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How the Rich Got Rich

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Re: How the Rich Got Rich

#81

Post by chimeracoder »

ccarpenterg wrote: post #52
ef4 wrote: post #39

Earlier quoted context omitted.

"to drive down the price of capital?" But that's exactly what we do see. Interest rates are absurdly low. Interest rates are the price of capital. The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

Interest rates are the price of capital I think that's inaccurate. The price of the capital is its cost of opportunity. Interest rates are the price of debt.

No, interest rates are both. All costs are opportunity costs, so it's just two ways of looking at the same coin.

Re: How the Rich Got Rich

#83

Post by HeyLaughingBoy »

Retric wrote: post #48
larrys wrote: post #42

Earlier quoted context omitted.

Parent: "shouldn't supply and demand equilibrate things to drive down the price of capital?" You: "Interest rates are absurdly low." Interest rates are low because of government policy.

Interest rates globally have been dropping for a long time. Not that long ago powerful people looked at 20% annual interest rates for capital projects as low.

Yup. I remember the early 90's when my money market funds actually returned worthwhile rates. These days I may as well put my cash under the mattress.

Re: How the Rich Got Rich

#84

Post by _delirium »

eli_gottlieb wrote: post #62
michaelochurch wrote: post #46

Earlier quoted context omitted.

"Property" is quirky word, and I now wish I could think of a better word to represent what I'm talking about, because the points you've raised are valid. Property rights are a great thing in moderation. There's a social need for people to have the right to own the products of their own labor. Where property becomes a systemic disease when property relations persist for longer (and allowing larger concentrations than…

You seem to be getting at the distinction between possessions and property. Proudhon would be proud. Possessions are things you own (in the sense of being the exclusive user) because you made them and you're the one who uses them. You make a flint and then a wood carving, these are your possessions. Property , however, is what we get when you start having exclusive usage rights to things you don't actually use. So a…

Interestingly, the distinction was actually common among the founding generation of Americans, before even Proudhon, though Proudhon turned it into more of a fully worked out theory of property.

Benjamin Franklin, for example, wrote this:

"All the property that is necessary to a man for the conservation of the individual and the propagation of the species is his natural right, which none can justly deprive him of; but all property superfluous to such purposes is the property of the public, who by their laws have created it, and who may therefore by other laws dispose of it whenever the welfare of the public shall demand such a disposition."

(Elsewhere he clarifies that what he means by "necessary to a man" is essentially personal possessions, work tools, and shelter.)

Thomas Jefferson made a similar distinction in some of his letters. There's some speculation that Jefferson+Franklin's view that property isn't a natural right, but a social convention, is why the Declaration of Independence discusses "life, liberty, and the pursuit of happiness", rather than the formulation, "life, liberty, and property" that was otherwise more common at the time.

Re: How the Rich Got Rich

#85

Post by galfarragem »

_delirium wrote: post #26
SatvikBeri wrote: post #18

Earlier quoted context omitted.

For millionaires (defined as people with >$1MM of capital goods that can be easily reinvested), Capgemini claims that "only 16% of high net-worth individuals inherited their stash"[1]. I'm not sure what the precise definitions are since it's not defined in the article. The Millionaire Next Door claims that 80% of millionaires in the USA are the first generation in their family to be rich.[2] I also did my own researc…

Bill Gates also came from a millionaire-or-richer family, so that'd make 4, if that's the cutoff you're using. (He inherited several million from his grandfather, in a generation-skipping trust fund, although I don't believe he yet had access to that money at the time of founding Microsoft.)

Having a safety net can boost your confidence..

Re: How the Rich Got Rich

#86

Post by xlpz »

bluekeybox wrote: post #19
rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

It could have something to do with what we mean by "value". Apparently Marx derived his thinking from an assumption that value of something is more or less proportional to the amount of labor put into producing it [1]. What he missed is that if you're putting labor into making something nobody wants (the classic example being toothless combs for bald men), you are not only failing to producing any value, you're argua…

> What he missed is that if you're putting labor into making something nobody wants (the classic example being toothless combs for bald men), you are not only failing to producing any value, you're arguably reducing the overall wealth present in the market. The labor theory is no longer a part of mainstream economics, replaced by marginal theory [2], but I suppose many people still imagine value of things as equal to the labor put into them.

Uh, what? Why do people that have never read Marx think they can get away with this kind of thing? You only have to read the same wiki page you have linked to to see that what you claim Marx never thought about is in fact very much so part of the theory. According to Marx commodities under capitalism have different kinds of "values"; one of them is their "use-value", which measures whether the item is in fact useful for a given purpose for anyone. In a market economy a commodity only realizes its value (usually seen in the monetary expression of its exchange-value, or price) when it is actually sold: ie, value is realized at the point of sale, not production. Thus no matter how much labor you put into something, if nobody actually wants it for anything it has no value at all. This kind of misunderstanding or misrepresentation of the LTV is so popular it has its own nickname: the mud pie fallacy, see for example http://kapitalism101.wordpress.com/2010/05/13/law-of-value-3...

This whole thing is explained, plain as day, in all of Marx's works on this topic, including the most famous one, Capital. Why people that have never bothered to even read one paragraph of it like to pretend it says things it does not say? Beats me.

Re: How the Rich Got Rich

#88

Post by larrys »

HeyLaughingBoy wrote: post #83
Retric wrote: post #48

Earlier quoted context omitted.

Interest rates globally have been dropping for a long time. Not that long ago powerful people looked at 20% annual interest rates for capital projects as low.

Yup. I remember the early 90's when my money market funds actually returned worthwhile rates. These days I may as well put my cash under the mattress.

I think my first home mortgage was something like 16%. But healthcare (best plan go anywhere do anything) was only $65/m for an individual and gas was below $1. Business credit was pretty expensive to be sure.

Re: How the Rich Got Rich

#89

Post by MikeCapone »

ef4 wrote: post #39
rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

"to drive down the price of capital?" But that's exactly what we do see. Interest rates are absurdly low. Interest rates are the price of capital. The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

> The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

That's the key part. Looking at only winners doesn't tell you the whole story. It's like looking at lottery winners and saying: "Why are returns from gambling with the lotto so high?"

Re: How the Rich Got Rich

#90

Post by eli_gottlieb »

justinmk wrote: post #30
rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

> capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble That tends to happen when the central bank dumps false signals (ie, low interest rates) on the market.

It also happens because capitalists make "more money than they know what to do with". Scare-quotes because they think they know what to do with it: invest it!

However, if they all have lots of profits and all invest looking to make additional profits... you get the problem that more and more money goes chasing the same amount of productive assets/investments. The supply of capital has increased versus demand, which will naturally lower the price of capital (ie: return-on-investment).

The best thing the rich could do for their own rates of return would be to consume or donate large fractions of their wealth, returning wealth into the economy as something other than capital. This would reduce the oversupply of capital and thus increase its price back up to where capital investment becomes worthwhile again.

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