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The Value of Oil | |
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Date: August 21, 2004 05:26 AM
Author: Arthur Bough
Subject: Part 1
Given the current increases in oil prices, I thought this was a good opportunity to demonstrate how value theory can be used. The Labour Theory of Value developed by the classical economists says the exchange value of a commodity is determined by the average amount of labour time required for its production. As most people nowadays are unfamiliar with the theory, or have been given a distorted version of it, let me briefly explain it.
For example, if on average it takes 10 hours to catch 100 fish by hand one hour's labour equals ten fish. If it takes 10 hours labour to mine 10 ounces of gold one hours labour also equals one ounce of gold and likewise, therefore, one ounce of gold equals ten fish. Assume now that the fishermen discover the idea of making fishing rods, but each fishing rod is only good for one day. If it takes 2 hours to produce a fishing rod, but the fishing rod now enables 200 fish to be caught then the cost of these fish in labour time is still ten hours 2 to make the rod, 8 to catch the fish, but the increased productivity of labour reduces the value of fish to 20 fish per hour of labour, or one ounce of gold. There is always an incentive to reduce the amount of time required to produce a given commodity. In the above example, the individual has more fish to consume or more leisure time to enjoy. Under capitalism, a firm, able to produce a good with less labour than the average, will be able to enjoy higher profits than others in the same sphere. In value theory, the rod is called constant capital because its value is simply transferred into the finished product (either as in this case 100% or in part, what in accounting would be called depreciation). Constant capital is divided into two parts one fixed capital like the rod, and secondly circulating capital i.e. raw materials used in the process of production. The labour used in production is referred to as variable capital because it is from labour that potential surplus arises. For example, suppose the fisherman needs 100 fish in order to survive, but is unable to physically work more than ten hours. He could never find time to spare to make a rod because he would need to be working all the time fishing to survive. If, however, he only needs 80 fish in order to live he has out of his 10 hour day 2 hours surplus labour. He could idle it away, or he can use that surplus time to invest and make a rod. Therefore, the value of his labour power is 8 hours (i.e. the value of labour power is the same as any other commodity the time required to produce it), but his labour power is capable of creating 10 hours worth of value, or a surplus value equal to 2 hours. With the aid of the rod things improve for him dramatically. Each day he spends 2 hours making his rod, 3.2 hours catching the eighty fish required for his survival, leaving him 4.8 hours of surplus labour time out of his 10 hour day in which to hunt, or develop new labour saving devices. This would be represented as follows.
C = 2 + V=3.2 + S=4.8 = 10 hours = 200 fish.
In the product of the 3.2 hours of necessary labour (V) .8 hours of depreciation of the rod are embodied. In the product of the 4.8 hours surplus labour 1.2 hours of depreciation of the rod are included. The necessary labour therefore embodies 4 hours in total 3.2 hours of living labour, and .8 hours of dead labour. This four hours produces 80 fish at 20 fish per hour. The surplus labour embodies six hours labour 4 .8 hours of living labour and 1.2 hours of dead labour = 6 hours = 120 fish = 20 fish per hour.
He could of course trade the 120 fish made in the 4.8 hours of surplus labour for six ounces of gold, and then trade this gold for other commodities. For example, if as a result of the division of labour a craftsmen arose who through specialisation in rod making could make a rod in 1 hour instead of two, it would be sensible to buy a rod and thereby reduce the amount of labour required to produce fish even further.
Having very roughly explained the basics of the theory let us turn to oil. In order to explain this I am using the most simplistic model to avoid unnecessary complications. Let us assume that the value of labour power is equal to £20 i.e. one hours labour produces £20 of gold. Let us further assume that the oil producer has no constant capital but uses only labour to produce the oil. He employs 10 men working a ten hour day. Each man works five hours to reproduce the value of his labour power and five hours surplus labour, which is appropriated by the capitalist as profit. So:
C0 + V50 +S50 = 100 hours = 1,000 barrels = £2 per barrel. The capitalist has a rate of profit of 100%. If we replace the hours with monetary values we have.
C0 +V1000 +S1000 = £2000
Now assume that all the oil is used by another capitalist making consumer goods. All the consumer goods are consumed by the workers and capitalists from the two spheres of production. There is no investment from profits.
This capitalist does have constant capital in the form only of the oil bought from the oil producer. He also employs 10 men working a ten hour day. Assuming the same rate of exploitation of labour each man works for 5 hours each day to replace the value of his labour, leaving 5 hours surplus labour to be appropriated by the capitalist. So.
C2000 + V1000 + S1000 = £4,000 = 1000 units = £4 per unit.
In hours this is C100 + V50 +S50 = 200.
This capitalist's rate of profit is , therefore, only 33.33%. But if this were the case then capital would automatically move to where it could make a higher rate of profit in this case the oil industry. This is the role of competition under capitalism – to equalise the rate of profit. Looked at from the point of view of the system as a whole each capitalist is only one part of a huge profit making machine, and receives a share of the total profit according to the amount of capital they put in. The way this is achieved is through the movement of relative prices. So to reduce oil profits and increase consumer goods profits till they are equal oil prices must fall, and consumer goods prices rise.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178387)
Date: August 21, 2004 05:28 AM
Author: Arthur Bough
Subject: Part 2
But as consumer goods prices rise this means that workers can buy fewer goods, and if they were already receiving the minimum then in order to continue to do so wages must rise. Consequently, rates of profit are affected again. The whole process is one of continual adjustment. To arrive at an equilibrium position we have to perorm an iterative calculation. The end result is:
(All figures are rounded)
Oil Industry C0 + V1078.8354 + S605.8230 = 1684.658 Rate of profit 56.1553%
Consumer Goods C1684.658 + V1078.8354 + S1551.8477 = 4315.342 Rate of profit 56.1553%
The price of oil falls to £1.685 per barrel whereas the price of consumer goods rises to £4.315 per unit. Both sets of workers are able to consume 250 units as previously consuming all their wages, and similarly the profits of the capitalists are also fully consumed on the remaining consumer goods, but the consumer goods capitalist, having set a greater amount of capital in motion receives more profit and is able to enjoy more consumer goods from this profit.
Assume that wages are being paid at their value, and therefore, cannot fall (because to do so would mean labour was not reproduced). The workers in both spheres purchase 250 units in total or 25 units each.
Now suppose that oil requires double the labour for its production because of poorer quality fields having to be tapped. I am assuming that labour exists to meet this requirement. If it did not then less oil would be produced, less would be available for use in the consumer goods sector so less consumer goods would be produced and overall wealth would fall (NB. Wealth is not the amount of exchange value produced, but the amount of use values produced. We may think we are wealthier if our house price is £400,000 where it was once £200,000 but in fact we are poorer because with £400,000 we could previously have bought two of these houses). So in the oil sector we have,
C0 + V2000 +S2000 = £4000 = 1000 barrels = £4 per barrel.
If all else remains the same then in the consumer goods sector we have
C4000 + V1000 + S1000 = £6000 hours = 1000 units = £6 per unit.
But if wages are already at subsistence, then instead of the 25 units per worker needed, at this new price they will be insufficient. Consequently, wages must rise to compensate, or put another way a greater part of the total labour time must go towards meeting the needs of workers and a smaller proportion go to profits. Already, for the capitalist producing consumer goods the rate of profit has fallen to 1000/5000 = 20%, even before his profit is reduced by an increase in wages for his workers. There is, therefore, an incentive for capital to move from one sphere to the other until such time as the rate of profit is equalised once more. At the point where the rate of profit is equalised the same number of barrels of oil, and of consumer goods are produced as formerly.
This scenario demonstrates the importance of the different rates of productivity in different spheres of production. For example, if the labour required to produce the basic minimum wage (value of labour power) had doubled rather than oil then it would be impossible to produce profits because all the produce of the worker during the working day would only be sufficient to cover his wages. It was this that led the Physiocrats to wrongly come to the conclusion that all surplus value was created by agricultural labour because it was only the surplus created in agriculture which led workers to be freed to work in manufacture. As the fall in productivity is in oil and forms only a part of the cost of wage goods profits are still made but at a reduced rate.
The adjustment results in the following.
Oil Sector:
C0 + V3138.5934 + S584.2198 = £3722.813
Consumer Goods
C3722.8132 +V1569.2967 +S985.9768 = £6277.187
Rate of profit now falls to just 18.614%. The position of capitalists has worsened considerably because there are fewer consumer goods available for them to spend now not just as a result of the increase in their price leading to a necessary increase in wages and reduction in profits, but also because there are twice as many workers working in the oil industry also earning wages and buying consumer goods. The reduction in consumer goods available for the capitalists to buy is matched by the reduction in their profits available to buy them.
Suppose now that there has been no change in the amount of labour required for the production of a barrel of oil, but the price rises anyway as a result of speculation or short term fluctuations in supply and demand.
In the case of the oil capitalists their costs remain at 50 hours @ £20 equals £1000. If the oil price stands at £4 his revenue is equal to £4,000 on the 1000 barrels and gives a profit of £3,000 with a rate of profit of 300%. At the same time the cost of oil to the consumer goods capitalist rises to £4,000. If his wages as they must remain at £1,000 and his revenue at £6,000 then his profit will fall to £1,000 and a rate of profit of just 20%. There will be a clear incentive for capital to flow from this sphere into oil production. The consequent increase in oil supply will reduce its price back towards its exchange value, whilst reduced supply of consumer goods will increase their price causing a consequent short term rise in wages, and fall in profits. This process will continue until such time as profit rates are once more equalised.
That is a temporary imbalance of price from exchange value results in a divergence of profit rates which through competition is equalised as a result of changes in supply and relative prices, whereas an increase in price resulting from changes in the required amounts of labour, especially where this involves primary products which impact the costs (required labour time) of other products impacts relative prices and rates of profits themselves. In the latter case, without an increase in the rate of exploitation of labour itself prices must rise, and, therefore, wages must also rise whilst profits must fall. Hence the reason for wanting to maintain cheap oil, or the opposition amongst industrialists in the 19th century to the Corn Laws. In the former case relative prices change until readjustment occurs. There is no long term effect on either wages or profits.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178388)
Date: August 21, 2004 05:29 AM
Author: Arthur Bough
Subject: Part 3
The assumption that the oil passes wholly into consumption is not unrealistic. Even if there were another sphere of production involved in capital goods manufacture which consumed some of the oil the output of this sector i.e. machines would be used in the other sectors. The labour time contained in the oil used by this sector would become part of the constant capital of this sector, and would pass through into the value of its output, and from there into the output of the other two sectors. The assumption that the oil producer uses no constant capital is not realistic, but its inclusion would not invalidate the thesis only make calculation and illustration more complex.
The long term effect of the current rise in the price of oil will, therefore, depend upon whether this is due to a real and significant increase in the amount of labour required to produce a barrel of oil, or whether it is just a short term imbalance of supply and demand, or speculation
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178389)
Date: August 21, 2004 11:13 AM
Author: Vangel Vesovski
Subject: No wonder you lefties get everything wrong...
We live in a non-linear world. Using linear equations to explain how it works does not work very well. Please try again.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178479)
Date: August 21, 2004 11:32 AM
Author: Arthur Bough
Subject: Non Linearity from a neo classicist. Do me a favour.
I made clear that I was using a linear model simply for the sake of simplicity. To make the model non linear all you have to do is to realise that a portion of the surplus value under capitalism will always be used to increase the amount of capital put into circulation. That is the virtue of the LTV - it demonstrates where the surplus comes i.e. from the process of production.
For an Austrian i.e. neo classicist to stand on the ground of non linearity is a joke precisely because neo classicism cannot show where the surplus arises from in the first place it simply assumes its existence. As a theory of distribution rather than production it assumes that profit arises mysteriously as a result of exchange. In so doing it demonstrates itself as a throwback not just to the time before Adam Smith, but to the time before the Physiocrats to the Mercantilists who shared the same nonsensical view, a view destroyed by Adam Smith himself.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178489)
Date: August 21, 2004 10:40 PM
Author: Vangel Vesovski
Your ignorance of Austrian economics is showing. And LTV has been shown to be totally useless and totally wrong for a long time now. Perhaps you need to read something that actually makes sense.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178764)
Date: August 21, 2004 12:00 PM
Author: Kenmeer Livermaile
Subject: lon-linear equations and straightforward thinking
a): "The long term effect of the current rise in the price of oil will, therefore, depend upon whether this is due to a real and significant increase in the amount of labour required to produce a barrel of oil, or whether it is just a short term imbalance of supply and demand, or speculation"
b): "We live in a non-linear world. Using linear equations to explain how it works does not work very well. Please try again."
Linear or not, simple equations suit simpler minds like mine. For straightforward progression through time, they shed some light. Whatever precessional side effects come from alterations in oil supply/demand/utility, the basic outline Mr. Bough provided seems useful.
I add this note to his final words: ("The long term effect of the current rise in the price of oil will, therefore, depend upon whether this is due to a real and significant increase in the amount of labour required to produce a barrel of oil, or whether it is just a short term imbalance of supply and demand, or speculation") The "amount of labor" in this case also includes the amount of energy required by the laborers, since this requires far more than shovels and pickaxes. Not only does a higher cost of oil translate into a higher cost of fuel to run the huge machines and chemical processes to extract the oil, but it also means a higher cost to feed the laborers, mine the metals for the machines, make/extract the chemicals required to extract the oil, ship the oil, refine the oil, ship the products thereby...
...I guess that along with factoring in increased labor wages one must factor in increased 'labor wages' to Terran geology, not to mention the cost of staying alive and having/spending stuff, period.
I believe it can hardly be overstated that the prime physical basis of today's civilization is petroleum. It's not just running cars or turning powerplant turbines or making plastics, but damn near everything we use has acquired a petroleum basis. When the ad says 'better living through chemistry', the ad is mostly saying 'better living through petroleum', since most of that chemistry is organic and raw oil is the most wonderful and by far cheapest source of basic organic hydrocarbonaceous raw material around, and certainly the one we most depend on by far.
So petroleum functions (or so it appears to me) like a graduated tax code deeply embedded into every economic transaction. Since the 'tax' is not imposed at the functioning end like a proper sales tax but imposed at all points, income, profit, and sales, the total cost is hidden from superficial view. The cost of oil compounds its way through our culture because the dang stuff's virtually EVERYwhere.
(Kinda how the miniscule prime lending rate translates into double-digit interest at the consumer end?)
Oil/coal/natural gas is both an amazingly cheap and versatile source of energy but also a phenomenal material resource. To replace this amazing boon granted us by Terra the fair will be no easy thing, especially since this boon has created a most amazing surge in human population, the very creatures who demand more and more energy/material to survive (and not just through greed but through a declining economy of scale as basic natural resources -- water, soil, climate-firendly real estate -- become smaller and smaller in proportion to those beings demanding their utility). Malthus' Ghost lingers yet...
Assuming nanotechnology will take over the heavy lifting in the materials side, we'll require energy sources capable of taking over the energy side's heavy lifting. To the extent that we devise more energy-efficient modes of life (an area with huge physical potential but immense political inertia resisting its implementation), we will increase the 'balance of favor' to our side. We will conversely decrease the balance of favor to the extent that material production requires energy (nanotech's molecular assemblers still require energy, energy that probably must be provided in the form of chemical building-block constituents of sufficient complexity that they can be 'disassembled' into desired compunds/shapes via the chemical energy stored in their complex structure, since to 'assemble' more complex compounds/shapes into existence requires energy to bet put INTO the chemical structures, and supplying energy at a molecular level seems a daunting feat of wiring/plumbing).
If we can do this under the increasingly crushing weight of a growing consuming population without going nuclearly ballistic in massive form we'll be fine. If not, we'll be royally screwed and new forms of life will swarm to fill the homo sapient eco-niche.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178505)
Date: August 21, 2004 01:34 PM
Author: anthonyedwarde
A - you're a member of the British Communist Party aren't you.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178552)
Date: August 21, 2004 04:56 PM
Author: Arthur Bough
Subject: Most Emphatically Not
I can assure you that I am not, never have been and never will be a member of the British Communist Party or any other country's Communist Party. The British Communist Party like every other Communist Party is a Stalimnist Party, and as such shares in the crimes of Stalin.
I find it amazing that people are unable to sustain an economic let alone a political debate without resorting to trying to impune the ideas of their opponents by trying to link them to some bogey man. I can understand why so few people to bother to vote in the US where this kind of approach of simply slagging off your opponent takes the place of any kind of informed debate about policies. Unfortunately, that kind of dumbing down is increasingly happening here in Britain.
I based my arguments on the Labour Theory of Value developed by such men as Benjamin Franklin, Adam Smith, and David Ricardo. But then according to Libertarians these three men are probably considered socialists as well, or if not they shortly will be alongside every other individual in the world who doesn't proclaim themselves a Libertarian.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178633)
Date: August 22, 2004 04:12 PM
Author: Kenmeer
Livermaile
Subject: My real name is S.J. Perelmann, Jr.
"I find it amazing that people are unable to sustain an economic let alone a political debate without resorting to trying to impune the ideas of their opponents by trying to link them to some bogey man."
I hate that too, but my guess is that edwarde likes to kid around. As S.J.Perelmann was once described: 'the man in the ironic mask'.
But yeah, I don't dig the wannabe clairvoyance of calling some fellow (not even yet well met) a 'deluded liberal' or 'deranged conservatiove' or whatever. Fact is, none of us here are really REAL in any sense like that. What we are here is words, ideas, symbolic labels. Pasting a symbolic label (con/lib/Keynes/Friedman) on a string of symbolic ideas (such as the postings of one Kenmeer Livermaile) is only obscuring and hiding the only that exists in this here realm: the exchange of ideas.
Which, by the way, is why I think it matters naught whether a person uses their 'real name' or not. Personally, I think one is foolish to do so. I don't. (Kenmeer's a great moniker, though, ain't it? GIft from an old friend.) What matters is that one represent oneself honestly, period. Hence one reads at the forum home page: We prohibit or strongly discourage impersonating another person.
Be whoever one wants to be, but don't be whomever somebody else already wants to be. Identity theft in the world of ideas is still theft.
I suspect that, if his mood were different, edwarde would have asked you if you were a Mason or Illuminati. Don't know. All I know is he often gives me a chuckle.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178981)
Date: August 21, 2004 04:47 PM
Author: Arthur Bough
Subject: More Labour etc.
When I said that it depends on whether it is the result of the need for more labour I meant as you say not just more labour pumping out the oil, but also more labour in terms of that involved in producing more technology to increase the productivity of the existing labour employed in the oil industry. Already you can see this with the introduction of new technologies to extract more of the available oil that formally would have been left in the ground.
Eventually, the labour required both in terms ofthis technology, and the actual labour used in oil production will become so great compared to the amount of oil produced that its cost will become uneconomic compared with alternative energy sources such as fuel cells, and capital will move into these other areas. But if past experience is anything to go by capitalism will not make this transition smoothly or in a planned and efficient manner. Given as you say the current dependence on oil this lack of a planned and efficient transfer could be temporarily devastating.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178630)
Date: August 21, 2004 10:38 PM
Author: Vangel Vesovski
I am amazed that people still take the labour theory of value seriously. Value comes from consumer demand, not the labour that goes into a product. That is why a Picasso sketch that took 10 minutes to complete can sell for $250K while a Pinto that took several hundred hours to put together would be lucky to fetch $10K.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178763)
Date: August 22, 2004 12:59 PM
Author: Finster
Subject: Labor Theory Of Value
You draw a critical distinction. I think our prolix anticapitalist is confusing value and cost. Labor determines cost, but as you correctly note, not value.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178910)
Date: August 23, 2004 06:20 AM
Author: Arthur Bough
Subject: Not So
I suggest you go back and read Adam Smith or any of the other "anticapitalists" that developed the LTV. There is no confusion on my part or on Smith's. The confusion is on the part of those that mistake price for value. The cost of a product is not at all the same as its value. A products cost is made up of the values it embeds from the raw materials it contains, the portion of machinery and fixed capital used up in its production, and the wages of the workers that produce it. The value of the product if sold at exchange value also includes the profit. That is why the LTV is able to demonstrate that although products sell at their value they contain profit whereas neo classical theory like mercantilism believes that profit somehow miraculously appears as a result of exchange which as Adam Smith demonstrated is a complete nonsense. Simple example,
I have £50, you have £50.
I have a product worth £10. You have a product worth £10.
I buy your product above its value for £15.
You buy my product below value for £5.
