Mase,

I suggest you get rid of this mysterious ‘GNP’.

It obviously tells us nothing of interest. However economic acronyms are almost as prevalent as pharmaceutical acronyms. Perhaps, they are less profitable.

The housewife not only does not bring home the bacon, she probably consumes some bacon. So, at the end of the day there will be less Wealth than at the beginning. However, if economists want to mix producers of Wealth with those who consume Wealth in one defined concept – OK. They can hardly make their discipline more undisciplined than it is.

I suppose when the lady’s husband comes home and smokes a cigar, he is a producer because he is servicing his taste buds. He is directly satisfying desire.

By golly, there is a good economic thesis subject!

How easy for people to understand the basics of production as it is set out in the Science of Political Economy.

Labor produces Capital (a material product in the course of production). The product remains Capital until production is finished, That is, when it is in the hands of the consumer. At this point it is Wealth. As we are particularly interested in production and distribution, our interest in the consumer is limited.

We can say that as Capital, the product increases in value, whereas as Wealth, its value diminishes. The fact that the Wealth may later be sold or exchanged is of no importance. If it again becomes part of the production process, it will become Capital again. Otherwise, I suppose it will simply become less and less valuable until it is scrapped. (One of the funnier neo-Classical ideas is that the dividing line between Wealth and Capital may be decided by the durability of the product – by the length of time Wealth is kept around. So, a house – Wealth which produces nothing, it is merely consumed – becomes Capital because it’s around for a long time.)

One can view distribution as how the amount paid by the consumer for the product is divided among the three Factors. I personally prefer to treat production from the point of view of Labor.

Thus, Labor has two major costs when he produces.

He must pay Rent.    

As Rent is the value provided to production by the surrounding community, if he gets a Rent advantage from the location and then pays the same amount to a landholder or to the community, nothing is removed from his Wages. There is no ‘driving down Wages to subsistence’.

But .  .  .  . !

The other cost that Labor must pay is Interest.

This is a good deal, for the return to production is far more than the cost of Capital. (let’s not get into additional increments of Capital that become less effective as more is added – nor bother with imputation – they are good class time fillers).

Capital multiplies Labor’s production.

Both Rent and Interest are paid in Wealth. The rest of the produced Wealth becomes the Wages of Labor.

Simple enough, yet all production can be described this way.

As is evident, the reason for production is Wages. Yet, this is forgotten in this era of mammoth Corporations and the downgrading of Labor to a ward of the State.

Harry      

New definition of an MCP: man who believes housewives are not economically useful when they are just dusting, sweeping, laundering, dishwashing, and not bringing home any bacon. The bachelor who marries his housemaid lowers the GNP. But the girl who’s selling what she used to give away raises the GNP?  Wait, sorry, irrelevant, this is only a service, not part of economics.  Anyway, this is just fruitless, so pardon me for butting in.

Mase,

I wouldn’t bother with what consumers do in basic Political Economy, which concerns itself only with the production and distribution of wealth.

The product in the hands of the consumer is used or consumed. This is a clear difference between production and consumption. During production the value of the product increases (or no more exertion would be wasted on it). During consumption, the value of the product diminishes.

Thus, the value of the asset – the car – diminishes over the 5 years. It is a product is the hands of the consumer and does not produce. Longevity in the sense that it is still around over time doesn’t make it productive – as is no doubt shown by its diminishing sales value.

Let us say the car is used in production, perhaps to take goods to the consumer, then it is properly Capital. However, the value of capital must not diminish during production, so part of its increase in production values must be set aside for replacement. So, if the car was bought for (say) $20,000 and is worth nothing at the end of the five years, then $20,000 of its production must have been put on one side to replace itself. Capital at the end of production must not be less than capital at the beginning of production.

(I remember back to the halcyon days when I could depreciate my car in three years. So, a car worth perhaps $10,000 would be considered valueless by the IRS.)

With regard to GMAC, we enter the province of the accountant -- one of the problems of modern economics. I would not regard the payments as interest -- another word which suffers a multiplicity of confusion. But then, as I regard the car as a consumer activity that is not part of a Science of Production and Distribution, I happily escape any discombobulation.

