organon

A question regarding a particular venue of wealth acquisition, in an ethical context.

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I write with the following ethical question, in the context of the acquisition of wealth; I did not want to put this in the Ethics area.

Assume an individual has the potential to acquire wealth, perhaps a significant amount of wealth, in the following manner:

1- Find a motivated seller of real estate.

2- Put the property under contract for a fraction of its market value.

3- With no improvements whatever to the property, flip the contract to another investor, in a very short period of time, for a profit of several thousand dollars or more, even much more.

Is the wealth thus obtained a value in any way to a rational man? If so, why? What virtue was exercised in the achievement of that wealth?

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The virtue of rationality for one.

Since you did not state the exact situation, I will assume a few things. The oringinal land owner could of had some personal situations that did not allow him the time to wait around for a long-term sale or just not cared to. The buyer was willing to take the risk on the property as it has the possiblity of not selling for what he expects. The original seller gets his vaue and is released from the mortgage obligation. The new owner now takes on the risk of the house not selling for what he thinks the market value is. If the buyer is very bad at judging the market value of homes he will not be in business for long.

This type of thing is done all the time with produce such as wheat, corn and other products.

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The virtue of rationality for one.

Since you did not state the exact situation, I will assume a few things. The oringinal land owner could of had some personal situations that did not allow him the time to wait around for a long-term sale or just not cared to. The buyer was willing to take the risk on the property as it has the possiblity of not selling for what he expects. The original seller gets his vaue and is released from the mortgage obligation. The new owner now takes on the risk of the house not selling for what he thinks the market value is. If the buyer is very bad at judging the market value of homes he will not be in business for long.

This type of thing is done all the time with produce such as wheat, corn and other products.

Hi Ray,

Assume the market value of the property (a single family home) is $100k.

Due to extreme motivation on the part of the seller, I am able to put in under contract for $50k.

I flip the contract to an investor for $60k, thereby profiting $10k.

My question is: how on earth do I feel in relation to this $10k? In what way did I exercise productiveness in its acquisition?

John

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You are the go between of value seekers. The first person did not hold the same value as you nor the next person that buys the property from you. Just because one person no longer values the property for what it is worth does not make you a thief for selling it for a higher value.

(I will have to expain more thoroughly later as I have an appointment to go to.)

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My question is: how on earth do I feel in relation to this $10k? In what way did I exercise productiveness in its acquisition?

The same way any man making an honest profit does, by the use of his mind, fundamentally.

There are stock/commodity traders whose specialty is buying on one stock market and immediately selling on another that has a slightly higher price for the stock/commodity. This is called arbitrage, and they are called arbitrageurs. While this seems absurd to some, or even "dishonest", it is certainly a legitimate business activity, and from a "social" view (which is not its justification, but as with all free markets, is in fact beneficial for the activities of all rational men), this keeps local markets highly synchronized globally. That is why there will never be large differences, or even small differences for long, in the price of such commodities as gold on markets around the world.

You certainly did not describe a situation involving coercion. It could well be that somebody needs money very quickly and is willing to forgo a larger profit in the future for the certainty of money today, for any number of reasons (medical, etc.) There is a time value to money, normally found as the interest rate, but also in other contexts.

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The same way any man making an honest profit does, by the use of his mind, fundamentally.

Hi Phil,

- Without question, the achievement of the wealth requires the identification the opportunity, and the actions necessary to take advantage of it.

- Yes, there is a social value; the seller, out of his home and mortgage; the buyer, into the house at 60% of fair market value.

- Without question, no theft or fraud is involved.

Yet, was there productive work involved on my part, that would allow me to take pride in this wealth?

The answer would apply also, I imagine, to gambling winnings.

Is there any immorality involved in achieving that wealth? Was it achieved through theft or fraud? No.

But was any productive virtue exercised in its achievement?

Were I to pursue such an enterprise, and succeed in achieving wealth from that pursuit, I think I would view the money very differently than money received in exchange for creative, intellectual work.

John

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The same way any man making an honest profit does, by the use of his mind, fundamentally.

Hi Phil,

- Without question, the achievement of the wealth requires the identification the opportunity, and the actions necessary to take advantage of it.

- Yes, there is a social value; the seller, out of his home and mortgage; the buyer, into the house at 60% of fair market value.

- Without question, no theft or fraud is involved.

Yet, was there productive work involved on my part, that would allow me to take pride in this wealth?

The answer would apply also, I imagine, to gambling winnings.

Is there any immorality involved in achieving that wealth? Was it achieved through theft or fraud? No.

But was any productive virtue exercised in its achievement?

Were I to pursue such an enterprise, and succeed in achieving wealth from that pursuit, I think I would view the money very differently than money received in exchange for creative, intellectual work.

John

The work and knowledge required are assessing opportunities that can in fact lead to a profit. If someone tries to buy property at random expecting immediate "easy profits" he will lose his shirt.

