Now we’re on the same page, Trinopus. 
In celebration of post #100 on this irritating thread… [ninja’ed on the count…]
Do you have any argument of your own, at all, that you’re willing to contribute? Because the previous 99 posts are your rather naive questions that seem to carry a particularly idea or direction, and then dismissal or agreement with a wide variety of answers.
Why don’t you start from square 1 (or 101, as the case may be) and state your thesis here a little more coherently, instead of playing yes/no with a whole spectrum of fairly intelligent and well-grounded answers while doing everything you can to avoid actually committing to a point?
It’s a “transfer”, in the same sense that when a baker sells his bread, wealth gets transferred from the bread-buyer to the bread-seller.
Or does it? Why would the bread-buyer transfer wealth to the bread-seller? The answer is that the bread-buyer gets some value (bread), and the bread-seller gets some value (money that can be exchanged for whatever goods and services). Both get value from the transaction, otherwise the transaction would not take place.
I understand that you agree that the manager of an enterprise actually provides value, and plenty of owners are also managers. But the owner creates value as an owner, because he was the one that provided the capital that allowed the workers to work.
To put it in simple terms, you’re a carpenter. But you have no tools, no clients, no money, and so on. Another carpenter says, “Hey, I have tools, I have clients, more than I can use by myself.”
So what happens next? The tools are valuable. The client list is valuable. Should Carpenter 2 just give the value to Carpenter 1? Why would he do that? If Carpenter 2 can’t get any value by lending his tools and giving his client list to Carpenter 1, he’s not going to do it. And what happens then? Carpenter 1 sits at home, wishing he could find work. He does nothing valuable that day.
So when Carpenter 2 provides Carpenter 1 with tools, worksite and client he creates value that would not otherwise exist, even if he never works with Carpenter 1.
So one way to organize this is for Carpenter 1 to dip into his savings, pay Carpenter 2 to rent tools, pay Carpenter 2 for the client, work for the client, create value, get paid, and use the money to replenish his savings.
But Carpenter 1 has no money. Waaah, no value is created. So Carpenter 1 goes to the bank (or Vinnie Knuckles, the freelance lender), borrows the money, pays Carpenter 2, creates the value, and pays back the bank/Vinnie, plus interest. The bank won’t lend the money without interest, remember, because why would they?
And so the bank gets money from Carpenter 1, merely because they provided money. They get interest on their loan, even though they didn’t pound a single nail or saw a single board. But they provided value, because without them the Carpenter couldn’t have rented the tools to complete the job.
This is why when the bank loans money they create value, because capital allows value to be created that couldn’t be created otherwise. It’s easy to understand how this works when we talk about capital in terms of work tools, training, client lists, and so on. It’s a bit fuzzier when we just talk about money. But money is used to get those tools and so on. So when the bank provides capital, they provide money that is used to buy equipment and so on that is used to create value that could not otherwise be created.
But instead of the bank, what if Carpenter 2 just said, “Hey, come work with me. I have the tools and the client. The client would pay me 50 shekels, but I’m too busy to do this job. But if you do it for me, I’ll pay you 40 shekels.”
So the employer carpenter extracts a profit of 10 shekels from this transaction, for no work. Except the employer created value in the same way the bank did, by providing the capital–the tools and knowledge–that enabled the employee to create the value.
The difference between what the employer makes, and what he pays his employees and all the bills is profit. How large that profit turns out to be depends on a lot of things. In an efficient market that profit will be similar to the amount of money the employer could earn just by lending all the money he has invested in the company to another company, and earning interest. Not counting the implicit salary the employer pays himself for working as a manager at the company, a lot of times “profit” for a small business is actually the owner implicitly paying himself for work as a manager or worker, but the owner could explicitly pay himself a salary. Or the profit could go back into the business as additional capital that the owner hopes will generate more value in the future and more profits.
Now do you see what value the owner provides, even if they never do a lick of work for the company? The same value a bank would provide by loaning the workers the capital to do the work they do. Without that capital no work gets done and the workers don’t work. If the workers can provide their own capital then they don’t need the owner or the banker. But lots of times the workers can’t provide their own capital, and the owner and banker is essential, otherwise the value won’t be created.
I’d argue that the ability to extract wealth from the work of others is the primary source of income inequality.