End result I have a product worth £10 for which I paid £15 giving you a "profit" of £5. You have a product worth £10 for which you paid £5 also giving you a profit of £5 (if you were to resell it for £10). I now have £40, you have £60. You seem to have profited from the exchange, but from the point of view of the whole process their still exists two products worth £10, and £100 in money. In other words not a thing has changed except the physical location of the commodities and money. Such did Adam Smith demolish the Mercantilists arguments more than 200 years ago, but Austrians and neo classicists still haven't grasped it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179157)
Date: August 23, 2004 10:52 AM
Author: Vangel
Vesovski
It is you who have failed to grasp the fallacy of the LTV. If the LTV had merit an item made by a slow worker would be worth more than one made by a faster one. But that is not necessarily true. The value of an item only comes from the willingness of a consumer to pay something for it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179203)
Date: August 23, 2004 12:53 PM
Author: Arthur
Bough
Subject: You Have Just demonstrated your ignorance
perfectly
I f you took the trouble to read Adam Smith you might actually learn something which would avoid you making the kind of moronic statement you have just made which demonstrates that you obviously have not read Smith or understood the LTV.
The LTV as expounded by Adam Smith, David, Ricardo, Benjamin Franklin (none of which you have obviously taken the trouble to read) says that the exchange value of a commodity is determined by the amount of AVERAGE SOCIALLY NECESSARY LABOUR required for its production. Had you read any of these great thinkers and understood what they were saying you would understand why this answer the ridiculous point you make. Nowhere does Adam Smith talk about individual acts of labour, and in fact makes clear that he is not doing so. This also answers your rather ridiculous Picasso example.
It is precisely because exchange value is determined by AVERAGE SOCIALLY NECESSARY LABOUR that there is an incentive for capitalists to reduce the amount of time beneath this average in order to make a higher rate of profit than otrher capitalists in their industry. Before criticising Adam Smith and the LTV I suggest you read him and try to understand the theory. You will embarrass yourself less that way.
Similarly, this answers your Picasso example. How much AVERAGE SOCIALLY NECESSARY LABOUR is contained in a Picasso. In other words how long would it take the average labourer to reproduce this picture. The answer is they never could because it is unique. Those even who have considerable talent in trying to do so are called forgers, and their products forgeries.
Similarly with your nonsense about demand creating value this point to was answere by the classical economists 200 years ago. Even before the classical econoimsts Thomas Aquinas answered your point by noting that whilst utility was a necessary condition for a commodity to have exchange value that utilityn could in no way be a measure of its value. Your position as of all neo classical economists is a reversion to the dead end that Aristotle went down of confusing use value with exchange value.
A commodity to be commodity must by definition be useful to someone even if they only believe it to be useful or the labour used up in making it is just wasted. But lets take your argument and examine it. Take commodity A. It costs £80 to produce (made up of the wages, the raw materials [also themselves the product of labour], and the part of the machinery etc. used up in producing it {also the products of labour}. It sells for £100 giving a £20 profit. Suppose demand for the product falls in half. What is the result. The price will undboutedly fall because of unsold items that need to be cleared. Let's say its price falls in half as you believe that demand creates value. Will its price remain at £50. No of course not because at that price no capitalist could make a profit from producing it. The actual course of events will be that the supply will be reduced until it matches demand. At that equilibrium point what price will the commodity sell at (all else being equal) £100 once more because only at that price can the capitalists involved in its production make the average profit, and if they can't make the average profit they will move their capital elsewhere. So the price will remain the same in the long term despite the demand falling in half precisely because the price is determined not by demand but by supply, by the cost of producing a commodity and of returning the average profit to the capitalist. But what are the costs of production? As pointed out above they are all resolvable back to the products of labour.
The price may (indeed probably will) fall, but not for the reason you suspect. The reason the price will fall is that the less efficient producers will be the ones to go out of business. The more efficient capitalists (the ones who use less labour to produce the commodity [either in terms of the current labour directly employed or the labour embodied in the raw materials and equipment]) will be the ones who remain. Consequently, as the commodity now on average contains less AVERAGE SOCIALLY NECESSARY LABOUR its exchange value will fall and ceteris paribus so will its price. But it is the changes in the efficiency of production, the amount of labour contained in the product which bring about this change not any change in demand.
Quite frankly, I am amazed that anyone tries to justify the nonsense of neo classical economics. In most part it is a throw back to all the mistakes of the Mercantilists, and people like Say. At least they had an excuse - Adam Smith had not demonstrated why their ideas were wrong. The neo classicists had no such excuse.
But in reality the only people who refer to neo classical economics are the college professors, the professional scribblers and ideologists and their sycophants. In the real world capitalists continue to measure their productivty in man-hours, they continue to set their pricing on the basis of average total cost plus an approximation of average profit.
And when capitalism was really in shtuck during the 1930's the capitalists ever aware of their own self interests quite sensibly took no notice of the drivel being put out by people like Von Mises. As a contributor to the DR said ina recent edition it was amazing that the US did not go down the route of Communism or Fascism at that time, and it was due to FDR that it didn't. At the time Von Mises was arguing for cuts in wages, and interest rates to boost the rate of profits blissfully unaware that although this might have increased the potential rate of profit that isn't much good to a capitalist if he can't sell his goods to realise the profit. Had they folowed Von Mises advice the crisis would have got much worse before it got better, and as the contributor cited above suggests probably would not have got better at all but been replaced.
Perhaps thats it. As Libertarians seem to think that everyone now is a socialist perhaps Von Mises was really a socialist. Perhaps it was a cunning plan to create such a crisis of capitalism that the whole system collapsed and was replaced.
Adam Smith and David Ricardo were the greatest advocates of capitalism of the 18th and 19th century. In their theory they were not afraid to try to uncover how the system really worked and saw no problem in identifying the source of value as labour, and the source of surplus value as arising from the exploitation of labour. Why should they shy away from that fact at that time the workers had not organised to challenge the system. But their second rate critics amongst the neo classical economists lived in a different world and rather than justify the exploitation they tried to deny it even existed.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179252)
Date: August 23, 2004 04:13 PM
Author: Vangel
Vesovski
The LTV as expounded by Adam Smith, David, Ricardo, Benjamin Franklin (none of which you have obviously taken the trouble to read) says that the exchange value of a commodity is determined by the amount of AVERAGE SOCIALLY NECESSARY LABOUR required for its production.
Smith, Ricardo and Marx were wrong when it came to the theory of value. The problem with attempts link value to some objective factor such as labour should be obvious to anyone who can think clearly. If the value of a painting depends on the labor that went into creating it, how do we determine the value of that labor? Is my hour of painting of the same value as that of a Monet?
Von Mises was really a socialist.
I take it then that you have never actually read anything that he wrote. Or are you just using your typical Marxist logic to come to that conclusion.
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Date: August 23, 2004 05:44 PM
Author:
Arthur Bough
Subject: Saying Something is wrong does
not prove it so.
You repeat that Adam Smith etc. were wrong about the LTV, but every time you put forward this argument you fail to prove it, and as with your last missive you prove that you have never read the works of Smith or any of these great thinkers otherwise you would not have made the stupid (and I don't want to be derogatory but that is the only word that fits) comment you did about the most inefficient producer making the most valuable commodity.
You compound that error in your latest submission though more understably because Adam Smith admitted he was a bit confused over the issue you raise too. But the answer is actually quite straightforward.
Smith also confused a number of separate categories that appear to be the same most notably the concept labour and labour power. The value of labour is the same as any other commodity the labour required for its production. Taken as its minimum this is the bare necessities that are needed to ensure the continued existence and continuation of those who labour. In the context given to it by value theorists it also includes those things that are taken as forming the normal standardd of living for that particular time period. If it takes say 5 hours out of a ten hour working day to produce these necessaries then the value of labour is equal to five hours labour, which is also equal the goods that embody five hours of labour. If it takes five hours to produce five ounces of gold then five hours labour are equivalent to five ounces of gold.
The unique characteristic of labour and this was where Smith's confusion came in is that whilst its value might be five hours labour = five ounces of gold, it has the capacity to produce more than its value. What the worker sells to the capitalist is not labour, is not the five hours labour that constitutes his wages, but his labour power his ability to work not just for the five hours necessary to maintain his existence, but ten hours, and in that five extra hours is produced the equivalent of five hours of surplus, or yet another five ounces of gold which is not paid for and is the source of the capitalists profit.
This is no different than the peasant who worked for three days on his own land to produce his own maintenance and three days on the landowners land as a surplus, or of the slave who gave all of his labour to the slave owner whilst the slave owner gave part of it back to him in order to maintain him. Only the form of exploitation has changed.
So the value of Labour is determined like any other commodity by the labour required for its production. Some labour will indeed require more labour for its production than others - a doctor for example requires not just the labour required to reproduce the necessities of life, but the labour of all those who provide his/her education and training. Adam Smith called this complex labour, and to answer your question about Monet the answer as I have already given it is two fold. Firstly, you confuse the price of the painting with its value - some objects will have a very high price which may or may not reflect their value precisely because they are unique, just as a monopolist is able to enjoy monopolists profits. Secondly, a Monet like any other valuable work of art is the product of an unusual talent which precisely means that there is nothing average about it. Even in these peculiar examples the LTV still provides an answer, whereas in no case of real life does neo classical theory provide an answer.
Von Mises was a socialist. No of course I don't believe that I was just being ironic about the fact that in the fantasy world constructed by Libertarians it is not just socialists who are socialists, but bankers, capitalists, conservative politicians and apparently now you seem to think that Adam Smith was a socialist so why not Von Mises whose advice if followed would have been probably the quickest way to socialist revolution in the 1930's.
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Date: August 23, 2004 07:45 PM
Author: JB
Subject: The Austrian School makes it's case - Part
1
Direct & to the point:
The Austrian School and the Theory of Value by Friedrich Wieser The Economic Journal, volume 1
Snippet:
The value of commodities is derived wholly from their utility, but the utility they afford is not wholly convertible into value. Commodities which may be had freely in abundance are of no value, however much utility they may afford. But those commodities too, which, because they are not to be had in sufficient quantity, are valuable for the sake of their utility, acquire a value which as a rule is less than their utility. The harvest, to which a nation owes the maintenance of so many millions of lives during a whole year, has a value which is no approximate expression of the service rendered. Nor ought it to be; the value should express, not the total utility, but only a part of it, 'the final degree of utility', as Jevons said, the 'marginal utility' (Grenznutzen) as we say. The value of the harvest is reckoned by multiplying the supply, the quantity of in- gathered harvest-units, by the marginal utility. All the utility above the margin, all 'surplus utility' (Uebernutzen), including precisely that which relieves necessity in the highest degree, is neglected and finds no place in value at all. I will tarry no longer over these propositions familiar to every English student of Jevons. The Austrian school, it is true, assigns to the propositions a slightly different meaning and a slightly different basis; to this point I shall revert later. For the present I will examine by the light of this principle of value a few of its intricacies.
The agents of production, land, capital, and labour, derive their value from the value of their products, ultimately, therefore, from the utility of those products. As stock is valued by the expected dividend, so is the field by the expected crop. A simple idea; yet thereby hangs one of the weightiest problems. Land, capital, and labour yield a return only by their combined agency. Now what is the clue to the distribution amongst the separate effective factors of this joint return? The comparison with stocks and dividends is of no further use to us here, for one share in an investment is like another, while land, capital and labour are diverse. Even if labour according to the instructions and under the direction of the inventor, so as to refer every part to its true originator? Theorists have hitherto set down this problem as insoluble, and insoluble it is as commonly stated. It is impossible to put it briefly, to give a reply to the question as to which part of the child is derived from the father and which from the mother. The question in itself is an absurdity. But is is just in this sense that the problem does not admit of statment, if it is to be correctly stated in the light of practical economy. What is required in economy is, not physical division of the product amongst all its creative factors, but the practical imputation of it, imputation in the sense used by a magistrate in speaking of a legal 'charge'. A sophist might maintain the impossibility of determining amongst the thousand conditions, without the conjunction of which a murder could not have been effected, what share in the deed fell on the murderer; the judge, unperplexed by such scruples, sifts those thousand causes solely to get at the responsible author, and charges him with the responsible author, so in economy, it is always amongst the thousand implicated causes with the practically determining factor that we have to do.
A field cultivated with the same expenditure of capital and labour as another field of greater fertility yields a larger return. Their surplus crop is by no means produced by the field alone, capital and labour as well are wrought into it; nevertheless every agriculturalist will rightly charge not the capital nor the labour with the crop,but, simply and solely, the better field, the value of which is raised by just the amount of the surplus. Such a judgment, so far from being illogical, embodies a great practical truth. In imputing the return by this method, I am enabled to find the correct adjustment of the economic measurement, which has to be carried out in the case of the commodities of production. It would, for example, be impossible for me to decide whether to purchase a machine and what price to consent to give for it, if I did not know how to calculate the work it would do for me, i.e., what share in the total return to my undertaking should be imputed to it in particular. Without the art of imputation there would be no business calculations, no economic method, no economy, just as without the system of criminal charge, there could be no society. Fortunately the practice of it is universal, everyone, be he never so stupid and inexperienced, applying it though with varying degrees of acuteness. These rules of economic imputation as used in practical life the Austrian school has endeavoured to connect by way of theory. The principle under which it formulates them points back to its general principle for estimating value. If I say 'free commodities have no value for me,' this means that I do not 'charge' them with the utility which they afford. The reason for this is, that I do not feel myself to be dependent upon them; if that supply which happens to be next to hand were for some reason or other to be withdrawn from my possession, I could take any other quantity from the abundance everywhere about me and use it. I impute utility only to those commodities which are not to be had in profusion, and on which I feel myself dependent in consequence, I meanwhile reflecting, that with every portion lost from my possession I lose a definite utility not to be had without it. Now the agriculturalist, in losing a cow from his yard, does not forfeit with her the whole return on his farming, but suffers only a certain diminution in it, just as in the opposite event of his introducing some improved machinery he gains a certain increase. In these diminishing and increasing returns, varying with the variations in productive combinations, the principle of imputed returns finds its simplest elucidation, notwithstanding the many difficulties arising by the way. Space fails me to explain my meaning more precisely. I will only specify further, that in the particular instance account must be taken of supply, demand, circumstances of allied products, technical progress, etc., in short of all the well-known conditions, from which experts are able with so much success to infer what importance to attach now to this, now to that, element in production.
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Date: August 23, 2004 07:51 PM
Author:
JB
Subject: The Austrian School makes it's case -
Part 2
Analysis:
Excerpts from John Moser, "The Origins of the Austrian School of Economics," Humane Studies Review, 11: 1 (Spring 1997)
The subjective theory of value, one of the Austrian school's main pillars, actually goes back to the medieval Scholastic philosophers. These thinkers asserted that to possess value an object must be both useful and scarce. 1 Especially significant among the scholastics was the so-called Salamanca school of 16th century Spain, a group of men whom economist Murray Rothbard referred to as "proto- Austrians."2 At the time the dominant theory of value was that of the just price, a variant of the cost-of-production theory which has manifested itself in many forms throughout the centuries, most recently and persistently in Marx's labor theory. In response to this Luis Saravia de la Calle wrote in 1544 that
"Those who measure the just price by the labour, costs, and risk incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of traveling...or by what he has to pay the factors for their industry, risk, and labour, are greatly in error.... For the just price arises from the abundance or scarcity of goods, merchants, and money...and not from costs, labour, and risk.... Why should a bale of linen brought overland from Brittany at great expense be worth more than one which is transported cheaply by sea?... Why should a book written out by hand be worth more than one which is printed, when the latter is better though it costs less to produce?... The just price is found not by counting the cost but by the common estimation."3
The Salamanca school, however, rarely followed this idea through systematically, and, as F.A. Hayek has written, "never to the point of realizing that what was relevant was not merely man's relation to a particular thing or a class of things but the position of the thing in the whole...scheme by which men decide how to allocate the resources at their disposal among their different endeavors."4
It has been common for historians of economic thought to link all "free-market" theories together in a common chain, and to give undue weight to the ideas of the Scottish Enlightenment and especially to Adam Smith. However, these thinkers had little influence on the Austrians, who drew largely on French subjectivist economists such as E.B. de Condillac, Louis Say, Auguste Walras, and Jules Dupuit. The classical school of political economy pioneered by Adam Smith and David Ricardo, meanwhile remained wedded to an "objective" theory of value; as late as 1848 John Stuart Mill in his *Principles of Political Economy* not only reiterated the classical argument but calmly asserted, "Happily, there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete."5 Adam Smith, long held up as the paragon of free-market capitalism, was severely criticized by Murray Rothbard, who claimed that "his devotion to laissez-faire was dubious at best," and that his economic theory was "retrograde and disastrous."6
It is in [Friedrich] Wieser's principal work, *Wesen und Hauptgesetz des Wirtschaftlichen Wertes*, that we find his most significant contributions to economic theory. It was Wieser who coined the term "marginal utility" (*Grenznutzen*), a phrase which has now come to be associated with all subjectivist theories of value since those of Jevons, Walras, and Menger. Wieser interpreted costs in terms of sacrificed utility (or "opportunity costs," as they have since come to be known)--means which would otherwise be employed elsewhere.7
Endnotes
1-F.A. Hayek, "Economic Thought VI:
The Austrian School," in David L. Sills (ed.),
*International Encyclopedia of the Social Sciences* (New
York: Macmillan and Free Press, 1968), p.458.
2-Murray N.
Rothbard, "Adam Smith Reconsidered," *Austrian Economics
Newsletter* 9 (Autumn 1987), p.5.
3-Murray N. Rothbard,
"New Light on the Prehistory of the Austrian School," in
Edwin G. Dolan (ed.), *The Foundations of Modern Austrian
Economics* (Kansas City: Sheed and Ward, 1976),
p.55.
4-Hayek, "Economic Thought," p.458.
5-Ibid.,
p.459.
6-Rothbard, "Adam Smith Reconsidered,"
p.7.
7-Erich Streissler, "The Intellectual and Political
Impact of the Austrian School of Economics," *History of
European Ideas* 9 (1988), p.192.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179343)
Date: August 23, 2004 07:56 PM
Author: JB
Subject: The Austrian
School makes it's case - Part 3
The root of misguided thinking as explained by the master:
Catholicism, Protestantism, and Capitalism By Murray Rothbard
On Aug. 8, 1957, Murray N. Rothbard wrote to Richard C. Cornuelle of the Volker Fund, strongly recommending Emil Kauder's reseaches into the Aristotelian background of marginal utility and Austrian economic theory (Rothbard Papers). In a memo of February 1957, "Catholicism, Protestantism, and Capitalism," reproduced below, Rothbard set down some thoughts on these matters. Rothbard's letters reveal an early and keen interest in the history of economic thought. The memos he wrote for the Volker Fund, from the early fifties down to 1962, on a large variety of books and scholarly journals, show off his growing knowledge of the subject. In addition, Rothbard's dissertation director, Professor Joseph Dorfman, was an authority on the history of American economic thought, and Rothbard was very interested, among other matters, in American contributions to the monetary debates of the early 19th century. Rothbard, as much a historian as an economist, was well-placed, not only to assess books for the Volker Fund, but also to grasp and synthesize economic doctrines logically and in historical perspective. His last major published work, his two-volume History of Economic Thought (1995) certainly stands as proof. ~ Joseph Stromberg
In recent years, a group of scholars (most of whom might be called "right-wing Catholics") have set about revising the standard interpretation of the rise of economics and of capitalism, which holds that, the thought, as well as laissez-faire economic policies, which nurtured capitalism, developed as an outgrowth of the casting off of medieval Catholic shackles. The modern spirit of scientific inquiry defeated scholastic dogmatism and enabled growth of a generally individualist and rationalist spirit; casting off of Church authority led to a general individualism in all fields; the Calvinist spirit and ethic, emphasizing the positive value of hard work, thrift, and money-making, led to a flowering of capitalism as compared to the effect of Catholic frowning on money-making; laissez-faire economics grew in the Protestant atmosphere of Britain (Adam Smith, etc.).
There is, however, another side to the coin, and contrasting interpretations, particularly in the fields of political philosophy (the effect of natural law, for example) and economic thought, have appeared in the last couple of years. For readings in this New School, I would suggest: Joseph A Schumpeter, History of Economic Analysis (New York, 1954), esp. pp. 73–142; Marjorie Grice-Hutchinson, The School of Salamanca (Oxford, 1952); Emil Kauder, "Genesis of the Marginal Utility Theory," Economic Journal (September 1953); Kauder, "Retarded Acceptance of the Marginal Utility Theory," Quarterly Journal of Economics (November 1953), and "Comment" (August 1955); and Raymond de Roover, "Scholastic Economics: Survival and Lasting Influence from the 16th Century to Adam Smith," Quarterly Journal of Economics (May 1955).
