Harry,
At 20:57 08/10/2010 -0700, you wrote:
Keith,
Profit simply means that income is greater than outgo in the books.
But in reality it's a slippery thing and not as simple as that. It's only a
snapshot phenomenon and soon disappears when a more efficient process is
used by someone else. Sometimes, in the case of a successful producer,
profit never appears as such because it is sucked into concurrent
improvements in efficiency.
It has nothing to do with Political Economy.
Political Economy is old-fashioned. Economics as a subject has, in the case
of most practitioners, separated itself from politics, just as physics had
done from philosophy a century or two previously. There are, of course,
public economists, such as Paul Krugman, who seek to persuade politicians
to do this or that in order to elicit certain results (such as relieving
the poor) but usually there are other public economists who give opposite
advice to achieve the same ends. The economists who have given the best
insights (that is, those who have kept their reputations longer) are those
who seek to describe what has happened in the past and, hopefully, give an
accurate idea of what is going on in the present. At best, they can only
advise politicians that a proposed remedy, or a similar one, has been used
in the past and has been successful or not. No-one can forecast the
ultimate effects of any innovation. (Collateralized Debt Obligations
[CDOs], for example!)
The boss might just add the profitto his wages whereupon the firm will
be profitless but the boss will do all right. Or, he might put into
contingency until January 1st because income taxes are being reduced next
year, or . . . . ? It's accountancy, not economics.
Modern economics hasn't a clue about how to deal with poverty, or
unemployment, or Great Recessions, but it can come up with several profits.
They hardly advance the discipline, but do help to fill the semester.
Economists are not obliged to show how politicians deal with poverty or
unemployment any more than physicists are obliged to show how to run a
railway. Both are trying to clarify the basic principles of their subject
and it's for others to use the results.
Your extra Factors of Production are unnecessary. Innovation is part of
Labor -- what else? Why not add invention, skills, knowledge, to the bundle.
You fail to see that energy is an absolute necessity in all production. It
is so important that it deserves a place of its own in any formula. It is
the energy aspect of Labour which is the supremely important factor in your
Land + Labour + Capital scheme of things. As soon as a routinized task can
be replaced by a machine, the human aspect of Labour disappears. Labour as
a necessity -- past, present and future -- belongs to the Consumption part
of the economics equation.
Will innovation happen without Labor?
Yes, a useful inn innovation frequently occurs in the mind of a person who
is quite outside a particular production process and even, sometimes,
ignorant of it. Thus, Land + Energy + Capital + Innovation is a more
adequate description. ("Innovation" is not the best term perhaps because
enterprise and organization are also involved in the application of a new
idea, and modern text-book economists usually use one of these as a fourth
term, or even use five or more terms. "Land" itself really needs to be
divided between land-as-space and (occasional patches of)
land-as-resources. Both sorts of land are necessary for a productive process.
As I said, if you start entering the psyche of Labor, it will become a
different science. What is the return to innovation?
Royalties or licence fees. Several human sciences these days are entering
into the psyche of Labour, particularly about people as consumers and the
real reason why they buy non-basic products from their discretionary income.
I suppose it is increased production. What is that increased production
-- wages?
But, wages are the return for the exertion of Labor. As innovation is
carried out by Labor, that's all right. However, if you separate
innovation, you had better have another return for it. By all means
complicate things.
As before, the return is royalties or licence fees. That's quite simple,
isn't it? In Henry George's time these scarcely applied because Americans
were "adopting" the innovations of Europe (and gaining a big leap forward)
without paying for them (just as they're now complaining that China is
doing the same!).
Energy is produced by and is part of capital. How else? What is the return
to energy?
No. Energy can only be released via innovation. Man was sitting on raw coal
for 150,000 years and used occasional outcrops for cooking or making pots
but he only used it to release energy in versatile form after a series of
innovations. Even the Chinese, who tapped into natural gas as early as
200BC and used it for street lighting never got round to using it to make
steam power. (Yet, like the Greeks at about the same time, they had
steam-powered toys! In both cases, an additional innovative shift of mind
might have altered history totally! Significant innovation is an extremely
rare event. For example, up until about 1600AD all the farmers in Europe
used to sow seeds wastefully by broadcasting. Yet 2,000 years previously a
particular Chinese farmer had discovered the immense productivity that was
gained by sowing seeds in rows. Unfortunately, Marco Polo happened not to
have observed or recorded that on his travels. Otherwise the whole history
of Europe would have been advanced by 400 years.)
Further, you have thrown out Labor. The man who produces the car, the
aircraft, the kitchen table, the toilet roll, is left out of your
foursome. That's a shame.
It is a shame, but I'm not throwing Labour out. Modern productive processes
are doing that. The car used to be assembled in Henry Ford's time with
about 500 man-hours of muscular effort. Today, an incredibly more
sophisticated car is produced with about 15 man-hours. In the lifetime of
young people today it might even be produced with 0 man-hours of effort.
An enormous amount of good thinking has gone into the 7 basic terms of
Classical Political Economy. The basic four - Land, Labor, Capital, and
Wealth, cover everything in the universe even God! In other words the
complexity has been reduced to bite-sized chunks that enable analysis to begin.
One ancient religion had the whole world as sitting on top of a turtle and
could explain everything on that basis. Classical Political Economy has
long gone by the way of the turtle religion. Like science, economics itself
is best dealt with at several different specialist levels. As in science,
some economists haven't the faintest idea of what other economists are saying.
The seven terms (including Rent, Wages, and Interest) are the bedrock on
which the entire science is based. A major reason why modern economics is
such a mess, even though some of our brightest people are involved in it,
is that the basic terms were corrupted by politicians and ideologues.
Their bedrock turns out to be sand and as they can't go back to change
their beginnings they become ineffectual.
Modern economists would find your seven terms too simplistic. For example,
the term "rent" can be a free-market return on the use of an asset or it
can be an income from the exploitative use of a scarce resource. Wages can
be a free-market cost or it can be the minimum resources given to a slave
to merely survive.
Henry George was a brilliant man -- there's no doubt about that -- but he
lived in simpler times. America was still basically an agricultural
society. Industrialization and consumerism has only just got started. Land
(in terms of space for farming) was much a more important element in most
people's minds and daily lives than today. Like the Diggers and Levellers
in Cromwellian times in England, George fell upon a simple declaration that
land belonged to humanity. This can arouse a great emotional response. But
land doesn't belong to humanity anymore than it does to the whole species
of termites who also swarm over much of it all round the world and build
colonies for which they fight to the death to protect from maraudering
termites. Land doesn't belong to everyone and never has done. Specific
areas of land are owned by specific people. It was, and is, owned by those
who use it and, more importantly, can protect it, whether by groups
wielding stone axes or by legal rules today.
I believe that a Georgist land-tax would be a tremendous step forward for
any government and people that adopts it -- but for quite different reasons
than emotional ones based on a false assumption.
Keith
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
