Charging rent on capital was historically called “usury”, and was denounced by everyone from Aristotle to Aquinas, from Moses to Buddha to Muhammad. I suspect they had the right of it, which poses some problems for our present society, fractally composed of usury (as the article aptly outlines).
I am not familiar with every theory behind every condemnation of usury (there are a multitude) but this is not true for any of the theories that I do know.
In fact it rather sounds like an intentionally foolish theory invented by someone practicing usury as the only possible reason anyone could disagree with them, and then incorrectly attributed to any opposition to their practice. You can sort of tell this is the case, because if you reverse the theory you get “usury creates wealth while other activities just shuffle it around”, which is a very flattering thing for an usurer to believe.
Without coordinated effort to limit that extraction it will continue until the resource is exhausted.
An obvious conclusion is that one function of Government is to coordinating how much extraction is permissible or enforce fair dealing. Capital has spent a great deal of your collected rent persuading people that this idea is wrong and would lead to terrible harms.
> There is no more intrinsic reason for the scarcity of capital than there is none for the scarcity of air.
You're suggesting that capital holders restrict the supply of capital so that they can extract rent on it? And if they didn't do that we'd just have unlimited capital and everybody would get to be arbitrarily rich?
Then what do capital holders get out of restricting the supply? Wouldn't they rather be arbitrarily rich instead?
> Every claim on human effort that exits the productive system as rent is a claim that cannot circulate internally, cannot pay workers fairly, cannot fund the next big idea or reduce the cost of the next product.
What? Why? When you pay rent do you think your landlord isn't going to spend that money?
They get power out of it (restricting the supply of capital).
In neoclassical economics, savings never pay off compared to investment. But in the real world, savings have important advantages:
1. They help you sustain longer in the case of strike (be it labor strike or investment strike).
2. They allow you to react to the market (for example, buying a promising startup winner after a competition consolidation) instead of being a first mover.
3. They allow you to price dump rapidly if a competitor threatens oligopoly pricing (usually the status quo), to drive them out of business.
That's why savings give you an actual power, which increases the richer you are.
Also, in my worldview, savings are liquid/reversible investments, while real capital investments are iliquid/irreversible - if you decide to build a factory you're commiting to an irreversible decision, if you buy an index fund, the decision is reversible, so it's basically savings. Making as few irreversible decisions as you can gives you an edge compared to others.
> Wouldn't they rather be arbitrarily rich instead?
Generally no, though you won't get this answer directly.
Many people prefer to be rich relative to others than arbitrarily rich. If you ask a bunch of random folks if they'd rather be in the middle class in their current country of residence in 2005, or of noble birth in ~1100 CE, you'll get the latter answer _a lot_ despite that being an objectively worse quality of living.
I'm all in favor of that. But in NYC, wealth or poverty are hardly predictors of YIMBYism. Most of the vocal opponents of building more housing are tenants. Given that renters are a solid majority, if they desired pro-housing policies, they could certainly elect representatives who would enact them.
I would surmise no such thing! I think the far simpler explanation is either that renters are ignorant of housing economics, or that they have other priorities that override reducing market rents. Having talked with many renters, I think the former explanation carries most of the weight, with a little of the latter mixed in.
Heh, yea, it seems like these people don't know who Mansa Musa was and that just dropping massive amounts of capital (well, raw gold in this case) into an economy has all kinds of side effects. Wild inflation/deflation is fun!
Economies are naturally deflationary (assuming a fixed money supply); services become more efficient, making capital more productive. This happens more or less automatically within competitive markets. So those capitalists do become arbitrarily rich, limited only by institutional factors (tax, labor bargaining, antitrust enforcement). By restricting access to capital markets you're siloing these gains off into their own pool.
These are very good ideas for much more of the populace to digest and internalize. I'm not sure how many will.
And much of the popular critique of capitalism is driven by those who don't distinguish between profit and rent, when in fact the near entirely of the extraction that is causing inequality is from rent extraction and not "profit" as used in this piece. Especially when it comes to real estate, which is most people's largest expense, growing, and one of the biggest political challenges we face today. (Broad homeownership has created a lot of people that benefit from increasing residential housing costs, or at least don't see any problems with them).
Glad to see Schumpeter get mentioned, as Schumpeterian rents are perhaps defensible for a while, I think.
Good essay with lots of interesting points. I especially liked how the author tried throughout to appeal beyond a narrow left-wing audience.
Something that I noticed that might help clarify things: I think the author mixes two phenomena together: (1) Rents and (2) subjective vs objective property rights.
