Capitalism does not reward risk

It is a common myth that capitalism has to be the way it is because we need to reward risk-takers in order to generate progress. Matt Bruenig uses his model of laissez-faire capitalism argumentation (how they switch between voluntarist, desert, and utilitarian frameworks) to dismantle the proposition that capitalism is better because it rewards risk.

1. “Capitalism should reward either hard work or risk-taking. Thus, both labor and capital income are justified.”

There are a lot of problems with this modification. The easiest problems to see are its omissions. First, it doesn’t deal with the problem that hard work in the form of wage labor is not compensated according to its personal productivity, but rather its marginal value to a firm, which is quite a bit different. Second, it doesn’t deal with the problem of those capturing the value of nature, which is not the fruit of hard work or risk-taking. This principle still is not able to reach a pro-capitalist position then, even if the modification helped some.

But the modification doesn’t help any. Capitalism does not reward risk-taking. This is easily shown. Suppose Noah and I each invest in ways that are identical in all regards with respect to risk. If capitalism rewarded risk-taking, then each of us would get an identical return. But we don’t necessarily. Suppose Noah’s investment leads to him receiving a large return, while mine leads to me receiving nothing and even losing what I put in. In that possible scenario, even though we behaved in a relevantly identical fashion, capitalism distributed us different amounts. Noah was rewarded for risk-taking. I was punished.

2 thoughts on “Capitalism does not reward risk

  1. Independent Radical January 21, 2016 at 06:56

    You cannot universally reward risk taking. If all risk taking is rewarded then there is no risk. Whenever there is risk, some people get rewarded and others penalised. When people speak of rewarding risk they can only be speaking of rewarding luck, which is the total opposite of a fair system. The idea is internally inconsistent.

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