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Wealth centralization in a free-market?

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NonAntiAnarchist posted on Fri, Dec 30 2011 12:18 PM

I have some convincing reasons, mostly based on the idea that competition in a free-market is a rivalrous, dynamic, and entrepreneurial process. Basically, markets lead to specialization rather than centralization, and just one technological innovation can radically switch the distribution of wealth and make certain products and services completely obsolete. 

But besides that, my argument is kinda bare. Any help would be appreciated, as I'm currently in a debate with my professor and some students.

Oh, and one more thing. I said that, even if wealth centralization did occur, giving a ton of power to another centralized monopoly doesn't exactly seem like a solution to that problem. Sounds like a fair point, right?

Thanks, guys.

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Exactly.  You value the burger more than the green paper.

(You used it three times!)

That's not the type of value I'm talking about. If I have a $5 bill, I can only exchange it for things priced at $5. Therefore, these things must in some sense be equal.

(And I didn't use the word in the part Malachi quoted)

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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No, I think you need to re-visit the fundamentals of economics.

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z1235 replied on Fri, Feb 3 2012 9:40 PM

Fool on the Hill:

On the whole "wage workers can't afford to buy their own product" problem, if A paid B a wage in return for weekly massage, how exactly is this two-person economy on the verge of collapsing because B cannot afford to purchase weekly massage from A (or from anyone else, for that matter)?

Because that isn't a wage. That's simply a payment for a service.

How is a wage not a payment for service?

A makes no profits in that scenario.

I beg to differ. He profits by getting a massage. If he didn't profit by it he wouldn't have paid for it. 

A capitalist doesn't simply exchange one thing for a completely different thing. Ultimately, a capitalist exchanges a thing for a greater quantity of that same thing (i.e. money).

I don't follow. So a capitalist exchanges money for a greater quantity of money? That's what makes him a capitalist? Who's the moron on the other side of this transaction, exchanging money for a lesser quantity of money? An anti-capitalist?

How about we include person C. Say C asks A to find and manage for him a good masseuse and pays him a wage of two bananas a month for his service. Then A pays a wage of one banana to B to give C a massage. So on a monthly basis C pays two bananas for a massage. A gets one for finding and handling B. B gets one for providing a massage to C. All voluntary transactions. How does this three-person economy necessarily collapse because there's no one willing to give B a massage (i.e. because B can't "afford the product of his labor")?

 

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How is a wage not a payment for service?

I didn't say it wasn't. A wage is a payment for a particular type of service. There are also payments for services which are not wages.

Suppose that there is a group of apple trees and three people (A, B, and C). Let's look at different variables:

1. The apple trees are commonly owned and everyone is free to take from them. A "hires" B to pick 10 apples and sell them to C for $10. B then gives the money to A, who then pays B $10 for the service. There's no reason that B would agree to do it for less than $10 since he doesn't have to go through A at all. Therefore, this is a payment for a service, but not a wage.

2. A owns the apple trees. No one can use them without her permission. A hires B to pick 10 apples and sell them to C for $10. B then gives the money to A, who then pays B $8 for the service. B could not have performed the action without A's permission, therefore the payment for his service constitutes a wage. A is profiting off of the transaction.

3. The apple trees are commonly owned. A "hires" B to pick 10 apples, and then A sells them to C for $10. A then pays B $8 for the service. This is simply a payment for a service. B could have sold them to C himself. A is getting money for her service, not for her property. A is not profiting off of the transaction.

4. A owns the apple trees. A hires B to pick 10 apples, and then A sells them to C for $10. A then pays B $6 for the service. This $6 is a wage. A receives $2 for her service--the amount she would have had to pay B to perform it. The other $2 is profit because she owns the land.

If you like, we could call what I mean by wage a productive wage. A payment for a service which does not generate profit would then be an unproductive wage--as in your example. With this terminology, a factory worker would earn a productive wage, while a maid would earn an unproductive wage. My definition of capitalism requires productive wages.

I beg to differ. He profits by getting a massage. If he didn't profit by it he wouldn't have paid for it.

You mean a business profits by doing whatever it does? Then how is it that there are unprofitable businesses?

