34 thoughts on “Sandpit

  1. @Jarrah

    Productivity is not relevant. Workers will produce more with tools under feudalism, or market socialism, and will still provide funds for new capital development and to cover depreciation of old capital.

    Capitalism is more than this. It extracts additional value which can only be maintained by increasing the take from workers, or by collecting the market share from other capitalists.

    In the long-run, assuming competitive free markets, all of the supposed extra productivity which capitalists claim, is competed away, until only the wage of the entrepreneur is left. As Marshall said – the greater part of the apparent profit is real wages disguised in the garb of profit [Principles of Economics, ch VIII]. Only politics creates and maintains the flow of extra value to capital (beyond the necessary wage of the entrepreneur). It only exists if wages are relatively fixed by some different process.

    There is profit during a period of adjustment when a new innovation or competitive advantage is introduced, and there is no equilibrium. This comes from the previous market share of old producers. Apparent capitalist profit can be just a transfer from these now-ruined others, if politics allows this to be kept away from workers wages.

    Scarcity is not relevant because this is matched by the necessary amount of labour to obtain it and is priced accordingly. In market terms, a scarce item needing 10 hours will cost 10 hours and will sell for 10 hr equivalent. A common item needing 1 hour will cost 1 hour and will sell for 1 hour equivalent. Unless politics intervenes.

    Scarcity also exists in all forms of political economy – including market socialism. So this does not produce specifically capitalist profit. It may produce a normal profit during adjustment if a new producer finds a cheaper way of producing a scarce item than current producers. But this is competed away at equilibrium. However politics can be used to maintain artificial profits – eg copyright, licencing, etc.

    When it comes to capitalism, circular arguments are not ridiculous, they are bedrock. All capitalists prattle-on about the circular flow, in which the scenario you lampoon is worshiped. Any textbook will bring you up to speed on this.

    You concrete example does not address capitalism specifically.

    Under socialism, workers can get loans to obtain capital goods which exist because another workers has saved or diverted from consumption. Provided the final goods are sold at economic prices, there is no theft and no capitalist profit. Any profits during adjustment belong to the enterprise as a whole and all participants in the enterprise can vote on what they do with the proceeds. This abolishes theft.

  2. @Jarrah

    The general principle is that all accrued capital represents current or previous theft of the surplus value of workers’ efforts. This general principle is correct. There are grey and even white areas of exception at the edges as you note. Also, as you note (in your attempted refutation) the “theft theory” could mean theft going back over generations. This is precisely what it does mean. Sir Frank Packer stole the surplus value of workers’ production and passed on a fortune plus capital equipment to Kerry Packer who continued to steal further surplus value from workers’ production.

    You say yourself, “Workers are far more productive with access to capital goods than they are without them.” Why then should not the workers own the capital goods, the means of production? Why should a small parasitic group of non-workers own a vast amount of capital goods and the rest of society be wage slaves? Morally there is no justification for it. Economically, there is an explanation and it is found in the works of Karl Marx. I won’t repeat Marx’s arguments here. I suggest you read Das Kapital Vol 1 at least.

  3. “This general principle is correct.”

    No, it is not. It’s petitio principii, plain as day.

    “There are grey and even white areas of exception at the edges as you note.”

    Nothing grey about specific, incontrovertible refutations of your thesis. Dialectically, it has met its antithesis, and there needs to be a new synthesis. Feel free to formulate one.

    “the “theft theory” could mean theft going back over generations”

    Not ‘could’. By your logic, ‘must’. And not ‘generations’. By your logic, ‘forever’.

    “Why then should not the workers own the capital goods, the means of production?”

    Nothing stopping them. Of course, at that point your artificial binary classification of worker=/=capitalist breaks down, as it does in real life.

    “Why should a small parasitic group”

    Contributors cannot, by definition, be parasitic.

    “wage slaves”

    Wage slavery is an oxymoron, and one that does violence to the English language, and one that denigrates true slavery.

    “I won’t repeat Marx’s arguments here.”

    You’ve been doing nothing but. I’ve read Marx, and his failure to comprehend the collaborative nature of work is perhaps his most fundamental error. He needed an explanatory framework because of his concept of surplus value. He needed surplus value because of the labour theory of value. His theoretical edifice is an upside-down pyramid balancing precariously on the philosophically and economically bankrupt LTV. That’s why his extrapolations are wrong.

  4. “Productivity is not relevant.”