I use neoclassical as a kind a grab bag for modern economics. I would love you to expand on Clark and Knight in this regard, but perhaps you should stay with more important things.

Have a good Holiday Weekend!

Harry

Harry,

                You buy a pleasure car and finance it at GMAC.  Your installments over, say, 5 years add up to more than the price of the car: that is, they include interest as well as amortization. Why do you do it? Because the car is productive by virtue of its longevity.  Just like a house.

                BTW, that is not “neoclassical” economics, but Austrian.  Clark, Knight, et al. did their best to circumnavigate such matters.

Mase

Mase,

I suggest you get rid of this mysterious ‘GNP’.

It obviously tells us nothing of interest. However economic acronyms are almost as prevalent as pharmaceutical acronyms. Perhaps, they are less profitable.

The housewife not only does not bring home the bacon, she probably consumes some bacon. So, at the end of the day there will be less Wealth than at the beginning. However, if economists want to mix producers of Wealth with those who consume Wealth in one defined concept – OK. They can hardly make their discipline more undisciplined than it is.

I suppose when the lady’s husband comes home and smokes a cigar, he is a producer because he is servicing his taste buds. He is directly satisfying desire.

By golly, there is a good economic thesis subject!

How easy for people to understand the basics of production as it is set out in the Science of Political Economy.

Labor produces Capital (a material product in the course of production). The product remains Capital until production is finished, That is, when it is in the hands of the consumer. At this point it is Wealth. As we are particularly interested in production and distribution, our interest in the consumer is limited.

We can say that as Capital, the product increases in value, whereas as Wealth, its value diminishes. The fact that the Wealth may later be sold or exchanged is of no importance. If it again becomes part of the production process, it will become Capital again. Otherwise, I suppose it will simply become less and less valuable until it is scrapped. (One of the funnier neo-Classical ideas is that the dividing line between Wealth and Capital may be decided by the durability of the product – by the length of time Wealth is kept around. So, a house – Wealth which produces nothing, it is merely consumed – becomes Capital because it’s around for a long time.)

One can view distribution as how the amount paid by the consumer for the product is divided among the three Factors. I personally prefer to treat production from the point of view of Labor.

Thus, Labor has two major costs when he produces.

He must pay Rent.    

As Rent is the value provided to production by the surrounding community, if he gets a Rent advantage from the location and then pays the same amount to a landholder or to the community, nothing is removed from his Wages. There is no ‘driving down Wages to subsistence’.

But .  .  .  . !

The other cost that Labor must pay is Interest.

This is a good deal, for the return to production is far more than the cost of Capital. (let’s not get into additional increments of Capital that become less effective as more is added – nor bother with imputation – they are good class time fillers).

Capital multiplies Labor’s production.

Both Rent and Interest are paid in Wealth. The rest of the produced Wealth becomes the Wages of Labor.

Simple enough, yet all production can be described this way.

As is evident, the reason for production is Wages. Yet, this is forgotten in this era of mammoth Corporations and the downgrading of Labor to a ward of the State.

Harry      

New definition of an MCP: man who believes housewives are not economically useful when they are just dusting, sweeping, laundering, dishwashing, and not bringing home any bacon. The bachelor who marries his housemaid lowers the GNP. But the girl who’s selling what she used to give away raises the GNP?  Wait, sorry, irrelevant, this is only a service, not part of economics.  Anyway, this is just fruitless, so pardon me for butting in.

All these are already included. Why should they not be?

Looks to me that the discussion is hardly fruitless.

Harry

We agree, anyway, on one thing: this discussion is fruitless!

Unless, that is, I can persuade you to include parking lots in economics.  Oh, yes, and streets, curb parking, sidewalks, curbs, gutters, storm sewers, and the land under all of those. And airports; and radio spectrum; and shipping ports; and, and, and, et al et al ad inf ad inf.

Mase,

If we clearly separate production from servicing, none of your examples are significant to economics. Production ends when the product reaches the consumer. What the consumer does with production is his affair and not in the province of economics -- at least it shouldn't be.