I don't follow. So a capitalist exchanges money for a greater quantity of money? That's what makes him a capitalist? Who's the moron on the other side of this transaction, exchanging money for a lesser quantity of money? An anti-capitalist?

Yes, that's precisely what makes him a capitalist. If I purchase shares of stock for $100 dollars today and then sell them for $120 next month, I have exchanged money for more money. Anyone who takes out a loan is a "moron" who exchanges money for a lesser quantity of money. Similarly, a productive wage worker sells his labor for money and then must exchange a greater quantity of money to buy the product of that very same labor.

How about we include person C. Say C asks A to find and manage for him a good masseuse and pays him a wage of two bananas a month for his service. Then A pays a wage of one banana to B to give C a massage. So on a monthly basis C pays two bananas for a massage. A gets one for finding and handling B. B gets one for providing a massage to C. All voluntary transactions. How does this three-person economy necessarily collapse because there's no one willing to give B a massage (i.e. because B can't "afford the product of his labor")?

I need more info to determine the nature of this economy. How many bananas are there in this economy? Does A spend his bananas on anything besides B's wage? What does B spend his bananas on? Is this a closed economy--that is, are there people other than A, B, and C?

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Yes, that's precisely what makes him a capitalist. If I purchase shares of stock for $100 dollars today and then sell them for $120 next month, I have exchanged money for more money.
you performed a service by sending price messages through the market, twice actually. You got paid for assumption of risk and your opinion. You are ignoring the temporal factor and you describe two separate exchanges, not one. Investors and speculators perform important jobs in a complex economy, they are paid for services rendered. Employees also exchange lesser quantities of money for greater quantities. He shows up at the jobsite with a willingness to work, and leaves with skills and money, then he exchanges that money for goods that he could not have elsewise procured, and the effects of tooling that he did not otherwise own.
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z1235 replied on Sat, Feb 4 2012 3:33 PM

Fool on the Hill:

If you like, we could call what I mean by wage a productive wage. A payment for a service which does not generate profit would then be an unproductive wage--as in your example. With this terminology, a factory worker would earn a productive wage, while a maid would earn an unproductive wage. My definition of capitalism requires productive wages.

So a maid, a masseuse, a secretary, and a waiter earn unproductive wages? Anyone exclusively employing them would not be a capitalist, and a society exclusively comprised of these employees and employers would not be capitalist? Btw, why pay (employ) anyone to do anything which would be unproductive?

You mean a business profits by doing whatever it does? Then how is it that there are unprofitable businesses?

Anyone intends to profit by doing whatever they are voluntarily doing -- whether they have actually profited after the fact, or not. All acting economic agents are speculators, and a profit (i.e. an improvement of one's satisfaction/situation), after the fact, is not guaranteed. So some businesses (and people) establish that they have become unprofitable after their actions/decisions have been made. Perhaps they should not have done what they thought would bring them a profit or more satisfaction. Life is risky.

I don't follow. So a capitalist exchanges money for a greater quantity of money? That's what makes him a capitalist? Who's the moron on the other side of this transaction, exchanging money for a lesser quantity of money? An anti-capitalist?

Yes, that's precisely what makes him a capitalist. If I purchase shares of stock for $100 dollars today and then sell them for $120 next month, I have exchanged money for more money.

No, when you purchased the shares you exchanged your $100 for someone's shares. When you sold the shares you exchanged your shares for someone's $120. At no point in time have you exchanged less money ($100) for more money ($120). And at no point in time a moron existed who had exchanged his $120 for your $100. 

Anyone who takes out a loan is a "moron" who exchanges money for a lesser quantity of money.

No. Someone taking out a loan gives out a current promise (i.e. establishes a future liability) in exchange for the loan amount in cash. When he repays the loan gives out the promised loan repayment amount in cash in exchange for being releived from any further liability. At no point in time has anyone exchanged more money for less money, or vice versa. The fact that so many "morons" exist that find it profitable (including after the fact!) to take out loans should at least make you stop and think, a little bit.

Similarly, a productive wage worker sells his labor for money and then must exchange a greater quantity of money to buy the product of that very same labor.

Again, why must a wage worker be able to buy the product of his labor? Is the universe going to collapse onto itself if this is not the case? 

