Profit within Capitalism is a result of the exploitation of the workers

Pro's theory is that all profit derives from the exploitation of labor. To prove his theory he must show that no value accrues from the time value of money, the assumption of risk, or the creative genius of the entrepreneur. The arguments in favor of the value of each of these factors include historical evidence, explanatory reasoning, and thought experiments in the form of simple problems in which circumstances are offered up for explanation by Pro's theory and the alternative offered. 1.1 Pro initially contended that payment of interest, the explicit time value of money, was an aberration of "our society" dreamed up, more or less, by capitalist exploiters in the 19th century. In fact, the historical record shows interest to be a universal phenomenon of virtually all cultures dating back at least to ancient Mesopotamia. I contend that the ubiquitous nature of interest shows it is the economic equivalent of a law of nature. If it is not a law of nature, and not a recent fad of our society, then Pro is obliged to offer an alternative explanation of why it appears universally. Pro offered no such explanation, but rather argued that something universally observed carries with it no logical implication that it is a universal law. By analogy, one must suppose that just because gravity is universally observed, it is not a law. In fact, the way that laws are discovered is precisely by observing that they operate everywhere and at all times. 1.2 In the first round of the debate, I presented the concept of "opportunity cost" that explains why money has time value. Having money now is worth more than the promise of money later, because money in hand gives you the opportunity to do things now, and that opportunity has inherent value. Even in a society without money, a fish now is worth more than the promise of a fish a year from now, because it provides the opportunity of fulfilling present needs. Pro was given an opportunity to present alternate rationale as to why opportunity cost did not exist, but he consistently ignored the explanation. In his final summary, he gave no clue that theory behind time value had ever been presented. 1.3 I offered a thought experiment to prove that money has time value. If money has no time value, Pro should be willing to give me all his money now in return for a promise to return it later. This fits Pro's definition of savings, which he espoused as logical. He could not point to the risk that I wouldn't return the money, because he separately argued that risk had no value and hence was not a consideration. Quite obviously, the proposition I offered up was ridiculous. The reason it is ridiculous is that money has time value. The challenge to Pro was to provide an alternate explanation, not using time value or the underlying logic of opportunity cost, as to why the proposition was ridiculous. He refused to provide any logical explanation, but agreed the proposition was ridiculous. when tested acutely, neither Pro nor anyone else in his right mind will act as if money has no time value. 2.1 There is a trade off of risk for reward. This is why low-rated high-risk bonds carry a much higher interest payment than Treasury Bills. It is also why a lottery ticket having a one in a hundred million chance of winning has to have a very large prize to attract buyers. Pro contends that all risks are equivalent, that, for example, a worker faces a risk of being laid off and that is equivalent to the risk of an entrepreneur who may lose his entire life savings in a failed venture. I analyzed the risk versus reward relationship in terms of expected return, the probability of a certain profit times the amount of the profit. I gave data showing the very high rate of new business failure, and the inflation corrected average return of 6.9% from the stock market. The bottom line is that the rewards are appropriate to the risks. Having explained the theory of expected return and illustrated it, Pro persists in claiming "Then there's my argument on why Capitalist risk is worth so much more reward than anything else. This is still to be countered." 2.2 Pro argued that because people will save anyway there is no point in rewarding investment risk. I rebutted that people will indeed save, but they will not invest. With no prospect of reward, rather than invest they attempt to minimize risk. The traditional way of doing that is to hoard commodities. Pro did not make a counter argument. 2.3 Pro pointed out that people will sometimes actually pay to secure savings, rather than demand interest. This practice shows that risk has value associated with it, so if risk is high enough it dominates any possible reward. If risk had no value or always the same value, as Pro supposes, then it would never happen. Pro did not rebut. 2.4 Pro argued that redundantly rich capitalists have no other use for their money, so rather than let it sit around they will invest it. That's not true. Denied reward, they will put all their attention into avoiding risk. They will hoard commodities. However it is worth refuting the basic idea that capitalists are typically redundantly rich. The data shows that roughly half the equity in the stock market is from small investors; Pro claims it is more like 30%, but the 50% figure is widely used. Besides, the primary investment mechanism of Americans is home ownership, where value is gained over time from increased demand. Pro would like to wipe that out completely, because it is not attributable to labor. The point is that Pro's whole theory is derived from a 19th century stereotype of capitalist robber barons. There are no economic laws that apply even to stereotypes. Note that in the 19th century over 90% of the population worked in agriculture; people left agriculture only because industry paid better. That's not exploitation. 2.5 In Pro's summary, the concept of risk versus reward reward, expected return, and savings versus investment were ignored, as if they were never presented. Instead pulled from nowhere, "The flaw here is that by 'Increased Risks' the Con merely means 'More money invested' as this is what really gets rewarded." I never made any such argument. That doesn't even fit the lottery ticket example: if you buy two tickets, the prize does not double, but rather the probability of winning doubles. The interest rate on junk bonds does not increase or decrease with the number of bonds purchased. An entrepreneur starting a business faces and enormous risk that is independent of the size of the investment. Venture capitalists who put in large investments expect half of their investments to lose every penny, 30% to break even, and 20% to make profits. Remove the profits, and no risks will ever be taken. 3.1 Regarding the value of creative genius, Pro concludes "common experience tells us that it's more often *not* creative genius that succeeds in the Capitalist market but a number of other things." Pro's theory is that all of profits are due to exploitation of risk, and none due to any other cause. He then concedes that sometimes it's due to creative genius, so we'll just have to decide whether or not we want to reward that. Aside from the concession voiding his theory, he makes the assumption that "we" meaning Pro and his allies, have a right to determine what to reward and what not to reward. If a person writes a hit song or a makes an innovative best-selling computer program, someone will contravene the free market to determine whether or not it gets any reward. that is an unjustifiable violation of individual rights, and a great harm to society because it has the potential of destroying the incentive to create risky works. The purpose of a theory is to describe and explain how the world works. Pro's theory fails miserably. It is unable to account for the time value of money, the need to reward increased risk, and the value of ideas. The resolution is negated.