I wouldn’t change anything about how startups are funded. I expect both sides to try to get the best deal they can. Investors aren’t charities, after all.
I would change the economic environment so that it was more favorable toward workers, though (which would include workers whose work is starting startups).
Why aren’t you concerned about the ability of workers to extract wealth from the money of others? Imagine a welder at a factory. He uses the owner’s equipment, not his own, to make a living for himself. He’s extracting that wealth from the owner.
Does a shopkeeper extract money from his customers? Does he extract money from his suppliers? Does he extract money from his employees?
Yes, yes, and yes.
Do customers extract money from the shopkeeper? Do suppliers extract money from him? Do employees extract money from him?
Yes, yes, and yes.
“Extract” is a loaded word. You could replace it with “Earn” and you’d say the same thing, only with a different loaded word.
In three pages, no one has used the term surplus value?
I am foursquare behind the OP on this one, btw.
I don’t think Paris Hilton’s ever been in a movie. She is on TV a lot, but I don’t think she gets paid for that. So far as I know, all her income comes from being a Hilton.
Salk doesn’t require Hilton. He may require funding, but rich people aren’t the same as money; nor are rich people the source of money. They certainly aren’t the source of wealth. They’re its beneficiaries.
I’m not advocating for the elimination of Paris Hilton; merely for the recognition that her lifestyle represents a tax on everyone else.
She pays far more in taxes than she collects in government benefits. Her lifestyle represents a subsidy for everyone for whom that isn’t true.
We all reap the benefits of work that other people did in the past, that we did nothing to earn ourselves. My mother changed my diapers and bathed my and nursed me and read books to me. My teachers taught me to read and write and add and subtract. Doctors vaccinated me and treated my broken bones and cut flesh. I lived in a warm house, with clothing and shoes. Firemen and cops and judges and soldiers stood ready to protect me from natural and human disaster.
And I did nothing to earn any of it. Over the years I’ve worked and taken care of my children and wife, but I haven’t come close to contributing as much to the world as I have received.
And this is true of all of us. Every human being gets back much more from the work of other people than they contribute. And if this were not true we’d be better off living by ourselves in the wilderness, with only the things we make with our own hands.
We all live off an incalculable accumulation of saved capital built up over literally thousands of years of human civilization. Each of us will, if lucky, contribute back a tiny fraction of what we received. I’m not talking about contributing a net tiny bit more than we received. I’m talking about a tiny bit, period. Compared to what we received, what we contribute is negligible. You could work 20 hours a day like a Stahkanovite, and all your labors would create a tiny pile of value when set against the mountain of value that you received over your life.
And this is possible because the stored capital of human civilization makes human beings, even subsistence farmers or hunter-gatherers, incredibly efficient creators compared to what we’d be if given amnesia and dropped naked into the wilderness.
I’ve read hundreds of books, heard thousands of songs and watched hundreds of movies, but I’ve never created even one book or one song or one movie. I’ve driven in a car thousands of times, but I’ve never built one car or extracted one drop of gasoline from the earth. And on and on. Paris Hilton might have been given more unearned value in her life than you’ve been given, but you’ve been given plenty.
She got paid well for her television show. Why wouldn’t she?
Also, she doesn’t get paid for being a Hilton. There is no entity that is writing her checks after reading her drivers license. There are specific things she does to earn money. Personal appearances, television appearances, etc.
No. Try to imagine a much smaller number of people on a desert island like Gilligans Island or something. Can Mr. and Mrs. Howell just sit back and have everyone else feed and clothe and house them while they do nothing to feed, clothe, and house anyone else, just because they have a chest full of money that their parents gave them?
If they offer to pay for others to provide them with a lifestyle they’ve grown accustomed to, I don’t see why not. Provided the others agree to the arrangement.
If on the other hand, their money has no value to anyone else on the island then they will have to fend for themselves and participate in the gathering of wood and food and water, etc…
So Quicksilver: by the same logic, if we as a society stopped recognising accumulated wealth beyond a certain level (a million, or even $1B), or only that earned by one’s own work, that would be legit IYO? The very wealthy have no inherent “natural law” right to their loot?