I need more info to determine the nature of this economy. How many bananas are there in this economy? Does A spend his bananas on anything besides B's wage? What does B spend his bananas on? Is this a closed economy--that is, are there people other than A, B, and C?

There's no money or anything else -- apart from bananas -- that anyone needs or desires. C grows and picks three bananas a month. He pays a wage of two bananas to A to procure and manage a masseuse for him. A pays a wage of one banana to B to give C a massage. They all are quite happy munching on one banana a month each. How is this economy bound for a collapse because there's no one to give B a massage?

 

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 This is essentially Clifford H. Douglas's A+B theorem.Here is an outline of the idea:

http://social-credit.blogspot.com/2007/10/douglass-ab-theorem.html

If this is the case it could be easily solved in a capitalist system by making exchangeable tokens that represent goods/services. Central Banking is the root cause of wealth and power centralization in my view. Innovative competitive currencies that were exchangeable for each other, in the same manner as currencies are exchanged on the world market except instead of exchange rates there would be relative valuations, would go a long way to solving any "overproduction". So the problem, if it really does exist, wouldn't be capitalism and instead it would be monopoly control of money through Government coercion. Hypothetically if there was a ticket created with every good/service produced that could be exchanged and retired upon redemption of the ticket for that good and all goods or the tickets that represented the good were valued relative to each other, owing to supply and demand, then the hypothetical A+B theorem would not apply. Without coercive restraints on the monetary system this is likely the exact situation that would evolve due to business adaptation in the quest for greater profits. Why pay a bank for these services if there are ways to innovate payment systems into businesses directly and therefore bypass the banking industry and currency monopoly to the greatest extent possible? So if this is a problem the cause is statism not capitalism.

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@ Fool on the Hill

I've been mulling over your posts for the past couple days now and, after a bit of reading, I just do not find Marx's explanation at all satisfactory.

In my understanding, the Marxist overproduction theory of crisis is a corollary to a Keynesian underconsumption theory of crisis and they suffer from the exact same deficiency:  They ignore the process of entrepreneurial decision making and its effect on the capital and price structure.

The assertion Marx makes that unsalable goods can build up in all the supply chains of the entire economy only holds if prices are static.  They are not. Clearance sales are just one example of the many ways a capitalist can liquidate an excess of inventory, bringing the real purchasing power of consumers in line with the number of goods for sale.  Broadly, and simplistically speaking, the total sale value of all merchandise up for sale in a given period cannot exceed the total money available for purchases in that period.  So long as prices are flexible we know the market will clear and the glut will be liquidated.  Thus, purchasing power "leaking" into savings (Keynes) or supply of goods increasing in excess of purchasing power (Marx) is irrelevant to the consumer so long as prices are flexible (ie: can respond to supply and demand.)

Now, at this point you'll likely, and very correctly, point out that this might result in entrepreneurs having to sell their inventory at a loss but this by no means requires that they continue to produce at that loss.  This is why the entrepreneur's assessment of market conditions and the entrepreneur's  place as an actor within a market economy makes him/her a cornerstone of Austrian theory.

The entrepreneurial calculus begins and ends with respect to a given product or widget and whether or not they can produce it at a profit.  If they cannot, the widget does not get made and we have no inventory glut.  An efficient business will produce items that have the highest contribution margin first, simple.  (For those who might be unfamiliar with the term, Contribution Margin = Unit Price - Fixed Costs/unit - Variable costs/unit.)  But what if they've made an error and on subsequent reevaluation they find a widget they put into production is not profitable?  This is where Marx, it seems to me, is hamstrung by class analysis.  For, while it may be true that capital tends towards centralization within the capitalist class, the distribution of that capital must by no means be uniform throughout said class.  The distribution of capital is free to move between individual businesses or entrepreneurs within and even out of the class to find a better yield elsewhere.  This is the essence of what a guy like Schumpeter would call "creative destruction"; if an entrepreneur can't make a widget profitably investors will find somewhere else to earn a yield on their capital and other entrepreneurs benefit from capital/inventory liquidations by being able to acquire them cheaper than they otherwise could.  Businesses fold and capital will move to and be redeployed where it makes the most profit because, in a dynamic economy with flexible prices, there is always an opportunity to collect the difference between inputs and outputs (profit) so long as there are consumer demands that remain unsatisfied.  We may find the product mix available on the market is completely different than the way it was before, with widget X being sold more than widget Y where the reverse used to be true, but this is a feature of the market's dynamism.  Tastes and productive conditions are perpetually changing.