These revisionists have done little directly on one of the cornerstones of the standard approach – Weber's Protestant Ethic – but more than that by indirection. Recommended is the critique of Weber by H. M. Robertson, Aspects of Economic Individualism (London, 1933). Robertson and others have pointed out, for example, that capitalism really began flourishing, not in Britain, but in 14th-century Italian cities, i.e., in decidedly Catholic areas. In fact, the main point of the Revisionist critique, in all the fields, is continuity – that capitalism, liberalism, rationalism, economic thought, etc. began long before Smith et al., and under Catholic auspices. And that the later developments built on, and in some cases retrogressed from, earlier Catholic views.
Kauder, in fact, turns the Weber thesis1 on its own followers by attacking Smith and Ricardo for being influenced by Protestantism to develop the "labor theory of value." Schumpeter also leaned in this direction. The brunt of this important new thesis is this: rather than saying that Hume and Smith developed economic theory almost de novo, economics had actually been developed, slowly but surely, over the centuries by the Scholastics and by Italian and French Catholics influenced by the Scholastics; that their economics was generally individualist methodologically, and stressed utility theory, consumers' sovereignty and market pricing, and that Smith really set back economic thought by injecting the purely British doctrine of the labor theory of value, thus throwing economics off the sound track for a hundred years. Here I might add that the labor theory of value has had many bad consequences. It, of course, paved the way, quite logically, for Marx. Secondly, its emphasis on "costs determining prices" has encouraged the view that businessmen push up prices or that unions push up prices, rather than governmental inflation of the money supply. Third, its emphasis on "objective, inherent value" in goods led to "scientistic" attempts to measure values, to stabilize them by government manipulation, etc.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179346)
Date: August 23, 2004 07:57 PM
Author: JB
Subject: The Austrian
School makes it's case - Part 3a
Now, Kauder's interesting thesis is in two parts: one, that the above was the historical course of events in economic thought; and two, that the reason for this forgetting of utility theory and replacement by a labor-cost theory was influence by the Protestant, as opposed to the Catholic spirit.
Kauder maintains, first, that utility theory was developed to a high degree by, first Aristotle, and then, the scholastics, particularly the neglected late Spanish scholastics of the late 16th and early 17th Centuries. Most historians have ignored the late scholastics and their influence, at least until recently. The standard idea is that the scholastics died out with the Middle Ages, and the gap in between was peopled only by the mercantilists. The mercantilists, however, were pro-statist ad hoc pamphleteers, and contributed less to economics and to liberalism than the late scholastics. (See DeRoover.)
Emphasis on subjective values of individuals and utility was also continued by the great Protestant political philosophers Grotius and Pufendorf, who were directly influenced by the Spanish scholastics (also, as we will see below, in the field of natural law), and by Italian economists de Volterra (mid-16th century), Davanzatti (late 16th), Montanari (late 17th), and especially Galiani (about 1750). Theory was further developed by Turgot and Condillac, French Catholics (mid-18th century). By the time of the latter three, in fact, Kauder claims that the "value paradox" (gold vs. iron) had been solved by its utility theory, only to have Smith-Ricardo toss it away and reestablish the value-paradox problem. (I might add that the resultant holistic approach by Smith and Ricardo was subtly socialistic in still a fourth way: it established the fashion of separating Distribution from Production, and of talking only about groups of factors instead of individual factors – labor instead of laborers.)
Now, Kauder goes on to point out that the Italian-French subjective value, utility theorists were Catholics, while the labor-value theorists: Petty, Locke, and Smith were British Protestants. Kauder attributes this precisely to the Calvinist emphasis on the divinity of work, as opposed to Catholic thought, which only considered work as a means to making a living. The Scholastics, then, were free to come to the conclusion that the "just price" was essentially the freely competitive price set on the market, whereas the Protestant-influenced British had to say that the fair price is the "natural" price where the "amount of labor exchanged in each good is the same." DeRoover points out that the late Spanish scholastics Domingo de Soto and Luis de Molina both denounced as fallacious Duns Scotus' dictum that the just price equals the cost of production plus a reasonable profit. In fact, Smith and Locke were influenced both by the scholastic stream which they acquired from their philosophic training, and the Calvinist emphasis on the divinity of labor. It is true that Smith believed that free competition would eventually bring market prices around to the "just price," but it is evident that a danger has been introduced – a danger that Marx fully exploited (and, in fact, that lingers on in the imperfect competition theories, which are akin to emphasis on some juster world where the "natural" or "optimum" prices reign). Thomists, on the other hand, always centered their economic studies on the consumer as the Aristotelian "final cause" in the economic system, and the ends of the consumer are "moderate pleasure-seeking." By the 19th century, Kauder says, religious influences on economic thought were not important. He does point out, however, the importance of his strict Evangelical background for Alfred Marshall. Marshall's father was a very strict Evangelical, and the Evangelicals were strict Calvinist-revivalists. Perhaps this is why Marshall resisted utility theory, and insisted on retaining much of Ricardian cost-theory, which even yet persists as a result.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179347)
Date: August 23, 2004 07:58 PM
Author: JB
Subject: The Austrian
School makes it's case - Part 3b
I would like to add further comment, however. The most "dogmatic" laissez-fairists in the 19th century were not the British, but the French (Catholic) economists. Bastiat, Molinari, etc. were much more rigorous than the ever-pragmatic English liberals. Further, laissez faire theory was developed in fine flower by the Catholic Physiocrats, who were directly influenced by natural law-natural rights thought.
This brings me to the second great influence of the Catholic scholastics – the natural law, natural rights theory. Certainly natural law was a great hindrance on state absolutism, and it began in Catholic thought. Schumpeter points out that the divine right of kings was a Protestant theory. The natural law, natural rights theory, also came down from the scholastics to the French and British moral-philosophers. The connection was obscured by the fact that many of the 18th-century rationalists, being bitterly anti-Catholic, refused to acknowledge their intellectual debt to Catholic thinkers. Schumpeter, in fact, claims that individualism began in Catholic thought. Thus: "society was treated (by Aquinas) as a thoroughly human affair, and moreover, as a mere agglomeration of individuals brought together by their mundane needs… the ruler's power was derived from the people… by delegation. The people are the sovereign and an unworthy ruler may be deposed. Duns Scotus came still nearer to adopting a social-contract theory of the state. This… argument is remarkably individualist, utilitarian, and rationalist…."2 Schumpeter also stresses Aquinas' defense of private property. Schumpeter particularly mentions the anti-statist spirit of the scholastic Juan de Mariana, 1599. He also treats their adoption of the market price as essentially the just price, utility theory, subjective value, etc. He says that while Aristotle and Scotus believed the normal competitive price was the just one, the later Spanish scholastics identified the market price with any competitive price, e. g., Luis de Molina. They also had a gold standard theory, and opposed debasement. Schumpeter also says that de Lugo developed a risk-theory of business profits, which, of course, was only fully developed at the turn of the twentieth century and later.3
While the 18th-century natural-rights theory was much more individualistic and libertarian than the scholastic version, there is a definite continuity here, too. The same is true for Rationalism, reason having been the main device used by Aquinas, and reason having been fought by Protestants, who place their theology – and their ethic – on a more emotional, or direct Revelation, basis.
We may sum up the Case for Catholicism as follows: (1) Smith's laissez-faire and natural law views descended from the late Scholastics, and from the Catholic Physiocrats; (2) the Catholics had developed marginal utility, subjective value economics, and the idea that the just price was the market price, while the British Protestants grafted on a dangerous and ultimately highly statist labor theory of value, influenced by Calvinism; (3) some of the most "dogmatic" laissez-faire theorists have been Catholics: from the Physiocrats to Bastiat; (4) capitalism began in the Catholic Italian cities of the 14th century; (5) Natural rights and other rationalist views descended from the Scholastics.
I would also recommend, for a chilling example of Protestant-Calvinist influence leading to a philosophy of altruist socialism, reading Melvin Richter, "T. H. Green and His Audience: Liberalism as a Surrogate Faith" Review of Politics (October, 1956).
Although tangential to this particular memo, I would also highly recommend Erik von Kuehnelt-Leddihn, Liberty or Equality (Caldwell, Id., 1952), the main gist of which is the thesis that Catholicism makes for a libertarian spirit (albeit "anti-democratic") while Protestantism makes for socialism, totalitarianism, and a collectivist spirit. One example is Kuehnelt-Leddihn's assertion that the Catholic belief in reason and truth tend toward "extremism" and "radicalism," while Protestant emphasis on intuition leads to belief in compromise, Gallup-polling, etc.
Professor von Mises' view on the Max Weber thesis should be mentioned here: namely, that Weber reversed the true causal pattern, i.e. that capitalism came in first, and that the Calvinists adapted their teachings to the growing influence of the bourgeoisie – rather than the other way round.
I am not prepared to say that the Protestant case should be thrown overboard completely and Catholic view adopted wholly. But it seems evident that the story is far more complex than the standard view believes. Certainly, the Revisionists supply an excellent corrective.4 On the specific questions of utility theory and Adam Smith, I can enter an endorsement of the revisionists. I have felt for a long time that Adam Smith has been considerably overrated as a laissez-faire stalwart.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179348)
Date: August 23, 2004 08:19 PM
Author: JB
Subject: footnotes
Notes (all supplied by the editor)
1-Cf. Randall Collins, a Weberian
sociologist, who has also inverted the Weber thesis
while using Max Weber's methods of historical
reconstruction; see Collins's Weberian Sociological
Theory (Cambridge, UK: Cambridge University Press,
1986), where he writes: "Christendom was the main
Weberian revolution, creating the institutional
forms within which capitalism could emerge. The
Protestant Reformation is just a particular crisis
at the end of a long-term cycle; it gave rise to a
second takeoff, which we mistakenly see as the
first" (p. 76).
2-Joseph A. Schumpeter, History
of Economic Analysis (New York: Oxford University
Press, 1954) pp. 91–92.
3-See especially,
Alejandro A. Chafuen, Faith and Liberty: The
Economic Thought of the Late Scholastics (Lanham,
MD: Lexington Books, 2003).
4-Rothbard later
developed this line of attack at great length; see
Murray N. Rothbard, Economic Thought Before Adam
Smith: An Austrian Perspective on the History of
Economic Thought, I (Cheltenham, UK: Edward Elgar,
1995), p. 31–175.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179357)
Date: August 24, 2004 10:52 AM
Author:
Arthur Bough
Subject: Questions
1. Could you tell me the basis of measuring utility. Is it time, weight, length, volume or is it a nurmeric quantity. If say it is a nurmeric quantity can you tell me how you can say that person A who places a value 6 for his utility from good X means the same thing as when person B places a numerical value of 6 on the same good.
2. Gold has very little utility, so according to your theory should have little value. Yet that is not the case. On the contrary it has a high value, and its main utility is derived not from the fact that it is useful per se, but because it is valuable. In other words its value precedes rather than is caused by its utility. The reason it has a high value is its relative scarcity i.e. it requires the input of large amounts of labour to produce a relatively small amount.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179525)
Date: August 24, 2004 11:59 AM
Author: JB
Subject: Follow the
Yellow Brick road?
Or, don't let the sun go down on me?
And the point of answering your questions would be for what? You seem quite wedded to your dogma and unwilling, or incapable, to understand what is written, much as you accuse us of not understanding or having not read A. Smith. Capitalism does not begin and end with Smith, though his one major mistake (LVT), seems to be a real magnet for you Marxist, hence a need to make Smith the hero of Capitalism (aka Captain Capital, "able to leap tall widgets with a single bound"). You ask questions, which IMO, are nothing more than set-ups for another clever rhetorical trap (at least in your mind) you've set to show us the error of our ways.
Sorry, it seems can't understand what was written above and haven't a clue as to how to rebut any aspect of their thesis and analysis. Accuse all you want, but the gentleman above have read Smith and Marx. Yet, unlike you, that isn't the extent of their economic knowledge and understanding. You seem to have a predetermined conclusion and you are looking for 'facts' to fit that conclusion. Clever? Hardly, but typically Marxist. I've seen this tact before, and as the kids like to say:
Been there
Done that
And got the t-shirt to prove
it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179547)
Date: August 24, 2004 01:12 PM
Author: Arthur Bough
Subject: Very
Revealing
So in other words having been unable to come up with any original thought yourself you resort to pasting in a long tract from your political masters. Clearly you don't understand this tract yourself, and so find yourself unable to answer the basic questions I posed. Don't be sorry about that your political masters can't either because your theory is wrong, and demonstrably so.
Actually, I have read far more than you believe, and I intend to provide an in depth critique of the nonsense put out by Hayek whose works I have read in some detail along with the works of most economists. I have also read some of Von Mises work though not as much as Hayek, and have provided a critique of that too. Given the nonsense put out on this board by the cronies of these second rate economists I think I need to do a full critique of Mises too.
Unlike you though it will be my own analysis not some pasted in from a political website.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179575)
Date: August 24, 2004 02:15 PM
Author: JB
Subject: As Tommy Lee
Jones once said:
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179583)
Date: August 24, 2004 02:55 PM
Author:
Arthur Bough
Subject: NOW ADAM SMITH IS A
SOCIALIST!!!!
I wondered how long it would be and didn't have long to wait. Libertarians believe bankers are socialists, capitalists are socialists, conservative politicians are socialists and now,
"Smith really set back economic thought by injecting the purely British doctrine of the labor theory of value, thus throwing economics off the sound track for a hundred years", and this theory is,
"highly statist"
and should we be in doubt where Libertairans believe Adam Smith the greatest ideologue for capitalism of the 18th century really stood.
" I might add that the resultant holistic approach by Smith and Ricardo was SUBTLY SOCIALISTIC in still a fourth way: it established the fashion of separating Distribution from Production, and of talking only about groups of factors instead of individual factors – labor instead of laborers.)
So there we have it Adam Smith was a commie all along.
Really I haven't had such a good laugh since Monty Python's Spanish Inquisition sketch. But not even the Python's could reach the level of surrealism to which the Libertarians are now floating on. The difference is the Python's were trying to be funny the Libertarians think they are being serious.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179597)
Date: August 25, 2004 09:26 AM
Author:
Arthur Bough
Subject: CASE DISMISSED - Part 1
"The value of commodities is derived wholly from their utility, but the utility they afford is not wholly convertible into value." (Weiser)
This opening comment by Weiser demonstrates a lack of clarity of thinking and confusion from the beginning. From the time of Plato commodities had been seen as having a dual nature possessing both a use value, and an exchange value. This distinction was drawn out even more clearly by Aristotle who Weiser like all neo classicists claims to follow. But Weiser does not tell us here in what context he is using the word value. Does he mean use value, or does he mean exchange value. In fact he means neither. Instead of the word use value he uses "utility" so to say a commodities utility derives from its utility would be meaningless. But he does not mean exchange value either because neo classical economists reject the idea of exchange value (what Thomas Aquinas and the scholastics called the "just price") believing instead that there is no difference between the just price and the market price. In other words when Weiser uses the term value here he does not mean value but market price.
Moreover, if the utility is not wholly converted to value then perhaps he could tell us how much utility is converted to value, and by what mechanism.
"Commodities which may be had freely in abundance are of no value, however much utility they may afford." (ibid)
This is nonsense and shows superficial thinking. Aristotle having developed the notion of the duality of the commodity tried to develop a theory of value derived from its use value, but his attempt failed leading down a dead end. The Austrians have learned nothing from all the philosophers and economists since Aristotle who recognised his error and went down a new route. Consequently, the Austrians find themselves in the same dead end.
To say as he does here that commodities (actually the items he describes are not commodities which demonstrates his utter confusion right from the beginning – a commodity is something produced in order to be sold, and for someone to produce an item for sale which has no value they would have to have the same intellect as Weiser), which are abundant have no value is ridiculous. They do not have any exchange value, for the simple reason that they require no labour for their production, but they most certainly have use value. Just try depriving yourself of oxygen for a few minutes and see whether you value it or not.
The statement undermines Weiser's argument right from the beginning. Air has no exchange value because we breathe it without requiring the expenditure of labour to do so. But Weiser and the Austrians argument is there is no such thing as exchange value only market price derived from utility. To begin by saying then that those things, which are the most useful, the most vital to our very existence, have no value, means that value cannot possibly be derived from utility but that is precisely what he wants to argue.
"But those commodities too, which, because they are not to be had in sufficient quantity, are valuable for the sake of their utility, acquire a value which as a rule is less than their utility." (ibid)
The formulation here is very weak. What is meant by "as a rule"? Does he mean it literally i.e. it is a rule that value is always less than utility? If that is so then how does he explain gold? It has little utility in itself. Silver is far more useful as is copper. Yet gold has a higher value. In fact it is because gold has a high value that gives it its main utility as a store of value. But then this degfeats the whole Austrian argument. If gold's utility derives mainly from its value then its value cannot logically derive from its utility because its value precedes its utility. Its value then must arise from some other souyrce than its utility. The answer to where gold's value comes from was given by Benjamin Franklin in his book "A Modest Inquiry into the Nature and Necessity of a Paper Currency" pp 265 and 267, where he writes,
"By labour may the value of silver be measured as well as other things. As, suppose one man is employed to raise corn, while another is digging and refining silver; at the year's end, or at any other period of time, the complete produce of corn, and that of silver, are the natural price of each other; and if one be twenty bushels, and the other be twenty ounces, then an ounce of that silver is worth the labour of raising a bushel of that corn. Now if by the discovery of some nearer, more easy or more plentiful mines, a man may get forty ounces of silver as easily as formerly he did twenty, and the same labour is still required to raise twenty bushels of corn, then two ounces of silver will be worth no more than the same labour of raising one bushel of corn, and that bushel of corn will be as cheap at two ounces, as it was before at one ceteris paribus. Thus the riches of a country are to be valued by the quantity of labour its inhabitants are able to purchase."
And "trade in general being nothing else but the exchange of labour for labour, the value of all things is, as I have said before, most justly measured by labour."
But then we know now that Austrians think Adam Smith was a socialist presumably they think Ben Franklin was a socialist too.
If Weiser doesn't mean that it is a rule then the statement, like the theory as a whole, is vacuous. If value flows from utility then there must be some proportional relationship between the two that can be measured and used as a basis of calculation. If sometimes value is greater than utility and sometimes less what are the laws which govern this relationship. How are we to know whether value will be more or less in any given case, and by how much. The answer from Weiser as from all the neo classicists is dumb silence.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179803)
Date: August 25, 2004 09:27 AM
Author:
Arthur Bough
Subject: CASE DISMISSED Part 2
"The value of the harvest is reckoned by multiplying the supply, the quantity of in- gathered harvest-units, by the marginal utility." (ibid)
But what is the value of this marginal utility that we are using as a multiplier? What is its numeric value, for it must have one to act as a multiplier. In what units is this utility measured. The NC's can't agree themselves about it. They divide into two camps the "Ordinalists" and the "Cardinalists". One group believes that you cannot measure the utility only compare it with the utility from other commodities whilst the other created a new unit of measure the "util", but can find no means of assigning values to this unit other than by recourse to yet another undiscovered measure. But if utility cannot be quantified (and Weiser himself later in the piece admits it can't) nor can marginal utility which is its derivative. If no quantative number can be placed upon marginal utility then it cannot be used to multiply anything with including the supply Weiser refers to. So this statement from Weiser turns out to be like the rest of the theory just smoke and mirrors.
"All the utility above the margin, all 'surplus utility' (Uebernutzen), including precisely that which relieves necessity in the highest degree, is neglected and finds no place in value at all." (ibid)
In other words that supply which is the most needed i.e. the most useful has no value. For a theory which wants us to believe that value derives from utility that is a most convincing argument (not). It is like saying medicine has the most value to the well person and none to the sick.
"The agents of production, land, capital, and labour, derive their value from the value of their products, ultimately, therefore, from the utility of those products." (ibid)
So from this we can deduce that if I come across a piece of fertile virgin land that produces all the food I require, and thereby provides me with considerable utility this land should be very valuable, and I should pay highly for it. But in fact I pay nothing. Moreover, that high price should be reflected in the high price of products of the land if I choose to sell them In fact the very opposite occurs. Despite the fact that American agricultural wages, following colonisation, were much higher than UK wages, American products undercut British agricultural products i.e. they contained less value. The reason was simple the more fertile soil meant that less labour was required to produce the same amount of products so that this higher labour productivity more than offset the higher wages.
