There is no such thing as unearned income

[Kulindahr]

Members are not required to advocate the same position from thread to thread. Each discussion stands on its own. Attempting to argue the opposing viewpoint can also provide beneficial insight.

Exactly -- members are not required to always state their own opinions on a topic.

 

[Benvolio]

Operating a business involves labor by the person(s) doing the operating, which by most definitions is a source of earned income.

Yes, but part of the profit is a return on invested capital.

 

[xbuzzerx]

Pointing out the inconsistency may assist the individual and others to clarify or alter one of the positions, arriving at a more valid and thoughtful position.

Then again perhaps the appearance of inconsistency reflects complex thought and looking at a specific topic within its specific circumstances instead of merely repeating the same one line on every topic.

 

[Kulindahr]

Anyone who saves money to start a business, employ others and make a profit is necessarily receiving money he did not earn, and yes, he is profiting from the work of others. But the alternative is government ownership, and then the bureaucrats live off the labor of others.

False dichotomy.

 

[opinterph]

Pointing out the inconsistency may assist the individual and others to clarify or alter one of the positions, arriving at a more valid and thoughtful position.

And it is hijacking the discussion toward the person, rather than discussing the topic they have presented for consideration. We should assume that the individual and others are cognizant enough to form their own conclusions through the process of discussing the topic.

 

[Kulindahr]

Pointing out the inconsistency may assist the individual and others to clarify or alter one of the positions, arriving at a more valid and thoughtful position.

Yes -- but Jack didn't do that; he just threw labels around.

Here's how you "point out an inconsistency":

Wealth is created by someone's effort, but it may also be created by someone's non-effort. In other words, it may be created by the use of someone's capital by someone else. If you tend a garden and grow vegetables and package them for sale, you've made an effort that creates tradable wealth. If you can't get the vegetables to market, I own a wheelbarrow you can use, without which that wealth would be lost. Or diminished, based on the limit of what you can carry. I've done nothing except own the wheelbarrow, yet its existence makes the market function better so that wealth is conserved, distributed more equitably and thus more profitably. (Without it your immediate neighbours would tire of buying your vegetables, they'd pile up, and your distant neighbours would scrimp with a few old carrots.) Thus the wheel barrow is as much a real input to procure our wealth as is your labour in the garden.

This doesn't change your equation; someone's mental effort a long time ago to design the wheelbarrow, and their one-time effort in making it, has created a device that pays continuing dividends to the gardener. But it is necessary to point out that wealth can take the form of something other than labour, and it can be owned by someone other than the person doing the labour. And also to emphasize the concept of capital assets being contributors to wealth.

Beyond just labour and capital assets, markets are contributors to wealth, because they enable the efficient exchange of things you have but don't want for things you don't have but want.

A market is also the creation of someone's effort: primarily that of Adam Smith, and the other thinkers, philosophers, economists, and merchants of the Enlightenment. The idea of the open market continues to pay dividends and create, preserve and distribute wealth in a way which power our prosperity to this very day. Smith or his direct heirs see no special benefit from this brilliant idea; in polite company it was bequeathed to us all, or at least stolen by us all for our own benefit with no commission going to Smith.

Or was it? With just an idea, nothing would have happened and Smith would be forgotten. But with all of us bringing that idea to life, Smith's idea gained value. This it is our efforts that bring the idea of the open market to life, and from which we are justly entitled to a benefit.

Incidentally, people buying stock enable production. If I buy stock in a new company making harvesting equipment in a new factory, you would be well pleased by the toil saved and motivated to trade with me for the tools. If some speculative investor comes along and offers me double what I put into it, he also enables production. At first, to justify his purchase costs, he ups the cost of equipment and creates a hardship for your farm and forces you to charge more for your vegetables, which displeases you and your customers. But then I've doubled my money, and I invest in a supermarket and a paving company and soon your vegetables are selling so fast you're looking to plant more fields. By now the cost of equipment is in perspective again, and we're all making so much money that we can hire truly obscure pointless positions like "marketing researchers" and "lifestyle analysts" and "professors of agronomy."

Except they're able to tell us that artichokes grow just as well as onions and there is enough demand for me to convert half my shelf space from onions to artichokes, and their abstract and intangible efforts, and the investor's money, and Adam Smith have all given us more wealth.

But there is one other precondition for the open market to work: a stable society. We all inherit a share in that society by the act of being born. And to the extent that we contribute as members of society, we are justly entitled to a dividend from its wealth, just as surely as I am entitled to a return on my wheel barrow when you use it to take the onions to market. That is the basis for our just use of social amenities; public education, public health care, public lots of stuff: we own the wealth that arises from our being born into a stable society. It is our own wealth that pays for this stuff.

Just a few points:

1. Did you actually mean to equate labor and wealth?
2. This seems to indicate it all comes back to labor.
3. It's plain that any purchase of stock in an initial offering serves to enable the creation of wealth, but I don't see that any later purchaser has done so -- the company already has its capital, and it gets nothing from the new purchase of stock someone else already owns.
4. I think this follows from both my original premise and your argument. I've seen it called synergy, the sort of intangible result of us all working together, income for which doesn't come to us but accrues to the providers of capital, not due to any effort of theirs but just because that's how the system is structured.

