risk? If you have 20 million in a stable fund, that's 20 million dollars of capital that is being used to promote other businesses and to produce goods and capital that otherwise may not be produced, and it's 20 million dollars when you can lose overnight. Again, the value contributed is not the labor, but capital and assumption of risk has a very real impact and is an absolutely necessary part of the equation. The capital holder is enriching both himself and the person in whom he is invested. The capital holder is happy because his risk yields dividends, and the capital consumer is happy because his labor yields dividends, and you're right, the capitalist didn't put in the labor, but the laborer didn't have to put in the capital. Neither could do it nearly as effectively without the other. The relationship is symbiotic, not parasitic. > bubbles pop and industries heal, the economy goes up in aggregate, and many rich people stay rich or get richer in extreme and extravagant ways that are grossly un-proportional to the amount of work they output. Bubbles pop (with investors in risky ventures/funds eating the brunt of that), industries heal (certainly not overnight, and during those recoveries, it is again the capital-holders who bear the financial burden), the economy does go up in aggregate (because it's not zero-sum, which is why laborers benefit even if the rich get richer), but are you suggesting that earnings should be directly proportional to the labor invested? I'm not aware of any economists who place any stock in the labor theory of value. The empirical evidence directly contradicts it.

by cheald 11y ago

crimsonalucard 11y ago

Setting reward as a function of risk definitely makes things seem more fair when viewed from that perspective. However, their are many super rich investors who deploy their capital into assets that are low risk, and just sit on it while it grows compounding 7% every year. When this happens it is no longer fair, it becomes a form of exploitation.

cheald 11y ago
"Low risk" is not "no risk". I mean, heck, look at 2008. People invested in index funds - frequently considered one of the lowest-risk, most stable stock vehicles - lost 50%+ of their invested value in a hurry. It grows compounding at 7% year-over-year because it's invested in companies and people that are growing their own businesses because of it. Money doesn't just grow on its own; capital accounts don't accumulate by virtue of their own gravitational pull. The degree of risk doesn't really change the fact that that capital is risked as investment hopefully helping other people succeed, rather than just sitting in a Scrooge McDuck swimming vault somewhere. You can still lose it, and it has to be somewhere that someone else is using it to produce wealth in order for your own accounts to grow.
- crimsonalucard 11y ago
  >It grows compounding at 7% year-over-year because it's invested in companies and people that are growing their own businesses because of it. Money doesn't just grow on its own; capital accounts don't accumulate by virtue of their own gravitational pull. The degree of risk doesn't really change the fact that that capital is risked as investment hopefully helping other people succeed, rather than just sitting in a Scrooge McDuck swimming vault somewhere. You can still lose it, and it has to be somewhere that someone else is using it to produce wealth in order for your own accounts to grow. This is my entire argument. Lets not consider risk for a moment... If someone else is producing wealth in order for your accounts to grow and you as the owner of the accounts are the beneficiary of this growth then that means you are exploiting someone else's work. This is NOT fair. Now lets take a look at the equation with your statement involving risk. >"Low risk" is not "no risk". I mean, heck, look at 2008. People invested in index funds - frequently considered one of the lowest-risk, most stable stock vehicles - lost 50%+ of their invested value in a hurry. Low risk is not no risk but does low risk justify extravagant returns? No. If I have 20 million dollars in a stable fund that grows 10% a year, that means I get 2 million a year sitting on my ass. The majority of people in the US will not never even touch 2 million in their lifetime. You want to justify that kind of compensation by saying that index funds still involve certain risk? Let's be real, bubbles pop and industries heal, the economy goes up in aggregate, and many rich people stay rich or get richer in extreme and extravagant ways that are grossly un-proportional to the amount of work they output.
  - cheald 11y ago
    > If someone else is producing wealth in order for your accounts to grow and you as the owner of the accounts are the beneficiary of this growth then that means you are exploiting someone else's work. This is NOT fair. You are the partial beneficiary; the person who has used your money has also benefited from it. They have accomplished business goals and produced goods and services that they could not have without capital, and the price of that capital (a percentage return on the funding raised) is worth access to that capital without access to its associated risk. This is a fundamental tenet of capitalism - exchanges and transactions are only entered into when they are mutually beneficial. Somehow, the whole is greater than the sum of its parts! > If I have 20 million dollars in a stable fund that grows 10% a year, that means I get 2 million a year sitting on my ass. The majority of people in the US will not never even touch 2 million in their lifetime. You want to justify that kind of compensation by saying that index funds still involve certain risk? If you have 20 million in a stable fund, that's 20 million dollars of capital that is being used to promote other businesses and to produce goods and capital that otherwise may not be produced, and it's 20 million dollars when you can lose overnight. Again, the value contributed is not the labor, but capital and assumption of risk has a very real impact and is an absolutely necessary part of the equation. The capital holder is enriching both himself and the person in whom he is invested. The capital holder is happy because his risk yields dividends, and the capital consumer is happy because his labor yields dividends, and you're right, the capitalist didn't put in the labor, but the laborer didn't have to put in the capital. Neither could do it nearly as effectively without the other. The relationship is symbiotic, not parasitic. > bubbles pop and industries heal, the economy goes up in aggregate, and many rich people stay rich or get richer in extreme and extravagant ways that are grossly un-proportional to the amount of work they output. Bubbles pop (with investors in risky ventures/funds eating the brunt of that), industries heal (certainly not overnight, and during those recoveries, it is again the capital-holders who bear the financial burden), the economy does go up in aggregate (because it's not zero-sum, which is why laborers benefit even if the rich get richer), but are you suggesting that earnings should be directly proportional to the labor invested? I'm not aware of any economists who place any stock in the labor theory of value. The empirical evidence directly contradicts it.