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More products, in and of itself, does not translate into more wealth. Stealing $2billion from Bill Gates and paying 20,000 artists to make silly wood-carved figurines that no one wants does not increase wealth.

Red herring. I gave a scenario where the people did produce what other people wanted.

One surly Bill Gates, 20,000 happily employed wood-carvers, and 20,000 figurines does not make the world a wealthier place, even though 20,000 > 1. Value is only subjective, which makes it impossible to aggregate into an objective quantifiable measure.

Then what exactly is Hazlitt trying to demonstrate? Is he not saying that his recommendations would do the greatest good for the greatest number? What criteria should I be using to evaluate Hazlitt's claims?

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How so? It decreases war, eliminating broken window.

Well, in Scenario 2, breaking a window eliminates a person dying. It's also possible that breaking a window can prevent another window from breaking.

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Wheylous replied on Tue, Aug 30 2011 9:49 PM

Wait, there are numbered scenarios? I missed something...

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FOTH, value is subjective. Ponder. Give it time to simmer. Your inability to distinguish between (1) valuation of things for yourself (eating vs, overeating) and (2) valuation of things in someone else's stead (destroying just enough of other people's limbs and property, but not more than that) is bordering on sociopathic.

You have it backwards. I am not valuing any of these scenarios. Quit saying that I personally want these things to happen. I am, in fact, looking at other people's values. I am trying to see if breaking a window can ever lead to the satisfaction of the majority's desires. If you want to call them sociopaths (even though they didn't break the window) that's fine. But it has nothing to do with my desires.

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A new window which was not needed. A window which took time out of the broken window guy's life which he could have spent writing a book, fixing his house, living with his family (and there is no "new life" for him). A new window which created an artificial need for new window fixers who waste time learning how to fix windows which are not really needed.

I agree that it harms the baker. I am merely saying the benefit to the tailor and the glazier is greater than if it hadn't been broken (i.e. it's better for two out of three people). I cannot say whether a new window was needed or not because that is a subjective evaluation. And obviously the window fixer does not think of the time as wasted since he voluntarily agrees to it. Of course he would've preferred the baker to simply give him the money without doing anything.

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Wait, there are numbered scenarios? I missed something...

Yes, in The Broken Window post on the previous page.

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z1235 replied on Tue, Aug 30 2011 10:03 PM

Fool on the Hill:
 I am, in fact, looking at other people's values.

Why? Did they ask you to value their values for them?

I am trying to see if breaking a window can ever lead to the satisfaction of the majority's desires.
 

Why? Why do you value the satisfaction of the majority's desires? How do you measure the satisfaction of the majority's desires? How do you establish that any of your projects is actually achieving what you think it is? Ponder the subjectivity of values some more.
 
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we have a worker/owner who decides facebook on his computer is not a "window" [=useful object] for him, but a distraction. nothing was physically broken, either. He can always unblock it. nothing to do with Hazlitt's story. but the main point to grasp is the distinction in the next paragraph.

you cannot call net improvement of an asset "breaking". If i tear down a shanty to have room to build the taj mahal, that has nothing to do with the broken window fallacy. the b.w. fallacy is thinking that net destruction stimulates the economy, because work is needed to get back to square one. Hazlitt is pointing out that such reasoning is fallacious.

as for your posts, note that we are addressing them seriously.

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It's easy to refute an argument if you first misrepresent it. William Keizer

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Why? Did they ask you to value their values for them?

How am I valueing their values? I seek only to describe their values. My approach is one akin to that of a pollster. I am not saying that we need to follow the wishes for the majority, but rather I am asking, "what are the wishes of the majority?"

Why? Why do you value the satisfaction of the majority's desires? How do you measure the satisfaction of the majority's desires? How do you establish that any of your projects is actually achieving what you think it is? Ponder the subjectivity of values some more.
You claim that I can't know someone else's values, and yet you claim to know mine!
 
And why are you questioning me on this and not Hazlitt? After all he says:
 
Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
 
I am merely questioning Hazlitt on the very terms which he asserts. How can one claim to be an economist if he doesn't seek to measure other people's desires? What is economics concerned with if not that? Hazlitt summarizes his lesson thusly:
 
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
 
What effects is he talking about? Whatever those effects are, I want to look at them. Hazlitt makes claims such as, "this suit will never be made if this window is broken." I've shown that such a claim is not necessarily true.
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we have a worker/owner who decides facebook on his computer is not a "window" [=useful object] for him, but a distraction. nothing was physically broken, either. He can always unblock it. nothing to do with Hazlitt's story. but the main point to grasp is the distinction in the next paragraph.

Hazlitt's stated problem with the broken window example is that it  would produce one less suit. The Facebook analogy has the same result. The person breaking the window also decides that it isn't useful for him. But if you really have a problem with this particular example, please address the squatter one, which I think is closest to the broken window analogy.

you cannot call net improvement of an asset "breaking". If i tear down a shanty to have room to build the taj mahal, that has nothing to do with the broken window fallacy.

Tearing down a shanty is not improving an existing asset. It is destroying an old one and building a new one. Suppose the baker had an old ugly window and someone else broke it, resulting in the baker buying a new window that draws in more customers. Would you admit that breaking someone elses window could meet my two criteria in this case?

the b.w. fallacy is thinking that net destruction stimulates the economy, because work is needed to get back to square one. Hazlitt is pointing out that such reasoning is fallacious.

What do you mean by net destruction though? At what point are you measuring the destruction? After World War II, more houses were built than destroyed (I think). Doesn't my first scenario result in net production and not net destruction? Again, I don't mean to claim that destruction always results in net production. If the baker didn't have any money and no one wanted to buy his goods, then the result would indeed be one of net destruction.

But anyway, let's move on. Maybe we'll find some more specific issues to evaluate.

as for your posts, note that we are addressing them seriously.

I know you are. I respect your viewpoint. I'm also glad you recommended me this book as it seems to be a good introduction to the Austrian position. I just think that you either don't understand me or you are wrong. Are you accusing me of not being serious? Of trolling? I've dedicated a lot of my time to writing what I think are very detailed and thorough posts. If there is a better way for me to get my point across, please let me know.

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I am merely questioning Hazlitt on the very terms which he asserts. How can one claim to be an economist if he doesn't seek to measure other people's desires? What is economics concerned with if not that? Hazlitt summarizes his lesson thusly:

Oh, I should have also added these quotes (for some reason this thread doesn't allow the editing of posts):

Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.

...

[Looking only at the long terms] resulted in a certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run.

...

The most frequent fallacy by far today, the fallacy that emerges again and again in nearly every conversation that touches on economic affairs, the error of a thousand political speeches, the central sophism of the new economics, is to concentrate on the short-run effects of policies on special groups and to ignore or belittle the long-run effects on the community as a whole

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Public Works Mean Taxes

http://steshaw.org/economics-in-one-lesson/chap04p1.html

In this sub-lesson Hazlitt argues that the government is incapable of creating net jobs, that government spending is always a zero sum game (at best). At first, I thought I might actually end up agreeing with this section. That was when I thought Hazlitt might argue that government has shown itself to be incapable of solving the unemployment problem. But no, Hazlitt's argument is not so much against the actual practices of government as it is against the idea the such taxation and spending cannot even theoretically meet the two criteria: (1) increase the number of desired products, (2) produce a situation that the majority would choose over the alternative.

In order to counter Hazlitt's claim, we must acknowledge three facts: (1) there exists idle laborers who wish to work if they can get paid, (2) there exists idle resources capable of producing products, and (3) these products would be desired by people.

Hazlitt contends that all government spending is necessarily taxation. He maintains that the government cannot produce anything without first taking something away from someone else. While this may generally be the way the state operates (or appears to operate), I am not sure it is necessarily true. All I need to do is provide one example to debunk this idea.

I don't think anyone would contest that there are currently a very large number of unemployed people who wish to have work (1). There exists idle oil reserves beneath the Arctic National Wildlife Refuge (2). Oil is desired by people (3).

The government can employ these people to drill for oil. It can pay them by simply printing money equal to the market value of the oil. It can then either give the oil to the taxpayers at no charge or sell it to them. Printing money in this case should not contribute to inflation because the new money is simply representing the value of the new commodities. Ultimately, the nonworkers receive the oil from the workers, while the workers (in exchanging their money) receive commodities of equal value from the nonworkers. Of course the workers might receive goods from people who don't actually receive oil. But this is true of any monetary system. And of course a good question would be, "who benefits from the oil?" Hazlitt seems to imply (correct me if I'm wrong) that it can't possibly be the majority. But if this is necessarily true, then it seems like it would also be true of any entrepreneurial activity, which I doubt Hazlitt would claim. If, on the other hand, he is merely claiming that government spending doesn't necessarily lead to more wealth, then I would agree.

Let's look at a few more of his arguments:

For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

This seems reasonable if you don't think too much about it. I mean, if I spend $10 million on a bridge, then I will surely lose $10 million. But if you look closely, you'll note that Hazlitt uses a particular category. He says taxpayers will lose $10 million. By taxpayers, I assume he means anyone who pays taxes. By losing $10 million, I assume he means taxpayers as a group will have $10 million less than before the bridge was built. But who are they paying the $10 million to? Are not the workers also part of the taxpayer group? Is it not true that the money could still be spent on "things they needed most"? Hazlitt's statement is misleading at best and false at worst. He concludes:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else ...They are the jobs destroyed by the $10 million taken from the taxpayers.

If private spending of money is all that is necessary to create jobs, then government spending can hardly prevent job creation, because money is very rarely in government hands. As soon as the government spends money, that money is in private hands and thus can do anything it could have done before it was taxed. On the other hand, we could claim that it is the government's holding of money that reduces jobs. But then this would mean that the private holding of money also increases unemployment. And isn't that in fact the Keynesian position? Don't they claim that unemployment is due to too much savings?

But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.

Again, Hazlitt makes the mistake that somehow people cannot immediately buy these things when the money reenters the economy through wages. He wants to claim that the spending of money is what brings things into being, but then he claims that the private sector's power to bring things into being has been somehow diminished even though their ability to spend has not.

