Let me say, first of all, that I’m not against markets. I’m also not against the law of supply and demand, or against letting it govern pricing.
I’m not even against unearned income, exactly: I recognize there may be practical reasons why you can’t just eliminate it, without harming other things. Sort of like you may not be able to cut put a cancer, without harming a vital organ.
So my question is, not why does profit exist, but what, if anything, justifies it morally?
In other words, how do you justify a massive, ongoing, and seemingly ever-growing transfer of wealth from the people who make it (workers) to people who consume it without producing anything (owners)?
What you seem to be saying, if I’m reading you right, is that owners really are producing something: information. When they buy and sell things they generate prices, and everybody benefits from knowing what the prices of things are.
This seems like a pretty flimsy rationalization.
For one thing, by your definition, pretty much everything anyone does generates information. If I buy a can of Coke, it gives the price of Coke a tiny infinitesimal nudge in an upward direction. If someone gets a job, it nudges down unemployment ever so slightly. If I visit this website instead of that one, maybe some advertiser somewhere will pay a little different price for Adwords. So what? Why should anyone pay me for those decisions?
Secondly, are owners really getting paid for providing information, rather than for owning things? If that’s the case, suppose I own something, and sell it at a profit. If I somehow avoid providing anybody with any information, do I have to give the money back? If someone gets a job, would you say his wages are really for providing information about the unemployment, or from working?
Third, how accurate, unambiguous, and useful is the information? If I relied on its stock price, I’d think Enron was a great company, right up until it went bankrupt. If I relied on S&P I’d think everything was fine, right up until the financial crisis. If stock-picking profits are for providing information, is there any way to get a refund?
Fourth, the owners as information-providers theory would explain, at most, capital gains (and losses) right? Is it a problem for the theory if the money that goes into the market is the same as the money that goes out?
Situations which might accurately be labelled “Unearned income” would include a parent giving their child an allowance. Or maybe a bank robbery.
Making an investment is something very different to this. It requires someone to risk some amount of capital in an effort to generate new wealth.
By all mainstream definitions it’s earned, and the lack of a sweaty brow or dirt under the fingernails doesn’t change that.
And there is no need to “justify” anything. It’s something beneficial to society, and does not involve anyone stealing, or parasitically feeding off, anyone else.
Capital is no different in principle than an apartment building. The owner lends it to someone else for their use. In return, the owner receives rents. The residents get a place to live, the owner gets a return on his investment, everybody is better off than if the apartment building sat empty.
If workers are morally entitled to some reward for their labor, then investors are morally entitled to a reward for their investment. Because both are necessary to the success of an enterprise.
Don’t sweat it, Slacker, in a few decades automation will make almost all human labor redundant, and transform almost everyone into socialists except the one percent. Interesting times ahead!
I think I understand a bit of from where the OP is coming, but it underestimates the role of business ownership.
It’s not that business owners deserve nothing. What’s questionable is the percentage of revenue the owner deserves (given what seems to be fashionable these days). The disparity between workers and owners is certainly getting out of control. This culture of greed is getting very close to collapsing our economy irrevocably. It really should have happened in '08, but we decided to go deeper in debt to put it off for a few more years. We made the poor poorer, the rich richer, and suffocated a little more the shrinking middle class.
Yes, I have a hard-on for the super rich. No demographic is worse for our economy, what with their taking large amounts of cash out of the system and burying it in the ground in case they want a 15th private jet in the future.
I can’t argue that investments don’t “help make something happen that otherwise could not have happened.”
I will argue, though, that to actually make a decent profit, investments need not create wealth.
Suppose you bought gold a few years ago, when it was $400 per ounce, and you sold it when it was $1400. You’ve made a decent profit, but you haven’t created anything. All that’s happened is some money’s been transferred from one account to another.
The same thing is true if you’d bought stocks, or for any capital gain. You don’t need to grab market share or build a superior product.
But that’s exactly what it does: the CEO chooses the board members, who in turn negotiate with the CEO.
Can I ask you a question? When was the last time you actually voted for a board member, or selected a CEO (if you own stocks)? What are the names of the board members of any company that you own? Can you name even one - without looking? If you own shares through a mutual fund, do you even know the names of the companies you own?
You know, work is a tricky concept. In some sense of the word, when I go to the store and decide between Coke and Pepsi, I’m doing a kind of “work”. I’m exerting mental effort. I’m sending a message about my relative desires for those products at various price points. I’m affecting the relative demand for those products. I am, at least in theory, negotiating with the store - even if that means walking away, because they charge too much.
But none of that changes me from a consumer into a producer.
Well, I’d argue that it is literally accurate. But I realize some people think I’m being sneaky when I use the term, which is why I usually use “profits”.