    Chris, it is central. Ikonoclast points out, correctly, that a proportion of value is taken by the capitalist. But the capitalist’s involvement produces more value than would otherwise exist, so it’s only right that they take a cut of the final output.

    “In the long-run, assuming competitive free markets, all of the supposed extra productivity which capitalists claim, is competed away, until only the wage of the entrepreneur is left.”

    Given certain assumptions and constraints, very true. This is part of the reason why I support competitive markets – economic rents are driven down. Of course, in real life there are all sorts of frictional factors that prevent perfect competition, starting with government involvement, as you rightly point out.

    “Scarcity is not relevant because this is matched by the necessary amount of labour to obtain it and is priced accordingly. ”

    Perhaps I wasn’t clear – I was talking about the scarcity of labour or capital, not commodities.

    “You concrete example does not address capitalism specifically.”

    They address the hollowness of Ikonoclast’s characterisation of capitalism as theft.

  5. @Jarrah

    A manager, organiser, or collective can ensure that more product exists than otherwise. This is normal economic theory. Capitalism is more than producing more growth. Obviously an individual manager, organiser, or whatever, gets a cut out of the final product but this is not a capitalist profit. Capitalist profit only exists after all socially necessary costs have been paid.

    The argument against capitalism is not based on growth, but that capitalist growth is based on either declining incomes for others or countervailing tendencies (increased debt, population increase, exports). These countervailing tendencies are unsustainable.

    A capitalist produces two sets of so-called “more value”, some by the skill and labour of the capitalist, but a second – a political demand that Capital be remunerated more than wear and tear.

    But more than this, remunerating a skilled organiser a premium income, causes no economic imbalance. However, allowing them to use politics to get more, disrupts the circular flow and we end up with a long-run tendency to ratcheting macroeconomic instability all the way to a global financial crisis. To then add on further payment for Capital destroys the whole economy.

    Ignoring the complication of credit – before Capital can be invested, it must be diverted from consumption ie saved from wages. Any additional wealth this process produces must be assigned to the savers (ie wages) or else they have no incentive to save. Also to realise the additional wealth, you need expanded final consumption funds. This must be in the hands of those who have saved from personal consumption.

    Capitalist profit certainly arises through exploiting frictional factors and capitalists have incentives to erect then around their activities. This also happens in all class-based economies and even merchantilism, in fact wherever surplus exists.

    A capitalist profit is always a fixed rate which, in theory, is not allowed to fall. Over time this rate can vary, but it exists as a rate which capital requires before it invests – irrespective of the social need for products and services. The fixed rate is demanded on the first capital circulated, but then again on the accumulated capital that arises. This, after repetition, leads to chaos and financial bailouts.

    Capitalist profit is not the windfall, entrepreneurs wages, fees for skill, or the surplus transfers generated as markets adjust. Capitalist profit is an impost on top of this, essentially funded by degrees of monopoly and other restrictions (particularly on workers wages).

    As people’s appetites are unlimited, a scarcity of labour or investment funds is the same under any economic system and does not change matters. A particular scarcity my give someone an advantage. This causes no problem if they just get a higher income. A problem only arises if they seek to capitalise on their scarce attribute. Scarcity is natural and diverting resources to produce scarce products is what wealth creation is all about. This occurs perfectly well and sustainably under market socialism, which is where the world is heading.

    A capitalist only gets the income as the personification of the political force of Capital. This divides society into those who have Capital and those who do not. As capital accumulates this division must be intensified due to the augmented amount of capital. This increases the division in society – there is no escape.

  6. @Jarrah

    “Actually, no. It refers to job benefits, and in the US that means healthcare too (they have a screwed-up halfway-house health system that is broken and needs fixing, but that’s another issue). So all your subsequent comments are moot.”

    Please accept my apologies there for doing lack of research. The reason why I believe American workers have less spending power than Australian workers is because the continuous fall on house prices and the lack of inflation in contrast to GDP growth from seeing the statistics.

    Food and shelter are basic human needs, but theres three ways of housing, rent and mortgage and government housing (which exists in Australia, not sure about America thou). More and more rational human are now thinking “own home” is a need rather than want because of education and the media that leads to fear speculations about future, especially renting cost inflates over time. Also because of this housing is considered as one of the safest investment as theorically demand for house purchase don’t drop as long as population grows (one of the major reasons why housing securities have market demands in the first place).