At most, it seems to me, Hazlitt can claim that the time spent by labor was lost on these supposedly undesired projects. But if we take into account the fact that many people remain unemployed, even that seems to be a stretch.

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z1235 replied on Fri, Sep 2 2011 8:31 PM

Fool on the Hill:
How am I valueing their values? I seek only to describe their values. My approach is one akin to that of a pollster. I am not saying that we need to follow the wishes for the majority, but rather I am asking, "what are the wishes of the majority?"

 

Each individual's wishes/preferences are revealed through his/her voluntary action (including exchanges with others). Individual wishes/preferences/values are not amenable to summation/aggregation. You are seeking something which does not exist.
You claim that I can't know someone else's values, and yet you claim to know mine!
 
I did no such thing.
 
I am merely questioning Hazlitt on the very terms which he asserts.
 
No you are not. You are purposefully misrepresenting Hazlitt and quoting him out of context which (again) makes me question your motives in this thread. The Broken Window uncovers a fallacy. It simply states that destruction/war/catastrophy can not create wealth. It is not just an example concluding that "this suit will never be made if this window is broken". You keep stating how any outcome (destructive, aggressive, etc.) creates Group A that benefits, and Group B that loses from it, but all in all, we're all even as society, humanity, majority. Thus, any outcome/scenario is just a different distribution of matter and energy in this universe. Then you must agree that by killing you I may not necessarily be decreasing wealth, depending on the amount of joy and entertainment such action may provide me (and whoever else may be watching)! As long as the majority is better off, right?
 
You keep saying how your examples/schemes are not symptomatic, but I will keep pointing out that there is something very dysfunctional in your inability to distinguish between voluntary and coercive/aggressive human action; between individual subjective preferences/values and objective your ('objective'?) measures of wealth and wellbeing of others.
 
How can one claim to be an economist if he doesn't seek to measure other people's desires? What is economics concerned with if not that?
 
 
Economics is a value-free science. Austrian Economics suggests the best means for a given end. It doesn't say anything about the ends themselves. 
 
Hazlitt makes claims such as, "this suit will never be made if this window is broken." I've shown that such a claim is not necessarily true.
 
Good work. You proved that a suit may still be made even when a window is broken. The government could just print some money and pay someone unemployed to make the suit, which wouldn't even cause inflation because the printed money would equal the value of the new suit. Or the government could just kill someone random on the street and give his suit to the baker. Got it. An utter destruction of Hazlitt's argument. 
 
I got this deja vu feeling. I may not last too much longer in this discussion with you. 
 
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Joe replied on Fri, Sep 2 2011 11:00 PM

anybody know much about Argentina?  Clearly this artical is full of fail.  

http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaround-tango.html

 

have they countered all of that intervention with freeing up the eonomy in other areas?

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z1235 replied on Sat, Sep 3 2011 10:19 AM

Joe:

anybody know much about Argentina?  Clearly this artical is full of fail.  

http://www.nytimes.com/2011/09/02/opinion/argentinas-turnaround-tango.html

have they countered all of that intervention with freeing up the eonomy in other areas?

Meh... Textbook Keynesian, roaring, liquored-up, neighbourhood party (boom) before the inevitable hangover (bust) strikes -- on someone's else's watch, of course. Same fallacies, same AE explanations. 

No One Cries for Argentina Embracing 25% Inflation of Fernandez

"Zheng, 35, says he has to change prices in his stores daily as suppliers send him new lists, with increases on some products ranging from 5 percent a month to as much as 5 or 10 percent in a single week.

...

Accelerating spending by President Cristina Fernandez de Kirchner’s government is stoking prices, economists say. Outlays on everything from highway construction to pensions climbed 37 percent last year from 2009 -- and increased 39 percent in January of this year alone. Fernandez’s largesse is made possible in large part by the global commodities boom.

...

Argentina’s 40 million people are spending, too -- as a way to protect themselves from rising prices. They’re buying everything from flat-screen televisions to cars and even property. Sales of such goods as home appliances, toys and clothing soared 39.5 percent in December from a year earlier, the biggest increase for that month since at least 1998. Auto sales gained 43.3 percent in unit terms, the most since 2004.

...

Prices -- and wages -- have been rising so fast that in November and December, the Central Bank of Argentina was unable to print enough money to meet the demand for cash from consumers and companies trying to cover year-end salaries and bonuses. As Argentines lined up at empty ATMs in the middle of a heat wave, the central bank took the unprecedented step of hiring Brazil’s mint to crank out 160 million 100-Argentine-peso notes, so that there would be enough cash for individuals eager to buy holiday gifts and start their summer vacations.

...

“If we have an inflation rate of 25 percent to 30 percent, that means an important monetary expansion,” says Roque Fernandez, a former president of the central bank and an economy minister in the 1990s. “What we didn’t know until then was that there were problems with issuing that amount of bills.”

...

Inflation is a result of companies being unable to meet consumer demand and should be resolved by boosting loans for production, Mercedes Marco del Pont, the current central bank president, says. She plans to increase the money supply by 28 percent this year to accommodate economic growth, a move she says won’t affect inflation.

“The price problem doesn’t have monetary roots,” the Yale University-educated central banker, 51, says. “The conditions that could cause inflation to accelerate don’t exist in Argentina.”

In fact, Marco del Pont says, the global economic slump of the past few years has shown how central bank intervention can play a role in developing the country’s economy. “The bank has a goal of stability not only in the financial system but also in the real economy,” she says."

Heck of a job, ladies! 

 

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Each individual's wishes/preferences are revealed through his/her voluntary action (including exchanges with others). Individual wishes/preferences/values are not amenable to summation/aggregation. You are seeking something which does not exist.

What do you mean by summation/aggregation? I am saying that each individual could theoretically be told what the result of a given action would be. The individuals would then be asked which result they would prefer. So it seems quite possible to me to say that a majority of individuals would prefer action A over action B. Imagine you are going out one night with four other friends. How might you decide where to go? Could you not poll your friends to find out where they would like to go? I am not saying this is the best method for deciding something, but merely that it is a possible one. Additionally, businesses must predict what consumers want in order to be successful. So I do not see how I am seeking something that does not exist.

The Broken Window uncovers a fallacy. It simply states that destruction/war/catastrophy can not create wealth.

Could you define wealth please? How do you determine if something creates wealth?

It is not just an example concluding that "this suit will never be made if this window is broken".

But that seems to be his evidence that it doesn't create wealth.

You keep stating how any outcome (destructive, aggressive, etc.) creates Group A that benefits, and Group B that loses from it, but all in all, we're all even as society, humanity, majority. Thus, any outcome/scenario is just a different distribution of matter and energy in this universe.

If that is true, then it would apply to any action, whether state or private. And I am not denying that one group loses and another gains. In fact, this is what Hazlitt claims the Keynesians believe. Hazlitt, on the other hand states that there are actions that benefit everyone:

While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups.

What I am looking at is whether a greater number can benefit while a lesser number loses. I am not saying that the sum of the larger group is greater than the loss to the second group--that is, that one group's amount of pleasure somehow makes up for the other's amount of pain.

You keep saying how your examples/schemes are not symptomatic, but I will keep pointing out that there is something very dysfunctional in your inability to distinguish between voluntary and coercive/aggressive human action;

Whether something is voluntary of not is a matter of perspective. The destruction of the house the squatter lived in was voluntary on the owner's part but involuntary on the squatter's part. The breaking of the window was voluntary on the part of the person breaking the window, but involuntary on the part of the baker. So the difference between state and private actions is not one of being voluntary vs. involuntary.

between individual subjective preferences/values and objective your ('objective'?) measures of wealth and wellbeing of others.

Once someone states their preference, it becomes something objectively measurable--that is, I am measuring whether they say they prefer it.

Economics is a value-free science. Austrian Economics suggests the best means for a given end. It doesn't say anything about the ends themselves.

And this is exactly what I am saying as well. I am looking at what ends a particular action results in. In Scenario 1, we can say that breaking a window is the best means to achieving as an end the two criteria that I outlined. Again, I do not mean to value this end. I merely wish to show that this means would be the best action to take if one wishes to meet this end.

Good work. You proved that a suit may still be made even when a window is broken. The government could just print some money and pay someone unemployed to make the suit, which wouldn't even cause inflation because the printed money would equal the value of the new suit. Or the government could just kill someone random on the street and give his suit to the baker. Got it. An utter destruction of Hazlitt's argument.
I think we might agree more than you think. I get the feeling that you are trying to argue against my points because you think you know where I am trying to go with them. You think that once you concede them, I am going to say "aha, so we should break windows!" But I am only making descriptive points, and acknowledging them does not entail any specific action. You cannot go from an is to an ought. If you want to criticize them, please stick to the is aspect.
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z1235 replied on Sat, Sep 3 2011 12:28 PM

Fool on the Hill:
Hazlitt, on the other hand states that there are actions that benefit everyone

Yes, voluntary/free action/exchange is the only mean toward the end of increased satisfaction (improvement of situation) of everyone involved. By definition, each party in a voluntary exchange is better off after the exchange then it was before it, otherwise the voluntary exchange would not have occured. This is how everyone's (subjectively and individually valued) wealth after the exchange becomes larger then the wealth before the exchange. 

Whether something is voluntary of not is a matter of perspective. The destruction of the house the squatter lived in was voluntary on the owner's part but involuntary on the squatter's part. The breaking of the window was voluntary on the part of the person breaking the window, but involuntary on the part of the baker. So the difference between state and private actions is not one of being voluntary vs. involuntary.

Sure, everything is a matter of perspective. The rape was voluntary on the part of the rapist, but involuntary on the part of the raped. The murder was voluntary on the part of the killer, but involuntary on the part of the killed. Choose your perspective (means) carefully, as it determines whether you will get to your desired end. The Austrian School teaches that only a very narrow realm of perspectives (means) lead to my end of a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.