"Land, capital, and labour yield a return only by their combined agency." (ibid)
That is true to the extent that labour alone cannot produce, for example, agricultural products without land on which to work, and to the extent that labour is employed in manufacture it also requires generally raw material and machinery with which to work. But this tells us nothing. The fact remains that I can pick an apple from a tree without it having any exchange value which I must attribute to the land – I pick it freely. The only time this is not true is if a landowner intervenes in the process and demands payment from me. In other words the value imputed to the land does not derive from the land at all, but derives from the relative shortage of land which allows the landowner to act as a monopolist and demand payment. In the event that the land is free (for example as was the case for Native Americans until their land was confiscated then no matter how useful its products the only cost to them derives from the expenditure of labour to harvest them.
But an interesting thing happens after I pick the apple. It has no cost no exchange value to me, but it does have a use value. If, however, instead of eating the apple I walk several miles to where no such apples grow and offer it for sale it does acquire an exchange value. So if the apple had no exchange value when I picked it but it does now from where has that value come? Precisely from the fact that now as a commodity it includes the value of my labour expended in finding it, picking it, and transporting it to market. If I were a buyer of this apple what value would I place on it? For my part the equivalent of how long it would take me to go to where the apples are, pick one, and return in other words my own labour time.
But Weiser is somewhat dishonest in his presentation here. What he presents is a version of Ricardo's Theory of Rent. But Ricardo's Theory of Rent was derived from his application of the LTV. Weiser fails to accredit the basis of the argument for obvious reasons. In fact the Marginalist theory is based not just on Ricardo's Theory of rent, but also on Marx's Theory of Rent which takes further and clarifies Ricardo's use of the concept of marginal land. It does so in a corrupted and inapplicable manner.
The reason it is inappropriate to take Ricardo and Marx's concept of marginalism as applied to land and turn it into a general theory is quite simply the unique nature of land, and its monopoly ownership. In a completely capitalist economy that monopoly by landowners would disappear and the concept of rent with it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179804)
Date: August 25, 2004 09:28 AM
Author:
Arthur Bough
Subject: CASE DISMISSED Part 3
"A field cultivated with the same expenditure of capital and labour as another field of greater fertility yields a larger return. Their surplus crop is by no means produced by the field alone, capital and labour as well are wrought into it; nevertheless every agriculturalist will rightly charge not the capital nor the labour with the crop,but, simply and solely, the better field, the value of which is raised by just the amount of the surplus. Such a judgment, so far from being illogical, embodies a great practical truth. In imputing the return by this method, I am enabled to find the correct adjustment of the economic measurement, which has to be carried out in the case of the commodities of production."(ibid)
But examine what happens when we remove the landowner from the equation (who as Ricardo and Marx would agree would use the opportunity as a monopolist to demand more rent from the capitalist). Say the land is owned by the capitalist. If the prices of the produce of the land remain the same (which they must if those prices are determined by the utility dereive from them which has not changed) then the capitalist no longer has to pay rent to the landlord and his profit will rise. Yet according to Weiser why should it? It has become no more productive no greater level of utility can be imputed back to it than before. The reason as demonstrated by Ricardo is that the surplus value created is created by labour, and that surplus is divided up between the capitalist and the landowner. The practical application of this could be seen in Britain during the 19th century. Capitalist farmers wished to improve their land by investing in better drainage and other capital works. What was the reaction of the landlords? They welcomed it because at the end of the tenancy the capital improvements became the property of the landowner who used it, and the higher productivity that resulted, to justify higher rents. Consequently, landlords throughout the period were continually trying to reduce the length of tenancies.
"It would, for example, be impossible for me to decide whether to purchase a machine and what price to consent to give for it, if I did not know how to calculate the work it would do for me, i.e., what share in the total return to my undertaking should be imputed to it in particular."(ibid) But Weiser gets confused again here. How can Weiser calculate the work a machine will do i.e. what value the resultant products from the machine will have unless that value exists a priori. In other words the value of the commodity must be known to the capitalist before he produces it, or takes it into account. But according to Weiser and the NC's the value (read here price) of the commodity is only decided when it is sold. On that basis capitalists would never know what the value of the commodities would be when they come to be sold, consequently they could never calculate whether investing in a machine would be profitable to them or not.
What is the calculation that a capitalist actually undertakes in deciding on whether to buy a machine or not? It is precisely how much labour will the machine save, or what amounts to the same thing, how much extra production will result without me having to employ more labour to achieve it. In other words, Weiser's own example, shows that the calculations capitalists make are based upon the amount of labour time that can be saved, and thereby reduce the cost of production beneath the average.
"I impute utility only to those commodities which are not to be had in profusion, and on which I feel myself dependent in consequence,"(ibid)
In other words what we have is utility imputed from value because Weiser has already stated his belief that only commodities which are not abundant have value. And so he finds himself like a dog chasing his tail. Utility is imputed from value, but he wants to argue that value is derived from utility. Like the chicken and the egg the conundrum goes round and round, but Weiser lacks the common sense of the dog which eventually gives up chasing his tail.
"Space fails me to explain my meaning more precisely. I will only specify further, that in the particular instance account must be taken of supply, demand, circumstances of allied products, technical progress, etc., in short of all the well-known conditions, from which experts are able with so much success to infer" (ibid)
This is a very strange statement to anyone versed in NC theory. For according to NC theory demand is derived from the aggregate of all consumers individual indifference curves. But if utility is the basic loadstone to which everything must be referred back how can you refer back to this utility by "taking into account" demand which is its derivative. Unless you establish the basis in utility you cannot move forward to arrive at demand, and if you cannot arrive at demand you cannot take it into account. Once again Weiser collapses into confusion and chaos.
"The subjective theory of value, one of the Austrian school's main pillars, actually goes back to the medieval Scholastic philosophers." (Moser)
Actually it goes back to Aristotle. Moser doesn't say this because Aristotle found himself in a dead end with this line of argument and later philosophers like Duns Scotus, Albertus Magnus, and Thomas Aquinas began to develop the LTV. Plato had already come to the brink of formulating a LTV, and although Aristotle did try to develop a utility theory of value he followed Plato and developed the idea of the commodity as both use value, and exchange value. It was the importance of this duality more than the forelorn search for a utility theory of value which was Aristotle's inheritance to the scholastics, and it was not the utility theory of value which dominated the scholastics work as Moser claims but the exchange value aspect the concept of the just price as separate from the market price.
The new expansion of petty commodity production (not capitalism as Moser mistakenly describes it) during the Middle Ages in the cities of Italy, Flanders, England, France and Germany caused the ideas of exchange value and use value to be reconsidered. During this time the basis for the later development of capitalism is laid down with the accumulation of money capital in the hands of merchants. This capital was accumulated largely as a result of piracy, and of the appropriation of he surplus agricultural product of the peasants (and sometimes even the necessary product of the peasant. But although this accumulation of money capital was taking place the economies in which these merchants existed remained largely natural economies.
The economic realities of trade led the scholastics to go beyond Aristotle's idea of value determined by utility. This move away from Aristotle was set in progress in France by preachers such as Robert Grosseteste. But the big step forward from Aristotle's utility dead end was made by Thomas Aquinas and Albertus Magnus. Albertus noted that need was the cause but not the measure of the proportionality between utility and value.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179806)
Date: August 25, 2004 09:28 AM
Author:
Arthur Bough
Subject: CASE DISMISSED Part 4
"Especially significant among the scholastics was the so-called Salamanca school of 16th century Spain, a group of men whom economist Murray Rothbard referred to as "proto- Austrians." (ibid)
The Spaniards of the fifteenth and sixteenth century such as Molina specialised in justifying trade and their theories of the "just price" (justified by the idea that the trader works i.e. inputs labour into the product) link them up with the Mercantilists. The Spaniard Pedro Fernandez Vavarette also came close to formulating a LTV as did Carafa. So much for the influence of Catholic or protestant religion as a deciding factor in the formulation of theory.
""Those who measure the just price by the labour, costs, and risk incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of traveling...or by what he has to pay the factors for their industry, risk, and labour, are greatly in error.... For the just price arises from the abundance or scarcity of goods, merchants, and money...and not from costs, labour, and risk...." (ibid)
But Calle fails to notice that the abundance or scarcity of a commodity is directly related to the amount of labour required for its production. Calle, of course, does not make any reference to the commodities value deriving from its utility here. He also specifically rules out risk as contributing anything to the value of the commodity and therefore the capitalists profit. All in all he speaks more against the idea of value deriving from utility than for it.
".... Why should a bale of linen brought overland from Brittany at great expense be worth more than one which is transported cheaply by sea?... Why should a book written out by hand be worth more than one which is printed, when the latter is better though it costs less to produce?... The just price is found not by counting the cost but by the common estimation"(ibid) Calle here falls into the same trap sa those who, having nor read or understood the LTV, make this argument. In his last sentence he comes close to answering his own question. The value of a commodity is not determined by the least efficient means of producing it, but by the average socially necessary labour it incorporates. Clearly, labour employed to write a book when it can be printed is not socially necessary labour and is not the basis for assessment. The measure would be the average used by the different printers to print the book. And when he mentions the common estimation what was the common estimation at the time he was writing? "He (the medieval artisan) has to produce, in accordance with fixed conditions, cloth which is 'not personal but official, municipal'; his labour, one might say is expressly objective not subjective." Georges Espinas "Les Origines du Capitalisme" Vol 1. p40.
"The corporations of Antiquity and in those of China and Byzantium and in the European and Arab Middle Ages fixed rules, known to all, laid down alike the labour time to be devoted to the making of each object, the length of apprenticeship, its cost and the equivalent normally to be asked for each commodity." Georges Espinas "Les Origines du Capitalisme" pp 118, 140-2.
Whilst Calle can be forgiven his confusion writing 450 years ago because he did not have the benefit of Adam Smith's writings and many more to correct this misapprehension the Austrians have no such excuse.
"French subjectivist economists such as E.B. de Condillac, Louis Say, Auguste Walras, and Jules Dupuit." (Moser)
Just a small point Walras was Swiss not French.
"Robertson and others have pointed out, for example, that capitalism really began flourishing, not in Britain, but in 14th-century Italian cities, i.e., in decidedly Catholic areas" (Murray Rothbard)
I have also stated previously that this development was not of capitalism but of petty commodity production within the existing natural economy. This development laid the basis through the accumulation of money capital for the later development of capitalism which can only be said to commence when petty commodity production is replaced by generalised commodity production. This woolly thinking is typical of Libertarians who seem incapable of drawing important distinctions between one social phenomena and another.
"Kauder, in fact, turns the Weber thesis1 on its own followers by attacking Smith and Ricardo for being influenced by Protestantism to develop the "labor theory of value." (ibid)
But the LTV was already being developed as a proto theory by the scholastics. One of the big leaps forward came precisely from Thomas Aquinas.
" The brunt of this important new thesis is this: rather than saying that Hume and Smith developed economic theory almost de novo, economics had actually been developed, slowly but surely, over the centuries by the Scholastics and by Italian and French Catholics influenced by the Scholastics; that their economics was generally individualist methodologically, and stressed utility theory, consumers' sovereignty and market pricing," (ibid)
But it is not true that the scholastics stressed utility theory, and later I will let Thomas Aquinas speak for himself to show it is untrue.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179808)
Date: August 25, 2004 09:29 AM
Author:
Arthur Bough
Subject: CASE DISMISSED Part 5
"Secondly, its emphasis on "costs determining prices" has encouraged the view that businessmen push up prices or that unions push up prices, rather than governmental inflation of the money supply." (ibid)
This proves the writer is totally ignorant of Marx's writings, because he argues the direct opposite of what is attributed to him here. Marx long before the Austrians or Monetarists identified that it was devaluation of the currency which caused inflation. And this truth derives directly from the LTV. The value of gold as money like any other commodity Marx argued is determined by the labour required for its production. If a new rich source opens up for example as happened in California then the labour required to produce gold diminishes and its value falls relative to the value of all other commodities. As these other commodities are all priced in gold as money the reverse of this fall in the value of money is an increase in the general level of prices for all other commodities i.e. inflation. He went on to illustrate how with paper an increase in its supply likewise has the same effect. In volume III of Capital he also writes about the role of Credit in crises in terms which if the reader were not aware of the author they could be forgiven for thinking they were reading Bill Bonner.
"Ignorant and mistaken bank legislation such as that of 1844-45 can intensify this money crisis. But no kind of bank legislation can eliminate a crisis." (Marx)
""At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. " (Marx)
He also points to the resultant deflation after the crash caused by the inflation.
""On the eve of a crisis, and during it, commodity capital in its capacity as potential money capital is contracted. It represents less money capital for its owner and his creditors (as well as security for bills of exchange and loans) than it did at the time when it was bought and when the discounts and mortgages based on it were transacted. If this is the meaning of the contention that the money capital of a country is reduced in times of stringency, this is identical with saying that the prices of commodities have fallen. Such a collapse in prices merely balances out their earlier inflation.
"The incomes of the unproductive classes and of those who live on fixed incomes remain in the main stationary during the inflation of prices which goes hand in hand with overproduction and over-speculation." (Marx)
Sound familiar?
But Marx also argues the absolute opposite to the idea that wages (or businessmen for that matter) push up prices. In the pamphlet "Value, Price and Profit" he argues decisively that a rise in wages DOES NOT cause a rise in prices. Rather it results in a fall in profits an increase in demand for wage goods (resulting from the workers higher wages), an increase in the profits of capitalists producing wage goods (because of the higher prices resulting from the higher demand), a fall in the prices of goods bought by capitalists (typically luxury goods) (caused by a reduction in income to the capitalists to spend on these goods), a reduction in profits for capitalists producing luxury goods (caused by the lower demand for their products from capitalists) and a consequent reallocation of resources away from luxury goods to wage goods with no overall increase in the general level of prices. This also demonstrates that Marx's economic theory (and the same is true of Smith and Ricardo) did not ignore the laws of supply and demand. They were quite happy to recognise the operation of these laws to determine short run prices, and even reallocation of capital to bring about an equalisation of the rate of profit. What they rightly saw no need for was the vacuous dead end concept of value determined by utility.
"Third, its emphasis on "objective, inherent value" in goods led to "scientistic" attempts to measure values, to stabilize them by government manipulation, etc." (Rothbard) Objective theorists do try to undertake measurement. That is the scientific approach. In rejecting it the Austrians admit they have given up on the dead end their theory led them down unable to resolve its conundrum. With nowhere else to go they fall back not on science but an appeal to a mystical or religious faith a demand that we take the theory on trust even though it cannot be scientifically proven or tested. "(I might add that the resultant holistic approach by Smith and Ricardo was subtly socialistic in still a fourth way: it established the fashion of separating Distribution from Production, and of talking only about groups of factors instead of individual factors – labor instead of laborers.)" (ibid) But this is standing truth on its head quite shamelessly. The LTV as developed particularly by Smith, Ricardo and Marx, but also in essence by the Physiocrats, is a combined theory of production and Distribution. It begins where any rational economic theory must in the sphere of production because production physically and logically precedes consumption, exchange, and distribution. It locates the source of value and surplus value, and shows how once realised the money equivalent of the value created is distributed amongst "the three great classes of society", and the reasons why each gets the share they do. In other words it is both a micro and macro economic theory. It is NC theory which is purely a micro economic theory and starts from the position of production having taken place of profit already existing and concerns itself solely with the distribution of income to the factors of production. It does so precisely because of its inability to provide an answer to the question "where does profit come from?" Indeed in the work of Walras, who the Austrians claim to follow, profit disappears altogether since under conditions of total competition the value of the marginal product is dissolved into depreciated capital, wages, interest and ground rent. Read Walras "Abrege des Elements d'economie politique" pp 187-9.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179809)
Date: August 25, 2004 09:30 AM
Author:
Arthur Bough
Subject: CASE DISMISSED Part 6
"Further, laissez faire theory was developed in fine flower by the Catholic Physiocrats, who were directly influenced by natural law-natural rights thought." (Rothbard)
But the Physiocrats developed what was essentially the LTV which completely destroys Rothbard's line of argument. The main difference between the Physiocrats LTV and that of the Classical Econonomists was that the Physiocrats believed that only agricultural labour could produce surplus value i.e. agricultural labour was productive whereas wages and profits from manufacturing were simply deductions from the agricultural surplus. Adam Smith showed that it was labour in general rather than just agricultural labour which created value, and that labour employed in manufacture was just as productive as agricultural labour in that it too created surplus value. Labour was only non-productive when it exchanged aghgainst revenue rather than capital. For example a cook employed by a capitalist to cook his dinner is paid out of revenue and is not productive, the same cook employed by the same capitalist in a hotel to cook meals which are sold to customers is productive if these meals are sold at a profit.
"He (Schumpeter) also treats their (the scholastics) adoption of the market price as essentially the just price, utility theory, subjective value, etc." (ibid)
But a number of different concepts are conflated here. The "just price" as defined by Aquinas and Magbus is the opposite of utility theory. Their idea of the "just price" was precisely the basis for the development of the LTV that the value of a good is the labour (and costs in Aquinas formulation) it contains. Duns Scotus also developed the theory of exchange value based not on utility but on "labour and charges".
"We may sum up the Case for Catholicism as follows: (1) Smith's laissez-faire and natural law views descended from the late Scholastics, and from the Catholic Physiocrats; (2) the Catholics had developed marginal utility, subjective value economics, and the idea that the just price was the market price, while the British Protestants grafted on a dangerous and ultimately highly statist labor theory of value, influenced by Calvinism; (3) some of the most "dogmatic" laissez-faire theorists have been Catholics: from the Physiocrats to Bastiat; (4) capitalism began in the Catholic Italian cities of the 14th century; (5) Natural rights and other rationalist views descended from the Scholastics." (ibid)
This is historically inaccurate at best and I am tempted to call it something worse. Smiths views did derive from the Scholastics, and from the Physiocrats, but it was precisely the elements of the LTV in these sources that he drew on, and corrected the deficiencies of these previous theories. Let Aquinas speak for himself of his understanding of where value comes from, and the determination of the just price as different from the market price.
"Let us assume that at one corner, A, there are two books, and at another, B, there is one book; and that at C there is a person, Sortis, for example, who has worked for two days, and at D there is Plato, who has worked for one day. Then the ratio of A to B should be the same as C to D (that is, A should have twice the value of B)." (St. Thomas Aquinas "Commentarii in Decem Libros Ethicorum Aristoteletis" p65.
There is a link to Catholicism through Aquinas, but not in the direction Rothbard wants. The teachings of the Fathers of the Church honoured the merits of labour, and in Aquinas writings there seems to be a desire to justify merchants profits, therefore, by declaring that the trader embodies in goods a value proportionate to his "labour and charges", a theory which had already been upheld by the Talmud.
"Professor von Mises' view on the Max Weber thesis should be mentioned here: namely, that Weber reversed the true causal pattern, i.e. that capitalism came in first, and that the Calvinists adapted their teachings to the growing influence of the bourgeoisie – rather than the other way round." (ibid)
I would agree with Mises to an extent here, though the process is not as mechanical as presented. Ideas are rooted in material conditions. The embryonic development of capitalism created the material conditions in which the idea of abstention and capital accumulation could appear rational. But the development of the protestant Ethic in turn provided the ideological basis in which more accumulation of capital could take place. The material condition is always parent to the idea, but ideas like children have their own development.
If Mises is correct of course then he has destroyed Rothbard's argument that Catholicism leads to the free market and Protestantism to socialism. The only other interpretation is that Catholicism creates capitalism, but capitalism creates Protestantism not as a corresponding, reinforcing ideology, but as its own nemesis. Not the conclusion Rothbard wants I think.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179810)
Date: August 24, 2004 06:58 AM
Author:
Vangel Vesovski
My criticism stands and you have done little to refute it. The LTV is a dead end that requires circular arguments to try and make it seem consistent. Even Smith understood the problem and wrote about different 'skills' impacting the worth of the labour of different individuals. But Smith did not pursue the matter because he must have understood that the LTV was fatally flawed.
