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Monday Message Board

October 23rd, 2017

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

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  1. Lou Wilson
    October 23rd, 2017 at 13:43 | #1

    As I said on last week’s Board, my teenage son’s doing commerce this term. And I’m trying to help – as the first mate said to the captain of the Titanic. Something they’re looking at this week is factors of production. Grateful again any comments/suggestions on the explanation below.

    If production, the central act of economic endeavour, was a symphony, it would be beautiful music to the ears of a classically-trained economist. The four movements of this symphony would be its factors: land, labour, capital, and enterprise. These factors comprise the resources or inputs that, when used at various levels of intensity, produce outputs – goods and services.

    For example, combine the Sydney Opera House site (land), with a quality professional orchestra (labour). Add bucketloads of money and support infrastructure (capital). And the innovation and coordination to bring it all together into a concert (enterprise). And you get an extraordinary symphonic performance!

    Alternatively, combine your local scout hall site (land), with a class of eight year olds from the local primary school (indentured labour). Add the violins they’ve been practicing on for several weeks, torn music sheets, and stands that collapse randomly (capital). Finally, insert Mr Green, the enthusiastic, delusional third grade music teacher with an idea for a grand violin concert (enterprise). And you get something truly awful!

    The output return from the school concert is boosted at least by the ‘weren’t the kids sweet’ emotional factor. But the market for these screeching performances won’t extend beyond doting parents, Guantanamo Bay, and other facilities looking to diversify their offerings of cruel and unusual punishments.

  2. Svante
    October 23rd, 2017 at 14:06 | #2

    I rather think the return on investment has high probability of being far greater for a class of eight year olds from the local primary school…

  3. Greg Pius
    October 24th, 2017 at 06:48 | #3

    I taught Commerce for thirty four years. It is predicated on the work by early economists. Adam Smith introduced the English speaking world to specialization and the Division of Labour. His two case studies were a hypothetical farmer (Adam Smith was raised on a farm so observed Eighteen Century farming practices) and a pin factory. His point was more on of moral philosophy instead of crash capitalism. The farmer had to do all the day to day work. Every time the farmer switched from one job to the next there was considerable down time. Labour productivity was reduced because of this inevitability as the farmer was a generalist. At the ping factory, fourteen year old boys (child labour was common at the end of the Eighteen Century) only made pins. The labour were dexterous and cheap. Their factory conditions would astound any union official today. Now Smith noted that the labour productivity of the boys was higher than the labour productivity of the farmer. He did not say one was better than the other but being Scottish he was a realists.

    So in Commerce students are taught about interdependence, specialization and the division of labour. Later they do productivity equations and case studies. But it all starts with needs and wants. Needs are limited to FOOD, CLOTHING and SHELTER. The best way to teach a teenage boy the relevance of this to his world is to get him to list his wants. Then tell him that he is a contestant on the TV program SURVIVOR. Now get him to work out which of these wants he can now hold onto whilst on that island. Remind him that there is no money.
    The DOUBLE COINCIDENCE OF WANTS makes money essential to overcome problems with the UNLIMITED nature of WANTS.

    Now your son is ready to understand RESOURCES. In economics we group all useful (to the economy) things into four areas they call FACTORS OF PRODUCTION. LAND includes ALL gifts of nature – REAL ESTATE, MINERALS, WATER, AIR and the environment. LABOUR includes all human inputs like physicality, mental toughness and intelligence (called Human Capital). CAPITAL defined by economists as the produced means of production, includes machines, buildings used for business and money capital. ENTERPRISE, is defined as risk taking, organizing skills and management skills. Now to be an economic resource these things must be assessable, known and wanted. The money price of resources reflects the degree of these three desirable traits in any resource e.g., iron ore prices, business premises rents and salary packages for senior managers..

    Hope that helps.

  4. Ernestine Gross
    October 24th, 2017 at 11:10 | #4

    Lou Wilson, you seem to be doing an excellent job in getting your teenage son to think.

    The macro-economic production function, Q = f(land, labour, capital) is meaningful and it is silly, depending on how it is used (I never found a use for it in my economist life, but others do).

    Say we adopt the convention of usage of land, labour, capital is denoted by a negative quantity and Q by a positive quantity. If Q is strictly positive as a result of land, labour and capital being used via technology f, it does not follow that therefore the positive Q is desirable (valued) by everybody or even anybody. Svante gives an example of your school children violin Q>0 is valued differently among people.

    Now, the most important question the aggregate production function leaves out is how do some people get the skills to perform in an opera. The term ‘labour’ is not helpful.

  5. Paul Norton
    October 24th, 2017 at 12:20 | #5

    QuadRANT Online states that today is the 100th anniversary of the Bolshevik Revolution. Er, no. There is the non-trivial matter ot Pope Gregory’s calendar reform to consider. However QuadRANT is correct (albeit in a sense that it mightn’t intend) when it states that “Essays by the gross will be written to observe the anniversary” and underscores the point by linking to such an essay – by the gross Steve Kates at the gross Catallaxy. Steve also isn’t up to speed with the calendar reform.

  6. Lou Wilson
    October 24th, 2017 at 12:35 | #6

    @Ernestine Gross
    Thanks Ernestine and Svante.

    Much appreciated.

  7. Lou Wilson
    October 25th, 2017 at 13:27 | #7

    @Greg Pius
    Brilliant! Thanks Greg.

  8. rog
    October 26th, 2017 at 17:19 | #8

    This seems to be serious, apparently the govt rejected the advice of the govt advisor, bypassed cabinet and awarded a private firm a large valuation which they then sold on.

    https://www.theguardian.com/australia-news/2017/oct/26/78m-spent-on-darling-water-buyback-nearly-double-its-valuation?CMP=soc_567

  9. Svante
    October 26th, 2017 at 17:27 | #9

    A Queensland Government for Adani Notice – unceremonious ground taking

    Extraordinary Queensland Government Gazette
    13 October 2017

    https://publications.qld.gov.au/dataset/gazettes-october-2017/resource/5bfa6faa-3863-4940-9530-be072355fc82

    “State Development and Public Works Organisation Act 1971
    Acquisition of Land Act 1967
    TAKING OF LAND NOTICE (No. 1) 2017
    Short title
    1. This notice may be cited as the Taking of Land Notice (No. 1)
    2017 .
    Land taken
    2. The land described in Schedule 1 (and Schedules 2 and 3. 31 parcels. 3568 hectares of agricultural land) is taken by the Coordinator-General pursuant to the State Development and Public WorksOrganisation Act 1971 for the purpose of providing for the
    establishment of an infrastructure corridor within the Galilee Basin State Development Area, and vests as an estate in feesimple in the Coordinator-General on and from 6 October 2017.”

    https://www.theguardian.com/business/2017/oct/16/queensland-labor-strategist-announces-he-will-stop-lobbying-for-adani

  10. sunshine
    October 27th, 2017 at 07:53 | #10

    @Lou Wilson

    Check out Yanis Varoufakis’ new book “Talking to my Daughter About the Economy”

  11. Lou Wilson
    October 30th, 2017 at 15:32 | #11

    Thanks sunshine.

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