Also note that, barring the monetary shennanigans of our central banks and various price-fixing schemes like minimum wages, it is impossible for there to be no opportunities to invest capital for a return because the price of inputs (commodities, other widgets, labour, etc.) is determined by the ability of entrepreneurs to bid them towards productive applications.  In other words we've come full circle, back to price flexibility, because the prices of the factors of production can only be as high as the maximum bidding entrepreneurs are willing or able to pay.

 

I know the thread has been dead for a few days but I hope you'll respond.  Marxism is a fun debate.

 

 

I'm only a hobby economist myself but If you're looking to learn some Austrian economics I recommend Human Action by Ludwig von Mises.  It's quite the tome but ol' Ludwig is an easy read compared to Marx and you don't seem to have any trouble with him.  Also for a specfic treatment of the underconsumption/overproduction theory of crises I'd check out the chapter the Paradox of Saving in Hayek's Prices and Production (pg 131).   Both books are available for free in the Literature section.

 

"...I feel, for instance, that I have the right to do anything I please. But, if I do something you don't like, I think you have the right to kill me." -George Carlin
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you performed a service by sending price messages through the market, twice actually. You got paid for assumption of risk and your opinion. You are ignoring the temporal factor and you describe two separate exchanges, not one. Investors and speculators perform important jobs in a complex economy, they are paid for services rendered. Employees also exchange lesser quantities of money for greater quantities. He shows up at the jobsite with a willingness to work, and leaves with skills and money, then he exchanges that money for goods that he could not have elsewise procured, and the effects of tooling that he did not otherwise own.

If they want to pay me for my opinion, they should just give me $20 and ask. If they want to pay me for sending price messages through the market, they should pay me for when I buy milk at the grocery store. If they want to pay me for risk, they can find me at the slots.

Employees as a class don't exchange less money for more money with the capitalist class when they gain new skills. When he goes to sell those new skills, the employee receives less money than the capitalist receives as a result of employing him.

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If they want to pay me for my opinion, they should just give me $20 and ask
if you want to sell advice, all you have to do is find a buyer. You chose instead to speculate, and so you apparently preferred this arrangement to that.
If they want to pay me for sending price messages through the market, they should pay me for when I buy milk at the grocery store.
They do. Its called "milk." just like you got paid in money when you sold stock for money.
If they want to pay me for risk, they can find me at the slots.
apparently they can find you at the market
Employees as a class don't exchange less money for more money with the capitalist class when they gain new skills.
yes, they do. They exchange unskilled labor (less money) for skills and skilled labor (more money) which they then take with them. also, employees are part of the capitalist class.
When he goes to sell those new skills, the employee receives less money than the capitalist receives as a result of employing him.
no, he doesnt. The business owner (you call him capitalist) expends money on the employee and on every other part of the business process, and he only profits (not necessarily more than the employee's wages!) after expending money on every part of the firm. The employee's labor is only one input out of many, he doesnt get to take credit for the work of everyone else at the firm.
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So a maid, a masseuse, a secretary, and a waiter earn unproductive wages? Anyone exclusively employing them would not be a capitalist, and a society exclusively comprised of these employees and employers would not be capitalist? Btw, why pay (employ) anyone to do anything which would be unproductive?

A maid and a masseuse earn unproductive wages as long as the consumer employs them directly. They do not produce a commodity for someone else--a commodity being a product that can be exchanged for money (or another commodity, technically). A secretary and a waiter contribute towards the making of a sellable product. So I think they would be productive workers. People "employ" unproductive workers for the use-value they produce while they employ productive workers for the value they produce. Think of it this way: in unproductive labor, the employer and the consumer are the same person. In productive wage labor, the employer, employee, and consumer are three different people. The employee and consumer could also be the same person, as in the case of serfdom. Or all three could be embodied in one person, as in subsistence farming. These differences are vitally important in defining the nature of the economy.

(BTW, productive and unproductive labor is Marx's terminology. Unproductive is not a derogatory term in this sense. It is not meant to imply that unproductive workers are somehow inferior or socially unimportant.)

