All that really matters is whether that restaurant’s thirty jobs actually represent a net gain of thirty jobs in the local workforce after all is said and done. This is usually accepted uncritically, even by nonconservatives; but I consider it nonsense in local, service sector businesses that duplicate, and compete directly with, established ones. (Even a movie theatre in a town that didn’t have one may just reduce business at video stores, restaurants, etc.)
Sounds like a Sisyphian country whose main industry was making things, scrapping them, and making new replacements, over and over, would be an economic powerhouse. (Hint: the people who did well in your tunnel vision view only did so at the expense of others, spread out broadly enough that it is not easily apparent.)
Economic isn’t a zero-sum game, even in local service-sector businesses. There’s not a fixed pool of jobs or money that must be whacked up and reshuffled. Wealth can be increased, meaning more money to spend, not just a redirection of spending from one business to another.
Who? The bank’s new owner got a sign for as long as they needed it, as did the next owner. Who lost?
It is zero sum or close to it in some sectors (obviously not in mining, agriculture, manufacturing, among others). Reciting the CW mantra that it is not over and and over proves nothing.
No, this is not the case. What really matters is that the thirty jobs are the ones consumers in a functioning market want.
Suppose a town with only one restaurant, employing thirty people. Suppose it’s a Mexican restaurant. Now somebody else opens a second restaurant, also employing thirty people, but serving Italian food. The cooks and waiters and so forth in both restaurants are paid exactly the same, and overall both restaurants charge the same prices per meal.
The town can only support one restaurant. Most people decide they like Gino’s Italian Extravaganza better than they like Chico’s Tacos, so they spend their dining-out money at Gino’s, and Chico goes out of business. Before, the town employed thirty restaurant workers. After, it still employs thirty restaurant workers. However, the town is better off after than they were before. Because diners in the town have found that they like Italian more than Mexican, and they can get Italian food for the same cost as they used to pay for Mexican. They are getting more value for the same money, and are therefore better off.
It is important to note that restaurants can only stay in business so long as their customers value the food and service and ambience and so forth more than they value the money it takes to buy a meal in that restaurant. But that’s what makes capitalist economies succcessful - Joe has a widgit, Jane has a whatsit. Joe wants the whatsit more than his widgit, Jane wants the widgit more than her whatsit. They trade, **and both come out of the deal perceiving that they are better off **than they were without the deal. Both have something they wanted more than what they had. It’s that difference in perceived value that drives the whole system.
There’s not a fixed amount people spent in restaurants, meaning a fixed pie for every restaurant to fight over. As people get wealthier, they spend more money eating out. The pie of restaurant money grows, and grows, and grows. More and more restaurants spring up.
You mentioned entreprenuers “opening new car washes or nail salons when there were no long lines or dissatisfied customers at the near-identical, already extant versions down the street.” Why should demand for nice nails or a clean car remain fixed? As people get wealthier, those things go from luxuries to staples.
OK, if the contractor is the one who builds the factory and is therefore entitled to own the factory, why does the contractor need the owner in the first place?
It turns out in the real world that it is very rare for a contractor to build a generic factory, then look around for someone to sell the factory to. Factories are generally custom built for the particular set of products they are manufacturing.
So a contractor is only going to build a factory if they know that someone will want the exact factory they are building. One way this could happen is that the contractor asks all the companies if they need factories, and when one says yes they build the factory, and when the factory is completed they sell it to the company, the company moves in and starts production.
Notice that the contractor doesn’t end up owning the factory because he SOLD the factory. He can’t sell the factory and still own it, if he wants to own the factory he can’t sell it. He could take that factory and start producing widgets, and retain ownership. But the problem is that the contractor is generally an expert in building, not widget production. He’s better off sticking with what he knows–building–and letting someone else build the widgets. Yeah, he could hire a team of expert widgeteers and earn all the sweet free money as the owner of a widget factory that doesn’t have to know anything about widgets.
