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From: tonyw@ubvax.UUCP (Tony Wuersch)
Newsgroups: net.politics.theory
Subject: Re: Risk vs. Reward
Message-ID: <129@ubvax.UUCP>
Date: Wed, 13-Mar-85 16:18:05 EST
Article-I.D.: ubvax.129
Posted: Wed Mar 13 16:18:05 1985
Date-Received: Mon, 18-Mar-85 03:57:27 EST
References: <792@utcsri.UUCP> <1184@amdahl.UUCP> <458@ssc-vax.UUCP> <118@ubvax.UUCP> <507@ssc-vax.UUCP>
Organization: Ungermann-Bass, Inc., Santa Clara, CA
Lines: 82

Value:
> The value of the labor is what the customers who buy the product
> are willing to pay over the other costs of making the product (in
> other words the 'value added' in the eyes of the customer)
> In the case of my company, 5/6 of that value added goes to the
> employees as wages, 1/6 goes to the shareholders as dividends and
> retained earnings.  That is what I meant by 'more or less full value'.
> > (Dani Eder)

Not bad as a definition of the sum of value.  With one crucial addition
that I'm sure Dani wouldn't accept, it comes close to a Marxist criterion.

That addition is the shift from the notion of "employee", an payroll
category, to "worker", a person who produces.  What managers produce requires
usually less skill than what workers produce (especially skilled ones),
but it always gets more compensation in wages, a good deal more than
per employee value plus skill benefits.

The opinion of most Marxists who judge "values" in an honest way, that is,
by evaluating labor output and effort, is that the differential that managers
receive above their per employee value plus skill benefits is not value,
but surplus, of the same sort as shareholders receive.  Put that
differential on the shareholder side of the ledger and employees end up
with much less than full value.

> The risk of an employee is the wages an employee has earned but
> has not been paid for yet, times the small chance the company will
> not pay those wages on the next payday.
> The risk of the shareholder is his invested capital times the
> chance he will get back less than he invested.

As I said previously, the costs of early withdrawal and transfer have to
be factored into the amount risked, just as they are in judging whether
to buy securities or stocks.  The cost of early withdrawal over a period
is the probability of losing one's job over that period times the costs
of reinvestment and transfer.  This cost is practically nil for the
shareholder in a working stock exchange.

> > 
> > A laborer's investment strategy, I'd suggest, involves heavy fixed
> > investment (in housing, education, accumulated community ties [friends,
> > counselors, etc.]), and high overhead (fixed and regular maintenance
> > costs), relative to income received.  In situations of high unemployment
> 
>      On a discounted present value basis, my current job is worth
> hundreds of thousands of dollars.  The years I put in to be able to
> acquire such a job were well spent.  Even a minimum wage, minimal skill
> job has a present value of $80,000.

Discounted present value is a standard for judging long term investments,
under the assumption that money obtained in interest is added to the
initial capital invested over the period under consideration, and not
withdrawn (i.e. spent on any thing else) over that period.  Since most
wages must be withdrawn in order to subsist, interest and interest on
interest cannot accumulate.  Hence discounted present value is not valid
for computing the worker's return.  Her return is additive -- only the sum
of wages -- whereas the capitalist's return keeps accruing interest.  The
difference between the additive and discounted present value all goes to
the capitalist as a higher return on investment.

> > Any all-eggs investment strategy is high risk.  No investment
> > analyst would ever recommend an all-eggs strategy to a conservative
> > investor.  That almost all laborers carry out the investment strategy
> > I've outlined above (and often the fixed investment becomes more
> > extensive as the strategy enters its later phases), implies that said
> > strategy involves a high level of risk, since no conservative investor
> > in his right mind would ever pursue such a strategy.
> 
> And what do you call a two wage earner family?  I call it diversification.
> At one point a few years ago, my brother and I, and both my parents were
> all working simultaneously(not all full time, though).  That was serious
> diversification. 
>

Yes it was.  But there is still a world of difference between a 2 and 1/2
eggs investment (say, two parents full time and two children one quarter
time) and the n eggs investment a capitalist can make precisely to reduce
his risk.  A workers family can only reduce their risk so much.  A
capitalist can reduce his risk to zero.

Tony Wuersch
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