Charles Brown writes: >> This is not a new topic, but it seems to me pertinent to progressive >> economics to continue to ask dialectical questions like: >> >> How is wealth created ? What is the source of wealth ? How do the activities >> of financiers contribute to wealth creation ? Or do they ? >> >> We have to challenge the legitimacy , the generally accepted notion , that >> it is appropriate to compensate hedge funders, for example, on the scale >> that they are compensated for their activities. >> >> For those who disdain the labor theory of value, ok. What's your theory, and >> how do you legitimize the levels of compensation in value, in wealth, that >> financiers have ?
I am sure I am going to butcher this and repeat arguments that you believe were refuted 100 years ago, but here goes. I disdain the labor theory of value for the reason stated by Whately: "it is not that pearls fetch a high price because men have dived for them, but on the contrary, men dive for them because they fetch a high price." I draw from this the conclusion that value is subjective and that economic activity is activity intended to satisfy subjective ends and desires (subjective both in absolute and relative to cost terms). Because ends are subjective, all economic activity is by necessity speculative and risky because the supplier of the good or service can never know in advance with certainty whether the economic activity will be profitable. Precisely because all economic activity is inherently speculative and risky, the decision to allocate capital to an economic activity (as opposed to any other activity) is a critical component of the economic process. The financier, by considering all of the investment options available and then choosing and risking his capital in certain options to the exclusion of others, performs that critical role. The compensation to the financier is a product of the negotiation between the financier and the entrepreneur. The price paid by the entrepeneur in turn will depend on a myriad of factors, but the market for capital may be one of the cleanest and most competitive we have, so we can have some assurance that the price paid is rationally tethered to the process. David Shemano
