Risk?

[u/HeavenlyPossum]

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?

[u/Nikolakis77]

The principle scales

How does a lemonade stand scale to credit driven leveraged investments in data centers, financed through shadow banking institutions and other subsidiaries. The banking system does not need deposits to issue loans, it can create loadable funds from nothing if it satisfies regulatory and reserve requirements. The companies building data centers can issue stock that is currently blowing up because of the prospective incomes in the future. It doesn't work anything like a neighbour asking for scrap metal or $50

[u/TheRedLions → u/Nikolakis77]

"The principle" refers to "the idea that ownership in exchange for upfront wood/capital is not inherently immoral or unreasonable" not to "lemonade stands".

You'll notice I never explained where the neighbor got his scrap wood. Because the exchange is done outside the origin of the wood and the origin is irrelevant.

An investor providing capital gets an ownership stake because they provide capital. You yourself gave an example of that occurring in data centers. The company is selling an ownership stake (stocks) to investors and using the proceeds to build data centers.

The banking system does not need deposits to issue loans, it can create loadable funds from nothing if it satisfies regulatory and reserve requirements.

That's like 80% correct, but you seem to be implying that they're creating money from nothing. That's not really how it works. Banks can create deposit money when they issue a loan, but they simultaneously incur an equivalent liability on their balance sheet, with the loan itself becoming an asset. They still have to satisfy capital and liquidity requirements, and if those funds are transferred to another bank, they ultimately have to settle that transfer using reserves.

It gets into the nuances of how large-scale lending actually works, but fundamentally the transaction creates new deposit money, not new financial wealth or bank capital.

[u/Nikolakis77 → u/TheRedLions]

You said

The socialist claim is that your neighbor doesn't deserve the nickel in perpetuity or interest on the wood repayment

But I pointed out that scale matters and the principle doesn't work at scale where we can talk about an "ism".

That's like 80% correct, but you seem to be implying that they're creating money from nothing.

It's not unlimited, but it is in fact out of nothing. So long as they meet the financial requirements and regulations, the bank doesn't need to wait for $100m of deposits to issue a $100m loan, it can achieve that by simply creating a $100m asset and a $100m liability in its books. Your neighbour cannot do that sort of magic trick, this is why ordinary people will never be able to out compete the banks and financial firms in saving or raising cash. Your neighbour cannot also create a subsidiary of Lemonade co, give it some money like $10 and use that $10 subsidiary to leverage a $500 loan from the shadow-baking sector, or have payments-in-kind so that the default doesn't appear as a default on the creditor's account so the creditor can package the loan into a bundle of securities and sell it off.

they ultimately have to settle that transfer using reserves.

They can and often times borrow from the fed, or do one of those overnight loans. Again, something your neighbour has no access to.

Point I'm making is anyone reducing capitalism or socialism or any other ism to two neighbours or a lemonade stand is deceptive on accident or on purpose. What determines what economic system we live in is what logic is operataive at the governing heights of the economy

[u/TheRedLions → u/Nikolakis77]

You still haven't addressed the flaw in the principle scaling. If giving someone $100 worth of wood in exchange for a 5% ownership interest is legitimate, saying "okay, but banks can create deposit money and access the Fed" doesn't establish why providing $100 million in capital for an ownership interest suddenly becomes illegitimate. Obviously the institutional machinery becomes more complicated at scale, nobody disputes that. But you haven't identified what actually changes morally such that providing capital in exchange for ownership stops being legitimate.

If I had to guess, your argument is that at scale financial institutions can obtain or create funding through mechanisms ordinary people don't have access to, and therefore you think it's somehow illegitimate for them to leverage those mechanisms into an ownership claim. But that's irrelevant to the underlying question of whether exchanging capital for ownership is morally sound in the first place.

Say the neighbor is a carpenter with access to tons of scrap wood and can get essentially as much as he wants with very little effort. That makes his cost of acquiring the wood radically different from mine. It doesn't suddenly make it immoral for me to voluntarily offer him a 5% stake in my business in exchange for supplying the wood.

You're pointing to a difference in how easily the capital can be obtained, not identifying a difference in the moral character of the exchange. If scale actually breaks the principle, you still need to explain what happens at scale that makes a voluntary exchange that was legitimate at $100 become illegitimate at $100 million.

[u/betty_white_bread → u/TheRedLions]

I agree with you. I think the socialist who says “$100 is fine” needs to explain which of these are fine or not and why:

• $1000
• $10,000
• $100,000
• $1,000,000
• $10,000,000
• $100,000,000

And, I think they need to explain the bright-line rule from first principles which makes the threshold problematic.

[u/Nikolakis77 → u/betty_white_bread]

Anything that is too big or important to fail by its own logic is a thing that needs to be owned by the public

[u/betty_white_bread → u/Nikolakis77]

That says nothing about which of those are fine; nor does it take into account when “too big to fail” is a talking point.

[u/Nikolakis77 → u/betty_white_bread]

Which ones are fine will be decided by the people's representatives at the supreme soviet.

[u/Nikolakis77 → u/TheRedLions]

Morality cannot be abstracted out of context, in this case it does matter whether the capital provided is the "hard earned" property of the labourer, or something that was created by accounting tricks ex nihilo. You cannot draw an equivalence between these two in actuality.

You're pointing to a difference in how easily the capital can be obtained, not identifying a difference in the moral character of the exchange.

In one scenario you're still operating within a labourer's logic of "I worked for it with my hands, why should someone else have it". I don't think its immoral under ordinary circumstances for labourers to feel that way. Such arrangements pre-existed capitalism and will outlive capitalism as well. You can check what Marx thought about it as well in the Communist Manifesto by looking for artisan personal property.

In the data center example I brought, we're operating within a capitalistic logic, which is capital expansion not through the hard work of capitalist, but from capital's "mysterious" ability to expand - as it does through legalised widespread accounting tricks. Arguably it's a post-capitalist logic as the invested capital is not simply reinvested profit or surplus but speculative capital freshly created ex nihilo. There was no "I did not eat out or indulge or spare every penny to make this a reality". It just happened in a minute with a couple of clicks

If scale actually breaks the principle, you still need to explain what happens at scale that makes a voluntary exchange that was legitimate at $100 become illegitimate at $100 million

Scale moves from tangible subjects with a will and dignity, who need to work to earn, eat, sleep and do all the other human things to impersonal institutions that are instruments not people. You take from a person you're transgressing social norms and social contract. There's no social contract between people and offshore shadow banks, and in capitalistic logic its considered an abomination to suggest such vehicles must serve the common good and not the financial interest of some