So many interesting and thoughtful replies have given me a lot to think about, and I really appreciate that. I haven't seen an answer that resolves the question for me though, so I'd like to process the themes I've understood from everyone and see if anyone can add to or clarify these lines of thought. I want to make it super clear that I am only asking about the personal decision one faces of whether it is ok to stop working and live off of investment income once you have amassed enough capital to do so. What makes this a difficult question for me is that investment income is the proceeds of others people's work, and normally I and most people condemn living off other people's work when you are perfectly capable of working yourself. I am not asking about the morality of the capitalist system, or of history, or of trade and econmic relations outside your direct control. Those are all really interesting and worthwhile things to talk about and I'm enjoying reading people's thoughts about them, but they're not the particular thing I'm asking about. Facts about those things may bear on the personal moral decision, but whether those facts are good or bad we each still have have that one personal decision to make.
So here's what I've heard. I've tried to organize the answers into a few general types with a few specific justification for each type of answer.
The Question: Is it ok to live off of other people's work via investment income, as in early retirement?
Answer type A: I'm not living off of other people's work. Justification A1: I'm not living off of other people's work, I'm living off my own prior work.
My doubt for A1: If that were true you'd be drawing down your savings, which are the total remaining compensation for your prior work. Instead you're maintaining your savings by not touching them and letting them appreciate. All the compensation for your prior work remains unused, so you are living off of compensation for present day work other people do.
Justification A2: Investment income is compensation for something the investor is doing now - taking risk, maintaining assets, managing investments, etc.
My doubt for A2: It's tricky but you can separate out the costs of capital from the income derived simply from ownership. The cost of taking risk is just the odds of losing your investment. If the risk of total loss is 1/100 then a 1% premium covers that cost so that overall the investors come out even. Needless to say, the risk of loss of the type of investment MMM advises are less than 1/100, so the actual risk premium is a small portion of the return on those investments. The cost of maintaining the asset is just depreciation in the case of a tangible asset and inflation in the case of a financial asset. Again, that is a small portion of the return MMM investments give. The cost of management is whatever it would cost to hire a manager, which many investors do for both financial and tangible investments. There may be other costs as well, but the fact that investors can pay someone else to assume all those costs and still get investment income shows that they are not being paid for what they do but for what they own, and that their investment income is being produced by the work of others.
Justification A3: Investment income is compensation for something of economic value the investor did in the past - living frugally, working hard at a high value job, choosing to put income into other's productivity via profitable investment.
My doubt for A3: Living frugally and working hard are very good things, but you're not getting paid for them as a retiree. Lots of people live frugally and work hard but because they don't buy capital they don't get investment income. So THERE is the difference, and I agree it does justify some income - you created economic value in the past by choosing to invest rather than consume. The value of that choice is in addition to the value you created by working, so when you get paid money on top of the savings you put away you are being compensated for a value you added to the economy with that choice. Still, what is the real value of that choice? Surely it is not infinite. Yet you can derive increasing and unending income from the earned income you put away during your working years. At some point you are no longer being compensated for the economic value of a decision you made in the past and are just being compensated for the fact of ownership. At that point you are living purely off of other people's work.
Answer Type B: Living off other people's work is ok. Justification B1: Everyone lives off other people's work, so it must be ok.
My doubt for B1: It's true we all
benefit from other people's work, but a worker in a free market only
consumes the produce of her
own work. A money economy allows one to convert her production of one kind of service or good into all the other services and goods she consumes. She benefits from other people's work but she is a consumer of her own work as converted into theirs via money exchange. As to the benefit derived from our ancestors' work, that is a non sequitur. In the present there is a pool of economic value created by productive work which you may contribute to and take from. Early retirees take from that pool what others have produced without contributing to that pool.
Justification B2: Dropping out of economic production gives someone else a job so I'm helping the working population.
My doubt about B2: Frankly this one is a bit over my head, but I'm skeptical and it seems like a non sequitur. While it is true that your previous position is now available to one worker, it seems unlikely that reducing the net pool of value produced and reducing the volume of economic transactions is profitable for workers on the whole. Anyway, I don't see the connection between the possible benefit of leaving an opening for one worker and being justified in living off the work of other people while not working yourself. Maybe it was a good thing to do, but I don't see why working people should pay you a yearly salary for it indefinitely.
Justification B3: Investing is a benefit to producers who need it and to me who gets a portion of their production. Win/win.
My doubt about B3: The fact that investment benefits producers may justify investment, but once you've received the investment income you still have the choice of whether to live off it or live off your own productivity. So the question still stands, at that point why is it ok to live off someone else's work?
Answer Type C. It's not a moral question. Justification C1: The way the system works is just a fact: you can live off other people's work through investment income if you choose to meet the requirements. There is no morality to it, it's just a personal option you can take or leave. IE "Don't hate the player, hate the game."
My doubt about C1: The same is true of the disability abuser. I once worked as an assistant case manager at a homeless shelter and helped some people get a lifetime of free income even though they probably could have worked for a living. We didn't commit fraud but we did game the system. I didn't feel too bad about my role in it because we were following the rules and ultimately I didn't feel it was my place to make the determination of who should apply for benefits and who be granted them. I left that to the claimant and the Social Security office. But I know I could not in good conscience have made the choice those men made. I feel that if I can work I should work and not live off the work of other people. And that applies whether the trick is filling out a disability claim the right way or investing a certain amount of money I earned the right way. I don't hate the player OR the game, but I do recognize that I have to make a moral decision and so does everyone else. I am interested in how the question can be answered.
So if anybody has any corrections, additions, or defenses for the answers I've paraphrased here or any other justifications for living off of investment income I'd like to hear them. (I'll respond to some particular questions and accusations in a separate post.)