Anyone intends to profit by doing whatever they are voluntarily doing -- whether they have actually profited after the fact, or not. All acting economic agents are speculators, and a profit (i.e. an improvement of one's satisfaction/situation), after the fact, is not guaranteed. So some businesses (and people) establish that they have become unprofitable after their actions/decisions have been made. Perhaps they should not have done what they thought would bring them a profit or more satisfaction. Life is risky.

I still don't like this definition. Suppose a company spends $10,000 to produce X number of widgets. After it produces them, it discovers that it can't sell them for more than $8000. It has two options: sell them for $8000 or throw them away. If it chooses to sell them, your definition seems to imply that they would profit off of this sale--since selling them is better than throwing them away. But this is completely contrary to the way I and most other people use the term. To me, profit (or loss, if negative) is the difference between the quantity of a particular thing spent vs. the quantity gained within a a particular cycle (whether defined by time or the completion of certain actions). So this company is not unprofitable because it would have been better off doing something else or because it didn't achieve what it aimed for (almost every business could be considered unprofitable by this standard) but simply because the amount of money at the end of the cycle is less than that at the beginning.

No, when you purchased the shares you exchanged your $100 for someone's shares. When you sold the shares you exchanged your shares for someone's $120. At no point in time have you exchanged less money ($100) for more money ($120). And at no point in time a moron existed who had exchanged his $120 for your $100.

OK, let's assume that there are two people. Person A starts out with $100. Person B starts out with 100 shares and $20. Person A exchanges $100 for Person B's 100 shares. Later, Person A exchanges those same 100 shares with Person B for his $120. Thus, within this time frame, Person A has given person B $100 dollars and 100 shares. Person B has given Person A 100 shares and $120. The 100 shares cancel each other out and, similarly $100 dollars cancel out on each side. Thus, there is a $20 surplus within this exchange for Person A. It doesn't matter whether it happens at the same exact time (no exchanges happen at the exact same second anyway) but that it happens within a certain timeframe. What is the balance of each side at the end vs. the beginning, is the question we are asking here.

No. Someone taking out a loan gives out a current promise (i.e. establishes a future liability) in exchange for the loan amount in cash. When he repays the loan gives out the promised loan repayment amount in cash in exchange for being releived from any further liability. At no point in time has anyone exchanged more money for less money, or vice versa. The fact that so many "morons" exist that find it profitable (including after the fact!) to take out loans should at least make you stop and think, a little bit.

So I go to a currency exchange to exchange $10 for 10 euros. The guy asks me for the $10, and I say, "do you promise to give me the euros afterward?" The guy says yes and hands me the euros 10 seconds after I give him my dollars. Are you saying that this does not count as an exchange but merely as a fulfilled promise?

(I think there is a difference between an on spot exchange and a loan over an extended period. But it's not the amount of time that matters but the fact that the person uses that money productively between receiving the money and paying it back.)

And I don't think people who take out loans are morons (that was your term). They do it out of social necessity. 

Again, why must a wage worker be able to buy the product of his labor? Is the universe going to collapse onto itself if this is not the case?

No, just the economy.

There's no money or anything else -- apart from bananas -- that anyone needs or desires. C grows and picks three bananas a month. He pays a wage of two bananas to A to procure and manage a masseuse for him. A pays a wage of one banana to B to give C a massage. They all are quite happy munching on one banana a month each. How is this economy bound for a collapse because there's no one to give B a massage?

OK, let me transfer this into more conventional economic terms. A class of "consumers" creates X amount of money every month (say, by mining 3 tons of gold). The consumers pay an "employer" class 2 tons of gold each month in order to get massages from the "employee" class. The employers then gives the employees 1 ton of gold. Each class then "consumes" their gold and then new gold is created to serve as future means of payment. In that case, I agree that your scenario would not be prone to crash--it actually sounds pretty similar to the socialist system that Parecon supporters advocate. I was assuming a fixed money supply and reusable money in my scenario.

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Broadly, and simplistically speaking, the total sale value of all merchandise up for sale in a given period cannot exceed the total money available for purchases in that period.

There's no way individual capitalists--who set the prices of individual commodities--could possibly know how much money is available for purchase in a given period nor what percentage of the total supply their products make up. I've begun to discuss price theory in another thread, but haven't had time yet to answer the replies there.

