On passive income

02 Jan 2023

Passive income is often seen as the holy grail of personal finance. It means acquiring an income without having to work. Who wouldn’t want that? Total financial freedom. It typically means owning stocks or real estate, and living off the interests / rents.

What to say about it:

  • A passive income is not so easy to obtain, but having a good income, saving, investing, time, and an average amount of luck will probably do the trick. Or lottery or inheritance for those who are even more lucky.
  • I’m not too sure about financial freedom as ultimate life goal. I’d rather focus on finding a fulfilling and interesting job with decent to good pay. Freedom is important, but having some obligations is also good. Easy for me to say right now, as I temporarily live obligation free.
  • My main point, however, is that passive income is not so ethical.

I once read a book titled “Saving is not a virtue” [1]. Quite provocative, especially in Calvinistic Netherlands, where saving is typically seen as a cardinal virtue. I think that striving towards passive income is also not quite a virtue. My reasoning is this:

  • passive income equals passive purchasing power
  • purchasing power (roughly) equals access to labor power of someone else
  • passive income, therefore, is access to labor power of someone else, without providing something in return
  • to me, that sounds like the definition of exploitation

Note that in the welfare state, some people are also awarded an income without having to provide something in return. However, I’m not opposed to those forms of ‘passive income’. Freebies for the poor and needy might be a good idea. Freebies for the rich and lazy not so much.

My current political opinion is that redistribution of income and wealth is not ideal, but needed as long as the economic system leads to unjustifiable inequalities. Unfortunately, I’m not able to precisely define what makes inequalities justifiable or not. I’m open for suggestions though.

[1] Dutch: "Sparen is geed deugd", Robin Fransman, Amsterdam University Press, 2014