# Earned interest/dividends are bad? **URL:** \ **Category:** Great Debates\ **Created:** [September 28, 2005, 11:55pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939 "2005-09-28T23:55:28Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![D\_Odds](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/d_odds/32/2882_2.png) [@D\_Odds](https://boards.straightdope.com/u/D_Odds)\ **Post date:** [September 28, 2005, 11:55pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/1 "2005-09-28T23:55:28Z")
> [@VCO3](#): > > [I have no desire to own any stocks - I think that using them to make money is ethically wrong](http://boards.straightdope.com/sdmb/showpost.php?p=6628554&postcount=5) > > [Oh, it’s just a personal conviction - completely indefensible in any realm of empiricism or logic. Short answer; “capitalism bad, making money off of money rather than work worse.”](http://boards.straightdope.com/sdmb/showpost.php?p=6628701&postcount=10) > > [I come from parents who taught me humility, pragmatic asceticism, and the value of hard work. If I came from rich parents, I would probably value things like making money off of investments.](http://boards.straightdope.com/sdmb/showpost.php?p=6629782&postcount=20) > > [I simply believe that capital should come solely from work - that it should be earned rather than achieved through gambling or usurious “lending,” whether that means investing in a company through stock purchasing or loaning my friend money in a time of need and then charging him interest.](http://boards.straightdope.com/sdmb/showpost.php?p=6631846&postcount=35) You’ve admitted you can’t defend these positions, yet you keep trying to do so. So let’s move this out of GQ and into an area where these statements can be adequately discussed. **VCO3** , you are, by your own admission, anti-capitalism, and therefore my sworn enemy. 😉 But have you even thought through your theories? Purchasing a share in a company, or lending a company money, both expected a return on capital are, IYO, usurious lending? How about the reverse, when a company lends an individual money to make a large purchase, such as a car or a house? These companies are obviously in the business of lending money, expecting to earn more money on their investment. Is that usurious? Why? If it is not, then why is it wrong if an individual enters the same business? Personally, I find the notion of being proud of keeping savings in non-interest bearing accounts nearly pit-worthy. Are you familiar with the concepts of compound interest, and how most anyone looking to retire on more than Social Security benefits from it? You seem to be saying that the businesses that fuel much of our economy are unethical. This really needs explaining, or you seriously need to readdress your gut feelings. ---
**Author:** ![midget](https://avatars.discourse-cdn.com/v4/letter/m/90db22/32.png) [@midget](https://boards.straightdope.com/u/midget)\ **Post date:** [September 29, 2005, 12:03am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/2 "2005-09-29T00:03:11Z")
Copy-paste from the other thread: > [@](#): > > Originally Posted by **VCO3** > No - no, it really isn’t. There’s nothing “blue collar” about my roots or my current lifestyle and occupation. I simply believe that capital should come solely from work - that it should be earned rather than achieved through gambling or usurious “lending,” whether that means investing in a company through stock purchasing or loaning my friend money in a time of need and then charging him interest. I do not “bury my money in coffee cans” - I keep it in the bank in an interest-free account, mainly because I see no reason to hoard my money in an interest-generating savings account. I don’t mean to sound rude, but this mindset is mind-boggling. Are you saying that if you had some spare cash, you would put it in an interest-free account rather than a bank savings account? If so, I’m not quite sure I understand the justification. What do you think the bank is doing with your money? INVESTING it! Why would you possibly want to let your money be invested, whilst not reaping the rewards? As has been mentioned already, one could easily defend the position that savings accounts or stocks are beneficial to the economy and the nation. Banks are less likely to invest as much if most of their clients’ money is stored in checking (they have no indication that it won’t be withdrawn in bulk with no notice). That uninvested cash is considered stagnant, and is damaging to the cyclical nature of the cash flow. Imagine you invested in a $100 worth of stock. That investment helpls create new jobs, which in turn leads to more money in the hands of the workers, who then spend it and keep the cycle going. I fail to see anything dishonorable or disingenous about wise investing. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [September 29, 2005, 12:18am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/3 "2005-09-29T00:18:02Z")
> [@midget](#): > > Imagine you invested in a $100 worth of stock. That investment helpls create new jobs, which in turn leads to more money in the hands of the workers, who then spend it and keep the cycle going. As I understand it, **only** the initial public offering of a stock provides the issuing corporation with any investment capital. After that, the corporation makes nothing when the stock changes hands (and most of the trading volume on Wall Street is in stocks that were issued long ago). Am I wrong? ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [September 29, 2005, 12:26am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/4 "2005-09-29T00:26:19Z")