Except it is probably much better for the builder to sell the factory, and take the money and invest it in his own building company, the industry he is already an expert at. Even if he hires a bunch of contractors and gets free money as the owner of a contracting business, he’s still better off because he knows the contracting business.
Of course what usually happens is the widget maker hires a contractor to build the factory, rather than the contractor building it on spec and looking for a widget maker to sell it to. But both of these transactions are pretty much equivalent. The builder doesn’t end up owning the factory, the widget maker does, because the widget maker either hires a contractor to build it or buys it from a contractor.
The widget maker can only end up as the owner of the factory by buying the factory. Same as the carpenter can only end up as the owner of a power saw by buying a power saw, or hiring a machinist to make one for him. The factory or the saw have no value unless they are put to productive use by someone who knows how to use one. And the widget maker or carpenter provide, yes, the money for this to happen.
Providing the money isn’t some trivial step that can be dispensed with. Because the builder won’t build the factory unless he thinks he’s getting paid, right? Either in the form of cash today, or a future income stream from owning the factory.
Or take the case of the hired project manager. Why doesn’t she end up as owner of the factory? Well, maybe she would–if she also provided the capital. But she’s a hired hand who gets paid a salary to manage the project, she isn’t providing her personal money to fund the project.
As for why providing the money is important, suppose no one provides the money. The money is irrelevant pieces of paper, right? Why can’t the workers build the factory with no owners, since the workers do all the work?
OK, so the bulldozer drivers show up to clear the land. They need capital in the form of bulldozers and gasoline and plans and permits before they can start work, right? Maybe they have bulldozers already, maybe they have tankers full of gasoline already, maybe they have plans and permits already drawn up. Great! Then they can work without those filthy owners. Except they already have the capital they need. That makes THEM the filthy owners! They own their own business and provide their own capital. As was pointed out, there’s nothing to prevent owners from doing work in their own business, and for some businesses it is commonplace for the owner to physically do almost all the work themselves. And the work the owner doesn’t do, they contract with someone else to provide.
And then the cement trucks show up, and maybe the cement truck drivers own the cement trucks, and the cement plant. And the welders show up and the welders own their gas tanks, and they buy the steel bars themselves. And the electricians and plumbers show up, all bringing the wires and pipes and tools they need to fit everything. And the machinists show up, bringing machine tools and widget makers that they happen to own. And then factory workers show up, and start working producing widgets.
And all these workers already own, or somehow have, the capital tools and raw materials they need for their work, and don’t want to get paid for their work. And at the end of the project, a brand new factory exists, created with no owners, and the workers get the entire surplus value of the factory, not the owners.
Except in this case the workers ARE the owners, since at each step they had to provide the capital needed for the factory. That means they had to have saved capital already. It is true that a cement worker might already own a cement truck. But how did he get that cement truck? It didn’t fall out of the sky, he had to go to a cement truck manufacturer and buy it. Some workers had to make it, and then sell it. The steel bars have to be bought, and it is perfectly possible for the steel workers to buy the steel bars for the factory out of their savings. Except that’s what the useless capitalist would do. If the steel workers have the savings to buy the steel bars for the project that makes them useless capitalists. If they don’t have the saved capital to buy the steel bars, and the steel plant gives them the steel bars for free, that makes the steel plant workers the useless capitalists.
The confusion that the owner merely provides fictional money, while the workers do the work ignores the fact that money represents goods and services. Yes, it is a piece of paper, not actual work. But it represents an IOU for goods and services in the future, just like a free backrub coupon represents future work. If people are around to give you free backrubs then you don’t need a coupon. But suppose you want a backrub, and none of your buddies will give you a free backrub. How can you get a backrub? By cashing in your ticket. How did you get the ticket? Someone gave it to you. Why did they do that? Who knows? Maybe you gave them a free apple pie ticket. Maybe you gave them a free gallon of gas ticket. Maybe you gave them a free song ticket.
Well, a dollar is a free “X” ticket, that can be redeemed for anything. And you get them by performing work that people are willing to give dollars for. And yes, providing dollars is work that people are willing to give dollars for, see the discussion of banking earlier.
