The highlighted section is exactly why I started this thread.
The very common misconception on this message board is that some other people are entitled to the winnings (either legally or morally).
The reason I am so strongly trying to push this topic is that each of the players in the casino situation get paid regardless of the outcome. That means they have zero risk as it pertains to the bet (investment). But the gambler stands to lose his capital. He is the one taking the risk, regardless of how rich or poor he is.
Yes, one person might trip, one person might risk his reputation, and one person might be out of a job. But all that is completely unrelated to the risk as it pertains to the bet. Win or lose those factors exists. But more importantly, they all get paid regardless of the outcome of the bet.
Consider going into a casino and betting on a coin toss (with 2:1 payout):
One person bets $200 on heads,
The other bets $100 on heads and $100 on tails.
Who has taken more risk? (if it helps assume they are both sad and pathetic billionaires)
A 30 year old waster inherits a restaurant from a relative he barely knows.
He runs the business for 3 years, paying himself an exorbitant salary, so much in fact, that the restaurant goes bankrupt.
The chef, waitress, dishwasher all lose their jobs. None of the three can find a new job, as the economy sucks. Over the next year, all are forced to either downsize their residence or become homeless.
The restaurant owner still owns the premises, he sells it to the business next door, and lives for 20 years off the money from the sale.
In this case, the owner has risked nothing.
Your case is clearly designed solely to fit your purpose. We can all come up with scenarios that fit the agenda we want to push.
The simple fact is, most businesses are not run by an owner who mortgaged their house to start it.
Your scenarios are too simplistic.
Okay, so did the dishwasher move from another state to work at your restaurant because you said it has a good chance of becoming a franchise? It cost the dishwasher the family savings to move.
Your scenario is the same as mine in the OP, and I’ve answered these points for you several times. I’ll do it again now.
It doesn’t matter where he gets the capital from. It is now his restaurant (investment capital) and his to risk. You simply skipped the part in the OP where the guy has to buy the restaurant.
Notice how nothing changes if if the 30 year old waster(sic) inherited $10,000 and bought a restaurant, or simply inherited it direction. What you’ve done is try to diminish the investors capital, suggest that because he doesn’t deserve it he shouldn’t get the rewards.
The simple fact of the matter is that this new capital is his and his alone to do with as he pleases.
You’ve confused two concepts here: he is going to be paid from the profits, that is, after all the costs are paid out (salary, food, rent, utilities, marketing). If he was getting and exorbitant salary the restaurant was doing very well (generating enough revenue to cover all those costs).
Secondly, it his his capital and his to lose. If he wants to run it into the ground that’s his choice. But here is what’s missing from your evaluation: he only gets that exorbitant salary for 3 years.
The best example is to compare a pro football player to a lowly public school teacher. Most think wow, the football player makes so much money. But in reality he gets maybe 3 years before he’s injured, the teacher has 30 years of earning potential.
Point being, this waster(sic) could choose to milk the investment for a quick profit, or could reinvest his capital for a longer reward.
No, all gained employment as the result of this restaurant. They didn’t have a job to lose, I already addressed this point. At the end of the three years each are richer as a result of the money they earned.
The risk you are describing has NOTHING do with investment risk. Those three people each took a risk when they went into those chosen careers–that has nothing to do with the 30-year old waster(sic), and everything to do with the industry. The investor isn’t there to give people jobs.
Most importantly, tell me: what is stopping the chef/waitress/dishwasher from opening their own restaurant? Think about your answer to that.
Also notice you made the industry go into the tank–that’s real risk. You seem to suggest the 30-year old waster(sic) should have continued trying to run the restaurant despite a failing economy and fewer sales. You are implying that the owner should have taken a loss (and not get paid) so that a few sad souls can earn a living.
Irrelevant. What you witnessed was the 30-year old waster(sic) inheriting a lot of money and living off it. Where it came from doesn’t matter.
Would he have been a bad person if he sold it right away? The owner died, everyone was out of a job. Our hero ran the place for another 3 years, so the employees got another 3 years of employment and salary. Oops, did I say hero, I meant evil capitalist.
He could have sold the business in right away, or he could simply let it run for 20 years and pay himself dividends. It is still his money to lose, hence it is his risk, and his profits to waste. No one else, no matter how sad, deserves anything as a result other than their agreed upon salary.