BTW, speaking of "a dividend from its wealth" points to the reason Benvolio's claim is a false dichotomy.

 

[bankside]

That's true, but at the same time, extra goods were not created "in case you came into the store with your gift card." If you do not redeem the gift card, it was simply a transfer of money to the corporation for which they did not need to part with any labor or goods.

Meh. I can't get too worked up about it. If I tip 20% or 30% at a restaurant, it's hard to say I've followed a precisely calibrated rational cost-benefit analysis that recognises the exact value of services received. Maybe the service wasn't really so spectacular that 30% was truly earned and I left an extra 10% on the table for no reason.

Interesting note, in Alberta it is illegal for gift cards to expire. You can grab one from 2005 and still use it.

 

[xbuzzerx]

Meh. I can't get too worked up about it. If I tip 20% or 30% at a restaurant, it's hard to say I've followed a precisely calibrated rational cost-benefit analysis that recognises the exact value of services received. Maybe the service wasn't really so spectacular that 30% was truly earned and I left an extra 10% on the table for no reason.

Interesting note, in Alberta it is illegal for gift cards to expire. You can grab one from 2005 and still use it.

My point is, if a given corporation's stock increases by x% each year from the revenue of unredeemed gift cards, however small that increase might be, is that not unearned income?

 

[Kulindahr]

Then again perhaps the appearance of inconsistency reflects complex thought and looking at a specific topic within its specific circumstances instead of merely repeating the same one line on every topic.

Stop that -- you might make people think!

Actually, if one wished to wade through my posting history, I think it would become evident that when I start a thread with a strongly-stated position and then say "Discuss", there's no way to tell if it's my opinion or not. At the same time, I've found that it has a tendency to point out which other posters are bothering to think.

 

[Kulindahr]

My point is, if a given corporation's stock increases by x% each year from the revenue of unredeemed gift cards, however small that increase might be, is that not unearned income?

By definition, yes. It could be argued, though, that so is an "extra" tip -- though in the case of the tip, at least it was a reward for labor.

 

[Benvolio]

False dichotomy.

No, any privately owned business with emploees will involve some element of return on capital. The alternative is government ownership.

 

[cgymike]

If a bank robber successfully robs a Bank Of America branch then is that considered unearned income? In short, is their a legal aspect to the definition? Looking in IRS code, their could be an unearned aspect to illegally obtained income. I give this example because it is unquestionably in the illegal arena as opposed to "profits from a marijuana dispensary" which is sometimes "grey income".

 

[Kulindahr]

No, any privately owned business with emploees will involve some element of return on capital. The alternative is government ownership.

A government decides a certain business -- let's say, one lifting passengers into orbit to a space station -- needs to exist. They vote money to get such a company established, and lo! it succeeds.

Are you claiming that because government is involved, there's no return on capital?

 

[Kulindahr]

If a bank robber successfully robs a Bank Of America branch then is that considered unearned income? In short, is their a legal aspect to the definition? Looking in IRS code, their could be an unearned aspect to illegally obtained income. I give this example because it is unquestionably in the illegal arena as opposed to "profits from a marijuana dispensary" which is sometimes "grey income".

LOL

Well, the robber certainly engaged in labor to obtain the money!

And the IRS does in fact require you to report all income -- whether the source is legal or not.


edit: you do actually raise a serious issue. There's a fine line between what we consider criminal income and what we consider legal income, and that line is set not by the people, or by rational effort, but by those in power. The location of that line is thus suspect.

 

[bankside]

Yes -- but Jack didn't do that; he just threw labels around.

Here's how you "point out an inconsistency":



Just a few points:

