The "Hidden Labor" theory of capitalist profit: why real rates are a myth

A quick thought experiment

Imagine the worst investor/capitalist  you can think of.  This person will fall for any scam or ruse, unless there is an even worse one just around the corner.  Any money he has is an open invitation to a conman or grifter.  Perhaps he has a rich uncle, perhaps he just got lucky gambling.  Either way, things do not look good for this person. Much better than trying to invest his money, this person would be better off just holding on to it.

But over the long run, such a person will not stay in "the game".  They will end up like any other tom or harry, working for a wage, or collecting some benefit. If that is one end of the spectrum, then what does the other end look like? And what is in the middle?

Somewhere in the middle between the worst investor and the most fortunate, you have someone who is miserable but competent. They can just barely hack it and stay in the game.  For these people one misstep could send them in a spiral that they never recover from.  And this is the source of the myth of real rates.

The Capitalist's Own Labor is the Source of Their Profit

Many marxists make a point of claiming that capitalists exploit labor.  While this is true, it is only true in the margin.  As a capitalist, they are slightly less exploitative than the next guy, and that is why labor works for them.  Markets are what is actually exploiting labor, and how a market shakes out depends on the political system and the property system.  Many so called capitalists are happy to turn around and lobby and manipulate the political system.  This is not capitalist or market based at all.

As a political system, I believe the word "capitalist" makes no sense.  Even as a personal philosophy or conviction, similarly, the word is meaningless.  Only in the context of resource development, or venture projects, does this phrase have a clear meaning.

The difference between a capitalist and a worker is merely in how their pay is calculated.  The capitalist is paid in profit: the difference between revenue and costs, while the worker is paid wages, a fixed contractual level of pay for time working.  While the connotation of capitalists vs. workers, conjures up images of a fat men in a suits with a cigar, bossing around a frail man in overalls covered in grease.  While this stereotype is possible in the real world, the fundamental difference between capitalists and workers is merely in how their pay is calculated.   A capitalist could find herself in stalls cleaning toilets, and a worker could find himself working in an high-rise office for wages.  In practice, this is not common in our society, but it is possible.

But in either case, one's own labor is the source of their income. Whether the system in which they labor is fair or rigged is a completely different matter.  But the capitalist takes bigger risks.  In our society, that is not because capitalists are smarter or better, only that they are more secure and more privileged. Because the capitalist's return is dependent on their efforts, the money doesn't multiply by itself, their labor is still the practical source of profit, even if it isn't an hourly compensation, but rather calculated from revenue minus expenditures.  So because the capitalist must take risk and in some cases perform labor and effort themselves, there is no rate of profit or growth which is attributable to only the capital value itself.

 Any so called "Time value of money", is really the time value of capital combined with explicit(worker's wages) and implicit labor(the capitalist's own efforts) leveraged for a profit.  Whereas a worker has capital: skills, knowledge, tools, experience, relationships, and a capitalist performs labor: research, supervision, planning, experimentation, etc, how these are tracked are very different.

For the worker, their capital is hidden, and only their labor time is tracked.  For the capitalist, the opposite is true.  Their labor is hidden and their capital is closely tracked.

 As such there is no uniform competitive equilibrium for capital.  Some people stay in the game, and others don't.  That's all.  It's an adaptive equilibrium(like tree height in a forest), and not a competitive equilibrium(like the surface of a lake).  So this is a giant source of confusion about inflation and interest. As soon as you offer a risk free rate on the government's own money, that is not time value for money, it is merely a re-denomination ofmoney.  That is why real interest rates are a myth, and per the fisher equation, interest must equal inflation otherwise.

Interest is a particular kind of inflation... It is continuous monetary inflation.  Whether the CPI moves with or against this may be complex, and rate hikes are using inflation to fight inflation, which can sometimes work, but not for the reasons many suppose.