But there are shady operators who try to do that by deliberately exploiting the lack of knowledge of the elderly or others who don't realize what they have, or are willing to sell at a low price in the expectation that the new buyer personally values and will maintain the property the way they do. Whatever the fault of the seller for not taking the actions necessary to objectively assess the situation, such a buyer is deliberately trading on exploitation of ignorance and weakness. People who do that routinely and with full knowledge of what they are doing are typically the kind of miserable wretches you would expect and are generally seen that way by others, too. Such an approach will not lead to any kind of self esteem, and in that sense they get what they deserve, even though their manipulations are legal. But that aberration, in a rational society, can happen in almost any field, not just real estate. Such people tend to be less than ethical in many respects and are often unable to maintain the distinction in their own minds, consequently crossing the line into fraud or other crimes along the way as they push their tactics to new extremes, either blatantly illegally or through subjective rationalization progressively departing from realty. We have all encountered such wretches.

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But was any productive virtue exercised in its achievement?

Making money in real estate, consistently, over years, is no fool's game. It's like any other profession or business creation - it takes a long time to learn, it's hard work, and involves risk. But in any case, I wouldn't criticize even the person who profited from a "one off" situation. "Sure things" are usually traps with gotchas and the great deal might be not so great once more is known after your money is gone. Differentiating between that and a real opportunity takes serious work and investigation.

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I would add that there are tons of real estate speculators who've gone bankrupt or heading that way after they thought that the "sure thing" bubble would keep expanding forever.

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I would add that there are tons of real estate speculators who've gone bankrupt or heading that way after they thought that the "sure thing" bubble would keep expanding forever.

I would also add that some of the people that fail is not because of a fault on their part, as much as government intervention. If a speculator is very good at what they do, they will usually see a down turn coming before most others and possibly leave that market for another. It is when the government steps in and changes the rules that even the good/moral speculators get in trouble financially.

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I would add that there are tons of real estate speculators who've gone bankrupt or heading that way after they thought that the "sure thing" bubble would keep expanding forever.

I would also add that some of the people that fail is not because of a fault on their part, as much as government intervention. If a speculator is very good at what they do, they will usually see a down turn coming before most others and possibly leave that market for another. It is when the government steps in and changes the rules that even the good/moral speculators get in trouble financially.

I thank all of you who have yet added to the thread. The question, though, remains in my mind, to wit:

Given that no values were created, whether of matter or of service (such service a legitimate, creative addition to the life of a rational man in some way, e.g., a haircut) -- how do I regard this wealth?

Was a degree of rationality -- of identification and thorough analysis -- and of action required to carry out the deal?

Yes, without question. Analysis, for example, of the market value of the home, and the establishment of a significant likelihood of the ability to rapidly flip the contract for a profit of several thousand dollars or more.

Also, it was necessary to find the seller by whatever moral means, to establish, on a legitimate basis, trust between us, to engage in negotiations, to arrive at a price, and then to sign the contract.

But I cannot grasp how any kind of productive work -- any value creation -- was involved, that would allow me to take pride in this wealth, if at all, anywhere near the degree that I would in relation to wealth achieved through the creation and exchange of a value created by my mind.

Is there a social value? Yes, described above. Was any theft or fraud involved? Without question, no.

But, e.g., the absence of theft or fraud, though a precondition of pride in the wealth one achieves, do not provide me with a positive basis of personal regard for it.

In general, I think the philosophical point would be: is speculation a valid means of achieving wealth, for a rational man, given no values are created? (This would not, I think, apply to investment in a company on the stock market, given the basis for that investment is rational, and the wealth achieved (if successful) the result of that company's successful creation of value(s).) If it is not, how does one regard the wealth achieved through speculation?

John

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In general, I think the philosophical point would be: is speculation a valid means of achieving wealth, for a rational man, given no values are created? (This would not, I think, apply to investment in a company on the stock market, given the basis for that investment is rational, and the wealth achieved (if successful) the result of that company's successful creation of value(s).) If it is not, how does one regard the wealth achieved through speculation?

John

Wealth is measured by what people value. You have given them something they value. Of course you have created wealth. You have provided a service, and that is what you created. People have paid you to solve a problem. Anyone else was free to do so, but only you came forward.

You put your money on the line, risking your finances against your judgement. That is what you are rewarded for. As for speculators, we owe them our gratitude. It is they who smooth out the ups and downs of shortages, by buying when there is a surplus and selling when folks need it.

Wealth isn't just stuff you can point to; it is anything you value. It is also help in overcoming one's problems. If someone helps me surmount obstacles in my life, he increases my wealth.

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Wealth is measured by what people value. You have given them something they value. Of course you have created wealth. You have provided a service, and that is what you created. People have paid you to solve a problem. Anyone else was free to do so, but only you came forward.

