Keith,
Classical Political Economy has meant many things before it was replaced
with Economics. It was the study of the Nature, Production, and the
Distribution of Wealth and thats the way I regard it. Nothing to do with
politics - it studies how Wealth is produced and who gets it.
You still appear to regard Labor as 'muscular'. Labor is the name given to
the mental and physical exertion engaged in the production of Wealth,
which is a material product with exchange value.
So Labor includes the factory manager, the laboratory scientists, the
innovators, the inventors, the CEOs -- in fact, every human being who is
engaged in the production of Wealth.
I didn't say that royalties paid to the innovator clouded the issue. I
simply said that any reward paid to Labor for his production was Wages. It
might have a number of everyday names, such as royalties, salaries,
commissions, and suchlike, but all of these are economically Wages -- the
reward to Labor.
The defined concept is more important than the name -- as it always is.
Perhaps, we should leave it where it lies. The next calamity will indeed
show itself before long, for modern economics has simply blown the basic
need of any science -- rigorously defined, mutually exclusive,
fundamental, concepts.
This is why neo-Classical economics cannot begin to attack the present
problems.
It doesn't know what they are.
This, in spite of the umpteen thousands of papers that are written every year.
Harry
********************************
Henry George School of Los Angeles
Box 655
Tujunga CA 9104
818 352-4141
********************************
From: Keith Hudson [mailto:[email protected]]
Sent: Tuesday, October 12, 2010 11:39 PM
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION; Harry Pollard
Subject: RE: [Futurework] Not a very positive picture
Harry,
Profit is measured in money terms in the same way as a thermometer
measures heat. Neither explains the true nature of what they're measuring.
Of course, labour has been important as a factor of production -- so far
-- because muscular energy applied to routine operations has been
necessary. But, essentially, human energy is increasingly unnecessary. On
the other hand, labour -- by which I mean people -- are essentially
involved in the consumption side of things.
You previously said that innovation didn't have a return. When I replied
"royalties", you said that this was clouding the issue. I can't win!
Yes, political economy still exists in the sense that politicians use
whatever economic ideas they find useful in maintaining power, and also
that there are economists who want to have personal influence in the wider
world. But economics as a science (which I believe is happening) proceeds
along quite independent lines, whatever happens to be the current
political complexion. An economist-as-scientist might well consider
political decisions as factors, but only those that have already happened.
I think we'd better leave the argument where it is. We would only be
repeating ourselves! We could resume when a fresh calamity comes along.
Keith
At 12:25 12/10/2010 -0700, you wrote:
Keith,
Ill respond below.
Harry
********************************
Henry George School of Los Angeles
Box 655
Tujunga CA 9104
818 352-4141
********************************
From: Keith Hudson
[<mailto:[email protected]>mailto:[email protected]]
Sent: Saturday, October 09, 2010 1:09 AM
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION; Harry Pollard
Subject: [Futurework] Not a very positive picture
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.
//////////////
Perhaps slipperythings should be kept out of science!
Profit is an excess of income over outgo, something important to
accountants as they maneuver profitsto gain the best tax benefit, or to
gain some other benefit for their clients. Youll recall the old story of
the accountant with one set of figures that showed a large profit for the
shareholders, another that showed a loss for the tax people and a third
that shows how the firm really stands.
Profitis not something a science should be interested in, except perhaps
mildly.
///////////////
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!)
/////////////////////////
Political Economy has nothing to do with politics, whereas modern
economics is completely enmeshed in them. There are tens of thousands of
theoretical economic papers, but many of the practitioners of the science,
and the economists who write about it like Krugman, are tied to politics.
Krugman is a left wing Keynesian who wants increased stimulus money to be
poured into the economy. This, I would say, because he hasnt a clue as to
what is wrong, so he is part of the try thisschool of economists.
I dont think that you can applaud the present crop of economists for their
ability to provide us with an accurate idea of what is going on in the present.
///////////////////////////
The boss might just add the profit to 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.
/////////////////////////
They are obliged to explain why there is poverty or unemployment, whether
or not politicians listen to them, for these subjects are part of the economy.
Railroad engineers rely on physicists to provide the knowledge that will
keep the railway safe. Similarly, the politicians rely on economists to
provide a basis for correct economic policies.
Poverty and unemployment are economic situations. Politicians may, or may
not, make use of economistsinsights. Trouble is they have no credible
insights. They dont know why there is hunger in modern society. They have
failed completely to see why in a modern economy with enormous and
increasing productive power, poverty and deprivation are normal.
The welfare state perfectly shows this failure. They dont know why people
are poor, unemployed, hungry, so they give them money, find token jobs,
provide food stamps.
George asked at the beginning of his classic Progress and Poverty Why in
spite of the increase in productive power is it so hard to make a living?
It still is. Economists tell us over the years how much productivity has
increased, yet seem unimpressed by the fact that those at the bottom of
the heap are somehow left out of this progress.