1. Did you actually mean to equate labor and wealth?
Sure. Wealth = effort = labour. I don't think I disagree with your equation. To me, effort and labour are synonyms. I just wanted to point out that labour can be embodied in an object or asset or even in a concept. It is insufficient to define labour as "someone in the act of doing something at the moment."
2. This seems to indicate it all comes back to labor.
3. It's plain that any purchase of stock in an initial offering serves to enable the creation of wealth, but I don't see that any later purchaser has done so -- the company already has its capital, and it gets nothing from the new purchase of stock someone else already owns.
Allocating capital efficiently is necessary to stockpile more wealth. If I make something, I should be able to sell it. But if I buy something I should be able to sell it too. I might double my money. This could be due to inflation, or it could be that the reason I bought it is because I had a better idea of what to do with it than the original owner. If I can put an asset to better use, I've done a good thing for the economy and our mutual prosperity. The wheelbarrow might better be used to dump concrete down the holes of footings for a greenhouse than in carting vegetables to market. I'd buy the wheelbarrow knowing that, knock the dirt off, sell it at a profit, and thus the wheelbarrow would end up performing a better function in the economy. My profit is based on the skill of realizing it should really be in the hands of the builder instead of the farmer, and the effort of making it happen.
4. I think this follows from both my original premise and your argument. I've seen it called synergy, the sort of intangible result of us all working together, income for which doesn't come to us but accrues to the providers of capital, not due to any effort of theirs but just because that's how the system is structured.
To me this is just a question of distribution. In my mind it is clear to me that there are social goods to which we are all entitled. And we are entitled to a dividend from them. English contract law prevents the kind of chaos that comes from having to bribe officials for permission to do business in other countries. We've both inherited this historical reality in our current institutions, as have a handful of other countries around the world. We live in places with public sanitation and methods of dealing with sewage that prevent outbreaks of cholera. We were born to those advantages, both of us largely maintain that status quo and benefit from it, and more to the point, we can't contract to buy the advantage from the other. We have a permanent share, that we can't sell, and which pays dividends. What is often in question is what the payout rate of the dividend should be, or the labour rate required to prevent it from depreciating. If a wave of cholera was sweeping across the continent, and every adult was legally obliged to go spend a day digging a sewage ditch and monitoring the quarantine posts, the payoff for that obligation would be obvious when our frontier hygiene system stopped the advance of the disease. But it would quickly evolve into a modern economy. Someone with a bad back would skip the digging in exchange for the obligation of making sandwiches for the excavators. Someone making the shovels would be exempted but would have to provide some shovels at cost in exchange for getting out of digging duties. Eventually people would see the sense of having someone else stay out of the ditches to coordinate the whole thing. Now we have specialisation and trade.
BTW, speaking of "a dividend from its wealth" points to the reason Benvolio's claim is a false dichotomy.

My thoughts are above.

 

[cgymike]

2^Yep...US Treasury wants their "cut"...especially these days......

IRS "accepting payments" through the shutdown...
LOL

 

[Kulindahr]

3. It's plain that any purchase of stock in an initial offering serves to enable the creation of wealth, but I don't see that any later purchaser has done so -- the company already has its capital, and it gets nothing from the new purchase of stock someone else already owns.
Allocating capital efficiently is necessary to stockpile more wealth. If I make something, I should be able to sell it. But if I buy something I should be able to sell it too. I might double my money. This could be due to inflation, or it could be that the reason I bought it is because I had a better idea of what to do with it than the original owner. If I can put an asset to better use, I've done a good thing for the economy and our mutual prosperity. The wheelbarrow might better be used to dump concrete down the holes of footings for a greenhouse than in carting vegetables to market. I'd buy the wheelbarrow knowing that, knock the dirt off, sell it at a profit, and thus the wheelbarrow would end up performing a better function in the economy. My profit is based on the skill of realizing it should really be in the hands of the builder instead of the farmer, and the effort of making it happen.

My thoughts are above.

In that idealized version, I see your point. But by far most trading in stock has nothing to do with that sort of thing. I think you're falling into the same fallacy Friedman did, extending the small to the large and assuming the parameters don't change. A free market of shopkeepers is not the same as a capitalist market, and a purchase of a wheelbarrow is not the same as a purchase of stock.

 

[xbuzzerx]

I do find it interesting (this is a bit of an aside) that people tend to denounce the concept of unearned income when, in almost any office or workplace discussion of "free/liquid money", you'll hear people use the same phrase... something along the lines of "you have to make that money work for you." And it's quite accurate, because when I put money into a 12 month CD, I'm not doing a single thing to earn any of the profit generated off it... other than the fact that I had the money and the leisure to place it somewhere.

 

[Kulindahr]

1. Did you actually mean to equate labor and wealth?
Sure. Wealth = effort = labour. I don't think I disagree with your equation. To me, effort and labour are synonyms. I just wanted to point out that labour can be embodied in an object or asset or even in a concept. It is insufficient to define labour as "someone in the act of doing something at the moment."

My thoughts are above.

I can see the extension of the definition of labor, but I don't see equating it with wealth. OTOH, it's been said that the actual unit of currency in the western world these days is the minimum wage, and dollars are just expressions of that unit of labor-value.

 

[bankside]

Well, I'd not lose sight of the ideal as we consider the reality. And I do not think the scale really changes anything. I hang a fair bit of my analysis and my goals for society on this part:

What is often in question is what the payout rate of the dividend should be, or the labour rate required to prevent it from depreciating.

I think our societies are vast, wealthy, and that they contain assets (physical, legal, intellectual) that contribute incredibly to the individual prosperity of those within it, and to the accumulation of even more of those social assets, and that the whole thing is owned by anyone born into that society.

I also think that we underestimate the value of those assets, and we give their advantages far too freely to private individuals without exacting a sufficient return. I think that improved equality will come from two things:
1) valuing those Assets of the Commons much higher and extracting a higher dividend on behalf of every individual whenever a private company uses them to generate profits of its own, and
2) valuing our own labour much higher when we participate in the private economy by negotiating for higher wages or joining unions that will. There is every reason for some people to earn more than others in a free economy. But there is no reason for most people to undervalue the work they do by probably an order of magnitude.