Reality shows that consumers do not care how much labour it took to make something. They do not pay more for some item because an artisan spent ten years on it if they prefer the work of another artisan who may have created a better work in 10 minutes. The value of anything is a subjective decision that is made by the consumer and is reflected in the price paid for it. This is not only true for art or unique items but also for common items that we use every day. In the end the final arbitrator of the value of an item is the preference of the consumer, not the labour that went to produce it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179480)
Date: August 24, 2004 07:14 AM
Author:
Dan Browne
Subject: This is correct
The price a consumer is willing to pay for a product has much more to do with branding and marketing. These are expenses which fall squarely on the shoulder on the capitalist and who will have to pay these expenses whether products are sold or whether they are not sold. The laborer on the other hand, is paid even if the products are not sold. This cycle continues even until the capitalist has no more money left to give for the labor if no products are sold. THIS is the crux of the matter and not some stupid theory that the amount of effort produced determines an item's "value".
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179485)
Date: August 24, 2004 11:00 AM
Author: Arthur Bough
Subject:
Question
How long then do you think this capitalist will continue selling products at a loss?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179530)
Date: August 24, 2004 11:32 AM
Author: The Reaper !
Subject:
Arthur Bough & selling at a loss
They won't sell at a loss for long , take the airline industry in the U.S. they just continue to lower the wages of their workers until the become profitable . When it becomes necessary they even file chapter 11 bankruptcy so they can renege on their debts . Those debts include their pension liabilities , which in the bankruptcy are dumped on the tax payer through the PGTC . All the while new discount airlines are created in an already over-capacitated industry . The federal government will soon own all of the airlines pension liabilities , bond holders will never get paid , and airline workers wages will continue to fall . This is capitalism ? Companies selling their services for less than cost , getting lenders and tax payers to pay the difference . These are the benefits of de-regulation ? Looks like a shell game to me . The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179540)
Date: August 24, 2004 12:27 PM
Author: Dan Browne
Subject: One of
two possibilites
Either the market picks up OR The capitalist goes bust.
It's that simple.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179554)
Date: August 24, 2004 01:06 PM
Author: The Reaper !
Subject:
Dan Browne & the THIRD possibility
Sorry Dan , but you have over looked the 3rd possibility , and that is one continuous chapter 11 bankruptcy like U.S. Air . Here is a perfect example , U.S. Air hasn't been out of chapter 11 that long and already they are ready to file again . On their last chapter 11 they dumped their debts and dumped their pension liabilities on the PGTC . While know nothings espouse the "Creative Destruction" of Schumpeter , they fail to see that the only destruction is falling on the workers , the lenders and the tax payer . Plain and simple , this is corporate socialism at it's worst . In this environment , all of the airlines will survive , the compensation to the workers will continue to fall , and the tax payer will in the end have to pay the pensions of the workers , and the lenders will never be paid . What we have here is Socialism for the chosen and Capitalism for the rest of us . The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179572)
Date: August 24, 2004 01:12 PM
Author: Dan Browne
Subject:
Reaper
I don't disagree with you. I disagree with the notion that the "value of a product or service" is related to how much has gone into producing it.
That idea is hogwash.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179576)
Date: August 24, 2004 02:54 PM
Author: Arthur Bough
Subject:
And Then
And when all the capitalist have gone bankrupt because they cannot sell the good at that price the good does not get produced. So if consumers want the good again they have to be prepared to pay a price that the producer is prepared to sell it to them at. In other words it is not demand that is the source of price but supply, and supply depends upon the cost of production plus the average profit. And cost of production is made up of the wages of the workers that make the profit, plus the materials and machines that are used which in turn were made by another group of workers. So the cost is alll resolvable back to wages and profits. The wages pay the workers the value of their labour power, and the profits are derived from the unpaid part of labour over and above the cost of producing labour. See its simple.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179596)
Date: August 25, 2004 06:33 AM
Author: Dan Browne
Subject:
You have it backwards
The producer does indeed set an asking price but he may not get it. Why? The consumers do not HAVE to pay any price. They can refuse to buy the product or they can haggle.
I am afraid that you completely fail to grasp how a market works.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179772)
Date: August 25, 2004 09:32 AM
Author: Arthur Bough
Subject: Haggle at McDonals Then
Have you managed to haglle the price down at McDonald's lately. Continue to haggle the price down when you can, but then when you have haggled the price down to the extent that no capitalist can make average profit they will not produce it. So sorry its you that doesn't understand the way markets work.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179813)
Date: August 25, 2004 01:08 PM
Author: Dan Browne
Subject: Yes I have
I complained that the service was shit, all the people milling around was a fucking zoo and it was a disgrace how they had such a lack of planning. They gave me the food for free.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179872)
Date: August 26, 2004 05:10 AM
Author: Arthur Bough
Subject: Making a Complaint is not
haggling
Try getting a Big Mac for half price on a regular basis.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180150)
Date: August 26, 2004 08:57 AM
Author: Dan Browne
Subject: What does this prove Arthur
The fact is: there are many places you *can* haggle. You want a list? Best Buy, Computer City, Furniture Stores, Car Rental Agencies, Travel Agents (yes Travel Agents), Car Dealerships. I could go on and on but for what? We've deviated from the original point which is that the value is Labor theory is bullshit. Note that I said the theory.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180187)
Date: August 26, 2004 01:09 PM
Author: Arthur Bough
Subject: Fair Point
Yes I agree there are places you can haggle, and the more somewhere is overstocked (especially if its old stock) the better your chances. But you will note that my point has been not about prices in the short run (you will note that the examples are all with retailers and the reason manufacturers sell through retailers rather than direct is that the retailer takes some of the risk away from them) but prices in the long run.
I accept that prices change both short and long run, but it is the ccauses that are important. Short run changes in price are caused by imbalances of supply and demand. Long run changes in prices have nothing to do with demand and everything to do with the cost of production, which was the purpose of my original posting i.e. whether oil will stay high depends on the reason its price has been going up (given that in the last couple of days the price has fallen by about 15% I think the price increase was more to do with supply and demand imbalance (stockpiling and speculation in futures) rather than any significant change in the cost of production (read the average amount of labour living or in machines) needed to produce it (though I think that's coming very soon.)
In the long run prices are determined by cost of production and that means the cost of machines and other fixed capital (which depends on productivity of labour in these sectors), and the productivity of labour. (I am leaving out of consideration here the general level of prices i.e. inflation caused by a devaluation of the currency by increased money supply. I am talking about relative prices one commodity against all others except money).
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180264)
Date: August 24, 2004 04:35 PM
Author: Vangel Vesovski
A smart entrepreneur does not sell his products at a loss for very long. If he cannot compete he will simply shut down operations and look for other opportunities in which he can make enough of a profit by selling to the end consumer to justify the risk taken. That is what capitalism is all about; a democracy of consumers in which they vote with their money. In an unhampered system the best man or woman who can keep supplying a quality product at an acceptable price will be the winner and have the highest profit margins. If he/she gets complacent the business will lose its dominant position to other competitors who are waiting in the wings to knock off the reigning champion. This has less to do with marketing and branding than quality at a fair price.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179624)
Date: August 25, 2004 06:35 AM
Author: Dan Browne
Subject: You
are mainly right
Although what you are describing is a "perfect" market. In the real world there is no such thing and in order for the price information to move from one end of the market to another and in order for consumers to be "educated" about quality, there is marketing and branding. In the real world this is how it works. But in principle we are in agreement that the Labour Theory of Value is bullshit.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179773)
Date: August 25, 2004 09:35 AM
Author: Arthur Bough
Subject: You
have conceded the point
If you now agree that a capitalist will shut up shop when they can no longer make a profit you have conceded the point the minimum long run price is set by the level at which the capitalist can make average profit. Any price beneath that will result in the commodity not being produced. So thank you you have accepted that it is supply which is the determinant not demand which can only bring about short run movements of price above or below this level.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179815)
Date: August 25, 2004 01:09 PM
Author: Dan Browne
Subject: No
he has not
He has admitted that he won't make any money if he tries to sell product for less than what it cost to make it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179873)
Date: August 26, 2004 05:23 AM
Author: Arthur Bough
Subject:
Yes He Has
A commodity is only a commodity if it exists. A commodity which nobody produces for sale is not a commodity. If producers are only prpepared to produce commodities at a price which guarantees that they cover their costs plus average profit (in the long term) then clearly that is the deciding factor not just in what products should become commodities (i.e. what should be produced) but also is the determinant (in the long term) of the prices that producers will be prepared to sell them at.
All that demand can influence is whether products having been produced can be sold in the short term at that price.
Higher demand will result in higher prices bringing forward increased production either from existing producers or from new producers who have noted the higher than average rate of profit in that commodity. Once this increased suppy meets the level of demand price will fall back to where it was i.e. to the level that covers cost plus average profit.
If demand falls short of the supply then prices will fall (actually nowadays large firms would be likely to just build their inventories and reduce production until the inventories cleared). The lower prices mean producers receive lower than average profits and reduce production down to the level of demand either by each producer reducing output or by some business closing and moving to another area of production where they can make aaverage profit. Once supply falls back to the new level of demand the price will rise once more to where it was i.e. where the producers costs are met plus average profit.
In both cases changes in demand can only affect price in the short term. The market automatically adjusts supply (as a believer in the market you should already know this) to the level of demand and the price goes back to where it was i.e. costs plus average profit.
In both cases it is supply which determines price in the long term not demand, and supply is determined by the costs of production plus average profit.
I am quite happy to accept that demand sets the price of commodities which don't exist. But I prefer to live in the real world of things that exist rather than the Austrian world of things that they think should exist but don't.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180151)
Date: August 26, 2004 09:03 AM
Author: Dan Browne
Subject:
Not bad
You managed to write a decent number of paragraphs before I found an error. I agree down to "In both cases it is supply which determines [selling] price"
Which is incorrect. Correctly stated it should read: "In both cases it is supply with determines price at which a profit can be made".
The actual price at which the product is sold is determined by what consumers are willing to pay. Cost to the producer is irrelevant.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180190)
Date: August 26, 2004 12:59 PM
Author: Arthur Bough
Subject: Only in the short run
That is true only in the short run, and increasingly not even then because as I said large firms now would increase inventories rather than reduce price.
In the long run they would just cut production or move to another line of production where they can make average profit or above.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180257)
Date: August 27, 2004 12:39 PM
Author: Vangel Vesovski
The LTV still does not work and nothing that you have said so far has been convincing. The bottom line is that value is a subjective matter and is determined by the aggregate action of consumers. They vote with their money and do not care about how much something took to make or how much something costs. In a free market capitalist system producers who cannot sell their products for more than what it costs them go out of business.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180641)
Date: August 28, 2004 05:33 AM
Author: Arthur Bough
Subject:
Consumers Don't But Producers Do
Consumer's don't care how much something costs to make is mostly true but not entirely. For example, I know lots of people myself included who make home made beer because knowing how much it costs to make, and how much brewers and pubs sell it for its well worth my labour time making my own. But whether consumers care how much something costs to make or not is beside the point because consumers do not set prices producers do.
I have worked for a number of large and small companies and ran three businesses of my own, and I can assure you that in every case prices were set by calculating costs and adding on profits. If the goods couldn't be sold at that price there ws nothing much to do other than reduce output or move on to something else because there was little you could do to reduce the costs, and neither I nor any logical entrepeneur will sell things for any time without making an average profit on it. Neoclassical and Austrian economists don't understand this because they live in ivory academic towers removed from the real world.
Long run prices are determined by costs and the average rate of profit, not consumers. Costs themselves in the end all boil down to wages and surplus value (profits, rents, and taxes). And the average rate of profit depends on the extent of development of productive power the proprtion of constant capital to variable capital, and tha value of labour.
"In a free market capitalist system producers who cannot sell their products for more than what it costs them go out of business."
Absolutely right which is why consumers can never be the setters of price because if no producer can supply ggods at the price consumers are prepared to pay the commodity doesn't get supplied at all in other words it is no longer a commodity. The only commodities that consumers set the prices for are the ones that don't exist.
As I have said before I am only interested in how the prices of commodities that do exist are set. I will leave it to the Austrians to live in the world of things that don't exist.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181032)
Date: August 24, 2004 04:53 PM
Author: Vangel Vesovski
A smart entrepreneur does not sell his products at a loss for very long. If he cannot compete he will simply shut down operations and look for other opportunities in which he can make enough of a profit by selling to the end consumer to justify the risk taken. That is what capitalism is all about; a democracy of consumers in which they vote with their money. In an unhampered system the best man or woman who can keep supplying a quality product at an acceptable price will be the winner and have the highest profit margins. If he/she gets complacent the business will lose its dominant position to other competitors who are waiting in the wings to knock off the reigning champion. This has less to do with marketing and branding than quality at a fair price.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179631)
Date: August 24, 2004 10:58 AM
Author:
Arthur Bough
Subject: Wrong Again
Smith continued to advocate the LTV even as he encountered some problems with working out various aspects of it. That is because he was a honest researcher, and in his writings he refutes many of the arguemnts brought out later by neo classicist economist precisely because some of their arguments were not new at all, but were arguments that had been already dismissed.
You are wrong on the second point too. It does not matter that a consumer is not concerned with how much labour goes into a good because it is not demand that is the criucial factor it is supply. And no supplier will contiue to supply a good whose proice does not cover his costs plus average profit. As those costs are all reducible to labour in the last analysis the fact remains that it is that factor which determines the cost, and thereby determines the long run price that goods will be supplied at.
And finally your last point is just silly. Suppose consumer as the final arbiter decided that the value of a new motor car was £100. How many do you think would be bought and sold at this consumer derived value?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179527)
Date: August 24, 2004 09:27 PM
Author: Finster
Subject: Value
Versus Cost
Easy. There would be none produced and none bought. This is because the value is below the cost. Only when the value exceeds cost does the item get built and bought.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179706)
Date: August 25, 2004 09:38 AM
Author: Arthur Bough
Subject:
Thank You For Agreeing with me
Thank you at least someone can see the light. Demand is not the determinant of long run price supply is, and supply will only be forthcoming if the producer can make average profit. Average profit means an amount on top of costs, and costs in the final analysis are all reducible to wages and profits, and all to the product of labour.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179816)
Date: August 25, 2004 01:10 PM
Author: Dan Browne
Subject:
Nuh-uh
You are just fine down to "average profit means an amount on top of costs" then you drift off into la-la-land.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179875)
Date: August 26, 2004 05:25 AM
Author: Arthur Bough
Subject:
Tell me What Costs Are Made Up of Then
If you think costs are reducible to something other than labour I would appreciate your proof. I guarantee for every commodity you can name I can point to its components being produced at some point in its history by labour.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180153)
Date: August 26, 2004 09:05 AM
Author: Dan Browne
Subject:
Interesting
You have changed your tack. The whole argument is about value being determined by labor which I dispute. Now you are saying it is costs determined by labor. Looks like we are getting somewhere.
Now if only you will admit that market price is set by the market we will have you on the right track.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180192)
Date: August 26, 2004 12:57 PM
Author: Arthur Bough
Subject: You Are Still confusing
Value and Price
You confuse value and price. In order not to allow further confusion let me make clear that in using the word value here I am talking about exchange value as opposed to use value. Use value is what a marginalist would call utility. Exchange value is the result of the labour a product contains both immediate (living labour) and past (dead or congealed) labour (i.e. that which went into producing the things that the immediate living labour uses to produce commodities.
If you read the three pieces I began this thread with you will see that the prices which the two commodities I used in the example oil, and a consumer good (which represents all consumer goods for simplicity) do not have prices which are the same as their exchange value. Prices never will be the same as exchange value for the reasons given in the example that different lines of production use different proportions of living to dead labour. (In addition prices will be corrupted because of the existence of monopoly which is able to secure above average profits). The more dead labour i.e. fixed capital, raw materials (cost not quantity) in proportion to living labour (i.e. wages) a business uses the more its prices will need to be above exchange value in order for an average rate of profit to be earned. I haven't got the references available because its a very long time since I needed to look it up but they were reproduced in some economics journals years ago, but value theorists have demonstrated by refernce to actual national economic statistics that the total amount of exchange value does equal the total amount of prices as demonstrated in the example I gave above.
Now to come to cost. You will again see from the example that because prices vary from exchange value, and because the prices of some commodities enter into the process of other industries as capital, and also because varied prices for wage goods affect the necessary calculation of wages this has a corollary effect, which is why in order to calculate the end result you need to undertake an iterative calculation. This process is what the market does all the time in adjusting wages, prices, and costs and why equilibrium is never reached.
So to look at the output of a firm in the real world in terms of exchange values would be meaningless. The only calculation that can be done is with the actual costs paid. I know you are going to ask the obvious question well what is the point of value theory if it doesn't apply to a real firm. My answer is two fold. Firstly, value theory explains what the real relationships are behind production and explains where profit comes from and the dynamics which lead to higher or lower (long run) prices within an industry or an economy in general. Secondly, it is a closer approximation to what the real firm does than marginal theory which was dreamt up by academics and financiers and is ignored by industrialists and other capitalists involved in the production of goods and services.
In their calculations they use a cost of production technique which is basically calculate your fixed costs (what a value theorist would call constant capital less raw materials and overheads) work out your variable costs (which is materials, overheads and labour - where a value theorist would separate out the labour) calculate total cost divide by the number of units to be produced to get average cost and add on the average profit.
But when you analyse that what you find is that the raw materials have been produced by another firm with fixed capital, and wages (perhaps some raw material in the form of lubricants for machines etc.) So their costs amount to wages and the cost of machines used to extract the raw material. But the machines were produced by another firm which employed labour to produce them. Go back far enough and everything is reducible to having been produced by labour way back to when the first humans knocked pieces of flint together to make a basic tool. All production therefore is reducible to the product of labour, but the cost includes profit. Profit, however, is only that part of the workers labour for which the capitalist does not pay.
To draw the conclusion from that as some vulgar economists and some socialists who do not understand the basic economic relationship that workers are not paid the value of their labour and in the formulation of some socialists ask that "workers receive the full fruits of their labour" is a nonsense. Workers are paid the value of their labour if that value is calculated as with any other commodity to be the labour required for its production. If the average standard of living required to ensure that workers reproduce and come forward into the labour force can be produced in say 2 hours a day which is say the equivalent of £100 then that is the value of labour and if wages are equal to £100 a day then the worker is paid the value of his labour. But the worker can work for say 8 hours a day, and in that other six hours produces a surplus.
Even if their were no capitalists and workers controlled production to pay themselves the equivalent of the full 8 hours in wages (i.e the full fruit of their wages) would be foolish, because without this extra production they cannot find the resources to pay for all those things which do not produce exchange value but which are no less required (entertainment, doctors, teachers, etc.) nor could they set aside resources for investment.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180254)
Date: August 26, 2004 01:28 PM
Author: Dan Browne
Subject: Well I have to say
That if I am confusing value and price at least I have been consistent.
But in any case it seems like we are now in agreement although it is quite a stretch of the imagination.
You are saying that the cost of the item is made up in a large part by labor because if you imagine that all products are derivatives of the original product made by labor then the vast majority of the price is labor and the rest is profit. OK for the sake of argument I will agree. (but only for the sake of argument: I will deconstruct the assumption at the end) But it is COST not value. Your original argument was that the price of the item (and it's dishonest to say you were saying anything other that what is usually referred to as "selling price") is determined by labor. It is not. It is determined by the market. All's you can reasonably say is that whether a capitalist will make profit or not depends on whether the market will pay higher for the product than the Cost which in your estimation is mainly dependent on labor.
Now on to deconstructing the cost dependent on all labor that has gone before: Sorry No. At some point, the price must have gone lower than cost for historical equipment required to generate the current equipment or else the price for the current equipment would be astronomical. Since it is not, the argument is false.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180276)
Date: August 27, 2004 05:35 AM
Author: Arthur Bough
Subject: You Are Still Missing the
point
I am talking about four different things all of which you have confused.
1. Use Value. What NC economists call utility. All commodities must have use value because a commodity cannot be sold if no one has a use for it. Some things that have use value, however, are not commodities. For example, air. It is not produced to be sold it is freely available. (Air modified by later e.g. purified is a commodity. The difference between value theorists and utility theorists is that value theorists believe you cannot quanitfy use value so although int he words of Thomas Aquinas it is necessary for (exchange value which I will come to next) it is not a measure of value. Utility theorists say it is quantifiable, but have never been able to demonstrate that it is. They are forced to implying or imputing a quantity back to it (as Weiser does in the article above) from value (by which they mean price). But that is a nonsense utility cannot be the source and measure of value if in order to obtain a quantity for utility you have to know value first. It is a classic chicken and egg situation, which they like Aristotle before them cannot resolve.
