I've been following this one a few days, but I've had jobs that went from late morning to to 8:30pm 3 days in a row, and haven't had time for what will inevitably be a long response.
This question was well timed for me, as this has been the exact topic of the next big blog essay that's been brewing in my mind.
I'll try to not turn this forum response into an essay, but there are so many points to respond to, and anyone who remembers my participation in the 5 past semi-related philosophical / political threads:
http://biodieselhauling.blogspot.com/2012/12/comments-from-mmm-economics-philosophy.htmlhttp://biodieselhauling.blogspot.com/2012/12/comments-from-mmm-forum-part-2-pursuing.htmlhttp://biodieselhauling.blogspot.com/2012/12/comments-from-mmm-forums-part-3-lets.htmlhttp://biodieselhauling.blogspot.com/2012/12/comments-from-mmm-forums-part-4.htmlhttp://biodieselhauling.blogspot.com/2012/12/comments-from-mmm-forums-part-5-ows-99.htmlprobably realize that keeping this short isn't realistic :P
Investment income is a portion of the value produced by work. But the investor does none of the work to produce the value he receives. It comes to him merely by virtue of the fact that he has legal title to some property.
I think that's a very good summary. It, in and of itself, is not
immoral per-say, however I think we can (and should) question whether or not the investor is morally
entitled to wealth which he did not produce.
I'm not so interested in criticizing capitalism as I am in wondering what should a moral person do who finds himself in a capitalist system?
I think questioning the system you are in - and questioning it publicly, to encourage others who ave grown up taking it for granted to question it as well - is one part of what a person should do, just as a moral person in the US south in the 1800s or in Germany in the 1930s might question the systems they were under. It could be that when it is looked into deeper, we find there really is no problem, in which case no harm, no foul. But if there is a problem, you will only find it by challenging the norms.
But I'm wondering if the early retirement bit can be justified as a personal decision. Normally when people who are perfectly able to work live off of other people's labor, say through welfare or dubious disability claims, that is viewed negatively. But here, when a person does it by socking away a million dollars over 10 years, it is applauded.
You are equating two totally separate concepts which, while they fit together synergistically, are not at all necessary for each other.
1) investing large sums of money, and reaping the interest and dividends.
Plenty of people do this without being frugal and/or while continuing to work.
2) saving money to allow not having to work (or at least not full-time)
This can be done WITHOUT investing money in stocks or real estate.
Lets say you have a high middle-class salary of 100k.
Lets say you live on the very low, but totally possible, spending of 10k.
For every one year you work, you earn 9 years of freedom. If you start working at 24, work for 8 years until age 32, and then never earn any income ever again, you have earned 800k, spend 80k, have 720 left, which will last 72 years, until you are 96, without ever earning a single cent in passive income.
(granted, in reality there is inflation - you would need to earn enough additional income or, say, interest from a savings account or bonds to keep up with inflation, but you would not need any profit from your capital)
Really, the specific numbers don't even matter - if you live on 1/10th your income, you buy 9 years of freedom for every year you work, making for a 10 year or shorter working career. If you live on 1/5th your income, you only have to work 20 years.
Passive income, and its compounding interest, certainly makes the process go faster, but it is NOT a prerequisite for early retirement.
I realize the investment of excess income is necessary for our economy (as a small business owner I depend on it)
I'm not sure that is really true. Certainly for our "economy" as we know it, but assuming that the economy is here to serve the needs of actual individual people (and not the other way around) its not necessarily a good thing to expect individuals to sacrifice for "the economy". More over, my theory is that if a business needs a loan, it is probably growing too fast. Businesses are run by people, and so subject to the same issues as consumers. Instead of taking out a loan for expansion or upgrades, a business (large or small) could save up all profit until it can afford it, just like a consumer can save instead of using credit cards. Yes, that would mean slower expansion, but I would argue that that is perfectly ok, and would add more stability to the system.
All that you see, know, and can know is a consequence of the society that you live in, the contributions of people around you, and the hundreds of thousands of years of human achievement before you. You might as well ask if it's moral to wear clothes, since you did nothing to discover farming, spinning, weaving, dying and sewing yourself. All of us live off of the fortune of human culture.