Now, at this point you'll likely, and very correctly, point out that this might result in entrepreneurs having to sell their inventory at a loss but this by no means requires that they continue to produce at that loss.  This is why the entrepreneur's assessment of market conditions and the entrepreneur's  place as an actor within a market economy makes him/her a cornerstone of Austrian theory.

It sounds like you actually understand my position fairly well. That is what I was going to say. If I understand Marx right (and I haven't yet gotten to Vol. 3 where he deals with this explicitly), his position is that as the economy moves towards overproduction, the rate of profit declines. The decline in the rate of profit is in line with what you are saying--capitalists need to take a loss in order to clear their inventory.

This is the essence of what a guy like Schumpeter would call "creative destruction"; if an entrepreneur can't make a widget profitably investors will find somewhere else to earn a yield on their capital and other entrepreneurs benefit from capital/inventory liquidations by being able to acquire them cheaper than they otherwise could.  Businesses fold and capital will move to and be redeployed where it makes the most profit because, in a dynamic economy with flexible prices, there is always an opportunity to collect the difference between inputs and outputs (profit) so long as there are consumer demands that remain unsatisfied.

Interestingly, Schumpeter took the concept of "creative destruction" from Marx (I haven't read Schumpeter myself, but he sounds like he's worth exploring). I certainly agree that capitalists buy the assets of other capitalists at a low rate during crises. But in order to make a profit off of these purchases, they then have to sell them themselves at a higher rate--planting the seeds for a new crises. And again, this demonstrates the markets tendency towards centralization. Unsuccessful capitalists who sell their unprofitable assets to other companies are forced into the workforce--perhaps to the same companies that bought them out. The unsuccessful among those companies fold in turn. Capital becomes concentrated in fewer and fewer hands.

Also note that, barring the monetary shennanigans of our central banks and various price-fixing schemes like minimum wages, it is impossible for there to be no opportunities to invest capital for a return because the price of inputs (commodities, other widgets, labour, etc.) is determined by the ability of entrepreneurs to bid them towards productive applications.  In other words we've come full circle, back to price flexibility, because the prices of the factors of production can only be as high as the maximum bidding entrepreneurs are willing or able to pay.

But the fact that there are profitable opportunities is precisely the problem. The larger the profits, the less of their product workers can buy back; the bigger the profits of one firm, the greater the losses of another. And it's not so much the price of the factors of production that are too high, but the products of production (i.e. consumer goods).

Another thing, businesses do not absolutely have to lower their profits when their products aren't selling. During a slump, either businesses don't sell their products or they sell them at a loss. But it's a prisoner's dilemma. If half of the businesses hold out and don't sell anything and the other half sells their products at a loss, then a net amount of money would be flowing from the capitalist class to the working class. This new money would allow the workers to buy the unsold goods at a profitable price. Thus, the first half of businesses have regained profitability due to the sacrifice of the second group. Each business then has an incentive refrain from lowering its prices in hopes that someone else will lower their prices and serve as the fall guy.

I'm only a hobby economist myself but If you're looking to learn some Austrian economics I recommend Human Action by Ludwig von Mises.  It's quite the tome but ol' Ludwig is an easy read compared to Marx and you don't seem to have any trouble with him.  Also for a specfic treatment of the underconsumption/overproduction theory of crises I'd check out the chapter the Paradox of Saving in Hayek's Prices and Production (pg 131).   Both books are available for free in the Literature section.

I've been planning on getting to Human Action eventually. Thanks for the heads up on the Hayek piece. I'll look into that as well.

I appreciate your response. It's probably the most polite and intelligent one I've gotten so far.

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If they want to pay me for risk, they can find me at the slots

"Paying for risk" was meant to be a shorthand for "paying for taking risk OFF them", not "paying for taking risk ON you".

I imagine you pay your insurance company so that you have less risks, not that so they have more risks. Gambling is extremely unlike insurance (or speculation) - it creates risks that didn't exist before, while insurance and speculation try to move risks around to parties that are more capable dealing with them from other parties.

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There's no way individual capitalists--who set the prices of individual commodities--could possibly know how much money is available for purchase in a given period nor what percentage of the total supply their products make up.
yes, there is, and its called "sales." they gain this information through participation in markets.
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Right, so where was I?