There is a clear distinction between exertion used to increase Wealth, that is material products with exchange value, and exertion used to massage your back. In the first case, there is more wealth after the act than before, whereas after the massage there is less wealth if the masseuse has a cup of coffee.

If one includes services in a study of economics one opens a Pandora's box which takes all the time and effort of the economist. So much so that study of actual production and its distribution is lost in the hundreds of pages of an economics textbook.

Every hour spent discussing dusting, sweeping, laundering, dishwashing, is an hour subtracted from the discussion of who gets production and why the poor will always be with us.

I can certainly understand why Georgist teachers would prefer to make their study all-inclusive, but all it does is to divert attention from production and distribution.

I think the basics of economics can be handled exhaustively in a semester, at the end of which the students will understand what is right and what is wrong.

GNP? I have a feeling that acronyms have not helped economists very much during this present debacle, perhaps because they think that statistics explain how Labor produces Wealth.

Harry

New definition of an MCP: man who believes housewives are not economically useful when they are just dusting, sweeping, laundering, dishwashing, and not bringing home any bacon. The bachelor who marries his housemaid lowers the GNP. But the girl who’s selling what she used to give away raises the GNP?  Wait, sorry, irrelevant, this is only a service, not part of economics.  Anyway, this is just fruitless, so pardon me for butting in.

Fred,

You suggested that these should be realized:

1. Interest as a premium base on time, not a return on capital goods.
2. Wealth includes services.
3. Economic values are subjective, not based on labor saved.

A Chapter heading in the InterStudent High School course is “Exertion, Time, and a Place To Stand” - no argument with 1.

2. It depends on how Wealth is defined. I prefer the Classical definition that (simply) Wealth is a “material product  of human exertion, having exchange value.”

As services don’t produce that “material product” they cannot be included in the Classical definition. So, if you want to include services in Wealth you need a different definition of Wealth.

As you know the procedure begins with a concept. It might be a little vague at first, so you make its boundaries clear by “defining” the concept. That is, you erect a fence around the concept. Everything part of the concept is within the fence, everything not part of the concept is outside the fence.

It is important not to mix disparate things into the concept. Perhaps the most egregious example of a bad concept is the neo-Classical ‘Capital’ within which they include Land. Land would be here whether or not we are here. Capital would not be here without us. Mixing these two together is asking for trouble, which the neo-Classicals have already discovered as they paw away at the present situation.

In similar fashion, mixing together “material products having exchange value” with “exertion satisfying desires” is not too good. It means that Wealth is exertion producing “material goods with exchange value” and exertion “not producing material goods with exchange value”.

Certainly Wealth can be removed from the equation so that the concept becomes exertion “expended to satisfy human desires”, but again we have a problem of dissimilarity. This defined concept mixes together exertion used to produce Wealth with exertion that diminishes Wealth (the masseuse makes you feel good but at the expense of food, clothing, and shelter that must be produced by someone else).  

However, the best part of George’s defined terms is that, as Lindy Davies has said, they are a closed system. Land, Labor, and Capital produce Wealth which is distributed to them as Rent, Wages, and Interest. This keeps the distribution in full view and it can be worked with. Adding Labor that doesn’t increase Wealth is not an aid to clarity.

3. Values are certainly subjective – or personal as Henry George put it – but subjective values are not of much help in economics. We cannot know what another person’s values are. In fact, we probably don’t even know our own values except by comparison. Values are actually preferences. I value this rather than that. I prefer this to that.

The values that are of interest in economics are market clearing prices – the values that can be seen in the market place.

3. One of the Assumptions of Classical Political Economy is that ‘People will seek to satisfy their desires with the least exertion.” This appears to be valid. (Though I had an intense argument with Hayek over this Assumption some years ago.)  

If we prefer less exertion (and time, which I include) to more exertion, this is the same as preferring ‘saving’ labor to expending it.

I think that George’s insight would be very useful to Austrian subjective value theory. At the moment, it floats in a kind of limbo. It is quite correct, but it is of little use. If we add “saving exertion” to it we might have a meaningful basis for subjective valuing.

Here’s your chance, Fred, to take the next great step forward in Austrian value theory!

Harry

Mase,

I won’t separate each and every one, but they are “material products of human exertion”. In other words they are Capital or Wealth depending on weather they are part of the productive process or not.