As Ed showed in a recent post, it is normal in the US to have 43 million
people living in poverty this in the richest nation in the world, with
amazing natural resources. If this isnt in the purview of economics, where?
///////////////////////////
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.
//////////////////////////
How does energy exist without Capital? Energy is part of Capital. You dont
need a separate Factor. This is a major problem in thinking about things.
If you are not clear in your concepts, you cannot be clear in reasoning. A
factory power generator is capital. Do you not agree? The job of this
machine is to keep other machines running by providing electricity energy.
It is capital.
////////////////////////
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.
/////////////////////////////
Doesnt matter where the mind of the personis. If he is part of the
production process, he is labor. If he, or someone else, doesnt use the
innovation then its outside our study anyway. We know nothing about it.
One of the problems of economic textbooks is that they introduce many
terms no doubt to show scholarship. Most of them are unnecessary and/or
confusing.
I have no quarrel with adding more terms, but I would want them to be
unique not already covered and useful in the science. The most important
characteristic of defined concepts is that they are mutually exclusive.
This is true of the basic terms of Political Economy. Nothing can be in
two defined concepts. Thats why the the Classical terms are so useful in
reasoning things out.
////////////////////////////////
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.
///////////////////////////
Now you have introduced to more returns to add to Rent, Wages, and
Interest. As they are a payment for labor, they are wages.
/////////////////////////////
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!).
////////////////////
There are various payments to labor - salaries, commissions,
profit-sharing, royalties, and so on but they are all wages in Political
Economy that is a return to Labor for his mental and physical exertion.
//////////////////////
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.)
//////////////////////
All of these are examples of mental and physical exertion. They are Labor.
With a few blips, productivity has been continually increasing. While it
is interesting to detail some of the ways this happens, the basic three
terms cover them.
////////////////////////
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.
//////////////////////
In what Factor are the people who perform the 15 man-hours? Zero man hours
is in the realm of fantasy science fiction. It may one day occur when
production is carried out only by capital. But lets come down to earth.
The car is produced with Labor (15 hours of it), capital, and land. Then
what happens to it? How much labor will be required to get it into the
hands of the consumer? Quite a lot I suggest.
///////////////////////
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.
//////////////////
I could say the same thing about science and phlogiston. Dont try guilt by
association!
///////////////////
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 economic 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.
////////////////////////
You are merely pointing to the inadequacies of the present terminology.
The label Rent was removed from the return to land and placed on a
different concept which itself is a bit vague. Land was removed as a
separate Function and became part of capital.
When real estate began to soar, it wasnt the improvements that zoomed, it
was the land-values. We had a land-bubble but modern economics wasnt
equipped to handle it so it became a housing bubble. This made analysis of
the problem virtually impossible. This can be checked by looking at
factory manufactured housing which remained competitive (that is the house
without the land).
////////////////////////////
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.
/////////////////////////
Land was the name given to Natural Resources by the Classicals. (Termites
are Land as is water, air, the sun, and suchlike.) George said that
philosophically, no-one had more right to land than another.
Is this not correct? Would you argue differently? We have a common right
to Natural Resources. This is a philosophical discussion which can serve
as a basis for further thinking.
However, a commons must be managed or we will meet trouble a la Garret Hardin.
Land is simply a label. We could call Natural Resources Rumpelstiltskin if
we wished. The name is a label fixed to a defined concept. Its the defined
concept that is important, yet much time is spent quarreling over words.
Much less philosophical is what has happened. The ownership of land has
produced a history of force, fraud, and theft. The present owners may be
blameless, but the ownership they enjoy is probably a relic on some nasty
behavior in the past.
How can the wrongs of the past be redressed? Many way have been suggested
and carried out. Land reform is constantly in the news. Nationalization,
general distribution, government purchase and awarding, but George had the
best idea that was not new with him. It goes back to Mencius and perhaps
earlier. The Physiocrats who influenced Adam Smith supported limpot unique
a single tax.
Urban land has value because of the presence and access of the community
around it. This rentthat attaches to a location increases toward the city
center where people tend to concentrate. Importantly, Rent is not produced
by the user of the land. Its an advantage given to a location by the
people around it. So, collecting it has a moral tone. The community is
merely re-capturing the values it created.
But if all land value is collected there will be nothing left to
capitalize into sales value. The sales value of all land will be zero.
Whether you have 10 acres of Manhattan, or one acre of the Texas
Panhandle, the land you are holding will have a sales value of nothing.
Yet, its value as an agent of production will remain.
So we have easily equalized ownership. You may have 100 acres with a sales
price of nothing, I may have 1 acre with a sales price of nothing.
///////////////////////////
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.
/////////////////////////////
Nothing emotional about it, nor is there any false assumption.
/////////////////////////////
Keith
Keith Hudson, Saltford, England
Keith Hudson, Saltford, England