You put your money on the line, risking your finances against your judgement. That is what you are rewarded for. As for speculators, we owe them our gratitude. It is they who smooth out the ups and downs of shortages, by buying when there is a surplus and selling when folks need it.

Wealth isn't just stuff you can point to; it is anything you value. It is also help in overcoming one's problems. If someone helps me surmount obstacles in my life, he increases my wealth.

Speculation does provide an economic/social function, e.g., in providing liquidity to the futures markets. General Mills values the ability to buy their wheat at a fixed price, and the speculator, if his bet is correct, will profit as the price moves from that at which he obtained the contract.

If rationality is exercised in the establishment of the likelihood of that price rise (i.e., rather than betting on the move because God told him so), is that a virtue? Yes.

But I do still think I would regard the wealth thus acquired fundamentally differently than wealth achieved through the creation and exchange of some real, productive value, whether of material wealth or of service.

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But I do still think I would regard the wealth thus acquired fundamentally differently than wealth achieved through the creation and exchange of some real, productive value, whether of material wealth or of service.

Why is providing a service by buying something from someone who wants to sell it to you at the time he wants to sell it not a "real, productive value"?

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Why is providing a service by buying something from someone who wants to sell it to you at the time he wants to sell it not a "real, productive value"?

The wealth would be acquired via: buying a property from an extremely motivated seller, whatever that motive might be, and selling it for a higher price, though still below market value.

Why is the purchase and sale of such a property, with the only work on my part the identification of the opportunity and the actions necessary to take advantage of it, not a real, productive value?

Because, I think, I have added nothing to the world: neither the creation of a material value, nor a skilled service (e.g., a haircut, or dry cleaning) that has legitimately added to the life of the man or men with whom I traded.

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Because, I think, I have added nothing to the world: neither the creation of a material value, nor a skilled service (e.g., a haircut, or dry cleaning) that has legitimately added to the life of the man or men with whom I traded.

Capitalism is the economical system that uses the trader principle so that each gains mutual benefit. If you were the buyer or seller of the property you leave with a mutual benefit/value. You have traded one value for another value. If you are the buyer of the property you have to decide of what value the house is worth and correspondingly the buyer has to do the same. If there is a disagreement you negotiate and come to a mutual agreement. You then trade the money, and all the values it can buy, for his value, the property. Please explain why you do not think this is a service as you have traded value for value?

Another example that you might not agree with but which I think also demonstrates a similar situation.

A weatlhy person sets up a company to buy out the life insuracne contracts of older people. If a older person has out lived everyone that he wants to leave his life insurance to he has another option than leaving it up to the courts of who to give it to. He can choose to sell his life insurance policy to a person or company that is willing to buy out his policy. He then gets the money, albeit a smaller amount, from his policy which stimulates his income so that he can enjoy more of his life. The buyer of the policy waits until the client has passed away and then collects on his investment. Did he add anything to the policy? No, but he did provide a value, that the other person might have never enjoyed otherwise.

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Because, I think, I have added nothing to the world: neither the creation of a material value, nor a skilled service (e.g., a haircut, or dry cleaning) that has legitimately added to the life of the man or men with whom I traded.

Capitalism is the economical system that uses the trader principle so that each gains mutual benefit. If you were the buyer or seller of the property you leave with a mutual benefit/value. You have traded one value for another value. If you are the buyer of the property you have to decide of what value the house is worth and correspondingly the buyer has to do the same. If there is a disagreement you negotiate and come to a mutual agreement. You then trade the money, and all the values it can buy, for his value, the property. Please explain why you do not think this is a service as you have traded value for value?

Another example that you might not agree with but which I think also demonstrates a similar situation.

A weatlhy person sets up a company to buy out the life insuracne contracts of older people. If a older person has out lived everyone that he wants to leave his life insurance to he has another option than leaving it up to the courts of who to give it to. He can choose to sell his life insurance policy to a person or company that is willing to buy out his policy. He then gets the money, albeit a smaller amount, from his policy which stimulates his income so that he can enjoy more of his life. The buyer of the policy waits until the client has passed away and then collects on his investment. Did he add anything to the policy? No, but he did provide a value, that the other person might have never enjoyed otherwise.

Yes, he did, Ray, without question, and there was of course no immorality involved.

One question: although a man might derive wealth in this way, as a form of investment, could it be pursued as one's primary purpose of wealth acquisition in life? Or rather, would a rational man make his money through productive work, then perhaps invest it in this way.

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One question: although a man might derive wealth in this way, as a form of investment, could it be pursued as one's primary purpose of wealth acquisition in life? Or rather, would a rational man make his money through productive work, then perhaps invest it in this way.

Rather, primary form of wealth acquisition in life.

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Anyone else was free to do so, but only you came forward.