> [@midget](#): > > Imagine you invested in a $100 worth of stock. That investment helpls create new jobs, which in turn leads to more money in the hands of the workers, who then spend it and keep the cycle going. > > I fail to see anything dishonorable or disingenous about wise investing. [Supply side Jesus](http://www.buzzflash.com/contributors/03/09/17_franken.html) agrees with that. I don’t see the problem with not wanting to make money off of investments. Maybe the guy just feels you should do something physical or mental to deserve a financial reward. For me personally it depends on the interest rates of the company. If it is an usurious company I would be adverse to it but aside from that I have no problem. Investment capital (in the form of car loans, mortgages, etc) is a somewhat risky business and making a profit off of it is expected. As long as the profit doesn’t make the loan unobtainable or usurious. Making money off of credit cards would bother me for example because of their usurious 22% interest rates and 2% minimum payments designed to keep people in debt are unethical to invest in while mortgages with their 6-10% rates that eventually lead to home ownership do not feel unethical to me at all. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [September 29, 2005, 12:41am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/5 "2005-09-29T00:41:37Z")
> [@BrainGlutton](#): > > Am I wrong? Not technically, however, how much would YOU pay for stock in an IPO if you couldn’t resell it at a later date? There are unethical business dealings out there, but buying part of a big company, or loaning money at competitive interest rates aren’t them. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [September 29, 2005, 12:43am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/6 "2005-09-29T00:43:00Z")
> [@Cheesesteak](#): > > Not technically, however, how much would YOU pay for stock in an IPO if you couldn’t resell it at a later date? I dunno. Wasn’t there a time, once, when one invested in a company with a view to collecting dividends from its success, not from later resale of one’s shares? ---
**Author:** ![raindog](https://avatars.discourse-cdn.com/v4/letter/r/2bfe46/32.png) [@raindog](https://boards.straightdope.com/u/raindog)\ **Post date:** [September 29, 2005, 12:48am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/7 "2005-09-29T00:48:11Z")
> [@BrainGlutton](#): > > As I understand it, **only** the initial public offering of a stock provides the issuing corporation with any investment capital. After that, the corporation makes nothing when the stock changes hands (and most of the trading volume on Wall Street is in stocks that were issued long ago). Am I wrong? You are _basically_ wrong. Companies use their stock often as currency. While your basic premise is true, most corporations use their stock (and stock price) when going to the capital markets to borrow and to acquire other companies. So…when you see a company going south—as manifested by a falling stock price----their capacity to borrow is severely crimped. Borrowing as in working capital, factoring for receivables, capital investment for plants and equipment , stock to acquire a competitor (often megers/acquisitions are done with stock or stock/cash) and so forth. Most loan covenents have provisions for minumum stock prices so a free falling stock can mean not just higher borrowing costs—and in the worst cases an ablilty to borrow _at all_----but that existing loans are ‘called in.’ A falling stock price—when it is in free fall—can often mean the death of the company—either from a predator who buys it ‘on the cheap’, or through bankruptcy etc. When you see Moody’s, or Standard & Poor’s et al downgrade the debt of public companies it is most often coupled with a falling stock price. So, while the upside of a higher stock price benefits the person selling, it also makes the company more valuable—if all the stock od ABC Corp zooms up, the corporation is now worth a lot more. That value can be harnessed and used for borrowing/mergers etc. ---
**Author:** ![D\_Odds](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/d_odds/32/2882_2.png) [@D\_Odds](https://boards.straightdope.com/u/D_Odds)\ **Post date:** [September 29, 2005, 12:48am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/8 "2005-09-29T00:48:27Z")
I specifically left credit cards off. I should have mentioned that in my OP. An individual’s interest rate should reflect the risk of the loan; those paying 22% and making only minimum payments are risky investments to the credit card company. The practice of the credit card companies I find unethical is the ease which they give credit cards to poor credit risks - the same individual’s often least likely to realize the danger of easy credit. But that’s another debate. Companies can make money off of rising stock prices through several means. They can raise money through a secondary offering (a second IPO), taking advantage of market gains. They might simply sell their own stock (called Treasury Stock) in the open market (although many analysts often take that as a bad sign). Strong market capitalization makes it easier to get favorable terms on loans. Lastly, stong stock prices make it easier to entice top executive talent to your firm and to retain them. ---