I’m not arguing against markets, or against property, or even (necessarily) against profits. What I’m arguing is that profits (and unearned income generally) comes from owning things, not from doing anything productive; and that therefore, the goods and services owners consume come from those how are productive - who, in turn, must either work more or consume less in order to support them.
This is not *necessarily *a moral argument. Or rather, you could say, “Yeah, that’s true, but so what? Things should be that way.” But anyway, that would be the second part of the argument: whether this way of doing things is justified, or whether it’s wrong or immoral in some way.
For my part, the fact that people react so strongly to something that is (to me) so almost self-evidently true, and go to such great lengths to try to rationalize it away, tells me they do think there’s something wrong with it.
One thing that’s interesting about this argument is it’s one-sidedness. Obviously, if owners negotiate with managers, that means managers negotiate with owners. Similarly, if owners choose who to hire, managers must choose which job to take.
So you might think if owners “earn” profits by deciding who to hire, and how much to pay, then managers - and other workers - earn wages and salaries by deciding who to work for, and how much to be paid.
But it doesn’t turn out that way. It turns out in order to earn wages or salaries, workers must not only agree to do a job, and negotiate their pay, they also have to actually do the work. What do owners have to do?
Well, they have to own something, of course.
Or consider it this way: suppose as an owner, I do some negotiating and some hiring. Then something happens and someone else becomes the owner instead of me. Who is entitled to the profits? The person who negotiated and hired (me) or the owner?
If it’s the owner, doesn’t that imply that the profits are for owning, not for negotiating?
And what about other unearned income - other than from owning businesses? Is that also for negotiating?
Do I “earn” interest income from negotiating the interest rate? Does it matter whether I actually do any negotiating in order to earn it? Or is just deciding to take whatever rate is offered all the negotiating that’s due in that case?
I like how you claim you don’t call me stupid, and claim I don’t know the meaning of the words I use in the next.
I don’t know. To my way of thinking it proves too much. As I’ve said before, all kinds of outcomes flow from decisions every person in the world has to make. If I buy Pepsi, I’m stuck with the decision I just made. My enjoyment of my drink depends directly on how good a decision I just made. But I don’t think you’d argue I “earned” the Pepsi by deciding to buy it. You’d say I earned it by earning the money I made to buy it; by doing something productive, and exchanging it (indirectly) for something I want to consume.
I will say this: at least in the case of business owners, owners ***should ***be exercising a supervisory role over the businesses they own. The evidence suggest that they’re not. But I do agree that they should be.
And even if overseeing their own investments is part of the “job” of owners, I’d still argue that unearned income flows from owning things. Choosing what to own affects profits in the same way choosing one job or another affects your salary. Yeah, it does affect how much you get - but it’s not what the money is for.
Suppose there’s an apartment building, and it’s owned by somebody, and that’s all he does: he owns the apartment building, and that’s it. He doesn’t collect rents, or do maintenance, or find tenants. He didn’t build the building. He just owns it.
He doesn’t do any work. He eats, he drinks, he goes on vacation. He doesn’t work because he doesn’t have to: he owns an apartment building.
But what he consumes, it comes from somewhere, right? Somebody has to serve his food, pour his wine, make his socks.
So suppose he disappears. He joins an ashram. He renounces earthly pleasures. He’s not there anymore.
What happens to whatever he used to consume before?
If he’s not there anymore, doesn’t that mean everybody else can either (a) consume little more (drink the wine he used to drink), or (b) work a little less?
And on the other side, what stops getting produced, because the owner isn’t there anymore? What stops getting made? Who is worse off?
If the answer is nothing, and nobody, doesn’t that mean the owner is consuming without producing - that his income (or his consumption) - is a tax on the work of others?
You’re right that the apartment building is necessary. But what about the owner?
Yeah, so? So what? You want to take it away from him by force? What’s your point? The guy is making money off of land his grandfather bought and developed. He doesn’t raise a finger. He hires a management company to collect rents and do necessary repairs. He lies on his back and watches daytime TV. SO WHAT? Do you want to make this a crime? He already pays a gob of taxes, both property tax and income tax, so We The People benefit from it. Isn’t that socialist enough for you?
Investment did, in the form of advances in machinery, leading to the industrial age, and systems of production that were more efficient than muscle-power. The steam engine freed the slaves.
The owner has liability. The owner has tax burdens. The owner had to pay for the LABOR that it took to build that building either first-hand as the original owner, or later own by paying a fair market price for what the cumulative cost is.
he’s subsisting off the efforts of others; that he’s consuming without producing.
No. Lots of people subsist off the efforts of others. They collect welfare, or disability. They’re children, or they’re elderly. Maybe they panhandle. Or they own stuff. Consuming more than you produce isn’t a crime, it’s a lifestyle.