    After GFC, house prices in America have failed to recover and is still on a dropping trend that is caused by people taking loans that they can hardly afford to repay (whether thats a borrower’s fault or a lender’s fault being put aside) and are forced to sell their homes after losing their income. Now after such a catastrophic fall in house prices, house (mortgage) demands still fails to recover; the reason that I speculate from this fact is because house prices are much much higher than the suppose equilibrium level driven by investment demands and speculations. Also there is a continuous upward trend on people unable to afford rent, forced to share with other people, and are living in cars. How then, can the majority American workers have higher spending power than the majority of Australian workers when they can’t afford basic “need” of rent and mortgage?. An example of this can be easily demonstrated by the demand of housing in Australia have recovered and house prices are actually rising compare to falling house prices in America; also that two fulltime woolworths or coles worker (similar to Walmart) can easily afford a mortgage, cars and other luxury goods.

    When there is GDP growth (capitalism statistic) it should most likely have inflation, take the case of Australia because when there is GDP growth demand increases and so does general price level. The statistics in America is showing contradicts to it’s current economic state, companys’ are making better profit comparing to previous year, share prices recovering when there is nearly no noticable inflation that represents increase demand and the interest rate is near 0% that is suppose to put improve demand AND cause inflation? All this shows that people’s spending power is falling in America and by looking at house prices and inflation their spending power is very low compare to Australia as general economic theory suggests that when there is an output gap (economy is growing), GDP growth and inflation both exist. If this theory is false then inflation doesn’t exist.

  7. @Chris Warren
    You know, I think we are actually making progress in understanding each other on this matter. Rare for a blog thread!

    “Capitalist profit only exists after all socially necessary costs have been paid.”

    I think I get it. You are referring to what I know as economic or supernormal profit, as distinct from normal profit. Because you make that distinction – as opposed to Ikonoclast condemning all profit as theft – I can sort-of agree with many of your points.

    “it exists as a rate which capital requires before it invests – irrespective of the social need for products and services”

    The return rate needs only be perceived as higher than alternatives. So it’s not fixed in that sense. Also, the social need for products and services is reflected in the return rate. That’s the ‘invisible hand’ at work. If there is need, then there is demand. Markets respond to demand with supply.

    “A problem only arises if they seek to capitalise on their scarce attribute.”

    This relates to my previous point. If people are getting supernormal profits, that’s not ideal if we view it as a frozen snapshot. But those supernormal profits have a very important role – they tell others that there is great demand (social need) for something, and that if they move quickly, they can get a supernormal profit as well. But in the very act of doing so, they increase supply and serve the social need and – in a competitive market – reduce the supernormal profits to normal levels. I should note that determining social need is extremely difficult, and prices aren’t perfect*, but they do work pretty well, better than any other system tried so far.

    I heartily agree that policies that encourage supernormal profits (policies that prevent competitive markets working to their potential) should be avoided if at all possible. Some of these include: mandated monopolies, price floors and price ceilings, uneven taxation, subsidies and quotas. Arguments can be made that some of these will be necessary for such-and-such a purpose, or desirable for some reason, but it should be kept in mind that they all have the effect of privileging a few over the many when weighing up the costs and benefits of implementing them.

    * – Especially when so many important things are not priced, and when need is not expressed as market demand because the needy are not able to afford to participate in markets.

  8. @Jarrah

    When high prices exist attracting resources, some other sector of the economy contracts. So an increase in supply for one is a decrease for another. Any increase in wages, or profits, in the preferred sector only comes at the cost of unemployment and overcapacity in the redundant sector.

    Need does not produce demand as demand is determined by your income (ie budget constraint). In fact need is always greater than consumption – more is always better than less.

    If there is no demand because of poverty – the need can still be extreme.

    Capitalism tends to suffer from insufficient demand because, at capitalised prices, real wages cannot purchase all that is produced. This is a well known contradiction of capitalism.

    There is no problem with prices, it is how they are set that is the issue. Capitalist prices create crisis as all returns (includinf supposed return on capital) must be matched by final consumption expenditures. But final consumption is only made up from wages. The costs of any intermediate consumptions are passed into the final retail price.

    As I recall, it was Ricardo, who first noted that wages were not equivalent to the prices of products. This is the final contradiction of capitalism (although the structure of its mode of production is the real problem).

    Marx explained the specific nature of capitalism quite well in Ch. XXXIII of his work Capital.

    I tend to encourage people to start reading Marx’s Capital at Chapter 33 and skip all of chapters 1 to 3 until later.

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