Income from Capital

I wish to present a proposition for reasoned debate. I think conservatives should be able to agree on it, but I fear many here do not in their bones accept it. I think it is a key to our ideological conflicts and the political and economic diseases of our time.

It flows to its recipients because they entirely deserve it for the valuable service they have provided. Any attempt to outlaw it, redistribute it, destroy it, or legislate it out of existence or all recognition, is unjust on its face. It is economically beneficial, not destructive. Protecting and encouraging income from capital leads to additional capital formation and thereby enriches everyone, without exception.

I think that all liberal, western, modern societies can be held to this proposition as a standard of justice they recognize. Many modern ideologies do not, but the societies and their legal, public structure, do.

This is evidence that many modern ideologies are themselves unjust and are set on illegal courses. Communism was the paradigm case of this, but most other ideologies that have been in competition with it for the last 150 years have contracted portions of the disease.

I have a second proposition that is in practice more contentious, and that I believe properly separates right from left.

Income received simply as a result of government largesse awarded to a category from the public treasury, not for any services actually performed, is on its face unjust, and is economically wasteful.

After hearing responses to these claims, or comments on them, I have further points that I think follow from them but are not appreciated today.

It flows to its recipients because they entirely deserve it for the valuable service they have provided.

Several problems with your proposition:

1. Not all capital was originally acquired by providing valuable services. The families of the still wealthy aristocrats of Europe and Latin America originally acquired their capital generally by being more successful thugs than others. I'm not sure those are valuable services to society.

Simiarly, drug lords in Mexico, oligarchs in Russia (who essentially stole the country from positions of influence in the government) and organized crime guys in the US acquire capital and often pass it on to their descendants. Their services to society are mostly if not entirely negative.

Historically speaking, crony capitalism has been much more common than free market capitalism. Those who acquire capital this way aren't providing valuable services, at least that's not the main reason for their acquisition of capital.

Indeed, historically speaking the main way to acquire a lot of capital is to invade somebody and take their stuff.

2. Second, third and twelfth generation descendants of those who originally acquired the capital by providing valuable services enjoy the benefits of that capital without in most cases providing equivalent ongoing value to society. IOW, in my opinion those who earn money in legal ways have a moral right to its enjoyment while those who inherit that money from them have only a legal right, not a moral one. Or rather their right to it is not a moral one in the same way.

Thanks for posting an interesting proposition. As you can see, I don't think it holds true in all cases, but it obviously does in many.

The acquistion of capital in the distant past by means now covered by sacred prescription, is exactly what I am denying matters a tuppenny damn for the proposition I am propounding. Which is emphatically not "everyone with wealth deserves it" but "providing wealth to others for their use is, in itself, a productive service that deserves the payment it receives".

I don't care how you got $1000 dollars. You could burn it or eat it or hang it on your walls. If instead you lend it or invest it and earn an income by doing so, that income is rightfully yours for the useful service you have provided by not burning, eating, or hanging it on your walls, and instead lending it out or otherwise making it productive to the uses of other men.

When a socialist or a radical decides to arraign every owner of property before the bar of his private ideological requirements, and decides that no actually he isn't thoroughly Stalinist enough, or thoroughly libertarian enough, or holy enough - to me it makes not a damn bit of difference which piety is alleged, because its is a mere allegation and impudence regardless - and that therefore he doesn't deserve his property (or the income from it), and therefore it is just peachy to rob him - that is exactly what I am denying as the characteristic political evil of our time. On all sides.

Nobody needs an OK from you to own anything. If he owns it he owns it, its his, get your grubbing nose out. And if he then makes is available to productive uses, himself or by lending it out, he furthermore deserves the earnings his capital generates. And, to put it in a walnutshell, you don't.

Proposition - the income from capital is entirely legitimate. It flows to its recipients because they entirely deserve it for the valuable service they have provided. Any attempt to outlaw it, redistribute it, destroy it, or legislate it out of existence or all recognition, is unjust on its face. It is economically beneficial, not destructive. Protecting and encouraging income from capital leads to additional capital formation and thereby enriches everyone, without exception.

I was looking for the word "risk" but I didn't see it.

I guess you forgot the second part of the proposition.

You know..........the part that says income from capital is not guaranteed?

Right?

That's the bit that says when capital is provided unwisely to bad risks and the deal goes sour, you get no income and instead get to eat your losses.

Risk.........reward........two different sides of the same coin.

Right?