No, because their store of capital isn’t on the island, it’s back in civilization. Yes, their stored capital is represented by money, but money just represents a fungible stock of capital or consumable goods and services. Back home they can give someone a piece of paper, and that person can exchange the paper for real goods and services. But goods aren’t on the island, and the people to perform the services aren’t on the island. So when the Howells give Gilligan a million dollars for a coconut, there is no one on the island who will give Gilligan 10 luxury car or a giant house or 10,000 steak dinners in return for that million dollars.
Money isn’t the same thing as valuable goods and services. Capital isn’t money, it’s just that money can be used to purchase capital goods that can be used to create value.
So the Howell’s money is only valuable if they can establish trade between the island and the rest of the world, where the Howell’s stored assets are located. A million dollars in cash isn’t worth anything on the island, because it doesn’t represent any stored value that is actually on the island.
Of course, here back on the mainland we could also declare that the Howells money is worthless, just pieces of paper, not real, and that the goods and services that the money represents aren’t owned by them, but by the workers, or the people, or the state, or some other plutocrat. Happens all the time. Except the problem comes afterwards, how do you allocate capital (meaning real tangible capital goods and knowledge) to various enterprises? How does Bob the carpenter get a power saw? And if Bob can’t get a power saw, his ability to create value is destroyed, and that means, in aggregate since there are millions of Bobs, we’re all much poorer.
Well, sure! That’s a perfectly reasonable emotional response. I share it, to some degree. But this is why we levelling socialist liberal property-grabbing commies created the graduated income tax, and property taxes.
We don’t kill the geese who lay golden eggs. We just take every third egg they lay and use it to pay for public schools and public fire departments.
Making Bill Gates work with his hands would be a damn waste: it’s so much more effective to let him accumulate billions, and then soak him for a part.
(“Are ‘Taxes’ a Tax on rich people?” Hell, yeah!)
Of course they have no inherent “natural law” right to their loot. Their riches are the consequence of the social, political, and economic decisions we human beings make. We just have to live with the consequences of our decisions.
The problem with a 100% tax of assets over $X is that such a tax will not actually generate any wealth. We can all debate the shape of the Laffer Curve, but the results of 0% and 100% are pretty well established values on the curve, resulting in 0 revenues.
So we can decide that Bill Gates can only have ONE BILLION DOLLARS worth of assets, but what happens when we do? Does that mean the government owns most of Microsoft? Or does it mean that Microsoft never grows to be worth tens of billions? Maybe that’s what we want. Or maybe not. The choices we make result in different futures.
It seems more reasonable to tax the income of really rich people fairly steeply rather than confiscate everything, since it seems to me that we get more public utility out of having the tax money rather than not having really rich people around. Of course, you can declare that people’s assets can’t be worth more than X, but that sort of thing is really hard to keep track of. When money changes hands is when you can measure it more easily, which is why taxes on transactions (like sales or income) are easier to collect than wealth taxes.
I dispute whether 100% would result in zero revenues; but the real point on Laffer is whether there is or was any government in existence that had income rates at such a level that lowering them would result in greater revenue for the government. And it is my belief that in the real world, that has never been the case.
Well, I think the goalposts have definitely shifted from the OP. Maybe this is OK – a result of the OP changing his/her position in light of some of the points raised.
Originally it was about how owners don’t contribute anything and/or that mere ownership + drawing a dividend was immoral.
No-one is arguing either of those things now. It’s more like “It’s unfair that some people inherit wealth” and “Workers aren’t reaping enough of the rewards of production”. These are much more IMO sorts of things, and even if someone agreed with both statements, they may disagree about what, if anything, should be done about them.
OK, so you’ve built your factory. You’ve done all the organizing, hired the right people, and gotten things started. Now you decide to sell it, in order to collect your compensation. You get full fair-market value for the factory. Now you’ve been paid, right? You’ve gotten full value for the work you’ve done. Nobody owes you anything more. The accounts are zeroed out.
Only now you’ve got this sum of money, and rather than piss it away, you do the smart thing and invest it. Or rather, you give it to someone else, to invest in your behalf.
And so not only do you have the principal - the sum that represents full and fair payment for all the work you did in building the factory - now you’ve got an ongoing stream of income, as well. A stream of income that is perpetual - that continues in perpetuity. So not only do you not need to work anymore, your children, and their children, and their children may not need to work either. In fact, in a matter of some number of years, the sum of the ongoing payments is many times over the sum you got for building the factory in the first place. If the principal is your deferred compensation, for building the factory, what is ll the rest of the money for?