Wrong, he risked all the money he inherited. It was his. If I give you $100, that’s yours. If you turn around and gamble with it, you still risk losing it. What you are trying to do is suggest that some how this guy doesn’t deserve the money in the first place. If that’s your argument than change the inheritance laws.
As you can see you’re wrong. The scenario doesn’t matter, the dice have no memory.
So? Why does that matter so much to you? For the few businesses that are like that, does that make their profit/loss any different?
I don’t think your example works very well, because none of the 3 people helping provide much value added. If the number picker has some psychic ability which increases they payoff beyond what is expected by chance, then she deserves some of the reward, since if she splits the gambler’s winnings get decreased. It would be nice to cut everyone else in, but I don’t think there is the same moral or practical imperative.
That’s precisely my point in the OP. Each person that adds value is paid in accordance with that value. The investor/gambler is thus the only one that stand to lose or gain capital.
I broke it down into four key players:
Investor with the capital
Person with skill
Commissioned salesforce
General labour.
So the gambling scenario works just as well as the restaurant, or or a widget factory.
The investor risks her capital by placing a bet. The skilled tradesmen risks her reputation. The commissioned salesman risks the money he could have made selling something else. The general labourer risks nothing.
Consider if the bet wins:
Investor sees a return on his investment and is now richer.
Skilled tradesman has increased his net worth, he can now demand more compensation.
Commissioned salesman is paid based on the number of bets, she made her money but is now better off because the gambler can bet again if he so chooses.
General labourer earned his income.
Consider if the bet fails:
Investor loses his capital. It is gone. Regardless of how much he started with, he now has less. He put it at risk, and now it’s gone.
Skilled tradesman has decreased his net worth. He risked his reputation and now it’s tarnished.
Commissioned salesman is paid based on the number of bets, she made her money but that’s it.
General labourer earned his income.
Take a look at #4. He risked nothing, but gained in both cases.
A capitalist faced with a variety of investment choices, each with a different payout schedule, will use Kelly’s Criterion to maximize (the logarithm of) his future capital. You either know that or you don’t. I don’t choose to debate which of us it is that truly does not understand Kelly’s Criterion.
I view this thread as a disparate group of unrelated debates. I’ve not tried to determine whether the strange comments coming from right-wingers are directed at actual posters here, or at strawmen; they certainly aren’t directed at any position I’ve taken here.
As to OP itself, it seems to be an bizarrely verbose version of Resolved: the investor who risks capital is the investor who risks capital.
You’ll have to pardon me if I’ve not actively participated in that “debate.”
It seems you decry those that disagree with you as “right-wingers.” This thread isn’t about right or left.
Keep going…
Resolved: the investor who risks capital is the investor who risks LOSING capital and is the one who stands to gain from that risk.
The dishwasher didn’t risk capital, doesn’t risk losing capital, and thus has no claim to the profits, and no responsibility for the losses.
The strawman I am trying to turn is the notion that the dishwasher (general labour) deserves some of those profits. It popped up in the labour/power debate, and in the union busting pit thread. It was mentioned several times in this thread: the owner has a moral imperative to share his wealth.
No, but you actively shit on it. And for that we thank you.
The owner certainly has a moral imperative not to screw over his employees, not to negotiate in bad faith, not to pocket tips intended for the servers (as does occur), not to create a hostile working environment, not to treat his employees like his property and generally not to be a jerk. Profit sharing is an entirely separate issue.
If I might add, the employees a moral imperative not to screw over their boss, not to negotiate in bad faith, not to pocket tips intended for the back of the house (as does occur), not to create a hostile working environment, not to treat the owner like uncle money-bags and generally not to be a jerk.
“The question is how much of the profits from the enterprise should go to the dishwasher/waittress/chef in the form of compensation for their time and how much should go to the shareholder in the form of risk adjusted return on capital.”
The answer is none, flat out, zilch. The employees are paid from the revenue, and are compensated for their time and efforts. As I said several times, they get paid independently of profits. That means, if the business is a success they get paid, if it is a failure they get paid (assuming enough solvency to pay debts).
One more time for those at home:
Profit = revenue - costs
Employee salaries are part of the costs, just like gas and supplies. They get paid, and then the investors get what ever is left.