They can be both. We use as an example in InterStudent a main road.

When the mother pushes her pram across the road it is Wealth. When a truck carries goods along the road, it is Capital. Having said that, I have no compulsion to measure the percentages of each or allocate costs. That can be left to someone’s thesis. In the scheme of things, it don’t amount to a hill of beans – as Humphrey said.

Harry

You, Harry, are excluding them because they do not produce material wealth; they just provide a service.

All these are already included. Why should they not be?

Looks to me that the discussion is hardly fruitless.

Harry

We agree, anyway, on one thing: this discussion is fruitless!

Unless, that is, I can persuade you to include parking lots in economics.  Oh, yes, and streets, curb parking, sidewalks, curbs, gutters, storm sewers, and the land under all of those. And airports; and radio spectrum; and shipping ports; and, and, and, et al et al ad inf ad inf.

Mase,

If we clearly separate production from servicing, none of your examples are significant to economics. Production ends when the product reaches the consumer. What the consumer does with production is his affair and not in the province of economics -- at least it shouldn't be.

There is a clear distinction between exertion used to increase Wealth, that is material products with exchange value, and exertion used to massage your back. In the first case, there is more wealth after the act than before, whereas after the massage there is less wealth if the masseuse has a cup of coffee.

If one includes services in a study of economics one opens a Pandora's box which takes all the time and effort of the economist. So much so that study of actual production and its distribution is lost in the hundreds of pages of an economics textbook.

Every hour spent discussing dusting, sweeping, laundering, dishwashing, is an hour subtracted from the discussion of who gets production and why the poor will always be with us.

I can certainly understand why Georgist teachers would prefer to make their study all-inclusive, but all it does is to divert attention from production and distribution.

I think the basics of economics can be handled exhaustively in a semester, at the end of which the students will understand what is right and what is wrong.

GNP? I have a feeling that acronyms have not helped economists very much during this present debacle, perhaps because they think that statistics explain how Labor produces Wealth.

Harry

New definition of an MCP: man who believes housewives are not economically useful when they are just dusting, sweeping, laundering, dishwashing, and not bringing home any bacon. The bachelor who marries his housemaid lowers the GNP. But the girl who’s selling what she used to give away raises the GNP?  Wait, sorry, irrelevant, this is only a service, not part of economics.  Anyway, this is just fruitless, so pardon me for butting in.

Fred,

You suggested that these should be realized:

1. Interest as a premium base on time, not a return on capital goods.
2. Wealth includes services.
3. Economic values are subjective, not based on labor saved.

A Chapter heading in the InterStudent High School course is “Exertion, Time, and a Place To Stand” - no argument with 1.

2. It depends on how Wealth is defined. I prefer the Classical definition that (simply) Wealth is a “material product  of human exertion, having exchange value.”

As services don’t produce that “material product” they cannot be included in the Classical definition. So, if you want to include services in Wealth you need a different definition of Wealth.

As you know the procedure begins with a concept. It might be a little vague at first, so you make its boundaries clear by “defining” the concept. That is, you erect a fence around the concept. Everything part of the concept is within the fence, everything not part of the concept is outside the fence.

It is important not to mix disparate things into the concept. Perhaps the most egregious example of a bad concept is the neo-Classical ‘Capital’ within which they include Land. Land would be here whether or not we are here. Capital would not be here without us. Mixing these two together is asking for trouble, which the neo-Classicals have already discovered as they paw away at the present situation.

In similar fashion, mixing together “material products having exchange value” with “exertion satisfying desires” is not too good. It means that Wealth is exertion producing “material goods with exchange value” and exertion “not producing material goods with exchange value”.

Certainly Wealth can be removed from the equation so that the concept becomes exertion “expended to satisfy human desires”, but again we have a problem of dissimilarity. This defined concept mixes together exertion used to produce Wealth with exertion that diminishes Wealth (the masseuse makes you feel good but at the expense of food, clothing, and shelter that must be produced by someone else).  

