Keith, Just one point with regard to Capital and Wealth. They too are mutually exclusive. The product from the time raw materials are hauled out of the ground and sent to the factory is Capital. It is still Capital as it assumes the shape of a car, is worked on, painted and eventually arrives in the holding lot outside the factory.
From there it continues to the local car dealer, who waits hopefully for me to arrive. When I take possession of the new car, once production has finished, the car is in the hands of the consumer, it is no longer Capital but Wealth. This gives us the basic four mutually exclusive defined concepts that begin the Science of Political Economy. Political Economy was described as the Science that deals with the Nature, the Production, and the Distribution of Wealth. Distribution referred not to moving Wealth round, but to how the wealth produced was shared among the three Factors of Production - Land, Labor, and Capital. The part of the produced Wealth that went to Land was called RENT. The part that went to Labor was called WAGES. The part that went to Capital was called Interest. The most important part of this analysis is that Rent, Wages, and Interest, make up the whole product. There is nothing left once these are distributed. As we learned from our first contact with economics, "Money" is two things - a "measure of value" and a "medium of exchange". However, these two are like chalk and cheese - with completely different characteristics. Trying to bring these opposing characteristics together in a single "money" is an exercise in frustration. Properly to be a "measure of value" money needs to be linked in the market place to a commodity, perhaps gold, perhaps something else, maybe a basket of things, but that I don't favor. Certainly gold has been the preferred "measure" over thousands of years and could be so again. (Greenspan told a Senate Committee that he checked the world gold markets in his deliberations.) If the state issues a standard "measure" it should be in terms of a commodity, and should be easily cashed in for the commodity. But the state doesn't need to do it. Private banks can easily issue these standard "measures of value". Currently, as you say, the bits of paper that purport to be "measures of value" float in limbo with their value determined by almost anything but the market. These bits of paper used as a measure of value are also susceptible to inflation, a term that has nothing to do with economics. Inflation is a physical term meaning an increase in volume. In its use with money, it merely indicates that the "measure of value" has increased in volume. An effect of this inflation is that prices (the value of things in terms of "money") rise. With quick sleight of hand, the effect has been given the name of the cause. "Inflation" has therefore been divorced from the cause. This means that the politician can "fight inflation" (rising prices) even as he is responsible for it. Do you recall Gerald Ford's WIN (Win Inflation Now). It's really enough to make one puke. Another advantage to the politician is that other causes of rising prices can be vectored in so we have "oil inflation" and "energy inflation" completely losing in the murk the original "increase in volume" of the bits of paper. However, bits of paper have an important place in transactions as "media of exchange". Most business is done with bits of paper and coins. These are not standard. In fact, we create them as they are needed, using a check book or a credit card. Banks serve as clearing houses for these media of exchange and get a commission for doing so. Unlike a "measure of value" that should remain pretty constant - the number of bits of paper that act as a medium of exchange can vary enormously. At Christmas, checks and credit card slips may double in number, but no inflation can occur because their numbers don't affect the "measure of value". So, right away, we are in a morass because two different things have been mixed together and called money. However, we have an advantage. We have two excellent assumptions to describe the subjects of our study - the "unlimited desires" and the "least exertion" principles. We also have seven defined concepts with which to simplify the complexities that are supposed to attach to any study of Man. From there it's a breeze - or almost! Harry __________________________________________________________________________ Keith wrote: >Hi Harry, > >Thank you for your posting (see below). I agree that your definitions of >Land, Labour and Capital are mutually exclusive. (Previously I was >intrigued to know how you defined Wealth, but I see that you regard this >as synonymous with Capital.) > >I have said previously that I regard economics as a 'literary' science at >the present time because human nature has to be taken into account and >this, while being scientifically investigated from many angles in different >disciplines, is not yet in a condition to be consilient with economics. > >So, to make economics into a science, some sort of bridge-building seems to >be required from both sides of the river. You're building it from your side >by defining your basic terms. Science, in the form of subjects such as game >theory, evolutionary psychology and so on, is building the bridge from the >other side. > >But there's another 'in-hoise' reason why economics cannot yet be regarded >as a science because modern economists have tried to build the bridge (that >is, towards the shore of explaining everyday life) by using aggregate >numbers involving units of money. > >This is doomed to failure because money cannot be measured (or equated to >Land, Labour, Capital) in any objective way. For the last century or so >since money was taken off the gold standard, the nominal value of >currencies have been subject to decisions of government (and/or central >banks). > >The nominal value of currencies appears as the current rate of exchange and >change from minute to minute on the Exchanges. However, these exchange >values are but superficial snapshots of a multitude of different >consequences, cross-currents and economic decisions which have been set in >motion by previous governmental decisions. And, importantly, these >consequences have different time lags. > >So the data that economists use are always out of date -- and to varying >extents because the lengths of all the different time lags can never be >known. Although the nominal value of all currencies at any one instant may >be known to several decimal points, their real values and their real >effects on the underlying economy may be different -- sometimes quite >different. At any one time, immense counter-intuitive effects may be >occurring which are hardly invisible and don't appear in the statistics for >years. > >In fact, your quote of Humpty-Dumpty is very apt. Economics at present is a >Humpty-Dumpty world. It's not so much that economists define the words they >use in different ways, but that the data they select are a consequence of >both real and non-real factors. The real factors are decided by sellers and >buyers, and the non-real factors decided by governments -- these are >arbitrary, no matter how rational and persuasive are the reasons given (and >usually in terms of the latest fashionable economic theory!). > >If, however, the value of money could be tied irrevocably to something with >real value (gold or platinum, perhaps, or better, a basket of essential >goods) and quite outside the monetary decisions of governments, then its >value would vary according to the value of the other real factors in the >economy. Even though the world-wide economy would still be a complex affair >with the different time lags of various processes still going on, it has a >chance of being analysed more scientifically because one of its most >important factors, government decisions, can be held constant. > >That's how I see it. But back to you now, Harry. I'd be fascinated to know >how much further you build your bridge, now that you've defined Land, >Labour and Capital (Wealth). > >Keith ****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 Tel: (818) 352-4141 Fax: (818) 353-2242 *******************************
