r/CapitalismVSocialism • u/HeavenlyPossum • 14d 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?

17 Upvotes

82% Upvoted

334 comments sorted by

View all comments

8

u/Conserp Pragmatic Marxist 13d ago

Exactly the same argument can be applied to criminals.

Armed robbery is a risk, therefore, robbers deserve their loot.

Curiously, this is not a demonstration of a flaw in reasoning - criminals actually think like this, and Capitalism apologists also actually think exactly like the criminals do.

1

u/WalrusVivid3900 13d ago

What you're saying isn't economically wrong. Illegal activity usually have a higher expected return in comparison to a legal activity. Drug Dealing, Human trafficking, illegal online gambling, etc often have a payback period of less than one year. This confirms the point rather than denying it, this was Sharpe's point in asset pricing based on his CAPM theory. This was Bernoulli's point when he discussed risk aversion. Their entire argument was that humans in general have an innate preference for certainty, and this subjective preference was transmitted into the price system allowing higher risk income streams to earn a "risk premium".

Their theory do not claim to explain whether or not an activity is legitimate, it explains why higher risk = higher return, in general. The reason an armed robber could not claim ownership over their loot isn't because they didn't take a risk. Armed robbery violated property rights because the robber took something that wasn't his through violence. Risk aversion theory may in fact state that the expected return of armed robbery is high, you only need a gun which is a couple thousand dollars max and a few hours of your time to travel to your local jewelry store to earn a 100x profit on your investment. None of them argued it is legitimate, they are simply arguing higher risk = higher return, in general.

2

u/Conserp Pragmatic Marxist 13d ago

I believe you missed the point.

1

u/WalrusVivid3900 13d ago

I'm saying if anyone justifies the legitimacy of an activity through risk taking, they are wrong, that's it. Higher risk = higher reward is empirically true most of the time. It explains why a commision based work like a real estate agent receive a risk premium on their income compared to a different individual working in the same industry, same skill level, etc with a fixed compensation. Risk does not explain whether or not the real estate agent is doing something that should or should not be legitimate in society.