That deserves to be emphasized. I think, in many areas of life, that it's an underappreciated but extraordinarily important fact.

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I would also add that some of the people that fail is not because of a fault on their part, as much as government intervention. If a speculator is very good at what they do, they will usually see a down turn coming before most others and possibly leave that market for another. It is when the government steps in and changes the rules that even the good/moral speculators get in trouble financially.

I think that if one is going to "play" in that area, he has to realize that the bubbles are fundamentally the product of capricious government control of the economy via the Federal Reserve and to act accordingly. A recognition of the capricious nature of it is part of the problem to be solved. It's a very difficult problem because of the fundamentally destructive nature of such meddling. A very sophisticated speculator might go short, or buy long term PUT options, on REITs, as a hedge against such destruction.

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"My philosophy, in essence, is the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive ahcievement as his noblest activity, and reason as his only absolute." Ayn Rand

"In evaluating an individual's productiveness morally, one must judge not by form or results, but by volitional essentials. The issue is not: what particular field do you select: because there are countless rational alternatives. Nor is the issue: how much to you achieve or how high do you rise? because, among other reasons, people differ in intelligence and, therefore, in the kind of work and scale of creativity open to them.

The moral issue is: how do you approach the field of work given your intellectual endowment and the existing possibilities? Are you going through the motions of holding a job, without focus or ambition, waiting for weekends, vacations, and retirement? Or are you doing the most and the best you can do with your life? Have you committed yourself to a purpose, i.e., to a productive career? Have you picked a field that makes demands on you, and are you striving to meet tlhem, to do good work, and to build on it - to expand your knowledge, develop your ability, improve your efficiency?

If the answers to these last questions are yes, then you are totally virtuous in regard to productiveness, whether you are a surgeon or a steelworker, a house painter or a painter of landscapes, a janitor or a company president." OPAR, pp 302

If a man is living and working according to the statements from above (within a proper context of course), it does not matter what field he acquires his wealth.

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If a man is living and working according to the statements from above (within a proper context of course), it does not matter what field he acquires his wealth.

Hi Ray,

I agree; but I think Dr. Peikoff's fundamental context here is that of: productive work, or productiveness, defined as: "the process of creating material values, whether goods or services." (Objectivism: The Philosophy of Ayn Rand, Penguin Group, 1991?, p. 292).

In the case of the speculation described above, rationality has been exercised without question, but I do not think productiveness has been -- i.e, the creation of material values, whether goods or services (services that add rational value in some way to the life of the man who whom one trades, as, e.g., with a haircut, or dry cleaning, or a health consultant, or a rational psychologist).

John

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Has the speculator not been productive in the action of supporting their most important value? life.

Is not a car salesman productive, and he does not add anything to the car? Is not a insurance salesman productive, and he has not added anything to the companies policies?

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Is not a car salesman productive, and he does not add anything to the car? Is not a insurance salesman productive, and he has not added anything to the companies policies?

Ray is exactly right. Buying and selling a house, whether over 30 years or 30 days, is essentially similar to a sales job. If Apu runs the local Kwik-E-Mart, he is productive by providing a service: he locates in a convenient location a variety of goods. Flipping a house is much the same. Mr. A sells to Mr.B, who then sells it to Mr. C and pockets the difference in price. Why didn't Mr. A sell directly to Mr. C and keep the difference himself? There could be many reasons. Maybe A believes the market is going down and wants to get out quickly, while B thinks the market is going up and wants to get in quickly. Maybe A took on too much debt and needs to sell. In each case, everyone wins.

(Now some may argue that the involvement of Mr. B raises the price for Mr. C -- which is true. But in the circumstances, Mr. C didn't get there before Mr. B. But he did beat Mr. D to the purchase, who would have fipped it again.)

Maybe part of the reason, Organon, that you aren't clearly seeing the productive aspect is that the question is asked at such an abstract level that the particular measurements of the values gained are omitted. By looking at a variety of specific concrete instances it may be easier to see. Look at why a particular owner sells to a flipper and a particular buyer buys from the flipper. Then it may be clearer that everyone wins.

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Is not a car salesman productive, and he does not add anything to the car? Is not a insurance salesman productive, and he has not added anything to the companies policies?

Ray is exactly right. Buying and selling a house, whether over 30 years or 30 days, is essentially similar to a sales job. If Apu runs the local Kwik-E-Mart, he is productive by providing a service: he locates in a convenient location a variety of goods. Flipping a house is much the same.

Hello Ed,

Without question, Apu is providing a service of value -- a locally available market, in which individuals can purchase groceries. He is without question offering, although perhaps at a premium (that they are gladly willing to pay), a value.

Now, re a salesman. What value does he provide?

Properly, I think, information regarding the value of a product: a thorough summary of its advantages, and why it is preferable to other options on the market.

Is this a valuable service, that a rational man is willing to pay for? Without question.

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