That's the difference between someone discovering an amazing new medicine, and sharing it with the world for the betterment of all, and you use that medicine; and your employee discovering a new medicine, and you made her sign a bunch of papers upon being hired that says her discoveries are really yours, and so you get to patent it, charge 100 times what the research cost, and keep all of the profit.
We aren't talking about benefiting from the fact that people have done work, we are talking about taking a percentage of the value of someone's labor and keeping it for yourself - thereby depriving the person who actually did the work some of the value they earned.
I am not asking about living on savings built through prior productive work...
This is the very definition of capital and how one gets investments.
Absolutely nothing in the word "capital" implies prior productive work. It makes no difference where the money came from. It could have been prior work, or it could have been theft or fraud, it could have been inheritance or gift or gambling winnings. All it means is that you currently hold legal title to wealth.
Example: I was a substance farmer. ... I offer to rent him my tool in exchange for a share of his yield. If he works 8 hours a day with the tool, he can grow the same as he did in 12 without the tool - just enough to feed him and his family, but now he'll have 4 extra hours a day. I offer to rent him the tool if he works 2 hours a day in MY field, allowing me to permanently work less. He's still better off (working at least 8 in his fields, plus 2 in mine is less than the 12 he used to have to do...
In the real world, in the absence of government enforced patents, everyone else in the village sees the brilliance of your invention, and make their own version. With hundreds of people looking into it, instead of just you, it gets improved upon much faster. If someone had been able to patent the wheel, or fire, we would probably have been set back centuries today.
"After several more rounds of this process (living below my means, spending time making tools, etc), I have 5 tools being rented out ... Each person is using my tools, that I worked very hard to make. These tools allow them to live better lives, in exchange I now am able to lead a life of leisure.
Is this Moral?
Now, if you wanted to stop farming all together, and spend your days making tools and selling them, because as a specialist you can make them better and faster than someone who is just building the one, that might be one thing. Each person is making an exchange of value produced by their labor for value created by yours. I see no particular morality issue in a free market exchange, assuming perfect transparency, perfect competition, and equal power between both parties.
But if the tools were truly so useful, with perfect market conditions no one would be willing to give you 2 hours a day (1/5th of his total income) rather than find a way to get his own.
I suppose if simply keeping track of all the tools, repairing ones returned broken, maintaining them all, was an ongoing effort in itself, you might have justification for rental income.
But if you are now offering nothing by way of productivity, how are you entitled to keep getting income? You aren't doing anything. By what means did you achieve this absolute monopoly on technology?
In capitalism, the monopoly is achieved via government enforcement.
This brings me to the central issue with capitalism.
America, (and other, similar societies) seem to think the words "free market" and "capitalism" are interchangeable, two words for the same thing.
But they aren't. More than that - they are incompatible. Capitalism, by its very nature, corrupts the free market. I'm talking Adam Smith's free market; again, no entry and exit barriers, perfect information, lack of monopolies, etc (
http://en.wikipedia.org/wiki/Perfect_competition) - think of a literal marketplace, like a bazaar or flea market, a bunch of individuals selling stuff to other individuals, who negotiate each transaction price on the spot. Those are the conditions that optimize utility and efficiency and prevents exploitation for everyone involved.
In contrast, the idea of capitalism is to use capital (regardless of how it was acquired) and leverage it to gain maximum advantage - including advantage over the competition. Think WalMart opening a store next to the bazaar, and offering prices below cost for a year in order to get all of the former bazaar shoppers, and then once the bazaar is closed down, returning prices to normal.
Capitalism, by its very nature, undermines a free market. It encourages already large companies to become huge, which is the literal opposite of conditions of a free market. It ensures that company's owners - be it sole proprietorship or the stock holders of a corporation, the "capital class" - have overwhelmingly disparate power compared to both their customers (consumers) and their employees (the labor class), and of course with grossly unbalanced power, they have the power to generate even more profit, and the cycle continues.
But in practice, since another condition of a free market, is property rights, how could we possibly prevent people from leveraging savings?
I propose a different way of looking at property rights.
I am not a fan of communism. I believe it is because of decades of strong and repeated propaganda (originating from our own capitalist class with incentive to maintain the status quo) that we believe that the only alternative to our system of absolutely sacred and unlimited property rights is communism.
Some sense of property is what you could call "natural". It is very common in non-human species for individuals to have a claim to their own territory, and aside from border disputes, or the occasional battle over mating or water rights, other individuals of the same specie will tend to respect territorial boundaries.
