[ninetyninenine]

Rich people once they made their wealth creation move on society they no longer need to work. Their capital gains actually start increasing from the ownership of human capital. So they get richer and richer without contributing work. In fact that wealth gained without contributing and creating new wealth rises at a compounding rate. Simply owning enough capital your wealth will grow at speeds that far excel what a person earns doing actual wealth creation whether that means creating a startup or labor.

So if you no longer create wealth but your ownership of capital is growing at compounding rates then what exactly is happening? What’s happening is that you are siphoning and extracting wealth off of people who create wealth. You own human capital so you take a cut of it off the top and you use that cut to buy even more human capital which compounds your wealth ownership to even higher levels. This is how billionaires like Warren Buffett or other investors grow their wealth by simply investing rather then creating wealth.

Thus wealth inequality is not a result of wealth creation. It is an artifact of capitalism. In capitalism wealth is variable among individuals and it fluctuates. However once wealth accumulates in concentration higher then normal among one individual or several it hits that compounding growth factor and wealth starts going up at astronomical rates and these wealth owners start buying up more and more human capital until they own all of it and benefit from all of it without actually contributing work.

You can see this effect in y combinator. The owners of y combinator don’t actually do much work. They have so much capital that they simply can take a bunch of no risk couple hundred k bets until one startup becomes a unicorn in which they rake in a ton of capital from the growth.

Think of this like property ownership. A rich person can invest his wealth in property and contribute zero work to society and simply rent his property out. The rent from the tenant is from wealth creation aka labor and the rich person simply siphons it from the top without contributing additional work. The property owner uses that income to buy more property and the cycle continues until you have an affordability crisis of housing across the US and the world.

This growth continues unimpeded and uncontrolled until the wealth inequality is so extreme it doesn’t logistically work. This is direction the world is heading in today.

This isn’t the full story though. When you take away capitalism to solve this problem you invent communism. Communism was the result of Karl Marx noticing this problem that is fundamental to capitalism. That’s why he got popular because he illustrated the problem of wealth inequality and how wealth naturally becomes more and more concentrated among a few individuals without those individuals creating wealth.

Hence communism spread all over Europe but was ultimately a failure. The reason why it’s a failure is because communism lacks incentive. It turns out that wealth inequality is what drives wealth creation. Without the ability to be unfairly rich you don’t get the economic drivers that promotes wealth creation and thus communism keeps things fair but you don’t create wealth.

So no system is perfect. Everything has problems. Actually I take it back. There is a perfect system. See Scandinavia. Basically create a more socialist and egalitarian society while benefiting and extracting technological wealth from adjacent societies that are capitalist. Have the government own human capital of countries that are very capitalist then redistribute that wealth to its citizens so those people can live in a more just society while the rest of world can burn.

[borski]

> You can see this effect in y combinator. The owners of y combinator don’t actually do much work.

The YC partners who spend so much of their time helping startups are definitely doing work.

[ninetyninenine]

YC partners own capital right? I mean the labor they actually do doesn’t translate into the income they receive which is astronomically more.

Take for an example: a yc partner can take everything they know and train someone to do the same work and pay that person a much lower fixed salary. That salary represents work contributed, but a yc partner earns more than this. The majority of wealth gained from the yc partner does not come from actual work contributed… it comes from capital gains from growth.

I mean you can already see a logistical issue with capitalism by looking at a fundamental problem. A 747 is the result of thousands of man years of labor. Not one single man can build that thing. Not one single man can create enough wealth to create a 747.

Yet if one man can’t create enough wealth to create or trade for a 747 how do people become rich enough to own a 747? Of course it comes from siphoning wealth off of human capital. It is fundamentally unfair but unfortunately unfairness is the ultimate driver that led to the creation of the 747 in the first place. The idea of having an unfair advantage must exist to drive people.

[analog31]

Nobody needs to be rich enough to own a 747, in order to justify making one. In fact, I doubt there are more than a dozen individually owned jetliners in the world. All you need is for a lot of people to pool their wealth and allow it to be directed towards a common purpose. In turn, this happens because society provides entitlements (such as financial and corporate regulations, the money system, etc.) that allow great ventures to be formed and operate.

The entitlements are justified by a social theory, that the activity produces a net benefit for everybody. There may be pockets of unfairness -- no system works perfectly -- but no reason why it must allow unlimited unfairness. If it does, then there's also no reason why it can't be restrained.

[ninetyninenine]

>Nobody needs to be rich enough to own a 747, in order to justify making one

My argument is not about the justification to making or owning a 747. It's the justification for how is it realistically possible for ONE person to own enough wealth to buy a 747 EVEN when his own intrinsic abilities are not great enough to build a 747. This is orthogonal to society pooling together wealth and building a 747 AND orthogonal to the actuality of a wealthy person purchasing a 747.

At best a human can probably output the utility equivalent of 3 other human beings if that human has super strength or genius level intelligence. But the ability to make a 747 which takes thousands of man years to make? What sort fair exchange did the person engage in, in capitalist economy to generate that level of wealth WHEN at best his own output can only be 3x the average human? Obviously the exchange he made is fundamentally unfair.

The thing with communism is that it's unfair. You distribute resources equally, then actors who don't perform get an undeserved portion of wealth. Capitalism on the other hand is fair in the sense that the amount of effective effort you put in the more wealth you gain? Or is it? Then how come in capitalism you get entities that own enough wealth to buy a 747 when clearly the amount of work that person can output is obviously not even close to the amount of work used to create the 747 itself? That's the issue, and it's a small issue.

The bigger issue is that the person who has enough wealth to build a 747 has assets that will grow in compound. He will get richer and this will eat the world as what's currently happening in the actual world right now.

[martin-t]

Yesterday I had a very similar argument. Maybe I haven't been paying attention until now but this is the first time I see somebody else summarize it so clearly.

I've come to the conclusion that value (you call it wealth) is created by work. Yet the fastest way to get rich is to own already created value (a fixed amount) and use that to buy power/influence (e.g. buy a company) to take a cut from value created by other people over time (an unbounded amount).

IMO this one-time vs indefinite distinction is the core of inequality.

Currently, reward is based on capital invested, it should be based on work invested.

[ninetyninenine]

There’s a famous book on it called Capital by Thomas Picketty. It’s one of the first economic books to approach a subject utilizing a data driven approach. It’s actually published not as a text book but as popular non fiction.

The story is more complicated than just rewarding people for work. You must make them work togetheron public works that don’t directly benefit them. But people usually tend to work together only when they’re paid a salary and this can only happen if there’s a leader and huge incentives for someone to take that leadership role.

The incentive for that leadership role is the ownership of human capital.

It’s the idea of becoming dirt rich is what drives people to do startups and form corporations.

[borski]

Reminds me of this famous tweetstorm: https://x.com/naval/status/1002103360646823936?s=46&t=WBeGlu...