However, the best part of George’s defined terms is that, as Lindy Davies has said, they are a closed system. Land, Labor, and Capital produce Wealth which is distributed to them as Rent, Wages, and Interest. This keeps the distribution in full view and it can be worked with. Adding Labor that doesn’t increase Wealth is not an aid to clarity.

3. Values are certainly subjective – or personal as Henry George put it – but subjective values are not of much help in economics. We cannot know what another person’s values are. In fact, we probably don’t even know our own values except by comparison. Values are actually preferences. I value this rather than that. I prefer this to that.

The values that are of interest in economics are market clearing prices – the values that can be seen in the market place.

3. One of the Assumptions of Classical Political Economy is that ‘People will seek to satisfy their desires with the least exertion.” This appears to be valid. (Though I had an intense argument with Hayek over this Assumption some years ago.)  

If we prefer less exertion (and time, which I include) to more exertion, this is the same as preferring ‘saving’ labor to expending it.

I think that George’s insight would be very useful to Austrian subjective value theory. At the moment, it floats in a kind of limbo. It is quite correct, but it is of little use. If we add “saving exertion” to it we might have a meaningful basis for subjective valuing.

Here’s your chance, Fred, to take the next great step forward in Austrian value theory!

Harry

Roy said:

“IMO it makes no difference, as landowners prefer rent income
to no rent income. If any try to charge more than the rent,
users will just deal with landowners who aren't so greedy.”

In the 50’s, the Regional Planning Association of New York City did a survey of land unimproved for urban use in the large metropolitan area of New York City. They found that 79% of the usable land (84% of the gross) was unimproved. They did not consider slums and other blights as being unimproved. About the same time, Bartholomew studied 53 cities and found 29% of the central cities was undeveloped. These figures from Mason Gaffney’s piece in the 1958 Yearbook of Agriculture.

Plenty of landholders apparently didn’t prefer Rent to no-Rent. I doubt that much has changed since then though Community Redevelopment Agency eminent domain has cut through the landholders’ refusal to sell.

Roy said:

“Land is inherently a monopoly, so the price (rent) is always
a monopoly price. But even monopolists can't just charge
whatever they like and expect to get it, because there are
always substitutes . . . . .”

What is the substitute for land?

Roy said:

“I have no idea, as I do not believe in Harry's rack-rent.

As I have told you often, I use “rack-rent” as the label for the highest rent that that can be extracted from tenants while maintaining production.

Do you not believe that landholders extract every penny they can get from their tenants?

Harry

Logan,

I have seen the CD proposed as a way to make people more comfortable about paying LVT. That was what I was properly addressing. As I indicated I do not think much of the proposition.

When urban land values are collected, it would seem sensible to use them for infrastructure maintenance first. If there is anything left after infrastructure is handled, perhaps it should go to police and fire.

If one is a libertarian Georgist, collection of Rent and an equal distribution to every citizen would no doubt be preferable. Then a bill for infrastructure would come in the mail. I like the idea of knowing exactly for what I am being dunned.

If the huge amount of rent were collected -- far more than is needed to maintain infrastructure -- returning the excess seem sensible.

All this is based on 100% collection of Rent.

The enclosure of land does not create Rent. Urban rent is created by the presence and access of people. In order to use rent, there must be security of tenure. You must be able to keep others from entering your location.

The way this is done and the way it would be done in a Georgist economy is by title deed. You would own your land, subject only to the four caveats that apply to land ownership – which four includes taxation.

However the Rent (a value consequent on the presence and access of the community) was already there before you enclosed it.

Georgist theory suggests that present complete enclosure of land drives General Level wages down to subsistence because Rent takes more and more of production until no more can be taken without death for those at the bottom. (I call this exorbitant exaction from Labor rack-rent.) I do not think the rack-rent that is now paid will continue when there is a full collection of rent.

In fact, probably the most important effect of full rent collection will be that Labor will only pay Rent for a location, that is he will pay exactly what he is getting in advantage by using a location. Nothing will be deducted from his wages.

Roy does not seem to believe this for a minute. He seems convinced that with full collection of rent (rack-rent) the General Level will still be at subsistence levels and therefore will need some kind of help to obtain land. Hence, his espousal of the exemption hypothesis.

Harry

Fred.

See below.

Harry