I think everyone should be entitled to purchase, and then own title too, the home they live in, the vehicle the use to travel, whatever possessions they actually use.
What you won't ever find in nature is one individual claiming to own non-adjacent territories hundreds or thousands of miles away, and demanding that whoever lives there pay a tribute of food every month for the privilege of living somewhere - and further expecting all the other members of the specie to help enforce those rent payments.
Think about this:
would anyone feel it was reasonable or moral for one person to invent and build a giant machine (on their own property) which sucked in air and absorbed all the oxygen, and then sell that oxygen to people? There would be nothing illegal about it. We all use more than the oxygen we need to breath every time we drive a car (or buy anything which traveled by motor vehicle), the only difference would be scale, and that the oxygen was used up deliberately, instead of incidentally. If someone has the means to build such a machine, and then profit by it, why shouldn't they be allowed to? What if they charged a very reasonable price? What if they had a sliding scale for poverty? Would that make them charitable?
If this seems like a cartoon villain scenario, because oxygen is a vital life necessity, why do so few of us bat an eye about purchasing "water rights" in formerly communal water sources? Why is it ok to buy investment property, and then make a profit by charging other people for the privilege of having some place to exist?
I propose that everyone has a right (morally) to buy and own land (and a house on it) - which they actually live in. If you have paid fair market price to the previous owner, then no one should be able to take it away from you (unless to pay other debts perhaps), and you should be afforded the protection of law to enforce that right.
But that's it. One piece of land. Perhaps two, one for your business, one for home, if they need to be separate places. A person should not be able to buy land for the sole purpose of charging someone else to stay there.
The argument goes that the landlord is providing a service, because the renter doesn't need the lump sum of a down payment to have a place to live.
Nearly 1/2 of all residential property is owned by investors. Home prices are high BECAUSE of all of the speculative investment. If every home currently being rented was put on the market, the supply doubles, and the prices plummet. But its more than just the effect of supply versus demand, because the price people pay for homes isn't linear with market price - the fact that its so high means people need 30 year loans, which means the interest ends up being anywhere from 50% to 300% the value of the home. Many of the closing costs, PMI, property taxes, the cost of home insurance, all plummet or disappear when the sticker price drops. When its no longer such a massive investment, with the next 30 years on the line, the need for agents and brokers lessens or disappears, so the price drops even further. Now all of a sudden many more people can afford down payments, with 5 year loans, or entirely in cash, and the while there's still paperwork and disclosures involved, its more like buying a new car.
Students or others who are transient could still rent rooms in other people's houses, as well as having dorms and long term hotels and hostels and such, but there would be no such thing as "rental property".
And all the landlords would have to actually contribute some form of productive labor to society.
Everyone needs to live somewhere, just like everyone needs air and water. It is reasonable to charge for the infrastructure and energy required to pump water directly into your house, but nobody gets to claim they own rain fall or the ocean. All humans - all living things, really, have a natural right to water they can acquire without infringing upon anyone else.
Why is land different? What entitles a major land owner to the land they "own"? Sure, they bought it, but who did they buy it from? How did that person get it? Going back, of course, in the US it was literally stolen, via a long series of broken treaties, using military force, from the aboriginal inhabitants, most of whom thought of land like water and air (you can "own" that which is in your possession, but no more). But lets go ahead and ignore that, and just pretend that the sovereign state of the United States was morally entitled to hold all land, and dole it out.
When it doled it out, the government did not divide the nations acreage by the population and give an equal parcel to all. It did not even sell parcels at a "fair market price". It sold land at below market price ($1.25 per acre), but only in
parcels of 160 to 640 acres, and only in cash, and the buyer had to make a certain minimum level of improvements (home, irrigation, 40 acres of new trees) within 5 years. The working class didn't have the capital, so speculators and investors got the majority of this well-below-market rate land. Similarly, railroads were given acres of land adjacent to their own tracks - what would be the most valuable land, due to being on a railroad line, completely for free, ensuring, once again, that the already tremendously rich had on opportunity to become even richer still, far beyond the value of their contributions (they would have profited from the railroad line without the land grants).
None of this was by accident. This was done deliberately for the specific purpose of keeping the laboring class from becoming land owners.