2. Exchange Value. All commodities have an exchange value equal to the average socially necesary labour time they embody. This labour time is not just made up of the time spent by the workers in that particular process, but the labour contained in the raw materials they use to produce the new commodity, the fraction of the machinery they use (depreciation) etc. The labour contained in the raw material, machinery etc. passes unchanged into the new product, but it is precisely the unusual nature of the living labour that creates new value. The fact that if paid at its value its wages ensure its reproduction. But the amount it requires in wages for its production say the equivalent of four hours work, is less than the labour it performs say 8 hours work. Consequently, it adds 4 hours of new value into the product. This is the source of profit. From the point of view of the ecoonomy as a whole it is also the source of the fund for new investment and groth. In Marginal theory because it cannot identify the source of profit it effectively prevents consideration of economic growth.
If you want historical proof that Value theory is not just a theoretical concept (which Marginal Theory is) then look at the real life examples of how societies have decided exchange values through history I have given in my other posting titled "Comment".
3. Price. (By which I mean long run - what NC's would turn Equilibrium Price). Price is not the same as Exchange Value though NC economists usually confuse the two. Price will only equal Exchange Value in very restricted circumstances. The total of prices in an economy does howerver equal the total of Exchange Values. The variation between the two is effected through the averaging of the rate of profit to take account of different compositions of fixed and variable (i.e. wage and non wage capital) in different sectors, and the effect of monopoly, as well as the interplay with other drains on profits such as rent, interest and taxes. (According to Value theory all these are ultimately deductions from surplus value even if say taxes are levied on wages). The total level of prices in an economy are therefore determined by exchange value, and the long term direction of prices for the economy as a whole, and of individual sectors are also determined by exchange value. An obvious example is that I have given above if the exchange value of oil rises because more labour is required for its production then long term price of oil will rise even if demand falls.
4. Cost. The cost of production of an item is not the same as its exchange value nor is it the same as the labour it contains. Its cost is made up of labour, raw materials, equipment etc. But the raw materials and equipment were sold not according to their exchange value, but their price consequently their cost is not the same as the labour they embody for the reasons given above. In addition to these costs must be added the average profit. The cost of production is related to the exchange value in the same way that all prices are reklated to exchange value as described above.
Now on your point about capital equipment on the labour time contained in it. You have missed the vital point. The labour used to make a machine will (if a machine is to be of any use) always contain less labour than the use of the machine saves in its use. I gave in Part 1 of my original posting the example of a man making a fishing rod. The exchange value of the rod is 2 hours, but the use of the rod provides many times this amount of saving in labour time.
A final point. Look at a company share. It is the perfect commodity in many ways. It has no other purpose in life than to be bought and sold. Its original purpose of raising capital has long since disappeared at the moment the company put the proceeds into the bank.
Raise their hands all those on this board who think that current share prices (market prices) reflect their true value. Margianl theorists have to say they do because they believe thir is no difference between value and price they believe the market price of the share is the same as Aquinas' "just price". Now I know someone is going to say that the market is rigged (which is a bit of an admission for people who are supposed to believe so much in the market) that maybe the government is intervening or institutions etc. But (whilst that may be happening) it doesn't make sense within the logic of marginal theory. If share prices are being kept artificially high by manipulation then all the ordinary punters whose marginal utility for the shares is now way below the marginal utility of the money they would receive in selling should have sold long ago, and be selling in droves now. But they don't. The only conclusion is that the Marginal Utility theory is hopelessly wrong.
Moreover, anyone who agrees that share prices at current levels do not reflect values admits that price and value are two different things. Price is a short term phenomena which fluctuates according to demand and supply whereas value is something far more intrinsic. Ultimately, share prices reflect the value of companies which in turn depends on the companies ability to sell its products at a profit, which depends on its level of productivity of labour.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180506)
Date: August 27, 2004 12:20 PM
Author: Arthur Bough
Subject: More On Capital Equipment
If I invest 10 hours of my labour making a hammer. The value of the hammer is 10 hours. Assume the hammer lasts for ten days. It gives up a tenth of its value each day to those products I use it on making. In other words .2 hours per day. If I make 10 spears in a day using the hammer to assist me. Each spear contains .02 hours of labour transferred from the hammer.
Alternatively, the original hammer might assist me to make 10 ten better hammers each day, and would like wise transfer .02 hours value into each new hammer. Each of these new hammers take only 1 hour to make and therefore contain in total 1.02 hours of labour. A significant improvement on the ten hours of labour required for the original hammer. As the original hammer wears out after ten days I simply replace it with the new version hammer.
This new version hammer can help me now make 20 hammers a day. Each new hammer now contains .051 hours transferred to it from the new version hammer I am now using, and .5 hours of new labour. Giving this third generation hammer a value of .551 hours.
So where do you get the idea that capital becomes ridiculously expensive. I think if you examin this example it is a pretty close reflection of the way machinery has improved, and its cost been progressively reduced.
There is a further point, however, which is this. As rurplus value is invested into new capital equipment which with each new generation makes labour even more productive, a corresponding increase in the other component of constant capital (raw material) takes place because more raw material can now be processed by the same labour. There is a tendency therefore, for the amount of constant capital to variable capital to increase. The consequence of this is that the rate of profit will tend to fall over time. This tendency is not an absolute law because it can be offset by increasing the rate of exploitation of labour (i.e. if the amount of the working day required for producing the equivalent of wages is reduced through large increases in agricultural productivty and nowadays productivty in those consumer goods bought by workers) then the amount of surplus value can be increased and with it the rate of profit.
Validation can be seen in the fact that historically the rate of profit in countries with smaller percentages of fixed capital to labour have had higher rates of profit. Similarly, Value theorists predicted that as development took place in (when I was studying this 25 years ago they were called Third World countries) it would tend to be capital intensive using the latest equipment because in this way the rate of exploitation of labour would be greatest. Neo classical theorists argued against this and said that because of low wages there would tend to be labour intensive production.
When these countries had soaring unemployment alongside industrialisation the NC economists scratched their heads and wondered why the world once again wasn't fitting their scheme. The reason was quite simple the industrialisation had indeed been capital intensive - though you can point to a few exceptions - not country exceptions but specific company exceptions. A good account is given in "The Development of Underdevelopment" by Paul Baran which also gives some good background on the operation of monopolies. You do have to take into account Baran's Stalinist background though. The introduction I have is given by Bob Sutcliffe who is an excellent value theory economist and does not suffer from Baran's Stalinism.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180625)
Date: August 27, 2004 12:20 PM
Author: Arthur Bough
Subject: More On Capital Equipment
Sorry got duplicated somehow
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180626)
Date: August 26, 2004 02:44 PM
Author: The Reaper !
Subject: What Value ?
What is the value of something that was produced at $400.00 a day labor , and is now produced at $2 a day labor ? What is the value of the former $400.00 a day labor , when it's new competitor is $2 a day ? What becomes of the value of productive facilities (plant & equipment) in the land of $400.00 a day labor , when the new value is so much less ? How do you sell things to people that earn $2 a day that are made by people that make $400.00 a day ? How does a company compete paying $400.00 a day labor with a country that pays $2 a day and subsidizes that $2 with health care , food and housing ? Can a country build value while it devalues ? What are you worth , what are your assets worth , what will they be worth tomorrow ? Are the fore mentioned moving targets ? Should we bring back the $2 bill ? The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180310)
Date: August 27, 2004 12:37 PM
Author: Arthur Bough
Subject: No the $2 Worker
Reaper, before globalisation these countries provided cheap sources of raw materials to be used in developed countries. This had the effect of keeping wages down by providing cheap food, and to the extent that they entered into the production consumer goods bought by workers.
Developed countries could keep wages high by selling their manufactured goods in their own countries and to other developed countries. Globalisation, which the protesters part mistakenly believe is detrimental to the Third World, is changin that Modus Vivendo, which the rulers and rules in the developed world have had for the last 60 years or so. Frederick Engels at the end of the 19th century noting how British workers were benefitting from the Empire notes "even the workers are bourgois".
Globalisation, which is happening because the demoise of the Soviet Union and weakened labour organisations, means that western governments feel they no longer have to pacify their workers. In the 1980's Margaret Thatcher deliberately created high unemployment to break the Trade Unions, and having done that reduce wages and conditions. The same thing is now happening on a much wider scale as jobs are located in countries where labour is cheap and where the use of the latest techniques of production guarantee bumper profits. The other effect is to raise unemplyment levels, most particularly of permanent jobs, in developed nations which is a prelude to reducing wages and conditions. In Germany workers at Siemens had to agree to a longer working week without extra pay rather than see jobs go across the border to Eastern Europe. In Britain the Government is preparing people to have to work an extra five years.
So the answer I think that the governments of the developed counttries are looking for is not the return of the $2 bill but the $2 an hour worker.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180638)
Date: August 27, 2004 01:35 PM
Author: The Reaper !
Subject: Arthur Bough & The $2
dollar bill
Exactly Arthur , but will it stop at $2 an hour , or will it go to $2 a day like our competitors abroad pay their people ? What is the end game , how low can we go ? Today more than half of the people that work in the U.S. , can't afford to live in the same country that they work in . I think that you are exactly correct about Thatcher , IMO she and Reagan were coconspirators in the move to impoverish the working class in the developed world . I could be wrong here , but this has all of the foot prints of a 1920's style crash . I have a difficult time trying to understand why a developed country such as the U.S. , would do everything that was humanly possible to impoverish their citizens . Yesterday Washington announced , that they wanted to give illegal immigrants S.S. benefits after working here for 6 quarters (1 1/2 years) , while an American worker must work 40 quarters to become eligible for benefits . Then this morning , Alan Greenspan speaking at an economic conference , said that the U.S. must cut the boomers S.S. benefits immediately if not sooner . Never in my life , have I ever seen such an anti everybody but me attitude in this country . What we have here is a cancer of greed that will eventually kill this country's economy . The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180675)
Date: August 28, 2004 05:52 AM
Author: Arthur Bough
Subject: Britian is in a worse
position than the US
In the US the population is growing although even there it will soon be the case that there will be too few workers to create the surplus value out of which taxes are paid to pay for unproductive workers of which the US has more than probably any other country. The US has a worse problem in the sense that because of your virtually non existent welfare, and ridiculously high health costs compared with Europe people tend to work till they drop anyway. In Europe we learned long ago that you work to live not live to work so we place more emphasis on quality of life and leisure time and retire as early as we can. I retired when I was 49.
That means in Europe more can be squeezed out of workers by extending the working life of each worker which is pretty much the same as lengthening the working day. But Europe is worse off because the birth rate is so low that in the case of Italy for example the population is not even being replaced - Britain is not quite at that point.
But this will have very odd consequences. On the one hand it means more productive workers are needed to pay for the unproductive retired population, so this means unemployment should fall. On the other hand jobs are being lost to China, India the rest of Asia and Eastern Europe which means unemplyment will rise. But the two don't cancel each other out. The fall in unemployment might be seen to be good though in Britain we have technical full employment anyway - but it is not unemployment but employment that is important.
The simple answer is to encourage massive immigration of cheap labour which will a) compete with cheap labour in cheap labour economies, and b)generate surplus value to pay the taxes to cover the costs of unproductive workers i.e. retired etc.
But in Britain that will never happen. In the 1950's labour shortages led to fairly large scale immigration being encouraged by the government from the West Indies. The result by the early 1960's was the growth of racism and on its back fascist organisations. Racist hysteria is gaining momentum in Britain again, and fascist parties are winning seats in local government and increasing shares of votes in national and European elections. If the large scale immigration that is necessary took place their would be massive social unrest.
So I think that the likely outcome is as you say developed economies will not be able to compete, living standards will fall, the fictitious economy of credit will be seen to be fictitious and collapse. But probably even before then in an attempt to prevent social unrest as more and more jobs go national governments (European Commission in case of Europe) will try to encourage their multinationals to repatriate production, will increase tarriffs and other protective measures to encourage them to do so and to protect domestic industries from foreign competition, living standards will continue to drop despite and as a result of such action as other trading blocs respond in like manner, and the scenario that presage the 1930's and World War 2 (which had nothing to do with fighting fascism and everything to do with the struggle of different economies for economic domination) will recur, but this time the contending powers have nuclear weapons.
I suggest finding a nice island somewhere far enough away from where the mushroom clouds might drift.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181034)
Date: August 28, 2004 06:35 AM
Author: Mark Grant
"The simple answer is to encourage massive immigration of cheap labour"
Like, duh: how is 'cheap labour' supposed to pay the high taxes required to pay for all those pensions and 'free' healthcare for the old farts?
The only way immigration can solve the demographics problem is to bring in lots of skilled, highly paid workers who are willing to pay high taxes to keep old farts in comfortable retirement. Which is not going to happen.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181045)
Date: August 28, 2004 09:43 AM
Author: Arthur Bough
Subject: Duh
Because in order to compete with cheap manufactured good produced with the latest technology and cheap labour abroad you need the latest technique, and equally cheap labour here duh. That's called capitalist competition duh. It creates profits duh. Taxes are paid from profits duh.
Highly skilled, highly paid (especially highly paid) workers can only pay taxes if they can find highly paid jobs duh. Highly paid jobs are usually in non productive sectors like government duh. Only by producing goods and services which can be sold abroad to cover the cost of buying things from abroad or reducing the need for imports do you generate any wealth duh. Otherwise the high wages are simply a deduction from the wealth created by the productive workers or are paid for out of credit duh.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181132)
Date: August 24, 2004 07:12 AM
Author:
Dan Browne
Subject: You're missing it
If it were possible to assign a value to the mythical "socially useful hour of average labor" then we would still have the situation which you completely misunderstand.
The "surplus" extra hours that the laborer gives to the capitalist in exchange are payment for the capitalist's risk in having to market the product during downswings in demand for the product.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179484)
Date: August 24, 2004 11:08 AM
Author:
Arthur Bough
Subject: I suggest you read Adam
Smith
I suggest you read Adam Smith's "Wealth of Nations" where he demolishes this nonsensical argument about capitalists risk. If you deiced to jump off a 100 storey building without a parachute or other means of preventing you crashing into the ground below you take a significant risk, but there is no reason on earth why anyone should pay you for it. The same is true about the other nonsensical idea that the profit is a reward for the capital deferring spending which Smith also demolished. Put a £100 in the ground rather than spend it and see how much its grown by when you take it out.
Adam Smith and David ricardo were quite honest about what profit was - it was the amount the capitalist demanded for using their capital because why would they use it unless they were going to recive profit. But in analysing profit as something the capitalist demanded for using their capital they were equally honest in saying where it came from - the exploitation of labour. Why is that a problem for you to admit. In feudal times the landlords made no bones about the fact that they exacted free labour from the peasants as their due as a higher class, the slave owners never thought they had to justify exacting surplus labour from thier slaves why should capitalists feel anymore ashamed about admitting that profit is the result of their exploitation of workers.
Ah, perhaps because eventually the slaves revolted, the feudal landlords were overthrown by the capitalists and the capitalists are afraid the same might happen to them.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179533)
Date: August 23, 2004 08:45 PM
Author:
Kenmeer Livermaile
Subject: "you underestimate my
powers, Neoman"
a): "It is you who have failed to grasp the fallacy of the LTV."
b): "If you took the trouble to read Adam Smith you might actually learn something which would avoid you making the kind of moronic statement you have just made"
I love it when a debate emulates comic book superhero/supervillain exchange.
"It is YOU who have failed..."
"If you took the trouble to notice the atomic detonator I placed under your cape..."
Don't get me wrong. Both posters are in my estimation bright and I learn much from them. I have some thoughts on this topic but, mercifully, I'll spare us, sit back, and watch the Battle of the Titans continue.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179360)
Date: August 24, 2004 08:12 PM
Author: Finster
Subject: Invalid Logic, Arthur
I drew that distinction in my prior post. Cost represents the labor required to produce something. Value does not. It therefore sounds like we agree. So why all this abstruse stuff about the labor theory of value? You advocate it in one breath and trash it in the next.
There is no confusion between value and price. As I've stated many times on this forum, price equals value of the thing divided by the value of the monetary unit.
But more importantly, there is a deeper problem with your labor theory of value - it assumes a single value for an item. But the value of something is not the same to all persons. That's why trade exists. And this fact invalidates the logic in the following.
You see the fatal flaw in your example? It assumes the existence of a single objective "value" of the respective products - viz. "...a product worth £10". To make it logically valid, you would first have to do some groundwork to show that such a value exists. But don't bother - it's an impossible task.
If you buy my product for £15, that means that you valued my product more than you did the £15. Conversely, if I buy your product for £5, that means you valued your product less than you did the £5. The hypothesized worth of £10 does not exist.
So your conclusion that the net economic benefit is zero is invalid and incorrect. The trade took place only because you and I each deemed it beneficial. We have both on our own terms economically benefited so that the net economic benefit is positive.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179697)
Date: August 25, 2004 10:35 AM
Author: Arthur
Bough
Subject: So Your conclusion then is that production
is not necessary
If I have good A, and you have good B and we exchange. I agree there may be an increase in welfare if I prefer good B and you prefer good A. But from an economic point of view this takes us nowhere. At best loked at from the point of view of society it still has the same amount of paper currency, and the same commodities it had before. No new wealth can be create by endlessly exchanging these goods back and forth. If your conclusion were corect then economic growth does not require any production to take place just an endless exchange of commodities. But the reality is that economic growth can only occur when an economic surplus is created whether that surplus is a slave producing more than his upkeep, a peasant producing more food than needed for his maintenance or a worker producing more value than his wages. Only then can that surplus be invested and production expanded.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179837)
Date: August 25, 2004 11:01 AM
Author:
Finster
Subject: Fine Lines And Scientific Objectivity
Your latter observation essentially denies the worth of much of human enterprise. Trade. It is a virtual tautology that if two individuals voluntarily exchanged items that they did so because they deemed themselves better off for it. This is part of the underlying idea of specialization and economic betterment through voluntary interaction.
The main problem with this analysis is that it substitutes the ostensibly objective view of the scientific observer - in this case, yours - for the judgment of the economic participants themselves. In doing so, we set ourselves up as the ultimate arbiters of value and wealth. I submit that we can not arbitrarily impose our judgment of value on economic participants without violating scientific objectivity.
I am not, however, proposing that economic wealth is created through exchange alone. But unless everyone lives in isolation, raises their own food, mines their own minerals, builds their own home, etceteras, it is virtually impossible to separate the purely "productive" act from that of exchange. Indeed, as I suggested above, unless we presume to override the judgment of economic participants themselves with our own, we have to accept their acts as evidence of their own judgment of value.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179842)
Date: August 26, 2004 05:36 AM
Author:
Arthur Bough
Subject: No It Shows exactly Why We Have
Increased Production
Because people are blinded by market prices they fail to understand the real human forces and social relationships that make up an economy. If I exchange good A with your good B because I prefer good B and you prefer good A, but I am better at producing good A than good B this is Ricardo's law of Comparative Advantage (which again he derived from his analysis based on the LTV) but in essence it is also the principle of the division of labour i.e. if people specialise in producing aparticular thing they will be able to produce more of it.
But again because people are blinded by market prices rather than underlying truth they miss what is going on. Price theory has blurred the necessary distinction which all the old philosophers and economists recognised of the distinction between use value and exchange value. What the division of labour brings about is an increase in the production of use values not exchange values.
The increase in the amount of use values is the equivalent of saying that their has been an increase in the amount of utility. Now if the utility theory of value were correct this increase in utility should bring about an increase in value, but it doesn't. The amount of value (general level of prices) will be unchanged.
Just think about motor cars what effect did the division of labour and its more specialised form have on the price - it reduced it massively. The same amount of value as exchange value that was previously created was still created but simply divided up in smaller chunks over a larger number of use values (i.e. cars). The same has been true of virtually every commodity you can think of.
If increased specialisation increased value i.e. increased prices then it would have made us all much worse off.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180156)
Date: August 26, 2004 09:23 PM
Author:
Finster
Subject: Labor, Capital, Cost & Value
Your logic relies on the premise that "people are blinded by market prices", but there is no evidence of record supporting this notion. To the contrary, many would argue that market prices serve as a means of communication between economic agents; they convey information relating to supply and demand, allowing the economy to rationally self-organize and allocate resources in such a way as to maximize their efficient utilization.
