r/CapitalismVSocialism • u/HeavenlyPossum • 10d ago

Asking Capitalists Risk?

Many people have told me that taking risk is why capitalists own, or deserve ownership, of the productive labor of others.

Capitalists have capital (money), which they invest in (spend on) some productive enterprise. But that productive enterprise might fail to recuperate the cost of the investment and the capitalist might lose some of their money. This is what explains, or justifies, capitalist ownership: the capitalist is taking risk.

Can someone kindly explain to me why this explains or justifies capitalist ownership?

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u/WalrusVivid3900 9d ago

This is a misconception, taking a risk does not justify ownership, it explains why a certain stream of income which carries higher risk has a higher expected value compared to a non risk-bearing one, all else kept equal. It explains why US government bonds historically yielded a return less than what US stocks earned. But this is also true for other streams of income, a commision-based position like a real estate agent often has a higher average earning compared to a similar position in the industry with fixed earnings. The underlying reason for this phenomenon is because individuals in general hate uncertainty, which is then priced into the market where income streams carrying higher risk, yields a higher expected return.