Without compensation either in the present or in the future, people won’t do the work you want them to. You have to pay them. Construction workers aren’t going to build a factory unless you pay them. Maybe they’ll take their payment in the form of part ownership of the factory once it’s complete. Maybe they’ll take their payment in the form of cash money today. Maybe they’ll take their payment in the form of not getting shot in the face by the overseer’s goons.
There are all sorts of ways to get the factory built. But all those ways require saved capital–that is, supplies of tools and raw materials. Those tools and supplies have to actually exist, but if they exist you can use money to purchase them, and use money to hire workers to operate them. If they don’t exist, you can use money to pay workers to create them, then pay the workers to operate them. Or maybe the workers will pay themselves. Worker-owner isn’t an exotic theoretical hybrid that only exists in Karl Marx’s fevered nightmares. The owner who literally sits on a beach all day and collects royalty checks while sipping a pina colada is actually a pretty rare specimen in the super-rich. Or they’re like my wife’s parents and, you know, retired after saving money after a lifetime of work.
The case for risk is an interesting one. There’s no doubt investors want a higher return, compared to a safe investment, if there’s risk.
So, for example, if I’m playing poker and I’m sure to win, I’ll keep putting in money no matter what. But if I’m drawing at a flush and the odds are 2:1 against, then I need to be able to make at least $2 for every dollar I put in. Or else it makes no sense to play.
You could talk about that as the rate of return, or the risk adjusted rate of return.
So, for an investor, what’s a reasonable risk-adjusted rate of return?
The answer, I think, is clear: there is none. Or to put it differently, the “reasonable” rate of return is whatever you can get. It’s the highest number out of the options available to you.
So, for example, if you can make +10% by doing nothing (holding cash), +3% by buying bonds, and -10% by building a factory, you’ll do nothing.
On the other hand, if you make -10% by holding cash, -7% by owning bonds, and -1% by building a factory, you’ll build a factory.
You’ll notice that the owner will build a factory even if he loses money on the deal, so long as it’s the best deal available to him.
That might seem unfair. But on the other hand, the world doesn’t owe anyone a living, just for being rich.
Something else about risk. Sometimes there’s risk, and part of the profit is really just payment for the risk. So, for example, if invest in a project with a 50% chance of paying off, and the return is 200% (meaning, if I win I triple my money) half of the return is just payment for the risk. But the other half is something else.
Suppose the Howells say “We own the arable land, so you have to pay us if you want to farm.” Or, “We own the fresh water, and you have to pay us if you want to drink.” Or, “We own the fish in the ocean, and you have to pay us if you want to try to catch them.”
Do the others get a say in the distribution of property in the first place? Or is the choice between working for the Howells or starving as much choice as they need?
Real-world investments however are not much like this. Most forms of investment have a varied rate of return and some degree of risk, or uncertainty.
And there is no single clear way to adjust/equalize for risk. For example, if I have a proposition and it has a 90% chance of doubling the value of your home, and 10% chance of making your home vanish (and your insurance will not cover this), we might say it’s rational to take this proposition because, on average, it’s worth +.9X. (where X is the value of your home).
But in reality, you may not be able to be able to risk such a large stake.
Why would Gilligan and the others agree to pretend that the Howells own everything on the island? Why not just ignore them?
As I’ve said many times, ownership of property is not a law of nature, it is a human method of social organization that is up to human beings to enforce. If people don’t want to pretend that the Howells own every coconut on the island they don’t have to.
The reason we agree to pretend that Bill Gates owns X% of Microsoft is that we believe that leads to a better result for all of us. We could just beat him to death with sticks and loot his house and everyone can carry away whatever they can carry. This sort of thing happened over and over throughout human history, and no gods or vengeful spirits arose to punish the looters/liberators.
Why, here in the United States in 1863 the president confiscated most of the wealth of the richest families in the land with the stroke of a pen, just because there was some disagreement over tariffs or some such.