If we're going to preach about the horrors of redistributing income from capital then we ought to include doing the same with losses incurred by the same process, I believe. You wouldn't want to give the impression that this is some sort of hymn to the infallibility and impeccability to those who provide capital, would you?

Good. Now as the scholastics said, reason with me.

The income from capital is legitimate. The income from mere government handout dicated by some political fiat in general is not, and is certainly nothing like as legitimate as the income from capital. Check, props 1 and 2 already agreed.

Next notice that when a man receives a check from the US treasury in payment of interest on a government bond, he is receiving a legitimate income from a capital that he provided.

Next notice that when a man receives a check from the US treasury in payment of nothing in particular, as a middle class entitlement, he isn't.

Why is it then, that everyone on the planet appears to view the former as a "waste", we "got nothing for it", while the second is just peachy, the birthright of all Americans if not all modern citizens of the entire "welfare state" west?

Not to put too fine a point on it, by why is a social security check a sacred obligation, but interest on the national debt a horrible waste of resources? The second is superior to the former in law, in policy, and we've just agreed, in moral principle. (It is also cheaper, but that is another matter).

Yes? Are we still on the same page or not?

No, payment for risk is separate from the income from capital, simply. If capital has been risked, then an additional income is necessary to defray that risk, or to amortize expected losses over all risky investments. But an income remains besides, which is the return on capital itself. Similarly, the return *of* the capital - whether as repayment or as depreciation gradually - is separately owed and is not an income from capital.

If corporate bonds typically default 1% of their principle value every year and lose half of that amount after all recoveries, then the risk payment is 0.5% per year - that suffices to amortize the experienced losses. We say it is the true insurance cost of the risk.

In addition to return of capital, and insurance cost or risk amortization, and also the true interest on capital I am saying it legitimate, there is another kind of reward often earned by some investments of capital. That is entrepenurial profit, from choosing a form of investment superior to the average use of capital. That isn't mere interest from capital either, though it is part of the earnings from capital and I claim a legitimate part of it.

But it is not required for the income from capital to be legitimate. Even a form of providing capital to others that earns no extra enterpenurial profit, and may not even take the risks associated with that; and even providing capital in ways that do not involve any risk to speak of, still deserve what they earn.

Distinguish the propositions, just to be clear about them - not saying this is the position you are taking. Some man might say it is only legitimate to earn any interest at all if you are at risk of losing everything and sometimes do, and might even say that the amount of the interest is only legitimate if the average losses in the long run equal the interest paid - he would be allowing the legitimacy of *insurance cost* but specifically denying the legitimacy of interest, or of income from capital simple *as such*.

And the full legitimacy of income from capital simply as such, is what I am maintaining. I claim that men do not need to run elaborate risks, nor to be right about entrepenurial profit opportunities no one else sees, to deserve an income for providing their capital to others for productive uses. I claim that simply providing that capital to others is itself a worthwhile service that deserves its income, even if all the other factors are completely lacking.

At what point do you consider unjustly acquired wealth to have acquired this invulerable patina of sacred prescription? You do agree it is possible to acquire wealth in an unjust and immoral way, I assume?

I’m curious because some recent lawsuits have resulted in recoveries by descendants of Jews robbed before and during WWII. That’s a good 60 to 70 years ago.

So apparently the present owners of those properties were not covered by your right of sacred prescription.

OTOH, if you extent property rights back far enough just about all real property was stolen from somebody and the present title is therefore invalid. Heck, this would mean American blacks are owed reparations for the undeniable crimes committed against the property rights of their ancestors.

I’m not trying to be snide, although I admit it’s a challenge. :) Some line must obviously be drawn where property rights vest in the possessor. Drawn too soon it results in criminals grabbing property and then claiming they have every right to it. Drawn too late innocent heirs suffer. Where do you think the line should be drawn and why?

Yes, you are trying to be snide, and you are a commie radical good fer nothing. But I can answer regardless. Illegal acts, which are not the acts your ideology doesn't approve of nor the things you decide you didn't like 70 years later, but acts illegal at the time, are covered by the perpetrator of the act himself being involved in them. Anyone who isn't, has no part in that fault, which attaches to a human individual and not to wealth or any other material object. A man entirely innocent of any illegal act himself, who owns property he acquired without doing anything wrong, cannot be deprived of it based on allegations about misdeeds of others. If the others are still around, fine go after them. If they are dust, then your cause is gone with them. That is what "prescription" means. It means a man innocent of wrong himself cannot be punished for the alleged misdeeds of his ancestors.

