The essay kind of misses the point, as the question was mostly about the meaning of word "earned".
"Earned income", for tax purposes, matches pretty closely the kinds of income many people consider genuinely earned in the moral sense. From this perspective, if a startup grows organically and the founders become rich, they have earned it. But if the growth requires capital (an investment, a loan, or the wealth the founders already have), the situation becomes less clear. How much of the success can be attributed to the contributions of the founders and how much is based on arbitrary choices made by wealthy people?
If you now assume that existing wealth is mostly unearned, any success made possible by arbitrary allocations of that wealth is similarly unearned.
Halfway through your second paragraph you started conflating income with wealth/capital.
The wealth controlled by a startup investor becomes earned income, in your words, when the founder receives pay for their work, in the form of cash or exercised options or whatever else.
To get that earned income, which is derived from wealth but is not the wealth, they have to earn it in the same way the wagies in your first paragraph earned it. The investor (on the board, presumably) has to vote him in as CEO and approve his pay package.
And just as retail customers don’t give their money away for no good reason, neither do investors.
You are focusing too much on legal definitions.
The intuitive difference is mostly between the many and the few. Between the ordinary people and the elite. If your money comes from many small streams, it looks likely that many people have independently determined that what you are doing is valuable. If there are a few large streams, the situation is less clear. Maybe your contributions are genuinely valuable, or maybe someone is picking favorites or choosing winners in advance. From that perspective, capital is a poison that permanently puts the reasons of your success in question.
Or maybe your industry just has very few, but very large, clients. Like spaceflight (SpaceX).
If anything, I remember when the U.S. Senate Appropriations Committee was picking favourites - and that favourite was ULA. Elon gave them hell.
https://m.youtube.com/watch?v=upnx_DD9zSQ
On the other hand, SpaceX has a handful of very large clients, and around 12 million small clients, which probably provide a less clumpy income.
> when the founder receives pay for their work, in the form of cash or exercised options or whatever else.
No. Earned income is salary, and taxed as such. Unearned income is capital gains, exercised options, etc, not taxed as income. It's pretty easy.
If we just use this tax office definition, it's effectively impossible to earn a billion dollars because you'd need to pay yourself ~$1.6 billion dollars in salary (depending on where you live), and very, very, few people can afford to do that
Being paid in stock is a form of income, which is taxed when given and which is separate from the additional capital gains tax levied when the stock is sold. Regardless, even if different forms of compensation are taxed different, the point is that they’re still earned.
> The essay kind of misses the point
That's a very charitable way to put it. The reality is Graham blatantly lied about what AOC wrote, and then went on and on addressing the strawman of whether you can accumulate a billion dollars.
> as the question was mostly about the meaning of word "earned".
Exactly. Which makes this entire page absurdly misdirected.
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> But if the growth requires capital (an investment, a loan, or the wealth the founders already have), the situation becomes less clear. How much of the success can be attributed to the contributions of the founders and how much is based on arbitrary choices made by wealthy people?
I don't get it. If I need to raise money to fund my startup, how are my profits more "earned" if I crowd fund $10m by finding 10,000 wage earners who will lend me $1000 each than if I borrow $10m from a billionaire?