Fool on the Hill:
It's not a problem with his example, because it's irrelevant to the point he made. Surely you see that, don't you?

It was a problem in that he was claiming to refute my point, which he didn't.

Okay, let's recap the initial exchange between you and Nirgraham. First Nirgraham wrote:

nigrahamUK:
most workers dont want to buy back their product anymore than entreprenours do, they want to buy a diverse range of other peoples products!

whenever I hear the 'buy back their product' line, I imagine a worker perfectly happy to go gome with a few hundred hubcaps a month in full payment for his efforts on the factory floor.

Then you responded with:

Fool on the Hill:
But I think the point still applies when taken in aggregate. We have two groups of people: capitalists and wage laborers. Let's say there is $800,000 in circulation, beginning in the hands of the capitalists. The capitalists pay the laborers the $800,000 in wages (we're ignoring constant capital expenditures for simplicity). The laborers in turn create x number of different commodities. In order for these commodities to earn the capitalists a profit, they have to be sold for more than the value of the wages spent in producing them. Therefore, let's assume that the total cost of all the commodities adds up to $1,000,000. The workers then spend all of their money on the commodities. Since their money adds up to only $800,000, this means that 20% of the commodities ($200,000) remain unsold. How do these commodities get sold?

And Nirgraham followed that with:

nirgrahamUK:
well, we can solve the riddle by saying that 800,000 units circulate, and they can exchange hands many time, so that a large volume of transactions much greater than 800,000 can be counted occuring over a sufficiently long period.

or we can assume that you mean for all payments and transactions to occure stepwise at fixed intervals, in which case we simply laugh at the notion of the total cost of all the commodies adding up to 1000000 given the stipulation that there is only 800,000 which they could exchange for.

 

I expect what you really want to ask is how there can be a spread in the aggregate between labour costs and sales receipts. well the sales receipts come from the spending of both the labourers and the capitalists whereas only the labourers income shows up as cost on the accounting whereas the capitalists income shows up as profit.

but we always new that accounting profits are business income minus business expenditure. big whoop.

So I think the crux of your dispute with Nirgraham is that you consider the goods retained by the capitalists to be "excess production", whereas Nirgraham doesn't. Obviously, if the capitalists keep them (i.e. choose not to sell them), then it follows that they aren't excess. Maybe from the workers' point of view they're excess, because the workers don't want them, but so what? There are more people in the economy than just the workers.

Nirgraham certainly did refute your initial scenario. Nowhere in your initial scenario did you stipulate anything about whether any/all of the capitalists reinvested any/all of his/their profits back into his/their business(es). You then departed from your initial scenario and subsequently claimed that Nirgraham had presented no refutation against you whatsoever. That's called "intellectual dishonesty" in my book.

The fact that your initial scenario dealt with "the aggregate" meant that differences between wages and commodity prices could be ignored, as we're now dealing with "the economy" as a whole. When you brought up the possibility of capitalists reinvesting their profits back into their businesses, that required you to shatter the purely aggregate character of your initial example.

Fool on the Hill:
Certainly I could throw in any number of variables, occupying my time for the rest of my life, but what's the point? I've already illustrated serious flaws in the Austrian conception of the market.

Asserting that isn't going to convince me, so what's your point? Is this just a way for you to keep feeling good about yourself in this context? Or what?

Fool on the Hill:
In order for it to be by definition capitalist (that is an economy with wage labor and people seeking "surplus value"), then over time a greater value of (unsold) goods must enter the economy than exit.

By whose definition? It sounds like Marx's. Just saying. But that doesn't obligate the rest of us to follow that (his) definition, now does it? I don't think so.

Also, I suggest you keep in mind that Austrian-school economics doesn't follow the Marxian notion of "surplus value". By invoking that notion, you're just going to talk past Austrian-school economists.

Fool on the Hill:
Sure. He gave a pretty good example of how our economy would work if capitalists acted like feudalists. I think s/he did good work with the example--it helped illustrate my point.

No, it didn't. It showed that the unsold goods were not necessarily a problem, because "unsold" is not the same thing as "unwanted" or "unpossessed".

The keyboard is mightier than the gun.

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