How can We The People benefit from someone who doesn’t produce anything?
The owner is contributing the use of the building. She owns the building and she could be using it for any number of other things. She could be living in it herself and using it as a giant mansion, sleeping in a different room every night. She could knock the building down and use the land as a polo field for her friends. Those are both her right, since she owns the property, and would provide her with immediate joy and satisfaction. Instead, she is choosing to forgo that immediate satisfaction and is instead using the property as a money-earning business. This is good for her, since it allows her to earn a profit each year, and over the course of her life will hopefully provide her with more joy and satisfaction than she could have gotten otherwise. It is also good for her tenants, who have a place to live, and for the building manager she employs to look after the building, who would otherwise be unemployed.
If the owner was not allowed to profit off the use of the building, and instead was just using it as her personal mansion, she would have to live a more frugal life, since the building would not be creating value. This means she would have to consume less. However, this does not mean there is more to go around for everyone else. On the contrary, since she has less money to spend, that means that the local businesses she would otherwise have been patronizing will be worse off. She can’t afford to buy a new TV, so Joe’s TV shop will sell one fewer TV and Joe will be worse off, and so one throughout the community.
The existence of the apartment building creates value. If you take away the apartment building, then that value no longer exists, and the community is worse off. And if the owner is not allowed to profit off the building, then the building won’t exist.
Okay, this mention of an apartment building managed by others reminded me of something that I think qualifies as pretty close to your scenario of receiving profits without any earning being involved with it. And I am not pointing the finger at anyone else in this case but at myself, BTW.
My grandfather bought an odd little investment decades ago that is apparently a kind of outmoded tax shelter, but it is still an income earning investment even though the laws have changed. My sister and I each inherited half of this investment. What it is, is a little percentage of a pair of apartment complexes in upstate New York. At the end of every year, we get a letter describing in a page or two:
–the amount of total rent that came in during the year
–until a few years ago, the debt service, which has now been retired
–the maintenance and improvements that were done on the complexes this year
–the vacancy rate
–management fees, taxes, insurance, etc.
It always concludes with “of the X amount of cash on hand, Y has been set aside for capital improvements, yada yada yada, and the remaining amount, X minus Y, has been distributed to the partners.” And so along with this letter, there is a check for a couple thousand dollars or so. Then in March they send a special tax form to file for it, already filled out.
Now I know I am not doing anything to earn that money. And I don’t really even have any choices to make. As far as I can tell, I can’t really have any influence on the way these apartments are managed, and this investment is not really liquidatable in the normal sense, although I was told that other partners will give me essentially a fire sale price if I want to sell to them.
Basically, though, these apartments are managed and maintained and the people doing the management and maintenance get a cut of the rent; but then there is a surplus amount of profit which just eternally gets distributed to us the partners without us having to do anything for the money other than open an envelope and deposit a check once per year.
Now, I’m not going to stop opening these envelopes and cashing these checks–as a socialist friend of mine told me in college years ago, “you gotta live in society”–but if it were up to me, this kind of thing would not be possible.
The argumentation is silly. As many people have pointed out, he’s contributing the building which he bought with his own money. You know, that stuff he made working for other people?
Why are you so bound and determined to steal from the owner?
I suppose you could go with a scenario where he got his money from mom and pop, but then you’re asking a different question: is inheritance a good idea? Warning: you are going to have a devil of a time trying to get at all those people who have too much money in your opinion and still protect worker’s rights in this question.
The owner can leave her building empty. She can knock it down, and use it as a polo field. She can fill it full of monkeys, if she wants. She can use it as a giant bathroom. Why? Because she owns it.
She didn’t build it. She didn’t make the land it sits on. She doesn’t maintain it.
Yet she owns it, so she can do whatever she wants with it.
So where does the right of ownership come from?
It comes from government, of course. It’s the government that says she owns this particular lot. It’s the government that says what she can and cannot do with it. It’s the government who will send the Sheriff to evict her tenants, and the government that will arrest and punish and imprison anyone goes on her property without her permission.
So where does her profit come from? Ultimately it comes from government.
Her ability to consume without working? Ultimately it’s a government subsidy.
It’s absolutely true that, in order for one person to not work, some other person must work in her stead. so for example, in order for me to eat, without making food, someone else must make food for me. In order for me to dress, without me dressing me, someone else must dress me.
This is what’s called providing employment.
Of course, the idea that for one person to work, some other person must not work, is silly. If half the people work, we’ll have half as much stuff as we’d have had of everybody worked. The fact that some people are able to consume without producing just means that everyone is poorer.
It sounds as if you think if the owner has less money, there will be less money. is that what you think?
It does. I said as much in the post you quoted. The question is, “Does the owner create value?”
Do you mean the building will disappear, or do you mean something else?