**Author:** ![D\_Odds](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/d_odds/32/2882_2.png) [@D\_Odds](https://boards.straightdope.com/u/D_Odds)\ **Post date:** [September 29, 2005, 12:55am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/9 "2005-09-29T00:55:30Z")
> [@BrainGlutton](#): > > I dunno. Wasn’t there a time, once, when one invested in a company with a view to collecting dividends from its success, not from later resale of one’s shares? There still is. The industry tends to call these value stocks. However, investors have told companies, throught the placement of investment dollars, that they value growth over dividends. Companies have responded by reinvesting profits rather than paying them out as dividends. Also, dividends are double-taxed, so it is often better to the investor to just reap long-term capital gains on an investment rather than ordinary income in the form of dividends. ---
**Author:** ![T\_SQUARE](https://avatars.discourse-cdn.com/v4/letter/t/9de053/32.png) [@T\_SQUARE](https://boards.straightdope.com/u/T_SQUARE)\ **Post date:** [September 29, 2005, 1:39am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/10 "2005-09-29T01:39:16Z")
One test to eveluate the ethics of an activity I remember from my business ethics class was: “What if everybody did it?” I’d like to point out that if everybody thought investment was morraly wrong, we wouldn’t have anything. We’d live like hunter-gatherers. I’ll take the world I live in today, built by investment. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [September 29, 2005, 1:46am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/11 "2005-09-29T01:46:05Z")
> [@T\_SQUARE](#): > > One test to eveluate the ethics of an activity I remember from my business ethics class was: “What if everybody did it?” aka Kant’s First Formulation of the Categorical Imperative: “Act only according to that maxim by which you can at the same time will that it would become a universal law.” [http://en.wikipedia.org/wiki/Categorical\_imperative#The\_first\_formulation](http://en.wikipedia.org/wiki/Categorical_imperative#The_first_formulation) > [@T\_SQUARE](#): > > I’d like to point out that if everybody thought investment was morraly wrong, we wouldn’t have anything. We’d live like hunter-gatherers. I’ll take the world I live in today, built by investment. Don’t take it **that** far! Civilization is much, much older than publicly traded limited liability corporations, much older than financial investments of any kind. ---
**Author:** ![T\_SQUARE](https://avatars.discourse-cdn.com/v4/letter/t/9de053/32.png) [@T\_SQUARE](https://boards.straightdope.com/u/T_SQUARE)\ **Post date:** [September 29, 2005, 1:57am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/12 "2005-09-29T01:57:51Z")
> [@BrainGlutton](#): > > Don’t take it **that** far! Civilization is much, much older than publicly traded limited liability corporations, much older than financial investments of any kind. I didn’t think we were just talking about publicly traded stocks here, but I could be wrong about that. I would consider pooling of resources for expected future returns as investment. How about planting crops? Is that not an investment? You put in some work and some material (seeds) now, and have a big return come harvest time. I would argue that return on invested capital and labor (thus “investing”) predates both evolved financial markets and money as we know money today. Maybe I am taking it too far. I’m open to discussion. ---
**Author:** ![RandomLetters](https://avatars.discourse-cdn.com/v4/letter/r/8edcca/32.png) [@RandomLetters](https://boards.straightdope.com/u/RandomLetters)\ **Post date:** [September 29, 2005, 10:20am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/13 "2005-09-29T10:20:31Z")
> [@BrainGlutton](#): > > I dunno. Wasn’t there a time, once, when one invested in a company with a view to collecting dividends from its success, not from later resale of one’s shares? IIRC, some economist won a Nobel prize for proving that both of the above cases are mathmatically equivelent, and will return the same amount of money to a person in the long run. Any help remembering exactly who this is and what year would be much apprieciated. ---
**Author:** ![Mangetout](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mangetout/32/19_2.png) [@Mangetout](https://boards.straightdope.com/u/Mangetout)\ **Post date:** [September 29, 2005, 11:21am UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/14 "2005-09-29T11:21:20Z")
Dividends _can be_ bad; that is to say that I’m sure we could find some examples where profits were creamed off as dividends at the expense of reinvestment in the business. Of course this corrects itself in that the poorly-funded business fails to perform and stops making profits, so the dividends dry up, but if the board/shareholders are long departed by the time the failure occurs and the business was providing a service where failure involves, say, loss of human life, or other significant misery. then the fact that it is ultimately self-correcting is cold comfort. As I understand it, RailTrack (the business set up to manage the rail infrastructure in the UK, when British Rail went private) is an example of how badly this can go wrong; the pockets of the board and shareholders were lined, and skimping on investment in maintenance and repair of tracks went unnoticed for a while, then it all started to go horribly wrong - track failures led to derailments and crashes with much loss of life and the government was pretty much forced to intervene with large subsidies to keep the trains running. I don’t have a specific solution, or even a better idea; in principle, the big machinery of the market corrects most things, it’s just that the big machinery sometimes grinds up _people_ in the wheels and gears. ---