Rents were pervasive in the middle ages. There are lots of black legends about medieval Europe, but we don't have to tell golden legends about it either. The whole economy if medieval Europe relied on people controlling land, then demanding goods and service in exchange for its use. That is Rent! It was often exceedingly exploitative and harsh!
What changed in the modern era was a the decline of objective property rights. The way property was treated in law went from "this is my farm, which is mine for farming, and it comes with these rights and obligations. That's the commons. I have these rights to it and these obligations to my lord and his other subjects in how I use it." This changed to "this is my property with which I can do what I see fit. I have no objective obligations to anyone else." Subjective property rights also existed before capitalism, but they completely eclipsed objective right in the early modern period. This increased economic productivity and growth on a scale that was not thought possible, but also, as the author notes, had negative consequences.
The reason that this distinction matters is that you can absolutely abolish subjective property rights and still have rents. You can actually make them worse. If people are being extorted for access to some good, they will not care if it's done by a private company or a public administrator. I don't see how the author's framework of "personal property" overcomes the issue.
I am not seeing the connection. Whenever I hear capital and elites, it’s a clear red flag around lack of understanding. And just laziness about money. I think a lot of these voices would change if they just had 20% of [edited: discretionary] income auto-invested in equities from an early age.
How exactly are young people betrayed by the system supposed to get that disposable income? I live in country with highest unemployment rate in OECD. We have tons of people with master's degree unable to find ANY job, let alone something that would fit their education. There's fierce competition for jobs like part-time warehouse worker or cashier.
Only thing I can think of is moving abroad, but sending lots of young people abroad is not very sustainable from a domestic economy perspective.
If we all had a significant sum auto-invested in an early age, we'd all have a stake in preserving the practices that are causing so many problems. I don't wanna live in a broken world forever, so I'm kind of glad that we don't.
Do you mean disposable income or discretionary income?
Because taking 20% of the former leaves a lot of the population unable to pay for essential living expenses because they effectively have zero of the latter.
Adam Smith observed in his famous book that when people get more money they almost always spend it on a better place to live.
I have observed people from the very poor homeless all the way up to multi-millionaires - his observation hold true for the vast majority. Nearly all of them are living paycheck to paycheck despite the massive amount of difference in income.
When you are young investing in education - that is tuition - is the correct call. When you finish school though many people stop investing at all instead of investing in equities.
As an ex-Apple engineer who grew up with four generations living in a duplex, and as someone who now sees people struggling with grocery and gas prices and utility prices, I feel like more people even having any disposable income at all might be a better start.
Bro it's so easy just save 20% of what you need above and beyond the basics of an upper middle class living, like maybe take one fewer trip to Bali each year, or cut back to only two cars per person, or timeshare your pool.
Marxist slop. Old school, apparently hand crafted bespoke slop, but slop nonetheless.
(Labor theory of value, they got rich by stealing what was rightfully yours, lots of linguistic games, private ownership is the root problem, yada yada...)
It's not Marxist at all, otherwise it'd be talking about the labour theory of value and wouldn't admit that profit through innovation is possible. It seems to be Georgist.
"Profit requires you to keep showing up. It goes to zero if you stop producing or innovating, and yields diminishing returns as others learn to duplicate or improve on your approach – so you have to keep learning and improving, too. Profit “belongs to the living” because it requires flow: you profit by generating value in a game with moving targets."
They didn't say the words, but they sure painted the picture (plus the usual Marxist game of moving the meaning of words around to keep the grift going).
What picture do you think is being painted here? I'm pretty sure that actual self-identified Marxists would be insulted if you accused them of believing in profit or thinking Adam Smith was correct.
The problem with this is that the author has explained capitalism in a way that sounds harrowing to the wider public, but sensible to everyone holding any sort of power. These outcomes aren’t a side effect of the system; they are the system working as intended. Governments and corporations don’t want people that are comfortable and happy, they want people strapped to the yoke. The constant stress is them cracking the whip.
Charging rent on capital was historically called “usury”, and was denounced by everyone from Aristotle to Aquinas, from Moses to Buddha to Muhammad. I suspect they had the right of it, which poses some problems for our present society, fractally composed of usury (as the article aptly outlines).
That theory was based on the idea there was a fixed amount of wealth in the world and it was impossible to create more.
I am not familiar with every theory behind every condemnation of usury (there are a multitude) but this is not true for any of the theories that I do know.
In fact it rather sounds like an intentionally foolish theory invented by someone practicing usury as the only possible reason anyone could disagree with them, and then incorrectly attributed to any opposition to their practice. You can sort of tell this is the case, because if you reverse the theory you get “usury creates wealth while other activities just shuffle it around”, which is a very flattering thing for an usurer to believe.