I would restate by saying that the division of labor brings about a reduction in costs as it permits the same output value to be created with less labor, or equivalently, more output value from the same labor.
By bringing into this the general level of prices you are confusing the issue by introducing yet another variable – the value of money. As I indicated, the price of something is the value of that something divided by the value of the monetary unit. If the value of the monetary unit itself changes, then we cannot draw any firm conclusions about the general level of prices.
Again we fail to distinguish between value and cost. If you were to argue a labor theory of cost, I could agree with you.
There is danger in over-reliance on fuzzy generalities like "use value", "exchange value", and "utility", as well as "capital" and "labor". It appears to cloud our thinking and put more words between us and the real world than is healthy for our understanding of it. So let's try a concrete illustration of the principles of capital and labor.
Seventeen year old John wants to make some money so he can take his girl to dinner and a movie. He offers to mow his neighbor Bob's lawn for $35. Bob is an electrician who just had an offer to do a wiring job for more than that. He had considered turning it down because he needed to mow his lawn. So he gladly accepts John's offer.
John rents a lawn mower for $5 and mows Bob's lawn. John uses $25 for his date and has $5 left over, so he's happy. The renter of the mower is happy because he has $5. Meanwhile, Bob is happy because he has more money at the end of the day than he would if he had mowed his own lawn, and his customer is happy because he got his wiring done, and John's girl is happy because she enjoyed dinner and a movie with John.
With me so far? We've just illustrated several economic principles, including the creation of value through commerce.
But wait ... there's more …
John mows a lot of lawns that summer. Each time, he sets aside some of his money. The next spring, he buys a lawn mower from the guy that rented to him last year. Now whenever John mows a lawn, he has $5 more than he had last summer. Then the next year, John buys another mower, and rents it to a new teen on the street, who in turn mows lawns with it. This allows John to make even more than he made the year before.
Now let's skip forward 45 more years. John has married his girl, they have children of their own, and he is now age 65. He has bought lawn mowers, tillers, shredders, etceteras and now owns the rental company he used to rent from. He pays a manager to run the day-to-day affairs of his company, and retires on the income received from the business. Youngsters now earn money much the way he did, renting equipment from him and earning money with it.
See what's happened here? Young John starts out as a laborer. By deferring some consumption, he accumulates savings. He invests his savings in capital, accumulating capital as he grows older. Finally, he is able to retire on his accumulated capital, and now pays a young man in his neighborhood to mow his lawn.
Note there is really nothing unusual about John. He is a type for the Western middle class. Countless millions of us labor when we're young. We save and accumulate capital as we grow older, until we are able to retire on accumulated capital. The next generation then acquires that capital and round and round it goes.
See what we've done here? We've illustrated some of the "real human forces" and "social relationships" that make up an economy. We've eschewed fuzzy generalizations and made concrete the notions of division of labor, specialization, creation of value, and illustrated how labor and capital work together to create value. We've also illustrated the interconversion of labor and capital – how labor is used to buy capital and capital used to buy labor. We've finally shown how value is much more than the labor that lies at the root of its creation.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180369)
Date: August 23, 2004 09:34 AM
Author: cherokee
Subject: markets determine price....
.... the cost of factors of production determines the cost
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179188)
Date: August 22, 2004 04:21 PM
Author: Kenmeer
Livermaile
Subject: more or less
"Value comes from consumer demand, not the labour that goes into a product. That is why a Picasso sketch that took 10 minutes to complete can sell for $250K while a Pinto that took several hundred hours to put together would be lucky to fetch $10K."
Hydrogen bombs have had an interesting effect on the cost of human life. Very cheap to kill an entire continent's population these days. Consumer demand for nuke weapons very strange concept. Those with nukes don't want competition in the extinction market.
Have nukes had any effect on the perceived value of human life?
Very strange times indeed.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178986)
Date: August 23, 2004 06:09 AM
Author: Arthur Bough
Subject: Really
How much labour does it take to produce another Picasso. Some people like Da Vinci for example are unique. Moreover, you still don't seem to understand the difference between value and price despite the fact that Bill Bonner keeps giving you examples. The price of a house might be different one day to another, but what is its value? Has it changed for the person that lives in it? The same thing is true of a share. If a share changes in price from one second to another do we really believe that the underlying value of the company which the share represents has also changed from one second to another. If that were the case then value investors may as well give up now because the investing vriteria of people like Warren Buffett of looking at the underlying value of a company rather than ints share price could never work.
"Value comes from consumer demand". Really? Well there is a pretty big demand from every human being on the planet for air, but its price is zero. Reason it takes no human labour to produce it. Start requiring labour to process it into oxygen etc. and hey presto it acquires a value. Moreover, if your example was taken seriously then the Pinto should be more valuable because there are more people that have an effective demand for Pintos than for Picasso's.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179156)
Date: August 24, 2004 07:17 AM
Author: Dan Browne
Subject: Sorry, WRONG
"Well there is a pretty big demand from every human being on the planet for air, but its price is zero"
Air purifiers cost money. In Mexico City for example you are quite free to breathe the polluted air if you so choose to.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179486)
Date: August 24, 2004 11:14 AM
Author: Arthur
Bough
Subject: Sorry, Not Wrong
If you read what I said I pointed out that once labour is involved to change the air then it acquires a value. According to the theory you seem to be defending the air should cost more than the air purifiers, or oxygen or any other derivative of air because if Vangel's and his supporters argument is correct (i.e. that it is demand which creates value) the demand for air purifiers, oxygen etc. is less than for air itself. Therefore, having the higher demand it should be priced more highly than these other items. But of course it isn't.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179534)
Date: August 24, 2004 12:30 PM
Author: Dan
Browne
Subject: No sorry
I'm not defending a theory I'm criticizing yours.
A product doesn't have any value whatsoever other than what the market supplies it with.
To say otherwise is nonsense.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179555)
Date: August 22, 2004 01:50 AM
Author: Poofter
Subject: More bull bullshit - Its All Good!
NY Times
'An Oil Shock That Could Be an Economic Stimulus in Disguise'
How much will expensive oil hurt?
Over the last 30 years, the United States has been driven into recession three times by abrupt surges in the price of oil. As the price of crude has surged over the last two weeks, reaching new heights almost daily, some economists have begun to worry that the current "oil shock" will slam the brakes on the nation's economic expansion again.
It probably won't. Despite the disquieting parallels with the oil shocks of the 1970's, the 1980's and the 1990's, the impact of the current oil spike on the American economy is likely to be much less intense than in previous surges. Not only is the economy much more energy-efficient - gasoline prices have been stable in recent weeks - but, more important, in contrast to previous periods when oil shocks occurred, inflation remains under control. So rather than pushing up interest rates and compounding the economic slowdown, rising energy prices today are slowing the rise of interest rates, providing an unexpected dollop of economic stimulus on the side.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178798)
Date: August 24, 2004 05:52 PM
Author: Kenmeer
Livermaile
Subject: Breaking for intermission…
... in the Battle of the Titans
Value versus cost. Cost is partly based on previous values, so separating cost from value does not suffice. We're stuck with value. Still, we can all agree on the distinction between the effort/substance that goes into a product and the effort substance spent to purchase it.
That said, I quote a Brooklyn raised Russian Jew of past acquaintance, the sort of fellow who would pick up a yard sale item, smile at the proprietor, and ask: "What's wrong with it?"
He once said: "You don't get what you pay for, Kenmeer. You get what you get."
Addendum one: Beauty, they say, is in the eye of the beholder.
Addendum two: Many wives bought cheap end up being sold dear.
Addendum three: the value of a marriage is chiefly based on the work both parties put into it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179653)
Date: August 21, 2004 05:17 PM
Author: Finster
Subject: Vangel's Criticism
Another way to express the objection Vangel raises (Vangel, please set me straight if I misinterpret), is that these equations fail to take into account human nature. They do not address motivation. The question of why the investment necessary to produce the oil gets made.
Moreover, they also fail to take into account the big picture issue of the fact that we simply do not want to labor all of our lives. When we are very young and very old, we can only consume. To do be able to retire, for example, the laborer accumulates capital. One of the fundamental misapprehensions of the Marxists is that labor and capital are two separate classes of people, but the capitalist system solves the problem elegantly, by making them the same.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178638)
Date: August 22, 2004 02:30 AM
Author: Lucius Foster
Subject: Failure to factor in the human value
Right on, it is present in every calculation and must be assigned a position or a value. To work without it is to fail to properly present it presence.
I have played the market utilizing it. I have conducted business based on it. Failed and succeded. Most correct. YOu state it well.
Cheers Lucius I just got off the chariot.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178807)
Date: August 23, 2004 06:37 AM
Author: Arthur Bough
Subject: You really should read Afdam Smith
You have a number of misconceptions here. Firstly, "Why the investment necessary to produce the oil gets made." Adam Smith answered this question more than 200 years ago. The reason is simple and Smith showed why it makes capitalism different from every preceding mode of production. When the peasant grew his crops, weaved his material, made his clothes he did so for the very obvious purpose of feeding and clothing his family. The products he produced were the ones he needed and desired. For the capitalist the whole nature of the commodity is that it is not produced for need but for profit. As Smith says the capitalist has no interest whatsoever in what he produces only that in return for outlaying his capital he receives a profit. For that reason if the biggest profit comes from producing hydrogen bombs then capital will move to that sphere until it no longer provides above average profits. If it comes from producing Aids vaccine it will move there. Capital is blind to the morality of what it produces. So Adam Smith answered your first point I'm surprised it still gets raised.
Secondly, you confuse capital and revenue. Adam Smith spent some time on this point too. He does so in a discussion of productive and unproductive labour, and also Smith sets out quite clearly what "capital" is. If a rich man pays for the service of a butler he does so out of revenue not capital. Smith quite rightly says that capital is only capital when it is used to purchase labour to produce a profit. When a labourer saves from his wages he does not accumulate capital he merely defers consumption in order to spend it later. This expenditure is not an expenditure of capital, but an expenditure of revenue. It would only be capital if he used it say to commence a business and employ labour (including in that context his own) which produced a profit.
Smith like all the other economists and philosophers of his time recognised that within this context there were indeed divisions in society between those who owned "capital" and those who did not including those who owned land. He also recognised that there were those such as lawyers, clergy, politicians, sovereigns who merely lived off revenue created by those who really were productive i.e. produced surplus value.
David Ricardo took Smith's analysis even further to demonstrate the different economic interests that existed between the landlords, the capitalists and the workers. Unfortunately, the economists that came later who were only concerened to act as apologists for capitalism rather than understand it lacked any of this deeper analysis and come out with the kind of hogwash that says capitalists and workers are the same.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179158)
Date: August 23, 2004 09:42 AM
Author: cherokee
Subject: the power is capital was destroyed...
... by the governments when they took control of money supply. by fixing interest rates they decided the price of capital. real capital has been moving out of the west for decades.
labour never had too much bargaining power anyway.
so now the real power rests in the hands of the landlords. almost all money supply is now backed by land collateral.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179191)
Date: August 24, 2004 07:17 PM
Author: Kirk
Subject: Capital and Revenue
Assumptions, Assumptions, Assumptions
"Secondly, you confuse capital and revenue. Adam Smith spent some time on this point too. He does so in a discussion of productive and unproductive labour, and also Smith sets out quite clearly what "capital" is. If a rich man pays for the service of a butler he does so out of revenue not capital. Smith quite rightly says that capital is only capital when it is used to purchase labour to produce a profit."
There are two things wrong with this statement. (1) It assumes that the rich man pays for the services of a butler for his own leisure. This is not necessarily true. The rich man may be a gifted painter who uses his leisure time to paint. The butler thus provides him with time to create a work of art that may have a 'value' of a million dollars!! In this case what he pays for the butler is capital and not revenue.
(2) This definition of capital is not objective. Let's say that there is money invested in a company that makes cars. The company is marginally profitable. One year sales drop and the company is no longer profitable. So the year when the company is profitable the money invested is 'capital'. But the year when it is not the very same money is 'revenue'. The investors are now men/women who invested for the shear pleasure of it and not because they wanted to make a profit.
Now let us eliminate the objection by redefining capital as money used to purchase labor with the INTENTION of making a profit. This eliminates the difficulty with the company that oscillates between profit and loss. However the question of 'revenue' now becomes ambiguous. Now the rich man who spends money on leisure, may in fact feel better because of it. His disposition is improved and his management skills improve to the point where his company now becomes profitable, So 'revenue' is now capital??
Economics reminds me of Irreversible Thermodynamics. The more you talk about it the more ridiculous it gets.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179676)
Date: August 25, 2004 09:47 AM
Author: Arthur Bough
Subject: Read Adam Smith he deals with the points you make
Adam Smith deals with the points you make in particular the butker who saves the capitalists time etc.
On the second point you are partly correct. When a capitalist lays out capital he does so with the intention of making a profit. The things he buys with this capital such as machinery, raw material, labour are bought in order to assist in making this profit, and are therefore at this stage productive. But if as you say he is unable to sell the end product then this shows that the labour used in this production was not socially necessary he produced the goods which are now wasted along with the values that went into them, and therefore can be seen a posteriori to not have been productive. For as long as capitalist production is based on an anarchic market where it is not certain that goods produced are required these kinds of waste of resources are not only possible but inevitable.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179820)
Date: August 26, 2004 01:11 PM
Author: Arthur Bough
Subject: Further Clarification
Productive and Unproductive Labour The Butler
I didn't have time to answer your question the other day about the butler that frees the time of an artist to be able to produce something that would have taken up his time cooking etc.
This objection is not new it was raised by the German Physiocrat lawyer and economist Theodor Anton Heinrich Schmalz in his "Economie Politique". 1826.
Schmalz wrote:
"The joiner for example who makes a table for me, and the servant who takes my letters to the post, who cleans my clothes or gets for me the things I need, both perform a service of absolutely like nature. Both the one and the other save me the time which I myself would have to use up in doing these things, as also the time I would have to devote to acquire the skill and facility needed for them."
But Schmalz confuses use value and exchange value. The value and price of a thing are not determined by the economy of time effected through the division of labour, and it is the division of labour that is being described both in your example and the identical example of Schmalz i.e. the servant can do menial tasks better than me, and I can do better skilled tasks than the servant. The result of the division of labour is not that more exchange value is created, but that more use values are created i.e. more things produced in the same amount of time.
In fact generally speaking the division of labour results in a reduction of prices, which reflects the fact that more use values are produced whilst overall exchange value remains constant.
Smith in his discussion of productive and unproductive labour used this distinction to demonstrate that monarchs, politicians, clergy, soldiers, etc were all unproductive labourers just as much as court jesters and other buffoons. Such an attack on the most powerful and privileged was bound to cause a response from the ideologists of these people.
For example, Tocqueville makes a lot in the same manner as Schmalz of this idea of "saving labour" as did the Earl Lauderdale. Tocqueville as a Monarchist presumably believed that the Monarch saved other labourers their time in having to govern themselves.
The inane, vulgar economist Jean Baptiste Say also chimed in on the subject but like all the vulgar economists he wrapped himself up in knots and as was typical of Say contradicted himself line after line in his verbiage. For example he says he disagrees with Smith's description but then comes out with the following which totally confirms Smith's view "A nation in which there were a multitude of musicians, priests and officials, might be pleasantly entertained, well educated and governed admirably well, but that would be all. Its capital would not receive any direct increase from all the labour of these industrious men, because their products would be consumed as fast as they were created." Say's confusion led him into all kinds of ridiculous comments. Paradoxically, the Austrian school of economics which some on this board confess to belonging to traces some of its positions back to Say which probably explains their own confusion and ridiculous positions. I say paradoxically because the Austrians lambast Keynesian economics, but Say was a hundred years ahead of Keynes in advocating the expansion of the unproductive sector of the economy in order to soak up the products of the productive sector.
For example, Say believed there could never be too much of a material product produced. If some was not sold it was simply because not enough of some other product had been made or service provided. For example on p123 of his "Traite d'economie politique" he argues that it is not that there is a superfluity of the services of physicians but that the services of other producers of immaterial products such as prostitutes are in short supply. Presumably an increase in the number of prostitutes would not only have generated the income to the prostitutes to pay for the services of physicians, but also more clients for the physicians from amongst the ranks of the clients of the prostitutes.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180265)
Date: August 24, 2004 07:21 AM
Author: Dan Browne
Subject: Hmmm.
Do machines count as labor or do they count as capital? This is an important disctinction and the only way to save your theory is to declare machines to be labor. Sorry my friend: The theory has been dead a long time. Let it be.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179489)
Date: August 24, 2004 11:16 AM
Author: Arthur Bough
Subject: Machines As Smith said Are Labour
Of course machines are labour. How did they comne into existence they were produced by labour i.e. they embody labour time. That cost is transferred into the products they help produce. If this was apparent to Adam Smith and some of the reatest minds 200 years ago why do you still have trouble understanding it?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179535)
Date: August 24, 2004 12:30 PM
Author: Dan Browne
Subject: Ha Ha Ha Ha Ha
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179556)
Date: August 24, 2004 02:58 PM
Author: Arthur
Bough
Subject: i'M GLAD YOU THINK ITS FUNNY.
I'm sure you are a much brighter and intelligent human being than Adam Smith, or Benjamin Franklin and so have every justification to laugh at their ideas, but then I ask why is it that you can't justify your own ideas.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179599)
Date: August 25, 2004 06:38 AM
Author: Dan
Browne
Subject: Excuse me?
I have justified every word with a logical rebuttal of your ill conceived and poorly thought through arguments. If you think that you can "justify" your own weak theory by quoting dead authors who can be demonstrated to be wrong by SEVERAL people on this board then you are welcome to.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179774)
Date: August 25, 2004 09:48 AM
Author: Arthur
Bough
Subject: What kind of argument is ha,ha, ha then?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179822)
Date: August 25, 2004 01:11 PM
Author: Dan
Browne
Subject: It isn't an argument, it's laughing.
Laughing at your point doesn't detract from my other points.
You're not very good at this are you?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179878)
Date: August 26, 2004 05:38 AM
Author:
Arthur Bough
Subject: Thank you for your
clarification
I see your point its just that ha, ha, ha, seemed to make about as much sense as an argument as the rest of your postings.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180157)
Date: August 26, 2004 09:05 AM
Author:
Dan Browne
Subject: Now now
Sarcasm doesn't become you. That's *my* job. Yours is to pontificate and quote long dead authors.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180193)
Date: August 26, 2004 01:19 PM
Author: Arthur Bough
Subject: Long
Dead Authors
But I'm an author (though not productive in Smith's term because I'm looking for a publisher)too and sarcasm is the stock in trade of writers.
I'm also a contrarian so you can't expect me to agree with the sheep that follow othodoxy.
I was watching a programme the other day about Leonardo Da Vinci. They were testing out a number of his inventions all of which worked, but which had never been adopted. The tragedy the programme demonstrated was that nearly all Leonardo's work was wasted except for the Mona Lisa because although everything he did was shown to be workable no one at the time believed himn, and was prepared to adopt his ideas. By the time his ideas were rediscovered it was too late because we had developed scuba diving equipment, helicopters, hang gliders etc.
The trouble was we had wasted 500 years rediscovering what we could have had if we'd only taken Leonardo seriously.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180268)
Date: August 26, 2004 01:30 PM
Author: Dan Browne
Subject: So
does that make you a capitalist?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180277)
Date: August 24, 2004 07:18 AM
Author: Dan Browne
Subject: Right
We are all capitalists to a lesser or greater degree. What it comes down to is savings and consumption. And personal choice which camp you want to be in.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179488)
Date: August 24, 2004 11:24 AM
Author: Arthur Bough
Subject: You might as well say slaves were slave owners
Clearly we are not all capitalists to a lesser or greater degree, any more than slaves were slave owners to a greater or lesser degree, or peasants were landlords to a greater or lesser degree unless of course you want to take any useful meaning out of words and concepts. In which case you may as well say humans and elephants are the same to a greater or lesser degree because we are both mammals. Or humans and trees are the same because we are both organic.
For the kind of nonsensical superficial claptrap which Libertarians use this might be okay, but for any serious analysis it is not only useless but worse than useless because it leads to misleading conclusions.
Clearly you do not understand what capital is. Capital as Adam Smith is peculiarly to the capitalist system. Capital is only capital when it is used to produce profit, and profit as Smith observed comes from the surplus labour provided by the worker. As profit increases to the extent that wages are reduced and vice versa there is a clear antagonism between the two, which is why workers without anyone telling them to formned Trade Unions to try to keep their wages up, and why capitalist formed employers organisations to try to keep wages down.