Once someone states their preference, it becomes something objectively measurable--that is, I am measuring whether they say they prefer it.

Just like everyone adores and prefers Kim Jong Il in North Korea, I'm sure. Who annointed you as the benevolent pollster extraordinaire?

I merely wish to show that this means would be the best action to take if one wishes to meet this end.

Yes, I already pointed out your sociopathic ends before. The productive segment of humanity (the one with life/freedom/flourish-affirming ends) can (and does) do without them. 

I think we might agree more than you think.
 
I think you have no idea of what I'm talking about.
 
I get the feeling that you are trying to argue against my points because you think you know where I am trying to go with them. You think that once you concede them, I am going to say "aha, so we should break windows!" But I am only making descriptive points, and acknowledging them does not entail any specific action. You cannot go from an is to an ought. If you want to criticize them, please stick to the is aspect.
 
There is rape and murder. There ought to be less of it if one's end is a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.
 
Perhaps it's time for you to tackle Mises' "Human Action". 
 
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Yes, voluntary/free action/exchange is the only mean toward the end of increased satisfaction (improvement of situation) of everyone involved. By definition, each party in a voluntary exchange is better off after the exchange then it was before it, otherwise the voluntary exchange would not have occured. This is how everyone's (subjectively and individually valued) wealth after the exchange becomes larger then the wealth before the exchange.

I disagree that eveyone is necessarily better off than they were before. Rather I would say that they are better off than if they had not made the choice. For example, suppose Person A holds up a gun to Person B and asks Person B to give him all her money. Person B then voluntarily gives Person A all of her money. But this does not mean that Person B is better off then she was before. It means that she thinks she would be better off than if she didn't give him all of her money.

The Austrian School teaches that only a very narrow realm of perspectives (means) lead to my end of a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.

I'm not sure I follow. Could you elaborate on this more? Is this something you feel I am contradicting?

Just like everyone adores and prefers Kim Jong Il in North Korea, I'm sure. Who annointed you as the benevolent pollster extraordinaire?

Well, if we are going to use things like the broken window example where everything we make up for the example is true for the example, then it doesn't make sense to question my ability to evaluate the people's "true" values since I determine them. If Hazlitt would have simply questioned the govenment's ability to determine people's values, then I would be much more supportive of his position. And to counter your example, I could simply say that it is wrong to oppose Kim Jong Il on the grounds that he harms his people because one would have to be a "benevolent pollster extraordinaire." It works both ways.

Yes, I already pointed out your sociopathic ends before. The productive segment of humanity (the one with life/freedom/flourish-affirming ends) can (and does) do without them.

And who does this productive segment include? Does it include the one that destroys the squatter's house?

There is rape and murder. There ought to be less of it if one's end is a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.
Could you lay this out in more detail, perhaps with a syllogism? If one wants to rape and murder, then how does refraining from it lead to (subjectively) greater abundance, satisfaction, and individual freedom?
 
I understand that many people here use definitions radically different from the mainstream. Perhaps this is where our disagreements lie.
Perhaps it's time for you to tackle Mises' "Human Action".

On my list. I have to finish Economics in One Lesson first.

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I disagree that eveyone is necessarily better off than they were before. Rather I would say that they are better off than if they had not made the choice. For example, suppose Person A holds up a gun to Person B and asks Person B to give him all her money. Person B then voluntarily gives Person A all of her money. But this does not mean that Person B is better off then she was before. It means that she thinks she would be better off than if she didn't give him all of her money.

Or I suppose she is better off in the sense that she is no longer in a threatening situation. But the conditions of exhange can never arise voluntary on both sides. One must ultimately initiate conversation without the other person's consent.

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z1235 replied on Sat, Sep 3 2011 2:25 PM

Fool on the Hill:
I disagree that eveyone is necessarily better off than they were before. Rather I would say that they are better off than if they had not made the choice. For example, suppose Person A holds up a gun to Person B and asks Person B to give him all her money. Person B then voluntarily gives Person A all of her money. But this does not mean that Person B is better off then she was before. It means that she thinks she would be better off than if she didn't give him all of her money.

I said voluntary. I think we've distilled this down to your main problem/issue. There definitely are perspectives according to which the above exchange could be classified as "voluntary". What I (and the Austrian School) claim/show is that such a perspective would be outside the realm of appropriate means towards the end of a society of abundance, satisfaction, and freedom. 

The Austrian School teaches that only a very narrow realm of perspectives (means) lead to my end of a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.

I'm not sure I follow. Could you elaborate on this more? Is this something you feel I am contradicting?

You are contradicting it by suggesting that there exist other means (or perspectives that you proposed before), outside of this realm, that could also lead towards the above mentioned end. 

Well, if we are going to use things like the broken window example where everything we make up for the example is true for the example, then it doesn't make sense to question my ability to evaluate the people's "true" values since I determine them.

The expositon of the Broken Window fallacy (and many other socialistic, Keynesian, or mainstream fallacies) simply uncovers the unseen negative (coercive, destructive, aggressive) consequences of what, on the surface, seems to be a win-win proposition for everyone involved. One such fallacy is the objectivity of values. Nearly every coercive, aggressive, non-voluntary proposal/scheme appeals to some sort of objective calculation/quantification/summation of values which it claims to be "improving". Basically, the road to hell is, indeed, paved with good intentions.

If Hazlitt would have simply questioned the govenment's ability to determine people's values, then I would be much more supportive of his position.

Austrians question both the government's ability to determine people's values (Socialst Calculation Problem) and its motives about increasing them (Human Action). 

And to counter your example, I could simply say that it is wrong to oppose Kim Jong Il on the grounds that he harms his people because one would have to be a "benevolent pollster extraordinaire." It works both ways.

You completely missed my point. People don't value what they tell you that they value. They value what they reveal through voluntary action. The free market is the only real benevolent pollster extraordinaire. 

And who does this productive segment include? Does it include the one that destroys the squatter's house?

It includes the ones with the perspective that the house is not, in fact, the squatter's. 

There is rape and murder. There ought to be less of it if one's end is a society of (subjectively, individually perceived) material abundance, satisfaction, and individual freedom.

Could you lay this out in more detail, perhaps with a syllogism? If one wants to rape and murder, then how does refraining from it lead to (subjectively) greater abundance, satisfaction, and individual freedom?

Well, for one, both the rapist and the raped could be making one suit each, instead. Or if everyone was raping, murdering, being raped, or being murdered then there'd be no one left to make any suits so they'd all have to be doing it naked. (/sarcasm)

 

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You are contradicting it by suggesting that there exist other means (or perspectives that you proposed before), outside of this realm, that could also lead towards the above mentioned end.

But you haven't defined wealth yet, or how a society can be judged to be wealthy or satisfied. If I am using a different definition then I am not really contradicting.

The expositon of the Broken Window fallacy (and many other socialistic, Keynesian, or mainstream fallacies) simply uncovers the unseen negative (coercive, destructive, aggressive) consequences of what, on the surface, seems to be a win-win proposition for everyone involved.

If the Keynesians are saying that breaking a window will necessarily result in a win-win for everyone, them I would indeed disagree with them. My first Scenario 1 presents a situation that does not result in a win-win for everyone. However, I think you could argue that Scenario 2 does result in a win-win for everyone.

One such fallacy is the objectivity of values. Nearly every coercive, aggressive, non-voluntary proposal/scheme appeals to some sort of objective calculation/quantification/summation of values which it claims to be "improving". Basically, the road to hell is, indeed, paved with good intentions.

People often define "objective" in different ways. By objective, do you mean facts that everyone agrees on?

You completely missed my point. People don't value what they tell you that they value. They value what they reveal through voluntary action. The free market is the only real benevolent pollster extraordinaire.

Correct me if I don't have your position right. But I feel that you are being inconsistent. I feel like you are saying that if someone says they are happy that I can't know that they are truly happy. In Kantian terms, you can only know appearances and not the things-in-themselves. You are accusing me of judging by appearance alone. I would accept this charge. But I think you are contradicting this position when you move onto the next point. You seem to be assuming that when someone says "yes" that they are truly consenting and not merely appearing to consent. To judge whether a market is truly a free market, that it is voluntary, would require the same abilities of the "benevolent pollster extraordinaire" that you lampoon.

I will restate my position. It is possible for one to act in order to make people appear happier. Breaking a window can cause more people to appear happier to me than not breaking it in a particular circumstance would. Likewise, not breaking a window can cause more actions to appear voluntary to me than breaking it in a particular circumstance would.

It includes the ones with the perspective that the house is not, in fact, the squatter's.

So I just have to acknowledge that the house is not the squatter's and I then become a productive member of society? I don't actually have to produce anything? That's an unusual definition of productive.

To clarify my original question, does the destruction of the squatter's house count as a productive act?

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z1235 replied on Sat, Sep 3 2011 7:20 PM

Fool on the Hill:
But you haven't defined wealth yet, or how a society can be judged to be wealthy or satisfied. If I am using a different definition then I am not really contradicting.

I would judge a society to be wealthier if everyone in had more of what they have revealed to value through voluntary exchanges. So, if through such exchanges, they have revealed that pink Ferraries and chocolate ice-creams are what they value, then more pink Ferraries and chocolate ice-creams would make them wealthier. If yellow Yugo's are not what they value, then more yellow Yugo's would not make them wealthier. Production (of windows, suits, or yellow Yugo's), in and of itself, does not necessarily make a society wealthier, or better off. 

People often define "objective" in different ways. By objective, do you mean facts that everyone agrees on?

I mean that value can not exist outside of a subject which perceives it as such, hence, value is subjective. I use objective as an antithesis to subjective, i.e. to describe a proposition that objects/actions are "valuable" in and of themselves, without the requirement that a subject perceives them as such. 

Correct me if I don't have your position right. But I feel that you are being inconsistent. I feel like you are saying that if someone says they are happy that I can't know that they are truly happy. In Kantian terms, you can only know appearances and not the things-in-themselves. You are accusing me of judging by appearance alone. I would accept this charge. But I think you are contradicting this position when you move onto the next point. You seem to be assuming that when someone says "yes" that they are truly consenting and not merely appearing to consent. To judge whether a market is truly a free market, that it is voluntary, would require the same abilities of the "benevolent pollster extraordinaire" that you lampoon.