And yes, that means modern Stalinish witch hunts by ambulance chasing lawyers are theft. Every bit as bad as the original acts they pretend to be so hot and bothered about. No, they aren't made any more excusable by the innocent men they attack, being in different demographic groups than those they claim to speak for.

In a walnutshell, the sort of men suing for Holocaust reparations would have been the first to burn the Jews themselves for a few gold fillings, and are pond scum.

We agreed then on social security being boondoggle and waste compared to payment on public debt.

Is the existence of public debt ruinous? Is debt of any kind a mortal sin? Is it, at least, pragmatically speaking the end of the republic and the American way and all things right and true? Should all debts we defaulted on in principle to, I don't know, make capital cheaper in the fevored dreams of some populist idiot or other?

Or is the income from capital, including income from the servicing of public debts, entirely legitimate and entirely earned by the beneficiary, in a way few other public payments are or can be? Surely, for direct services, say blood sweat and tears of a Marine, that is also entirely legitimate and worth every penny. But 2/3 to 3/4 of all government spending is of quite a different moral character, and paying the debt stands morally and economically higher than all that portion. Yes?

I claim that simply providing that capital to others is itself a worthwhile service that deserves its income, even if all the other factors are completely lacking.

"Deserves"?

Perhaps a better word might be "entitled"? Is this some sort of financial "entitlement" mentality? Socialism for the providers of capital?

Your first two or three paragraphs were irrelevant to the point I was making. I'm well aware that expected risk is factored into financial transactions. My point was that when the models and the algorithms fail (as they sometimes do) resulting in income imploding and losses skyrocketing that should also be a part of your "proposition" but one which I didn't see mentioned.

I consider my own profession to be a "worthwhile service" to use your phrase. However, someone could invent something tomorrow which renders my service redundant and I'd be looking for a job. That's a "risk" I have to live with but it doesn't mean I deserve something if that "risk" becomes a reality.

Also, he hasn't and isn't going to, but I answered the question of principle before the snide slander.

And what is the snide slander doing in the thread, mucking up the principle of income from capital?

I'll tell everyone. Heresies about income from capital that amount to attempting to criminalize finance and indict modern American capitalism, as reckless and unsubstantiated as anything the commies engaged in and Mises fought so hard against, are rampant among pretend conservatives today, including on this site.

Which is why it is essential to get the underlying principle rock solid first. Men who provide capital to others deserve the income they derive from it. Full stop.

We are discussing a moral principle and a matter of right, so yes we are talking about what men are entitled to. Men sometimes allege that interest is illegitimate, "unearned", and undeserved, and use this allegation to justify various forms of robbery directed at the rich or at all providers of capital, rich or not. And I am claim everyone engaged in that is a crook and a thief and pond scum, and no decent man should give them or their allegations the time of day.

Next I have to address the question whether there is a right to rob everyone who provides capital to another simply because he has done so. I claim there is not, in law or in equity. And I claim that you are pretending there is and don't have a leg to stand on.

One man lends capital to second, hoping to earn a profit on his capital. The second laughs and runs away with the money. I claim the second is a thief, has robbed the first, owes him what he took plus the interest agreed and probably damages as well. You claim the first "took a risk" and oops it "didn't work out" so he's just out of luck. In other words, you are proclaiming a right to rob anyone of capital provided to anyone else. And there simply is no such right. It is merely another attempt by populist deadbeats everywhere to justify their rapacious fraud against their creditors.

I can agree it is a rule of prudence to be careful about whom one lends to, and anyone may get "took" by thieves. But that isn't a defense of thievery or a denial of the rights of men robbed in that manner. It is merely a piece of street wisdom about where not to go in order to avoid getting mugged - not the legalization of mugging.

You on the other hand appear to be stumping for the legalization of mugging. Sorry, no, can't have that.

We can talk about prudence and policy about such theft when it does occur, endlessly, no problem. But first we have to be entirely clear that it is theft. Taking your creditors capital and walking away with it is not the creditor's fault for running the risk and his just deserts for being so gullible. It is just theft, and nothing can justify it, in law or equity or economics.

By your standard, to be a tad hyperbolic, if a guy robs a bank and then dies in a shootout with the cops while in possession of the loot, his heirs and assigns have an unquestionable moral right to the possession of that loot and any income they derive from using it as capital.

You know, you come across as a bit of a nut. You make some good points, but if you were less free about calling others commies your points might get more respect.

When you start calling others names rather than showing logically why they are wrong, you weaken your own case more than that of your opponent.

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