Crocodiles and antelopes might be the same to a greater or lesser degree, both being vertebrates, but it is a rather stupid antelope that thinks his interests and the crocodiles are the same.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179538)
Date: August 24, 2004 12:32 PM
Author: Dan Browne
Subject: Can you think for yourself?
Why do you keep invoking "Adam Smith". Serious thinkers expound their OWN theories, not quote long dead authors. Are you perhaps, an academic?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179557)
Date: August 25, 2004 09:54 AM
Author: Arthur Bough
Subject: Irony upon irony
The original thread I started here was entirely my own construction. The vast majority of the responses I have provided have been ninety percent or more my own words with respected sources quoted where they have something useful to say better than I could say it (just like Bill Bonner does frequently). I would remind you that it was not me that simply pasted in a tract of other people work, and that the person who did so has been unable to come up with any kind of original statement of their own.
When you ask am I an academic do you mean the kind of academic like Von Mises, or Hayek or any of the other academics Libertarians on here quote freely without really understanding what many of these people were saying.
I f you mean an academic like that no. I have provided my background several times on here, and if you were to look it up from previous threads I guarabntee it doesn't suit your argument.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179823)
Date: August 25, 2004 01:13 PM
Author: Dan Browne
Subject: Nevertheless
If you are capable of reasoning then you should concede that your original premise is false. Being able to do a U-Turn when you are wrong is to be respected.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179882)
Date: August 26, 2004 05:38 AM
Author: Arthur
Bough
Subject: I look forward to your U-turn then
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180158)
Date: August 26, 2004 09:06 AM
Author: Dan
Browne
Subject: You're getting pretty close yourself
When you admit that market price is set by the market you will be there and I will applaud.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180194)
Date: August 27, 2004 07:06 PM
Author: Vangel Vesovski
I think that things are not as simple as most economists on the left (and often the right) make them out to be. When you live in a chaotic world that is nonlinear using linear equations is pure folly. The reason that Arthur uses them is to justify his beliefs. Unfortunately, his beliefs are badly flawed and do not work in the real world. The LTV, for example, is still held in high regard by most lefties even though it does little to explain how things really work in human society. I maintain that those economists who argue that value is subjective are entirely correct because even the LTV finally breaks down and starts to bring the issue of skills into the picture. But that presents the LTV guys with the problem of how to value one set of skills relative to another and that too becomes an exercise of subjective judgement. Of course, the leftists have little trouble with this troubling fact as long as they are the ones that are making the subjective judgements. Am I being clear comrade or have I lost you again?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180816)
Date: August 22, 2004 12:31 PM
Author: Frank Wighard
Subject: Oil
One thing looks certain - Oil producers will keep adjusting price to keep world markets from switching to alturnitive fuels until the cheap to recover oil is all gone. Some time next year the world will produce less oil than what is needed as supplies dwindel. That starts a new pricing process called "shortage" and supplies will then go to the highest bidders. Wake up and smell the coffee - It's time to dump all the beliefs of past relationships and formulas. Desparation will set in and the poor will simply go without. Dont forget, There is a way to change Coal into gas and oil - We will build a lot more nuke plants, solar, wind and water power generation to fill the gaps - Nat Gas and Hydrogen fuel cells are a coming fast, but the transition will not be smooth. $150.00 a barrel oil will start it rolling fast. Electric powered cars will come on line but there is still all that gasoliene that is good for nothing else but burning. If cars did not burn it the oil companies would have to just to get rid of it. The US is the Saudi Aribia of COAL. There are many long term thinkers who believe the US. should use up all the cheap oil in the world first. After all it does help their economies by giving them reserves in US Dollars to expand their own economies.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178892)
Date: August 23, 2004 02:51 AM
Author: anthonyedwarde
> inflation remains under control.
If you happened to live in CA MA RI NY or DC, and some other high priced states (about 50% by value of total RE inventory is contained within a few key states), most of England, Scotland & Wales, Ireland, Spain, the Netherlands, coastal China, metropolital Bangkok or beachside Thailand, Johannesburg, Australia, New Zealand to name a few, & you were in the market to buy your first house/condo you would notice prices had risen between 80% & 100% since 1999, 200% in some cases, but in the same period your income either hadn't risen at all or maybe by 25% if you were lucky. Since the gov doesn't include house price rises in CPI then I guess we can conclude it's not really inflation after all.
Peter Warburton's 'Debt and Delusion' explains how inflation has been diverted into asset sectors since 1990 instead of the usual route of salaries & consumables.
http://www.mises.org/fullstory.aspx?control=1579
thanks to Chris M.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179146)
Date: August 24, 2004 02:39 PM
Author: FAST FRED
Subject: Airlines
The airline problem is more from Gov than competition.
Any scumbag can rent an aircraft and hire a crew, and then undercut the price of any companys service.
The targeted company can NOT cut the price below the upstarts , as that is "unfair competition " as the target has more cash than the scumbag.
Add in landing fees and a myriad if other "fees" and the Gov gets from 20% to 50% of the ticket price.
The folks at the upstart are willing to work at laborer wages , on the dream the company may survive and they will get senority.
Ask the sky hop, bag smasher,piolts of Peoples Express how that dream worked out.
De Regulation was only done to 5% of the airlines package of rules and regs.
Getting Gov out of the "business" would allow private ATC , landing fees under $8000 for one aircraft (EWR) and outrageous "fees" for screeners that are useless.
Free Enterprise , not at the Air lines!
FAST FRED
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179591)
Date: August 24, 2004 03:02 PM
Author: Arthur Bough
Subject: I Agree
I agree. We deregulated many things in Britain and the result was as could be expected. First a load of cheap alternatives came in. They soon went bust, and rationalisation occurred. Before long the industry was dominated by a few large unregulated oligoplistic firms who could charge what they wanted more or less. This was good for the workers in those industries because it gave them better bargaining power to increase their wages.
The sooner we let free competition get rid of the inefficent small firms and leave us with large monopolies the better.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179600)
Date: August 24, 2004 06:30 PM
Author: Mark Grant
"We deregulated many things in Britain"
Such as? Name one industry that has actually been 'deregulated' in the UK... denationalised, yes, but there are huge numbers of regulations on every industry, which almost always penalise small firms to the benefit of large ones. For airlines in particular, taxes often make up the majority of the cost of a flight in the UK or Europe, eliminating many opportunities for competition, and government regulations mean that they can't even compete on, say, security or convenience.
This is like claiming that the railways were 'privatised', when the government can still tell them what services to run, what prices they're allowed to charge, and that they can't buy up the railways, rip up the tracks and sell off the land for a tidy profit.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179662)
Date: August 25, 2004 09:55 AM
Author: Arthur
Bough
Subject: Answer
Buses.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179824)
Date: August 25, 2004 07:09 AM
Author: b patton
My husband works for a company that gives a 1c (one cent) increase per year. We were paying - rates and taxes, school taxes, home owners association taxes(just for house). In 2 years the aforementioned taxes were raised twice by 25%. The deductions on his salary increased 100% e.g. Med Ins./ s/s// medicade/group insurance/ life insurance/ Fed tax etc. by the time all the deductions were subtracted he was earning less than 3 years prior.
We sold the house and bought an old rv. My rent is $255 per month and no taxes of any sort. Utilities are inclusive of the rent paid.
Was it worth it. Indeed, yes. We have made the decision never to buy a home again.
I have also noticed over the past 6 months more and more young people are living in the park. My neighbour, a young construction worker said that he would never buy a home as it was too expensive (Texas). Young female teachers are also buying 5th wheel trailers and small RV's, just mentioning a subtle shift amongst the youngsters to follow the example of "us oldies".
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179779)
Date: August 24, 2004 08:54 PM
Author: horia
Subject: Arguments
The trouble about arguments is they ain't nothing but theories, after all, and theories don't prove nothing, they only give you a place to rest on a spell when you are tuckered out butting around and around trying to find out something there ain't no way to find out.
Mark Twain
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179704)
Date: August 25, 2004 03:01 PM
Author: ron resnick
Subject: Oil is NOT a commodity
From Jay Hanson [www.dieoff.org]
Neoclassical economic theory teaches that we will never "run out" of a commodity. This is because as prices increase, we will use less-and-less of it, but there will always be some available at some finite price. Practically every economics textbook teaches this, but every economics textbook is wrong because "energy" is fundamentally different from every other commodity.
There is no substitute for energy. Energy is the prerequisite for all other commodities, so if we "run out" of energy, we will "run out" of everything else too.
By definition, energy "sources" must produce more energy than they consume, otherwise they are called "sinks". By definition, energy sources have "run out" when they consume more energy than they produce. This universal energy law holds no matter how high the money price of energy goes.
Economists are blind to the unique properties of energy because economic methodology is inherently defective. Economists first abstract all commodities to money -- which of course, obliterates all qualitative differences between the commodities themselves -- and leaves economists uniquely unqualified to know the relationships between the commodities they purport to study.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179925)
Date: August 26, 2004 05:46 AM
Author: Arthur Bough
Subject: What is a commodity
A commodity is something that is produced solely for the purpose of being sold. A product that cannot be sold is not a commodity it is simply a product. I might decide for example to spend my entire life building a car out of match sticks but no one is likely to pay me anything for it because I am useless at building cars out of matchsticks. It may be a product, and may have given me something to do, but it isn't a commodity.
From the point of view of capitalism as different fdrom all previous forms of production all commodities are the same and money is a convenient way of showing that sameness. It makes no matter to me as a capitalist whether the capital advanced is for the production of cruise missile or kidney machines. My only concern is to use my capital in the sphere that will bring me the most profit.
When oil becomes so expensive to get out of the ground that no one can make a profit from producing it - then it will cease being a commodity.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180161)
Date: August 26, 2004 09:42 PM
Author: Gerd Boettcher
Subject: any human mental construct is inherently (fatally) flawed
on top of that, nobody, and I mean -nobody- understands or lives by the artificial rules created by other human beings
we have Capitalism, supposedly, and we DON'T have capitalism, all at the same time. And in the same place, the good old USA.
We have nothing we agree upon, and then the government lies about the details
I call all of this: "on - the - way - down - ivy - league thinking",
OTWDILT for short
BIASYDEGAHWIT but I am sure you don't even give a hoooot what I think
JHF just having fun
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180374)
Date: August 28, 2004 10:33 AM
Author: Arthur Bough
Subject: A Simple Explanation
Imagine the most basic economy. There is a capitalist and a worker. The worker produces a commodity that provides everything he needs to sustain him lets call it L for life. The worker requires 100 of these units in a week in order to stay alive. The capitalist advances £100 to the worker to produce L. In a week the worker produces 100 units of L.
At the end of the week the capitalist brings the 100 units of L to market wanting to sell them all for as much profit as he can.
The worker comes forward with his £100 to buy the 100 units of L he needs for his survival. At first the capitalist wants to charge more than £100 for these 100 units because only in that way can he make a profit. But being a wise capitalist he knows he must pay the worker enough to buy the 100 units of L the worker needs to survive or else the worker will die and will not be able to do any work for the capitalist in future.
Consequently, the capitalist sell the 100 units of L to the worker for £100. The capitalist can make no profit no matter how he tries to make one appear magically from this exchange of money (wages) for labour, and commodity for money.
However, consider that instead of requiring 100 units of L to survive the worker only needs 50. Now the situation is different. The capitalist still has 100 units to sell, and the worker still has £100 of wages to spend, but now knowing the worker only needs 50 units in order to live and be able to work for him the following week the capitalist sell these 50 necessary units to the worker for the £100 he previously advanced him in wages.
It appears that this exchange has created a profit for the capitalist because he has sold 50 units for £100, and still has 50 units left which he can consume himself. But this is only apparently what has happened because the reality is that the worker has produced goods valued at £200 (£100 worth he has bought leaving another £100 worth in the hands of the capitalist) but has only been paid half the value he has created in wages.
Such is the simple explanation for the source of profit as being created in production rather than in exchange which can only every redistribute the profit created in production.
This simple truth that profit is created by workers being paid less than the value of the goods they produce recognised by all the classical economists is denied by neo classical economists, but leaves them unable to explain where profit comes from. The reason they deny it has nothing to do with economics and everything to do with politics.
Adam Smith and David Ricardo had no problem advocating this demonstrable proof because they had no concern about defending the right of the capitalist to make a profit by exploiting the labour of workers. The neo classical economists, however, didn't want to recognise the existence of exploitation of labour because to do so might invite workers to try to end that exploitation.
For Smith and Ricardo it was quite reasonable for a capitalist who advances his capital to expect to make a profit on it. And were I a capitalist I would agree with them. Why should I put forward my capital unless I'm going to get something for it. But this justification for profit has been turned on its head by the neo classical economists. Instead of as Smith did explaining where profit comes from and then justifying it the neo classical economists take the justification and turn the justification into an explanation of its source which it can never be - it has to be created before it can be justified.
In the course of this justification the neo classical economists came up with all kinds of spurious and unneccessary arguments. For example, some argued that it was the return to a special kind of labour (entrepeneurship) by the capitalist but that would be paid as higher wages not profit, some argued that it was a reward for saving rather than consuming (but if I save by putting my money in awhole in the ground it creates no profit), others argued it was a reward for risk, but all of us take risks of one kind or another every day (indeed the biggest risk in an enterprise is that of the worker who risks losing his job with no capitakl to fall back on)none of those risks create profit.
The simple justification for profit is that the capitalist owns capital and he has no reason to use it unless it returns a profit to him/her. But of course this begs another question. What enables the capitalist to enforce this situation, what gave them this fortunate position in the first instance.
In many ways its similar to past societies. The slave owner had the ability to make a "profit" from the labour of the slave for the very obvious reason he had turned the slave into a slave i.e. brute force. The landlords had the good fortune to be able to either find a piece of land that no one else appeared to have staked a claim on and prevent others from using it by use of force to maintain their monopoly on that land, or more often by using force to steal land from others again by use of force.
Before long the majority of land was held in a very small number of hands i.e. a monopoly usually of the King, and a number of his thieving, murderous relations and hangers on. It was these same thieving, murderous villains that one of the Libertarians heroes Tocqueville defended. The monopolisation of land ownership allowed landolords to extract payment from the rest of society both in terms of rent for use of land which actually had no cost, and the use of which should have been free anyway, and in taxes etc. because of a load of religious myths and claptrap that told people they should contribute to the extravagant lifestyles of their betters and religious scoundrels.
A similar thing happened with the accumulation of capital. Capital began to be accumulated first in the hands of merchants during the Middle Ages. The accumulation took place in a similar manner to the way the landlords accumulated land i.e. piracy, brigandage, and later a very lucrative source for merchants to accumulate capital was through the slave trade. By the time capitalism proper comes into existence ownership of capital is once again in the hands of a very few people who are able to use their monopoly position to demand payment for use of this capital from those who have been deprived of their means of subsistence as a result of having their land confiscated (in the case of large sections of the peasantry), and of common land being stolen in the case of landless labourers.
In other words the ability to demand profit, like the ability to demand rent, or the ability to extract labour froma slave derives solely from the fact that a very few people have a monopolistic control over it.
As with all monopolies that doesn't mean that others can't get their snouts in the trough. I did for one. I was in the fortunate position of having had a decent education (eventually) and had a good enough income to save a small amount was able to start my own business. But their is a very great difference between people like me who survive on the fringes of capitalism, and the real owners of capitalist wealth. The number of people who go from having nothing to becoming extremely wealthy are insignificant in statistical terms. Indeed the numbers of the most rich and therefore, most powerful capitalists are getting smaller, their position more monopolistic not less. In Britain you are not considered rich unless you have at least £10 million, which shows how ridiculous the governments recent suggestion of taxing through Inheritance Tax people with an estate of more than £800,000 are.
Recently, I was in Monte Carlo. The day before I'd been in St. Tropez admiring some of the yachts there and was talking to one of their owners. The yachts in St. Tropez I thought were very lavish until I got to Monte Carlo where the boats made those in St. Tropez look like cabin cruisers. One boat
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181169)
Date: August 28, 2004 01:27 PM
Author: The Reaper !
Subject: Arthur Bough & The Fringe !
Arthur you wrote , " As with all monopolies that doesn't mean that others can't get their snouts in the trough. I did for one. I was in the fortunate position of having had a decent education (eventually) and had a good enough income to save a small amount was able to start my own business. But their is a very great difference between people like me who survive on the fringes of capitalism, and the real owners of capitalist wealth."........Like you I did the same , "survived on the fringes of capitalism" . In the end I just made it , I barely escaped by selling all of it before any one really knew what was happening . Had I stayed a moment longer , I would be in the same shape as my peers who stayed , and that is near bankruptcy . Real free cash flow profits in the U.S. for most businesses have all but disappeared . What we have here presently , is tens of millions of legal and illegal immigrants who for the most part are working under the table . They pay no taxes , get free health care , welfare assistance and it is all courtesy of the tax payer who's real wages are dropping like a stone . On top of that our industries are forced to compete with countries that pay $2 a day wages and devalue their currencies to compete . All of the money is now going to the politically connected monopolies and or the loan sharks like Citigroup . I read that in 1990 the city of Chicago had only a few "Loan Till Payday" type stores , by the time 2000 rolled around there were over 500 . These places loan money at an annual rate of 240% , all the while they are borrowing those funds for as little as 1% . IMHO this is the single biggest transfer of wealth in the history of mankind . Hanging on the fringe , The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181254)
Date: August 28, 2004 01:32 PM
Author: Finster
Subject: Reaper & Wealth Transfers
Wow, Reaper. Where do they find these chumps? I wish I could find people willing to transfer their wealth to me like that!
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181259)
Date: August 28, 2004 02:22 PM
Author: The Reaper !
Subject: Finster & Loan Sharking
Finster , instead of opening that bar biz , you should go where the real money is , and open one of those "loan-till-payday" stores . When they don't pay up , you gotta be willing to send one of the boys over and break an arm or a leg in order to collect . Sucking the marrow from the bones of the poor and ignorant , is America's newest and most profitable industry ! No wonder they wanted to get rid of Gotti ! The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181284)
Date: August 28, 2004 02:25 PM
Author: Finster
Subject: Poor And Ignorant
If that's how they manage their money, no wonder they're poor!
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181288)
Date: August 30, 2004 05:33 AM
Author: Arthur
Bough
Subject: Not That Simple
If you look at the people who use these facilities its not as dumb as you might think. First point if you come from a very poor family and in America you have far more poverty than we do in Britain, by which I mean real near Third World poverty, the the likelihood is you live in a neighbourhood where schooling is optional, and possibly dangerous to engage in. Your not likely to pick up the finer arts of personal finance management from the beginning other than the basic capitalist message of dog eat dog and make money any way you can such as selling drugs.
Secondly, you probably don't have a bank account. If you were a bank manager would you open an account for someone with an address in some of the US's worse neighbourhooods. If you do have a bank account, your none existent savings from rarely having had a job, and paying off previous debts when you did have one means you quickly run up an overdraft for basic requirements like paying the rent and buying food etc. If you are really lucky you might even have a credit card which likewise soon gets used up buying necessities (and there have been plenty of reports on the DR about how credit cards in general int he US are being used to pay for necessities.) When all those lines of credit have run out and you next find yourself out of work, or a big bill drops on your door what do you do? You borrow money wherever you can. It has been shown that even supposedly bright middle class people don't understand how much interest they pay on credit cards. How can you expect poorly eductaed people to be savvy.
I remember in Britain a few years ago reading a report about how poverty is like a vicious circle. It was particularly about heating costs. The report demonstrated how the most efficient (money terms) way of heating was through central heating. Poor people didn't tend to have it. Instead they used expensive space heating. The reason they couldn't afford the initial capital cost of installation.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181773)
Date: August 28, 2004 10:42 AM
Author: Arthur Bough
Subject: Simple explanation Cont'd
Recently, I was in Monte Carlo. The day before I'd been in St. Tropez admiring some of the yachts there and was talking to one of their owners. The yachts in St. Tropez I thought were very lavish until I got to Monte Carlo where the boats made those in St. Tropez look like cabin cruisers. One boat "The Lady Maura" had a helicopeter pad on top of it. It costs £200 million, and had a crew of over 60. I reflected that a lottery winner at the height of its popularity in Britain would have won what was considered the ludicrous sum of £20 million. Enough to buy a tenth of the boat.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=181172)