No, to judge whether a market is truly a free market, one only needs to establish that no person and their property is being aggressed upon. No polls needed.

I will restate my position. It is possible for one to act in order to make people appear happier. Breaking a window can cause more people to appear happier to me than not breaking it in a particular circumstance would. Likewise, not breaking a window can cause more actions to appear voluntary to me than breaking it in a particular circumstance would.

You are entitled to your own subjective perceptions of "property", "happiness", "aggression", "rape", "murder", "yes", and "voluntary". So is everyone else. The "correct" perceptions of the above terms are the ones leading to societies that exist, persist, and hopefully flourish. The "wrong" perceptions are the ones leading to societies that don't exist because they can't persist and flourish. 

It includes the ones with the perspective that the house is not, in fact, the squatter's.

So I just have to acknowledge that the house is not the squatter's and I then become a productive member of society? I don't actually have to produce anything? That's an unusual definition of productive.

Acknowledging that the house is not the squatter's (i.e. respecting other people's property rights) is necessary but not sufficient. You may, in addition, need to get off your a** and participate in a few voluntary exchanges of said property in order to produce (still, subjectively perceived) wealth for yourself and others.

To clarify my original question, does the destruction of the squatter's house count as a productive act?

Your voluntary destruction of your own property or person is a productive act because it increases your subjectively perceived satisfaction (hence wealth). Your aggressive destruction of someone else's property (house, window, etc.) or person (murder, rape, etc.) is a destructive act because it decreases the property (person) owner's subjectively perceived satisfaction (hence wealth). In my view, only voluntary, non-aggresive acts would qualify as being productive.

 

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I would judge a society to be wealthier if everyone in had more of what they have revealed to value through voluntary exchanges. So, if through such exchanges, they have revealed that pink Ferraries and chocolate ice-creams are what they value, then more pink Ferraries and chocolate ice-creams would make them wealthier. If yellow Yugo's are not what they value, then more yellow Yugo's would not make them wealthier. Production (of windows, suits, or yellow Yugo's), in and of itself, does not necessarily make a society wealthier, or better off.

OK, let me try to clarify this through an example. Suppose my neighbor has a tree in his backyard that is absolutely gorgeous. I just love sitting in my backyard and looking at his tree. One day, however, he decides to cut down his tree. He turns the tree into wooden boards and offers to sell them to me. I decide to buy the wood and build a deck with it. Now I enjoy my new deck, but I would really rather have that tree to look at instead. So, is the society as a whole (that is, I and my neighbor) wealthier than it was before the tree was transformed into my deck? 

I mean that value can not exist outside of a subject which perceives it as such, hence, value is subjective. I use objective as an antithesis to subjective, i.e. to describe a proposition that objects/actions are "valuable" in and of themselves, without the requirement that a subject perceives them as such.

I think of happiness as a state of a person that I can perceive. If I am saying that other people are happy, I am speaking of happiness in an objective sense since their happiness is not dependent on my perceiving it. (Does that jive with what you're saying?)

No, to judge whether a market is truly a free market, one only needs to establish that no person and their property is being aggressed upon. No polls needed.

But how do you determine whether people are being aggressed upon? You brought up North Korea and asked, as I understood you, "how do we know that when the people say 'yes, I am happy,' that such an assertion isn't coerced?" Suppose a police officer knocks on someone's door and asks, "Could you please let us in so we can take all of your stuff for Kim Jong Il?" The resident says "yes, take everything." Is this a voluntary transaction? Is this man's property being aggressed upon? How do we know if his consent is genuine or coerced?

Your voluntary destruction of your own property or person is a productive act because it increases your subjectively perceived satisfaction (hence wealth). Your aggressive destruction of someone else's property (house, window, etc.) or person (murder, rape, etc.) is a destructive act because it decreases the property (person) owner's subjectively perceived satisfaction (hence wealth). In my view, only voluntary, non-aggresive acts would qualify as being productive.

But surely you admit that the home owner's destruction of his house decreases the subjectively perceived satisfaction of the squatter? What contributes to the decrease in the squatter's subjectively perceived satisfaction is the destruction of the house. Who owns the house is irrelevant.

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Fool on the Hill:

OK, let me try to clarify this through an example. Suppose my neighbor has a tree in his backyard that is absolutely gorgeous. I just love sitting in my backyard and looking at his tree. One day, however, he decides to cut down his tree. He turns the tree into wooden boards and offers to sell them to me. I decide to buy the wood and build a deck with it. Now I enjoy my new deck, but I would really rather have that tree to look at instead. So, is the society as a whole (that is, I and my neighbor) wealthier than it was before the tree was transformed into my deck?

If I may chime in here, and then you two can get back to your debate:

Suppose I give you $20 on Monday, Tuesday, Wednesday, and Thursday.  Friday comes around, and I give you $10 instead of $20.  Are you poorer?

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z1235 replied on Sun, Sep 4 2011 8:53 AM

Fool on the Hill:
OK, let me try to clarify this through an example. Suppose my neighbor has a tree in his backyard that is absolutely gorgeous. I just love sitting in my backyard and looking at his tree. One day, however, he decides to cut down his tree. He turns the tree into wooden boards and offers to sell them to me. I decide to buy the wood and build a deck with it. Now I enjoy my new deck, but I would really rather have that tree to look at instead. So, is the society as a whole (that is, I and my neighbor) wealthier than it was before the tree was transformed into my deck?

Your enjoyment of your neighbor's tree was his free subsidy/gift/welfare to you. As 'gotlucky' also hinted with his question, a decrease or elimination of a free gift to you does not make you less wealthy (worse off) than never receiving the gift in the first place. The fact that your neighbor (and not you) owns (hence, controls) the tree which you claim to have enjoyed so thoroughly, is a manifestation of your priorities and your subjective valuation scale. Apparently, there must have been other things/actions you have subjectively preferred more than saving up to buy your neighbor's property and tree, or at least to negotiate your neighbour's promise (deed, contract) that the tree would not be cut down, until you move out (cheaper) or ever (more expensive). This is a perfect example for my proposition that actions and not words reveal what's at the top of everyone's subjective value scales at any moment in time. 

I think of happiness as a state of a person that I can perceive. If I am saying that other people are happy, I am speaking of happiness in an objective sense since their happiness is not dependent on my perceiving it. (Does that jive with what you're saying?)

Yes, it does. I assume that we both value the end of a happy society -- one of abundance and maximal satisfaction of subjectively valued needs and wants. Austrians show that -- in a world of scarcity where prioritization and choices are unavoidable -- the concept of property and voluntary exchange of same, which allows for accumulation of capital through postponing consumption, is the only means towards achieving such abundance and prosperity. 

But how do you determine whether people are being aggressed upon? You brought up North Korea and asked, as I understood you, "how do we know that when the people say 'yes, I am happy,' that such an assertion isn't coerced?" Suppose a police officer knocks on someone's door and asks, "Could you please let us in so we can take all of your stuff for Kim Jong Il?" The resident says "yes, take everything." Is this a voluntary transaction? Is this man's property being aggressed upon? How do we know if his consent is genuine or coerced?

Was the police officer carrying a gun? What happened to the neighbors that refused to say, "yes" yesterday? Does this person know what happened to these neighbors? In other words, if a group of people voluntarily subject themselves to theft, rape and murder, then, yes, those transactions would be voluntary. From what little I know about the human genetic make-up and evolutionary legacy, I find it hard to accept that large groups of human beings would voluntarily subject themselves to such actions. The healthy market demand for "illegal" exits out of North Korea (and dearth of demand for entries) seems to be supportive of this hypothesis. 

But surely you admit that the home owner's destruction of his house decreases the subjectively perceived satisfaction of the squatter? What contributes to the decrease in the squatter's subjectively perceived satisfaction is the destruction of the house. Who owns the house is irrelevant.

Who owns the house is extistentially essential! Accepting the owner's right to control his/her property, respecting property rights (to person and property), and subjectively valuing the perspective by which the subjective preferences of the owner (of body and property) take precedence over the subjective preferences of the murderer, rapist, neighbor, or squatter, is of existential importance. No society could persist for more than few generations without the preponderance of its members subjectively valuing the above perspective. Without it, there would have been no house built and no living squatter to subjectively value staying in it. Mises explains this wonderfully in 'Human Action'. 

Btw, I appreciate the depth of your questions. Hopefully you find this discussion profitable. 

 

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Suppose I give you $20 on Monday, Tuesday, Wednesday, and Thursday.  Friday comes around, and I give you $10 instead of $20.  Are you poorer?

If you take $20 away from me in order to pay me the $10 on Friday, then yes.

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Your enjoyment of your neighbor's tree was his free subsidy/gift/welfare to you. As 'gotlucky' also hinted with his question, a decrease or elimination of a free gift to you does not make you less wealthy (worse off) than never receiving the gift in the first place. The fact that your neighbor (and not you) owns (hence, controls) the tree which you claim to have enjoyed so thoroughly, is a manifestation of your priorities and your subjective valuation scale. Apparently, there must have been other things/actions you have subjectively preferred more than saving up to buy your neighbor's property and tree, or at least to negotiate your neighbour's promise (deed, contract) that the tree would not be cut down, until you move out (cheaper) or ever (more expensive). This is a perfect example for my proposition that actions and not words reveal what's at the top of everyone's subjective value scales at any moment in time.

So in other words, a net increase in societal wealth through "voluntary" means is not necessarily desirable to every member?

Was the police officer carrying a gun? What happened to the neighbors that refused to say, "yes" yesterday? Does this person know what happened to these neighbors?

Yes, I agree that there are criteria for determining whether something is voluntary. I thought you were challenging such a position when you questioned whether someone's answers to a poll were voluntary and honest can be determined. I would say that similar criteria could be applied in such a case.