So people get “their” “property” “taken” all the time. We just have to live with what happens when such takings happen so frequently that people stop trying to invest their money in productive enterprises and start burying gold in the backyard.
As an example, my Dad doesn’t work. He’s 74 years old and retired. Yet we still agree that he owns the house he lives in, even though he didn’t build the house with his hands. He still gets food, even though he never farms. He gets medical care, even though he’s never cured a single disease himself. He saved some money, but most of his income comes from Social Security. Why don’t the productive Workers haul his useless ass out into the streets and light him on fire for being a taker?
Bingo. It’s called the western industrialized democracies. And China, not quite a democracy, is in the game too. How many cars have you owned in your life?
If the ownership is a small burden – as it is in the U.S. – farms are privately owned, and we pay money to eat the food they produce – then, yeah, we pay or we starve.
If the ownership becomes a severe burden, we use eminent domain to seize the property, and operate it collectively. We have a public freeway system, for instance: many of our roads were once privately owned, but have been bought out and made public.
There are public and private beaches in California, but there are regulations regarding public access. Many private beaches are, by law, open to public access for purposes of swimming, surfing, and tanning, but not for construction or excavation. It’s a nice compromise.
To the extent to which laws that protect private property and owner rights to same, no, you do not have a say in what the Howells choose to do with their property as long as they are in compliance with established laws.
What is your objective in posing question you already know the answers to?
Except, as a practical matter, we do have a say in how the Howell’s use their land. If their land usage gets annoying enough, we form a government and democratically vote to enact a 100% tax on land, or declare eminent domain, and so on. Or we skip a step and form a mob, grab our torches and pitchforks, and drag the Howells to the Guillotine.
In other words, just because the Howells claim “Dibs on the air, jinx, no takebacks!” doesn’t mean the rest of us have to agree to pretend they own the air. There may be times when agreeing to pretend the Howells own the air leads to results that the rest of us think is beneficial. Enclosure of a commons is a valid response to the failure of commonly owned resource. Or maybe we’re on a space station, and the Howells have just arrived with a gigantic shipment of oxygen they mined from Vesta. If we just grin and declare thanks for the oxygen but nobody owns air so hand it over, how many future entrepreneurs are going to mine oxygen and try to sell it to us?
It is perfectly reasonable, here on Earth, to declare the air to be communally owned. But we also found some problems as people dumped all sorts of noxious chemicals into the commons. So we impose limits on the chemicals people are allowed to dump into or extract out of our commonly owned air. It turns out that the atmosphere is large enough–today in 2013–that treating the air as a regulated commons works out pretty well. Except for all the CO2 everyone is dumping. Ooops.
I would say, rather, that they’re building or creating something new, using tools owned by someone else. What the owner’s bringing to the table is permission.
As opposed to an intangible one? No. Many important and valuable things are intangible. But they weren’t made by owners - at least not in their role as owners. They were made by people doing work.
If profit is a tax (extraction) on work, and there’s no profit, there’s no tax (extraction).
A welder without a welding machine has no way to enrich himself. If he can’t or won’t buy his own gear in order to ply his trade, then he needs to find someone who owns capital. Which the welder can then use, risk-free, to make a profit for himself. Some other fool buys the expensive gear, and he gets paid even if that guy can’t sell enough of the welder’s output and goes broke.
Who’s exploiting who? Both parties are extracting what they need from the other, in order to profit.
They created it, or they got it from someone who did (won it in a poker game, inheritance). Creating capital takes an investment and labor, in some proportion. Neither part is more valuable or noble than the other.
How about you set yourself about creating those important and valuable things without capital. You’ll soon realize just how crucial it is. A car is made by the owners of the company just as much as it’s made by the line workers. Without either, the car doesn’t exist.
So if everything’s run at break-even or close to it, then you have no problem with the owners?
(Hint: the people who did well in your tunnel vision view only did so at the expense of others, spread out broadly enough that it is not easily apparent.)