**Author:** ![D\_Odds](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/d_odds/32/2882_2.png) [@D\_Odds](https://boards.straightdope.com/u/D_Odds)\ **Post date:** [September 29, 2005, 12:09pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/15 "2005-09-29T12:09:42Z")
> [@RandomLetters](#): > > IIRC, some economist won a Nobel prize for proving that both of the above cases are mathmatically equivelent, and will return the same amount of money to a person in the long run. Any help remembering exactly who this is and what year would be much apprieciated. [Franco Modigliani and Merton Miller](http://www.uq.edu.au/economics/johnquiggin/news/Telstra9803.html) > [@](#): > > They showed that, in the absence of differential tax treatment, the value of a company depends only on its earnings. Whether those earnings are retained and reinvested or distributed as dividends makes no difference to the company’s value. [Additionally](http://www.efficientfrontier.com/t4poi/Ch1.htm): > [@](#): > > Two Nobel Prize winning economists, Franco Modigliani and Merton Miller, realized over four decades ago that the aggregate cost of and return on capital is the same irrespective of whether stocks or bonds are employed. In other words, had the ancients used stock issuance instead of debt to finance their businesses, the rate of return to investors would have been the same. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [September 29, 2005, 4:21pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/16 "2005-09-29T16:21:18Z")
One thing about usurious credit card companies. Sure they stick their unsophisticated customers with huge interest payments. But they also put the Mom and Pop loansharks out of business. Putting a purchase on your credit card at 22% annual interest doesn’t seem nearly as bad as borrowing the money from Vinnie at 50% monthly interest and if you don’t pay he breaks your kneecaps. Loansharks existed long before the credit card companies muscled into the business, there have always been people who “need” the money NOW and are willing to enter into deals that seem highly illogical to you or me to get that money now. And there will be people willing to lend to those desperate customers…at a suitably high rate of interest. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [September 29, 2005, 5:11pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/17 "2005-09-29T17:11:22Z")
> [@VCO3](#): > > I simply believe that capital should come solely from work - that it should be earned rather than achieved through gambling or usurious “lending,” whether that means investing in a company through stock purchasing or loaning my friend money in a time of need and then charging him interest. This sounds like fairly standard ‘mystics of muscle’ claptrap of someone who doesn’t actually understand how capital works, how stock or the stock market work, or how real production works…but instead thinks its all about muscular labor, sacrifice and brother love. Sorry…couldn’t resist. Who IS John Galt…? 😉 -XT ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [September 29, 2005, 6:18pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/18 "2005-09-29T18:18:51Z")
> [@xtisme](#): > > This sounds like fairly standard ‘mystics of muscle’ claptrap of someone who doesn’t actually understand how capital works, how stock or the stock market work, or how real production works…but instead thinks its all about muscular labor, sacrifice and brother love. > > Sorry…couldn’t resist. Who IS John Galt…? > > 😉 > > -XT Heh. OK, let’s just imagine I cut and pasted the entire text of Atlas Shrugged here. Quick, get the patient 1000 pages of intravenous Objectivism stat! ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [September 29, 2005, 7:06pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/19 "2005-09-29T19:06:28Z")
😛 -XT ---
**Author:** ![Captain\_Amazing](https://avatars.discourse-cdn.com/v4/letter/c/6de8d8/32.png) [@Captain\_Amazing](https://boards.straightdope.com/u/Captain_Amazing)\ **Post date:** [September 29, 2005, 7:22pm UTC](https://boards.straightdope.com/t/earned-interest-dividends-are-bad/323939/20 "2005-09-29T19:22:11Z")
> [@BrainGlutton](#): > > Don’t take it **that** far! Civilization is much, much older than publicly traded limited liability corporations, much older than financial investments of any kind. Older than LLCs certainly, but, from the Code of Hammurabi: > [@](#): > > If a merchant entrust money to an agent (broker) for some investment, and the broker suffer a loss in the place to which he goes, he shall make good the capital to the merchant.