Accepting the owner's right to control his/her property, respecting property rights (to person and property), and subjectively valuing the perspective by which the subjective preferences of the owner (of body and property) take precedence over the subjective preferences of the murderer, rapist, neighbor, or squatter, is of existential importance. No society could persist for more than few generations without the preponderance of its members subjectively valuing the above perspective. Without it, there would have been no house built and no living squatter to subjectively value staying in it.

I'll take this as a yes. My question wasn't about whether such a society could survive. Maybe we'll deal with that later.

Btw, I appreciate the depth of your questions. Hopefully you find this discussion profitable.

This is a good conversation. I feel that I am getting a better grasp of the fundamental assumptions of economics. While we might never agree, we might gain a better understanding of the nature of our disagreements.

I'd like to continue exploring issues raised by Economics in One Lesson.

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Taxes Discourage Production

http://steshaw.org/economics-in-one-lesson/chap05p1.html

This section raises some of the issues that I tried to address at the beginning of the thread.

These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected.

My first question is, if a corporation keeps only 52 cents of every dollar it gains, in what sense is it gaining a dollar? Suppose we look at things differently. Suppose that when a corporation sells a good, it is actually selling the good on behalf of the government. The government then pays the corporation 52 cents in wages and keeps the rest as profit. So Hazlitt is saying that productivity would be increased if the government paid the corporation 100 cents in wages.

Now employees sell goods on behalf of corporation owners. If the employees of a corporation sell $100,000 worth of goods in a year and the owners pay them $52,000 in wages, then one could say that the employees are permitted to keep only fifty-two cents of every dollar they gain. Would productivity increase if the owners paid $100,000 in wages?

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital.

If we substitute corporation for government, would this quote be any less true?

A certain amount of taxes is of course indispensable to carry on essential government functions. Reasonable taxes for this purpose need not hurt production much. The kind of government services then supplied in return, which among other things safeguard production itself, more than compensate for this.

Oh, so the government is capable of taxing and spending money in a manner to increase production. What determines reasonable taxes--market forces? How is the government going to subject itself to market forces anymore than it currently is? What else could determine reasonable--democracy, oligarchy, philosopher kings?

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1. So you are saying that we all work for the govt, and deserve only a wage, just as a worker deserves only a wage from his employer.

Alternatively, just as the corporation should keep 100% of the profits, so to the employees should keep 100% of the profits.

The relation we have to the govt is the same as employees have to their employers.

I think that fairly sums up your argument.

OK, let's think about this. When anyone makes money, He is taxed. Presumably, the rest of the money, that which was not taken away by taxes, is his to keep. It does not belong to the govt. He can then decide what to do with the money freely. He knows that all that money, that is his to keep and spend on fat cigars if he wants, does not have to used to buy fat cigars. He can instead gamble with it. The odds of the gamle are that if he loses, he loses it all, and no one will give him anything, but if he wins, he will win about 5%. The govt will take most of that 5% [i.e. 52%]. So that his gambling odds are no longer heads I lose everything, tails I get 5%, but heads I lose everything, tails I get 2%. Obviously this will be discouraging, no question about it.

Now we go to the worker. He is not gambling anything. Whether the company makes money or loses money, he gets his weekly paycheck. Say he does some work in January. The company will only profit from his work months later, say in September, if they sell the product he made. If the company doesn't sell it ever, he still got his paychecks on time in January through September. He is not only not gambling, he is in a sure fire win only situation.

Being in a win only situation is worth money. The employee pays for getting into such a coveted position, by letting his employer, who has assumed 100% of the risk, keep a little something for himself, aka the profits from sales.

2. There is also a big difference between the govts relation to the entrepeneur nd his relation to the employees. The employer-employee relationship is voluntary. If anyone is unhappy with the current agreement, he can terminate the realtionship and go elsewhere.

Not so the govt-citizen relationship. It is imposed by the implicit or explicit threat of violence on the part of the govt. One cannot say to the govt "I don't like the services you provide. I think i can do better hiring Fed Ex to deliver my mail than the post office. So I'm opting out of paying any taxes that support the post office."

3. Another difference, related to the above, is the existence of competition. The worker can choose from many different jobs. The entrepeneur cannot chooose his govt, his police, etc.

4. You wrote, "Oh, so the government is capable of taxing and spending money in a manner to increase production." Hazlitt did not say that. He said that the govt will not hurt it too much, but not that it increases production. Let us not confuse getting only a light beating upside the head with a baseball bat to getting a chocolate bar.

5. What determines reasonable taxes--market forces? Mises wrote something that makes sense to me. In the Fed ex vs. post ofice example, the answer would be "Whatever Fed Ex could charge and make a profit from [meaning, among other things,  would be low enough to have a large customer base that would lead to profits] is what the govt would be considered fairly charging." Because that is the market value of that service.

6. You ask, "How is the government going to subject itself to market forces anymore than it currently is?" Very simple. By repealing the laws that give itself a monopoly on a service. If the govt allows one to opt out of paying taxes for schools and instead choosing a private school, it is subjecting itself to market forces in the schooling service. Similarly for all other services it provides.

 

 

 

 

 

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1. So you are saying that we all work for the govt, and deserve only a wage, just as a worker deserves only a wage from his employer.

Alternatively, just as the corporation should keep 100% of the profits, so to the employees should keep 100% of the profits.

No, I don't think I've said anything about what we deserve or what should be done. I am suggesting that if the government taking a greater percentage of the nations revenue leads to lower productivity, then it seems to me that shareholders taking a greater percentage of a corporation's revenue would also lead to lower productivity. Now, perhaps I am misunderstanding what Hazlitt means by productivity (he doesn't appear to define it). What do you think he means by productivity?

OK, let's think about this. When anyone makes money, He is taxed. Presumably, the rest of the money, that which was not taken away by taxes, is his to keep. It does not belong to the govt. He can then decide what to do with the money freely. He knows that all that money, that is his to keep and spend on fat cigars if he wants, does not have to used to buy fat cigars. He can instead gamble with it. The odds of the gamle are that if he loses, he loses it all, and no one will give him anything, but if he wins, he will win about 5%. The govt will take most of that 5% [i.e. 52%]. So that his gambling odds are no longer heads I lose everything, tails I get 5%, but heads I lose everything, tails I get 2%. Obviously this will be discouraging, no question about it.

Ah, so you are saying that its the tax on investment specifically that discourages production? Would you then say that only capital gains taxes lower productivity and that income taxes have no effect?

Let's expand your example a bit. Let's suppose a cigar cost $1.05. So I have a choice: I can spend $1.05 on a cigar, or I can invest $1 to (possibly) make a cigar and sell it for $1.05. Without taxes, I would have made 5 cents. With taxes, I've made about 2.5 cents. Now you suggest that the higher tax would encourage more people to buy cigars. If I understand the law of supply and demand correctly, this would cause the price of cigars to go up. The increased price would mean more profits (perhaps 5 cents a cigar?) and increased investment. Do I have that right? I am just trying to think through things here.

Now we go to the worker. He is not gambling anything. Whether the company makes money or loses money, he gets his weekly paycheck. Say he does some work in January. The company will only profit from his work months later, say in September, if they sell the product he made. If the company doesn't sell it ever, he still got his paychecks on time in January through September. He is not only not gambling, he is in a sure fire win only situation.

Being in a win only situation is worth money. The employee pays for getting into such a coveted position, by letting his employer, who has assumed 100% of the risk, keep a little something for himself, aka the profits from sales.

I'm not quite sure how this relates to productivity and its relation to the profit rate. For the capitalist, we examined the amount of money invested vs. the amount returned without taxes and with taxes. One possible conclusion was that the capitalist would be discouraged from investing if the return was lower. An employee doesn't invest money, but time. The return is, however, still money. If we are to be completely consistent with our first conclusion, then a higher percentage of corporate profits would discourage workers from working. The fact that the capitalist would lose everything whereas the worker is guaranteed something is irrelevant since taxes in the first case only apply if something is gained. A worker could perhaps be paid 5 cents per cigar without the corporation taking profits but 2.5 cents with profit taking. Would a worker be more likely to choose a non-productive use of his time if the wage was 2.5 cents instead of 5 cents? There's one reason why we might say no. That is, as people's wages increase, they tend to desire to work less. That's because once they can afford their essential desires, they like to have time to enjoy them.

So what does this mean? That high profits and low wages lead to higher productivity?

2. There is also a big difference between the govts relation to the entrepeneur nd his relation to the employees. The employer-employee relationship is voluntary. If anyone is unhappy with the current agreement, he can terminate the realtionship and go elsewhere.

Not so the govt-citizen relationship. It is imposed by the implicit or explicit threat of violence on the part of the govt. One cannot say to the govt "I don't like the services you provide. I think i can do better hiring Fed Ex to deliver my mail than the post office. So I'm opting out of paying any taxes that support the post office."

I think we may have gone through this before, but I still don't see an essential difference here. A citizen certainly is free to go to another city or country. I moved to my city voluntarily and could move out just as easily. Moving between cities is certainly easier than moving between jobs. And to provide an analogous statement, employees can't say to the shareholders, "We don't like the services you provide. We're going to stay in this office, make products, and opt out of paying you any profits."

3. Another difference, related to the above, is the existence of competition. The worker can choose from many different jobs. The entrepeneur cannot chooose his govt, his police, etc.

They certainly can choose their government. They can even live under one and invest under another.

4. You wrote, "Oh, so the government is capable of taxing and spending money in a manner to increase production." Hazlitt did not say that. He said that the govt will not hurt it too much, but not that it increases production. Let us not confuse getting only a light beating upside the head with a baseball bat to getting a chocolate bar.

He says that the government has certain "essential functions." My assumption was that productivity would decrease without them. Otherwise, why are they so important?

5. What determines reasonable taxes--market forces? Mises wrote something that makes sense to me. In the Fed ex vs. post ofice example, the answer would be "Whatever Fed Ex could charge and make a profit from [meaning, among other things,  would be low enough to have a large customer base that would lead to profits] is what the govt would be considered fairly charging." Because that is the market value of that service.