>why the smartest move for capital right now is to compost it back into the systems sustainable wealth depends on
Sure. In aggregate. See also: "Tragedy of the Commons" and "Everyone Will Not Just"<https://emilybook.org/2024/11/03/everyone-will-not-just/>
Without coordinated effort to limit that extraction it will continue until the resource is exhausted.
An obvious conclusion is that one function of Government is to coordinating how much extraction is permissible or enforce fair dealing. Capital has spent a great deal of your collected rent persuading people that this idea is wrong and would lead to terrible harms.
> There is no more intrinsic reason for the scarcity of capital than there is none for the scarcity of air.
You're suggesting that capital holders restrict the supply of capital so that they can extract rent on it? And if they didn't do that we'd just have unlimited capital and everybody would get to be arbitrarily rich?
Then what do capital holders get out of restricting the supply? Wouldn't they rather be arbitrarily rich instead?
> Every claim on human effort that exits the productive system as rent is a claim that cannot circulate internally, cannot pay workers fairly, cannot fund the next big idea or reduce the cost of the next product.
What? Why? When you pay rent do you think your landlord isn't going to spend that money?
They get power out of it (restricting the supply of capital).
In neoclassical economics, savings never pay off compared to investment. But in the real world, savings have important advantages:
1. They help you sustain longer in the case of strike (be it labor strike or investment strike).
2. They allow you to react to the market (for example, buying a promising startup winner after a competition consolidation) instead of being a first mover.
3. They allow you to price dump rapidly if a competitor threatens oligopoly pricing (usually the status quo), to drive them out of business.
That's why savings give you an actual power, which increases the richer you are.
Also, in my worldview, savings are liquid/reversible investments, while real capital investments are iliquid/irreversible - if you decide to build a factory you're commiting to an irreversible decision, if you buy an index fund, the decision is reversible, so it's basically savings. Making as few irreversible decisions as you can gives you an edge compared to others.
I realized I answered the question (if landlords/investors restrict housing supply) quite indirectly, while there is a more direct answer.
I recommend Keen/Standish paper on the theory of the firm: https://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf
They show that profit-maximizing agents communicating via price-setting only will happily restrict output in order to reach oligopoly prices.
> Wouldn't they rather be arbitrarily rich instead?
Generally no, though you won't get this answer directly.
Many people prefer to be rich relative to others than arbitrarily rich. If you ask a bunch of random folks if they'd rather be in the middle class in their current country of residence in 2005, or of noble birth in ~1100 CE, you'll get the latter answer _a lot_ despite that being an objectively worse quality of living.
The rich are hoarding the pocket dimensions in the West Village where there is unlimited space for people to live, in order to extract higher rents!
As they say, "The sky's the limit." Just build taller buildings.
I'm all in favor of that. But in NYC, wealth or poverty are hardly predictors of YIMBYism. Most of the vocal opponents of building more housing are tenants. Given that renters are a solid majority, if they desired pro-housing policies, they could certainly elect representatives who would enact them.
One might surmise, given these facts, that there is some force other than democracy in control of the levers of power.
I would surmise no such thing! I think the far simpler explanation is either that renters are ignorant of housing economics, or that they have other priorities that override reducing market rents. Having talked with many renters, I think the former explanation carries most of the weight, with a little of the latter mixed in.
Or rather that democracy is easily influenced by a trillion dollar brainwashing industry
Heh, yea, it seems like these people don't know who Mansa Musa was and that just dropping massive amounts of capital (well, raw gold in this case) into an economy has all kinds of side effects. Wild inflation/deflation is fun!
Economies are naturally deflationary (assuming a fixed money supply); services become more efficient, making capital more productive. This happens more or less automatically within competitive markets. So those capitalists do become arbitrarily rich, limited only by institutional factors (tax, labor bargaining, antitrust enforcement). By restricting access to capital markets you're siloing these gains off into their own pool.
These are very good ideas for much more of the populace to digest and internalize. I'm not sure how many will.
And much of the popular critique of capitalism is driven by those who don't distinguish between profit and rent, when in fact the near entirely of the extraction that is causing inequality is from rent extraction and not "profit" as used in this piece. Especially when it comes to real estate, which is most people's largest expense, growing, and one of the biggest political challenges we face today. (Broad homeownership has created a lot of people that benefit from increasing residential housing costs, or at least don't see any problems with them).
Glad to see Schumpeter get mentioned, as Schumpeterian rents are perhaps defensible for a while, I think.
Good essay with lots of interesting points. I especially liked how the author tried throughout to appeal beyond a narrow left-wing audience.
Something that I noticed that might help clarify things: I think the author mixes two phenomena together: (1) Rents and (2) subjective vs objective property rights.