Some people are paid hourly, some as a function of sales. The investor is paid from the profits.
No, you hadn’t answered those points yet. You also avoided some other questions I asked.
Anyway, I’m done with this thread. The issues I had you won’t address, you keep saying that labour doesn’t have a right to a share of the profits (I agree), and you say that that is a universally accepted fact, set in stone (I disagree).
What colour is the sky in your world? Her job is entirely reliant on the restaurant not the state of the industry. And your saying the reverse does not change that fact.
What was she [the dishwasher] doing before that restaurant opened? What would she have done had it never opened?
ETA In the OP, the dishwasher represents unskilled labour. Not unwanted, or undesired or unvalued, simply unskilled labour. That means the job of Dishwasher is a commodity; more restaurants mean more jobs means higher wages. Fewer restaurants mean fewer jobs meaning lower wages. If there is suddenly a flood of unskilled labour into an area (ie illegal immigration or another industry closing) that means fewer jobs and lower salary. If another industry opens that needs Dishwahser, there will be higher demand and higher wages.
Her job is entirely reliant on that restaurant? Seriously?
You’re saying that while the concept of that restaurant was just a twinkle in someone’s eye or just toyed around as scribbled notes on a napkin, that dishwasher has no job? That dishwasher is sleeping under bridges and destitute? Only when the restaurant goes from concept to opening day does that dishwasher actually finally have a job? Is that right?
And, if that restaurant closes down, the dishwasher is again homeless under the bridge sharing scraps with stray dogs? Is that right?
I think you just insulted all dishwashers everywhere.
At the *risk *of being acused of dodging questions:
By “everything,” what I mean is that they lose all of what they put in. When you buy $1000 worth of Apple stock and the business goes under, you lose all of that $1000.
When an owner invests his/her own capital in a business, he/she risks losing all of it [the capital].
That capital may be everything they have, it may be pocket change that they feel like playing with. What ever they invest, they stand to lose.
No, I don’t. Why? Because the employee presumably didn’t have a job before hand. But after a year they will earn income. What they choose to do with that income is up to them, but at the end of the year they are richer as a result. Employees are paid from the revenue, the owner is paid from the profits. If the business fails to make a profit, the employees will get paid but the owner won’t.
It is true that they will lost THAT job, but it is not THEIR job. They don’t own it, it doesn’t belong to them. The owner was willing to pay them for their services. He is under no obligation beyond that.
Wrong, the employees gain as a result of the investment made. They earn a salary, money they wouldn’t have had otherwise. They get to win regardless of the outcome.
Yes it will suck when the restaurant closes, who it hurts more isn’t entirely relevant. The point of capital investments is that the person putting the money at risk stands to lose that money. The employee without risk will earn an income regardless.
Again proving the point that their employment is not based on the restaurant but on the health of the industry they are in.
Actually, what I was doing was seperating definitions [1] and [2] with from [4].
In [4] the owner puts up capital that he risks losing, but also stands to gain from. Too many people on this board in this thread think that [1] and [2] entitle someone to the profits from [4].
The personal back story of the players involved are as irrelevant to this debate as they are in a casino. You don’t get better cards just because you really really need it.
I think this discussion isn’t going to get resolved because of your taking the pure, clinical business view (employees are just cost, something to be minimized). Just think how much money an entrepreneur could make if only he didn’t have to spend any money on pesty labor. Wow. And that’s the problem. Since you’re going to look at a dishwasher like he was a chair, he will become depersonalized. We are talking about human beings, whose lives become intertwined with the enterprise. I thought we were past the era of Ebenezer Scrooge.
Ok, thanks for going back through the thread and answering those.
This is the main question I was thinking of though.
I know they risk the same amount of money, but I can’t see why you won’t differentiate between 100% of someone’s capital and a negligible amount. At least admit that on a personal level, their risks are not equivalent. Because that’s all we’ve been saying. Obviously, the amounts invested are the same.
A thought experiment: a union of all “workers” is created. En masse, they will no longer accept a pure wage, but demand profit sharing as well. Do you believe entrepreneurship would disappear? Do you really believe that all potential businessmen would say, I’m not sharing, I either get to keep it all, or I’m not playing. I don’t believe that would happen for one minute. Entrepreneurship would carry on.