I think Hazlitt had police and military in mind. How do you determine the market prices of those when they don't have competitors (and can't given the definition of a state)?

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I am suggesting that if the government taking a greater percentage of the nations revenue leads to lower productivity, then it seems to me that shareholders taking a greater percentage of a corporation's revenue would also lead to lower productivity.

Let us replace the words "govt", "shareholders", and "corporation" with equivalent words that will make clear my argument.

if the local mafia thug taking a greater percentage of the nations revenue leads to lower productivity, then it seems to me that owners taking a greater percentage of their business's revenue would also lead to lower productivity.

Need clarification?

What do you think he means by productivity?

He does not use the word, but makes perfectly clear what the results will be of higher  taxes.

Ah, so you are saying that its the tax on investment specifically that discourages production? Would you then say that only capital gains taxes lower productivity and that income taxes have no effect?

Hazlitt writes: There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families.

Let's expand your example a bit. Let's suppose a cigar cost $1.05. So I have a choice: I can spend $1.05 on a cigar, or I can invest $1 to (possibly) make a cigar and sell it for $1.05. Without taxes, I would have made 5 cents. With taxes, I've made about 2.5 cents. Now you suggest that the higher tax would [1] encourage more people to buy cigars. If I understand the law of supply and demand correctly, this would cause the price of cigars to go up. [2] The increased price would mean more profits (perhaps 5 cents a cigar?) and [3] increased investment. Do I have that right? I am just trying to think through things here.

1. It would not encourage everyone. Only those who can afford them, and have decided to consume cigars instead of produce things.

2. This is usually not the case. Most of the time, a price is set such that the maximum profit is to be had at that very price. After all, rasing the price means less people will buy it [=law of supply and demand].

3. Since 2 is wrong, so is 3.

I'm not quite sure how this relates to productivity and its relation to the profit rate.

It explains why a worker has good reason to let his employer keeps the profits, but an employer has no reason to give the govt anything, other than the threat of force on their part. Indeed, worker- employer relations are voluntary for a reason, and employer-govt relations are coercive for a reason.

If we are to be completely consistent with our first conclusion, then a higher percentage of corporate profits would discourage workers from working.

Of course. People have a minimum salary they are willing to accept, and will not work for less. So what? The idea is that the employee has a logical reason to accept in his mind not getting 100% of the profits, but less than 100% always, because it is worth it to him. No employee has ever quit because he did not get 100% of the profits, unless he was willing to become an entrepeneur himself, exposing himself to the risks and disadvantages of entrepeneurship I described. How much lower than 100% depends on the individual situation.

The fact that the capitalist would lose everything whereas the worker is guaranteed something is irrelevant since taxes in the first case only apply if something is gained.

I don't understand what you wrote. It seems you are combining two distinct subjects [employer-worker and govt-everyone else] into one case. It is relevant because some people do not like buying lottery tickets; they would rather hold on to a sure thing, even if it is smaller. I think we can all agree on this. After all, the casinos are Vegas are not full to burtsing with every man on the planet. Some don't want to gamble. Which shows us that not having to gamble is something that is worth money.

That is, as people's wages increase, they tend to desire to work less. That's because once they can afford their essential desires, they like to have time to enjoy them.

But someone else will pick up the slack and work the hours the first guy stopped working. It's our old friend, supply and demand. As the price of something [=wages] goes up, the supply of it [=people willing to work] increases.

...Forgive me, but I don't feel I'm the right person to continue. Good luck to you on your further researches into these fascinating topics.

 

 

 

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Let us replace the words "govt", "shareholders", and "corporation" with equivalent words that will make clear my argument.

if the local mafia thug taking a greater percentage of the nations revenue leads to lower productivity, then it seems to me that owners taking a greater percentage of their business's revenue would also lead to lower productivity.

Need clarification?

I don't have a problem with your restatement. I don't believe that you've shown why a business and a mafia thug would be different in this respect.

He does not use the word, but makes perfectly clear what the results will be of higher  taxes.

Oh, sorry, production. Wikipedia says:

"In economics, production is the act of satisfying a want or need."

So I interpret Hazlitt's position being that lower taxes would either:

1. Satisfy everyone's wants more.

2. Satisfy the majority's wants more.

3. Satisfy more wants regardless of who they belong to. So, for example, lower taxes might satisfy 5 less wants of the poor but 10 more of the rich.

The first possibility is too extreme and the third position is unlikely to be appealing to most. So I am assuming he is advocating the second. If you have a different interpretation, I am open to being persuaded.

Hazlitt writes: There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families.

Yes. I thought you were disagreeing with him. In that case, consider these two scenarios:

1. A worker produces goods that sell for $100,000. The business owners extract $50,000 of that in profits, leaving the worker with $50,000.

2. A worker produces goods that sell for $100,000. The business owners extract $25,000 of that in profits and the government extracts $25,000 in taxes, leaving the worker with $50,000.

Are you saying that scenario 1 wouldn't decrease the worker's motivation to work but scenario 2 would? Why?

1. It would not encourage everyone. Only those who can afford them, and have decided to consume cigars instead of produce things.

But that's the point. If X dollars that were going towards investment are now going toward consumption, then demand has increased by X dollars. Suppose you're right and only group X can afford cigars. That means no one would buy cigars without the tax. So no one's wants would be satisfied. Now suppose the taxed money was given to group Y. With the tax, group X and group Y get cigars and the investors get a profit. Without the tax, group X loses X dollars.

2. This is usually not the case. Most of the time, a price is set such that the maximum profit is to be had at that very price. After all, rasing the price means less people will buy it [=law of supply and demand].

But what determines the price that maximizes profit? Might a tax on profit affect that price? And we've already concluded that more people (I never said everyone) would buy cigars after the tax. So the increase in price would simply reduce the number of consumers to the pre-tax level, but with a higher profit rate (before taxes are deducted).

It explains why a worker has good reason to let his employer keeps the profits, but an employer has no reason to give the govt anything, other than the threat of force on their part. Indeed, worker- employer relations are voluntary for a reason, and employer-govt relations are coercive for a reason.

Why would an employee rather have his employer keep the profits if the employee could take that same money and invest it into the company himself?

Of course. People have a minimum salary they are willing to accept, and will not work for less. So what? The idea is that the employee has a logical reason to accept in his mind not getting 100% of the profits, but less than 100% always, because it is worth it to him. No employee has ever quit because he did not get 100% of the profits, unless he was willing to become an entrepeneur himself, exposing himself to the risks and disadvantages of entrepeneurship I described. How much lower than 100% depends on the individual situation.

No entrepreneur has ever left a country because he didn't get to keep 100% of his profits.

I don't understand what you wrote. It seems you are combining two distinct subjects [employer-worker and govt-everyone else] into one case. It is relevant because some people do not like buying lottery tickets; they would rather hold on to a sure thing, even if it is smaller. I think we can all agree on this. After all, the casinos are Vegas are not full to burtsing with every man on the planet. Some don't want to gamble. Which shows us that not having to gamble is something that is worth money.

I am rethinking this position. I might be wrong on the point I was trying to make.

But I do think that the worker can invest and come up empty handed. As we said, what the worker invests is his time. Simply searching and applying for jobs can take a tremendous amount of time. Spending this time is not guaranteed to pay off. Indeed, as we speak, many people have given up on trying to get a job because they don't think it's worth it.

But someone else will pick up the slack and work the hours the first guy stopped working. It's our old friend, supply and demand. As the price of something [=wages] goes up, the supply of it [=people willing to work] increases.

You might be right. I was actually throwing an argument out in your favor. If decreased wages mean less productivity, then investing and working are more similar than the idea I entertained above.

...Forgive me, but I don't feel I'm the right person to continue. Good luck to you on your further researches into these fascinating topics.

I understand. I won't ask you to waste anymore of your time. Thanks for coming this far with me. I appreciate the contributions you made. I realize that my posts must come across strange to people here (and my knowledge of economics is admittedly lacking). But as long as people don't understand me, I feel that I must continue...

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Let me give a stronger example to illustrate my challenge. There are two islands: Keynes Island and Hazlitt Island.

Keynes Island was once inhabited by a group of peaceful people. One day 200 years ago, a group of thugs arrived on the island, massacred everyone, and took all their property. They then allowed other people to immigrate, but they set up a government to tax and regulate these new people.

Hazlitt Island was completely uninhabited. One day 200 years ago, a group of businessmen came to settle the island. They hired people through voluntary contracts and completely homesteaded the island, coming to own all of it through libertarian means.

Flash forward to the present, to the outside observer, Keynes Island and Hazlitt Island look almost completely identical. However, there is one vital difference: Keynes Island is a state and Hazlitt Island is a capitalist anarchy. Keynes Island contains businesses involved in the sugarcane, tourism, and textile industries. However, these businesses are subject to a 20% corporate tax. Additionally, the government of Keynes Island imposes certain rules by which these businesses must operate. Hazlitt Island is completely different. On Hazlitt Island, a single business owns everything. This business has various subsidiaries involved in the sugarcane, tourism, and textile industries. These subsidiaries must pay 20% of their revenue to the business as profit. They must also follow whatever rules the business imposes. People are free to immigrate to Keynes Island as long as they pledge allegiance to the government, don't have a criminal record, and have a job lined up with one of the companies on the island. Hazlitt Island also requires that new tenants don't have a criminal record and have a job lined up with a subsidiary in the business. However, they don't require people to pledge allegiance to the government. There is no government or laws. New workers/tenants merely have to sign a contract saying that they will follow whatever rules the company decides to make. Both islands allow their inhabitants to leave at will (but at their own expense).