Rents were pervasive in the middle ages. There are lots of black legends about medieval Europe, but we don't have to tell golden legends about it either. The whole economy if medieval Europe relied on people controlling land, then demanding goods and service in exchange for its use. That is Rent! It was often exceedingly exploitative and harsh!
What changed in the modern era was a the decline of objective property rights. The way property was treated in law went from "this is my farm, which is mine for farming, and it comes with these rights and obligations. That's the commons. I have these rights to it and these obligations to my lord and his other subjects in how I use it." This changed to "this is my property with which I can do what I see fit. I have no objective obligations to anyone else." Subjective property rights also existed before capitalism, but they completely eclipsed objective right in the early modern period. This increased economic productivity and growth on a scale that was not thought possible, but also, as the author notes, had negative consequences.
The reason that this distinction matters is that you can absolutely abolish subjective property rights and still have rents. You can actually make them worse. If people are being extorted for access to some good, they will not care if it's done by a private company or a public administrator. I don't see how the author's framework of "personal property" overcomes the issue.
Flagged?
Hacker News doesn't like to ruffle any feathers.
I am not seeing the connection. Whenever I hear capital and elites, it’s a clear red flag around lack of understanding. And just laziness about money. I think a lot of these voices would change if they just had 20% of [edited: discretionary] income auto-invested in equities from an early age.
How exactly are young people betrayed by the system supposed to get that disposable income? I live in country with highest unemployment rate in OECD. We have tons of people with master's degree unable to find ANY job, let alone something that would fit their education. There's fierce competition for jobs like part-time warehouse worker or cashier.
Only thing I can think of is moving abroad, but sending lots of young people abroad is not very sustainable from a domestic economy perspective.
If we all had a significant sum auto-invested in an early age, we'd all have a stake in preserving the practices that are causing so many problems. I don't wanna live in a broken world forever, so I'm kind of glad that we don't.
Do you mean disposable income or discretionary income?
Because taking 20% of the former leaves a lot of the population unable to pay for essential living expenses because they effectively have zero of the latter.
Thanks I meant discretionary.
> I think a lot of these voices would change if they just had 20% of disposable income auto-invested in equities from an early age
What disposable income? When I was younger I had none, I was too busy paying rent and tuition,
Adam Smith observed in his famous book that when people get more money they almost always spend it on a better place to live.
I have observed people from the very poor homeless all the way up to multi-millionaires - his observation hold true for the vast majority. Nearly all of them are living paycheck to paycheck despite the massive amount of difference in income.
When you are young investing in education - that is tuition - is the correct call. When you finish school though many people stop investing at all instead of investing in equities.
As an ex-Apple engineer who grew up with four generations living in a duplex, and as someone who now sees people struggling with grocery and gas prices and utility prices, I feel like more people even having any disposable income at all might be a better start.
"just get some capital"
Bro it's so easy just save 20% of what you need above and beyond the basics of an upper middle class living, like maybe take one fewer trip to Bali each year, or cut back to only two cars per person, or timeshare your pool.
Marxist slop. Old school, apparently hand crafted bespoke slop, but slop nonetheless.
(Labor theory of value, they got rich by stealing what was rightfully yours, lots of linguistic games, private ownership is the root problem, yada yada...)
It's not Marxist at all, otherwise it'd be talking about the labour theory of value and wouldn't admit that profit through innovation is possible. It seems to be Georgist.
"Profit requires you to keep showing up. It goes to zero if you stop producing or innovating, and yields diminishing returns as others learn to duplicate or improve on your approach – so you have to keep learning and improving, too. Profit “belongs to the living” because it requires flow: you profit by generating value in a game with moving targets."
They didn't say the words, but they sure painted the picture (plus the usual Marxist game of moving the meaning of words around to keep the grift going).
What picture do you think is being painted here? I'm pretty sure that actual self-identified Marxists would be insulted if you accused them of believing in profit or thinking Adam Smith was correct.
Ctrl-F "marx" -- 0 results.
You don't have to reference Marx to be using the same incorrect logic has he used.
No, but the article doesn't really do that either.
Marx's core premise, that capital tends to pool in the hands of the few, is the idea underpinning the entirety of our modern economy.
For those in denial:
Modern Capitalism Is Weirder Than You Think: It also no longer works as advertised
https://nymag.com/intelligencer/2022/03/how-asset-managers-h...
(https://archive.is/wSmtd)
The problem with this is that the author has explained capitalism in a way that sounds harrowing to the wider public, but sensible to everyone holding any sort of power. These outcomes aren’t a side effect of the system; they are the system working as intended. Governments and corporations don’t want people that are comfortable and happy, they want people strapped to the yoke. The constant stress is them cracking the whip.