I am a recent graduate with a specialty in managing the harvesting of sugarcane. Both Keynes Island and Hazlitt Island have job openings, and I am trying to consider which would be better for me. I consult an Austrian economist and conclude the following. Since Keynes Island is run by a government, a raise in business taxes would cause production to go down, and I would get less of my needs satisfied. However, since Hazlitt Island is a business, a raise in the rate of profit extracted from their subsidiaries would not cause production to go down. Additionally, since Hazlitt Island is a business, that means that competition must exist, and if I go to Hazlitt Island, it's because I chose to go to Hazlitt Island. However, governments are monopolies. So if I choose to go to Keynes Island, it was not because of my own choice. And if it turns out that I don't like Keynes Island, I couldn't leave because I'd be giving into the "take it of leave it" argument and letting injustice continue. But if I go to Hazlitt Island, I could leave because when one doesn't like something that he agrees to voluntarily, his only recourse is to leave.

On the other hand, if I move to Keynes Island, I would be justified in not paying my taxes since taxes are theft. But if I withheld the money that the business of Hazlitt Island demands as profits, then that would be immoral. It would also cause productivity to drop, whereas not paying my taxes on Keynes Island clearly wouldn't.     

(Now seriously, does this make sense?)

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Malachi replied on Sun, Oct 9 2011 2:46 PM

Fool on the Hill,

You have made a number of ridiculous arguments, and I am not quite sure how to go about responding to your conflation of the role of an entrepreneur and a parasitic state. Redefining terms to negate their differences in a philosophical problem says nothing about their real-world reasons for being different things with different labels. Sure, a "state" that is run like a "corporation" would be more "profitable" than a "corporation" that is "run" like a " "state" ". The point is that if keynes island took more tax than was necessary to perform the functions of a state, that would be against the ideals of modern government, and a crime, yet that happens all the time and nothing is done. The likelihood is that keynes island would know this and continually lie to people, and slowly create measures to prevent them from leaving, and distort the accounting process so people couldnt see that they were being lied to and decide to leave. Whereas hazlitt island is a business and if you dont want to help make mr. Hazlitt rich, do not get a job working for him. 

Firms are inhabitants of a pluralistic society. It was the titular foolish trick for you to define this distinction away with the two islands. If you restate your thesis is a form that is more conducive to discussion you will get more replies.

Looking forward to your response,

Malachi

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Hi Malachi,

I am not sure if I understand your objection, but I'll try to respond to some of your points. In my example, I was trying to eliminate all differences between a state and a corporation to see what impact their fundamental nature has. I assume that the difference between a state and a corporation in AE/ancap philosophy is the origin of their property. Correct me if I am wrong about that.

The point is that if keynes island took more tax than was necessary to perform the functions of a state, that would be against the ideals of modern government, and a crime, yet that happens all the time and nothing is done.

Are you saying that a state taking more than is necessary makes productivity go up or down? How do you determine what is "necessary to perform the functions of a state"? Is it different than it is for a corporation?

The likelihood is that keynes island would know this and continually lie to people, and slowly create measures to prevent them from leaving, and distort the accounting process so people couldnt see that they were being lied to and decide to leave.

Why do you think Keynes Island would prevent people from leaving? I've left several states and none of them ever tried to prevent me from leaving. I've also known that my government lies to me for quite some time (as many people know). The business I work for also lies to me.

Whereas hazlitt island is a business and if you dont want to help make mr. Hazlitt rich, do not get a job working for him.

This sounds like a sentence that would have fit right into my scenario.

Firms are inhabitants of a pluralistic society.

Are you saying that states aren't members of pluralistic societies? What kind of societies are they members of?

It was the titular foolish trick for you to define this distinction away with the two islands. If you restate your thesis is a form that is more conducive to discussion you will get more replies.

Perhaps I should've taken a more historical route and compared state towns with company towns. How do you feel about company towns? Does the increase of profits in a company town cause productivity to drop?

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Malachi replied on Tue, Oct 11 2011 9:24 PM

>>>>Are you saying that a state taking more than is necessary makes productivity go up or down? How do you determine what is "necessary to perform the functions of a state"? Is it different than it is for a corporation?>>>>

thats exactly the point. A state provides no unique functions other than a monopoly on socially sanctioned aggressive violence. That doesnt take any money, so no taxation is necessary. However, socially sanctioned aggressive violence can be used to increase the tax rate until the taxpayer starves to death from malnutrition and exhaustion due to parasitic authoritarianism. 

Whereas a company or firm is created with the intent of creating surplus value or profit through a series of voluntary exchanges, any profits are a function of the efficiency and utility of the product(s) so higher profits means higher productivity. Taxes are computed by many different schemes, none of which are comparable to profits in the sense that profit was the end result of the firm's process, whereas taxation was a drain on that process. Creating theoretic models may help to explore these distinctions further and I am willing to continue this effort. Fundamentally, states and firms are different entities with different natures. If you want to postulate a wholly owned state that exists for the benefit of the king, where taxation = profit, then I am willing to listen. 

>>>>Why do you think Keynes Island would prevent people from leaving? I've left several states and none of them ever tried to prevent me from leaving. I've also known that my government lies to me for quite some time (as many people know). The business I work for also lies to me.>>>>>

because I live north of cuba

>>>>Are you saying that states aren't members of pluralistic societies? What kind of societies are they members of?>>>>

states are not members of societies. States are pathological fraternities that exercise singular powers over a generally specified geography. Firms do not have singular powers unless empowered by the state, or they are a de facto state under this definition. Anarchy is a condition where no entity has the power of socially sanctioned aggression, i.e. statelessness. If you imagine a firm that has the social sanction for its agents to initiate acts of violence at will, then I will call that a state.

>>>>Perhaps I should've taken a more historical route and compared state towns with company towns. How do you feel about company towns? Does the increase of profits in a company town cause productivity to drop?>>>>

I see where I went wrong. I should have started out by explaining how bookkeeping and taxation make your question nonsensical. Imagine a company town. The mine has its own grocery store, saloon, etcetera. Well, the owner doesnt have to take 20% or whatever from the grocery store. It is a wholly owned subsidiary. All its profit defaults to the owner. This is why an owner has an incentive to make his business as efficient as possible, to maximize his profit. Profit is the measure of productivity. But if another guy comes along, with some guys with guns, and now demands 20% of the take, that loss of value has to come from somewhere. Ergo, loss of productivity. 

Imagining that people "work for the government" or somesuch may help to confuse this, but unless you envision govt somehow taking an active role in making business more efficient or somesuch, I do not see how to combine the roles. Remember that in order for the firm to exist, it must be started by someone. If government launched businesses and calculated the "profits" with arbitrary formulae at the point of exchange, that would represent a loss of productivity (extra steps) and there might be money left over, that also belonged to the owner (government). Very likely there would not, because businesses often run for years before they make a profit, yet they pay taxes from day one. So this represents a loss of productivity and not profit. I hope this helps clarify the distinctions.

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Malachi replied on Tue, Oct 11 2011 9:29 PM

I realize that calling the ruling class of a state "pathological" is a value judgment of sorts, and so please do not consider my statement to be a rigorous definition. The state is defined by a socially sanctioned monopoly on the legal use of force. 

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thats exactly the point. A state provides no unique functions other than a monopoly on socially sanctioned aggressive violence. That doesnt take any money, so no taxation is necessary. However, socially sanctioned aggressive violence can be used to increase the tax rate until the taxpayer starves to death from malnutrition and exhaustion due to parasitic authoritarianism.

OK, so let's get back to what production means. I posted above a definition from Wikipedia that says production is the act of satisfying a want or need (or creates something that can satisfy a want or need). Now I assumed when talking about a group of people that increased production meant an increase in the net satisfaction of the majority's wants or needs. If I take this at face value, this means that two thugs who beat and rob a person have engaged in a productive act. If this is true, it is quite possible for the state to engage in productive acts. Of course, to acknowledge violent acts as productive acts is not to condone them. Production is value-neutral, at least from the perspective of the observer. I am open to using a different definition. But it's important that we agree on what it is. How do you interpret production?

Whereas a company or firm is created with the intent of creating surplus value or profit through a series of voluntary exchanges, any profits are a function of the efficiency and utility of the product(s) so higher profits means higher productivity.

You have mentioned two things: profit and voluntary exchange. If these are distinct concepts, then they can be applied apart from each other. You can have voluntary exchanges that don't lead to profits, and you can have involuntary exchanges that do lead to profits. So can we agree that one can gain profits (or more generally, surplus value) while subjecting people to an involuntary exchange (e.g. taxation)?

Taxes are computed by many different schemes, none of which are comparable to profits in the sense that profit was the end result of the firm's process, whereas taxation was a drain on that process.

Wait, taxation is a drain on the process of the one imposing the tax or the one being taxed? If you mean the former, I don't understand you. If the latter, you are straying from the comparison. The analogous entities in my scenario:

Keynes Island        Hazlitt Island

Government      =    Corporation

Business          =    Subsidiary

Citizen               =    Employee/Tenant

If you want to postulate a wholly owned state that exists for the benefit of the king, where taxation = profit, then I am willing to listen.

I think a king would work well in a scenario that compares with a business owned by one person. However, I am trying to assume conditions more in line with our current situation where we have corporations that are owned by many shareholders. Who are the shareholders of the government? I have two potential groups in mind:

1) Owners of government issued bonds. This is a particularly useful comparison because profits can easily be calculated. Profits would equal the amount of money the government pays to service its debt.

2) Whoever profits from the activities of government. This would include banks and corporations that achieve profits through the market but only as a result of the government's aid. This is harder to measure but is probably a more complete comparison on the whole.

And yes, I do believe that government exists for what I'd call the profit of these groups.

because I live north of cuba

Oh, I am not viewing Keynes Island as a totalitarian state. I am thinking of it as a mixed economy in the vein of the US or Europe. Sorry if I gave the wrong impression.

states are not members of societies. States are pathological fraternities that exercise singular powers over a generally specified geography. Firms do not have singular powers unless empowered by the state, or they are a de facto state under this definition. Anarchy is a condition where no entity has the power of socially sanctioned aggression, i.e. statelessness. If you imagine a firm that has the social sanction for its agents to initiate acts of violence at will, then I will call that a state.

What do you mean by "singular powers"? How does the power that a firm has over the geography of its office differ from that of the state over its territory? Would Hazlitt Island have singular powers in your view?

If someone in an office tries to "steal" something from the company and the company uses violence that is socially sanctioned to prevent it, would that make the company a state?

I see where I went wrong. I should have started out by explaining how bookkeeping and taxation make your question nonsensical. Imagine a company town. The mine has its own grocery store, saloon, etcetera. Well, the owner doesnt have to take 20% or whatever from the grocery store. It is a wholly owned subsidiary. All its profit defaults to the owner. This is why an owner has an incentive to make his business as efficient as possible, to maximize his profit. Profit is the measure of productivity. But if another guy comes along, with some guys with guns, and now demands 20% of the take, that loss of value has to come from somewhere. Ergo, loss of productivity.

I don't understand. When a guy comes by with a gun and takes the 20%, that value comes from "somewhere," but when the guy with the gun happens to own the business, that 20% comes from ... nowhere? And you seem to imply that the armed robber doesn't have an incentive to maximize his profit. You mean he's going to do an intentionally poor job of robbing so that he doesn't get as much as he could?

Imagining that people "work for the government" or somesuch may help to confuse this, but unless you envision govt somehow taking an active role in making business more efficient or somesuch, I do not see how to combine the roles.

How are we to evaluate what is efficient?

If government launched businesses and calculated the "profits" with arbitrary formulae at the point of exchange, that would represent a loss of productivity (extra steps) and there might be money left over, that also belonged to the owner (government). Very likely there would not, because businesses often run for years before they make a profit, yet they pay taxes from day one. So this represents a loss of productivity and not profit. I hope this helps clarify the distinctions.

I'm sorry. I don't really understand this part. Are you saying that governments use arbitrary formulae but businesses don't? Could you give an example?

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To clarify, in making my comparison scenario between business and government, these three criteria are most important:

1) That the government and business are presented on the same scale

2) That the government and business operate in generally the same way that they do now

3) That the business exist outside of government while retaining all of the standard functions government currently provides it (e.g. defense)

Do you agree these are good criteria for a comparison? I'd be interested in alternate scenarios if they maintain these three criteria.

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Malachi replied on Mon, Oct 17 2011 6:57 PM

>>>>OK, so let's get back to what production means. I posted above a definition from Wikipedia that says production is the act of satisfying a want or need (or creates something that can satisfy a want or need). Now I assumed when talking about a group of people that increased production meant an increase in the net satisfaction of the majority's wants or needs.>>>>

I must have missed the significance of this part. Increased production can refer to an increase in value or the satisfaction of a want or need. But you cannot assume that this is with respect to the majority. It is with respect to the observer or perspective undefined.

>>>>If I take this at face value, this means that two thugs who beat and rob a person have engaged in a productive act. If this is true, it is quite possible for the state to engage in productive acts.>>>>

that would not be productive from the perspective of the beaten person. Nor from an objective observers standpoint, as the beaten individual suffered a loss of strength in his physical structure and now requires more calories, protein, and time to regain his original state. Net loss is observed.

>>>>Of course, to acknowledge violent acts as productive acts is not to condone them. Production is value-neutral, at least from the perspective of the observer.>>>>

production as "satisfaction of wants or needs" cannot be value neutral because values are defined as that which is sought after, which is basically the same as saying that "values are wanted or needed" or "production = increase in value." whose values?

>>>>You have mentioned two things: profit and voluntary exchange. If these are distinct concepts, then they can be applied apart from each other. You can have voluntary exchanges that don't lead to profits, and you can have involuntary exchanges that do lead to profits. So can we agree that one can gain profits (or more generally, surplus value) while subjecting people to an involuntary exchange (e.g. taxation)?>>>>

profit is the goal of voluntary exchange. If two parties make a voluntary (absent from coercion and/or fraud) exchange then both parties profit according to the value judgments they used to choose to exchange. If later you decide that "milk was a bad choice" then you have re-eVALUated the purchase. You still profited according to your earlier subjective values, you simply have different values now.

Compulsory exchange cannot lead to profit on both sides because if there was profit on both sides, the exchange would be voluntary, making compulsion superfluous. One person can profit from compulsory exchange, this occurs at the expense of the compelled party. Of course that party will necessarily have a different hierarchy of values at every moment for the rest of concious existence, so it is certainly possible for him to reevaluate the compulsory exchange and believe that it was in his best interest, just like the strongarm robber can reevaluate his spoils and decide that it was a waste of time to steal a blender.

>>>>Wait, taxation is a drain on the process of the one imposing the tax or the one being taxed? If you mean the former, I don't understand you. If the latter, you are straying from the comparison>>>>

your comparison artificially eliminates essential characteristics of the two entities being compared. How is tax calculated on keynes island? In your comparison, productivity is a result of the process. A drain on the process lessens productivity. This is within the scope of your comparison, I believe.

>>>>I think a king would work well in a scenario that compares with a business owned by one person. However, I am trying to assume conditions more in line with our current situation where we have corporations that are owned by many shareholders. Who are the shareholders of the government? I have two potential groups in mind:

1) Owners of government issued bonds. This is a particularly useful comparison because profits can easily be calculated. Profits would equal the amount of money the government pays to service its debt.

2) Whoever profits from the activities of government. This would include banks and corporations that achieve profits through the market but only as a result of the government's aid. This is harder to measure but is probably a more complete comparison on the whole.

And yes, I do believe that government exists for what I'd call the profit of these groups.>>>>

different governments exist for different purposes. Assignment of "rightful purpose" as a third party is a subjective valuation. The most intersubjectively valid assignment of purpose would be defined in the government's charter or foundational document. The state is simply a group of people who possess social sanction to threaten or initiate force. The problem with your question is that government does not have shareholders per se. Ownership functions are shared between three overlapping groups, voters, taxpayers, and agents. This creates conflict of interest.

>>>>What do you mean by "singular powers"? How does the power that a firm has over the geography of its office differ from that of the state over its territory? Would Hazlitt Island have singular powers in your view?>>>>

singular powers are powers that are not held by plural members of a community. The state has a monopoly on socially sanctioned force within a defined area that encompasses other community members. The firm has the "singular powers" of a property owner on its own property, as does every other member of the community. This is not singular, it is pluralistic. If one firm had the power to dictate the extent of property rights in a geographic area encompassing the property of other community members that would be a state.

>>>>If someone in an office tries to "steal" something from the company and the company uses violence that is socially sanctioned to prevent it, would that make the company a state?>>>>

Only if the company was the only actor with the sanction to use violence to protect its property rights.

>>>>I don't understand. When a guy comes by with a gun and takes the 20%, that value comes from "somewhere," but when the guy with the gun happens to own the business, that 20% comes from ... nowhere?>>>>

he is moving value from one pocket to the other. The value belonged to him when it was in the cash register. Moving it from the cash register to his mattress does nothing. It is accounting.

>>>>And you seem to imply that the armed robber doesn't have an incentive to maximize his profit. You mean he's going to do an intentionally poor job of robbing so that he doesn't get as much as he could?>>>>

I mentioned 20% because you mentioned it. Robbers take whatever they take. They do not have to take all the money in the bank to "maximize" their profit. They might have time preference. They might know that, historically, robberies that do not take all that is available are less likely to be investigated. Perhaps this robber considers being the subject of an investigation to be a loss of psychic profit. 

>>>>How are we to evaluate what is efficient?>>>>

Efficiency presupposes a clearly defined goal and scarce resources. "efficiency" refers to the achievement of ends while conserving scarce resources. If you want to generate electricity for the market, a nuclear explosion is extremely inefficient, for it represents wasted energy. If you want to scatter fallout across the region, an atomic explosion is efficient, for it represents energy being put to use.

>>>>I'm sorry. I don't really understand this part. Are you saying that governments use arbitrary formulae but businesses don't? Could you give an example?>>>>

Compare any taxation scheme with any business's accounts. Why is club soda consumption tax 34%? It's an arbitary number that was picked for political reasons. Why is the cost of a widget $400? it's because that is the empirically discovered intersection between supply and demand, including the effect of supply and demand on the manufacturing process. When a business owner sets a price "at random" she is making an estimate as to the production factors and supply and demand at that point in time. It might appear somewhat arbitrary if it was not the product of a rigorous process but it is not arbitrary. People do not operate successful businesses based on whim. The interested parties determine the price through their own actions executed according to subjective values.

When government imposes a tax, they do not consider the individual business's production factors, supply, or demand, in the same way an owner would. They impose a standard arbitrarily, because it is based on whim, rather than systematic, and because the imposition of tax is practically autocratic in the vast majority of examples. This fits the dictionary definition of arbitrary.

As for your criteria

>>>>1) That the government and business are presented on the same scale>>>>

I do not see the utility of this one. 

>>>>2) That the government and business operate in generally the same way that they do now>>>>

Your basis for comparison will be small because they operate COMPLETELY differently.

>>>>3) That the business exist outside of government while retaining all of the standard functions government currently provides it (e.g. defense)>>>>

this is somewhat odd and arbitrary. Businesses do not seek to provide "standard functions of government." they seek profit, and will only provide functions that the owners/board of directors believe to be profitable. 

>>>>Do you agree these are good criteria for a comparison? I'd be interested in alternate scenarios if they maintain these three criteria.>>>>

I must admit that I do not see the utility. There is no reason to suppose that one business would provide all the standard functions of government. If it did (which is certainly possible depending on what you consider to be standard functions of govt) it would be because it made profits by doing such. As business became more efficient and successful, the profits would increase. Govt does not generally sell things that would be useful without the existence of government. If you didnt need a license plate to drive, would you pay $400 to register your vehicle? Govt does not have owners/shareholders, so there is no incentive to make profit. Govt does not generate revenue from voluntary exchange, govt generates revenue by collecting it and penalizing people who fail to comply. As I said, your basis for comparison is small.

Keep the faith, Strannix. -Casey Ryback, Under Siege (Steven Seagal)
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