Do the rich earn their income?

[Gadawg73]

Maybe we haven't uncovered the common ground necessary to establish "the most fundamental concepts"?

The frightening thing is that we HAVE to, GP.

I make a statement that no economist in the UNIVERSE would take exception to, and some completely ignorant nitwit here imagines that such a statement is an assult on capitalism?

One way or the other, in EVERY economic system that is a GOING CONCERN, capital or resources MUST BE put aside for FUTURE endeavors.

In our system, the folks who put asdide that capital, do so from the profits made today.

Those profits are generally the result of paying workers LESS than 100% of the value of their labor.

Now there's isn't a serious economist no matter how conservative they are, who would question that.

But in this place, a place loaded with constitutional scholars who never studiued the law, and economic theorists who never studied economics, even the most apodectic truthm the most pedestrian of observations is questioned by people wholly ignorant of what is being disucssed.

Hence instead of having real discussions, this boards completely cluesless serves up the same old stupid content FREE arguments daily.

Jesus people, READ A ******* BOOK!

I own 3 corporations. Tell me how I put "capital and resources aside for future endeavors"?
And how does a corporation or business put aside ANY CAPITAL OR RESOURCES if they are not making a profit?
'Splain that one.
Your one size fits all analysis is absurd.

 

[Uncensored2008]

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

What do you think demand actually is?

Buyers try to get the lowest price, and sellers try to get the highest. Labor and subjective value might represent boundaries, but that's it.

Buyers only seek the lowest price on items they wish to purchase.

"Exploitation" implies immorality. That human labor (physical and mental) produces all goods and services is a simple fact.

Really?

So an Intel I7 CPU, which no human hand has touched prior to packaging, is a simple illusion? It doesn't exist because Marx failed to grasp automation?

 

[Uncensored2008]

I worked a case from 11:30 pm last night until 4:30 am this morning. I charged $500.
Did I earn it?

A "real" lawyer would have had a law clerk work the case, and charged the client $500 an hour - paying the clerk $30 an hour and pocketing the rest.







Slacker!

 

[Sundial]

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

You seem to be getting a handle on it, but "demand" is, essentially, the subjective opinion of the purchaser. Or, rather, and aggregate of the opinions of each purchaser.

"Exploitation" implies immorality. That human labor (physical and mental) produces all goods and services is a simple fact. It follows that people who don't work, whether because they're unemployed or wealthy, too old or too young - or whatever other reason - are subsisting on the efforts of others. It also follows income derived from profits is unearned income, which is what the tax code says it is. This is meant to be positive, not normative. It's not a value judgment. (Though personally I think the development of a class of extremely rich, unproductive people is probably unhealthy.)

This is the equivocation at the heart of your argument. You're equating the term 'unearned income', a technical term used by tax accountants to distinguish investment income from wages, with people who sponge off the good will of others. Even though you're denying it, it IS a moral argument because you then use it to support your idea that government should intervene.

What's important is that when too much of the income goes to the owners, rather than than the workers, workers can afford to buy less and less stuff. When they can't afford to buy stuff, effective demand for the stuff they're making goes down. When there's not demand, workers get laid off, which decreases demand even more. It's not a cycle that automatically ends by itself. It's an enormous, unnecessary waste that could be fixed, given the right policies.

This dynamic is actually more responsive than you're portraying here because most workers won't wait until they can't afford to buy stuff. Most of them are keeping an eye out for an opportunity to earn better wages and will do so when it seems prudent. Keeping too much of the profit for themselves is more likely to leave owners in a situation where they can't attract labor with wages that are too low - more or less the opposite scenario to what you describe here.

I either case, the question is, who decides when 'too much of the income goes to the owners'? What I think you're ignoring is that this cycle determines exactly that, and it does it more efficiently and accurately than a government agency could. That's the painfully reality that's hit every state that's tried to run a command economy.

When unemployment is low, workers have the ability to demand higher wages, or to go elsewhere. When unemployment is high, they don't have that ability. Unemployment gives employers the ability to keep wages low. Low demand, unemployment, and low wages go together.

Whether this cycle is accurate and efficient depends on the results. I'd argue it's highly inefficient because you're imposing unnecessessary financial hardships on workers and their families, and wasting the talents and abilities of people who are willing and able to work.

Interrupting the cycle doesn't require a command economy. It requires a commitment from the government to spend more than it takes in, by creating jobs for ordinary people, reducing their taxes, investing in infrastructure, social welfare, or some combination.

You know, I do think people who work and contribute are entitled to a sense of pride about what they do. The prospect of rich people maligning the working poor is sickening. On the other hand, I work no harder than I have to, and would work less if I could. So I don't think I'm entitled to a sense of moral superiority. I'd quickly join the leisure class if I could. (Of course, not everyone can join them. If they did, nothing would get done.)

That "most of the income of the very rich is unearned" is a statement about a fact, not an argument. The argument would be what - if anything - should be done about it. Some people assume that if the rich don't work for what they have, they're not entitled to it. I don't agree with that.

It's the law that determines who's entitled to what. So long as they obtain their income lawfully, and pay their taxes, they're entitled to it. Having said that, the law can be changed, and tax rates can go up.

 

[Sundial]

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

What do you think demand actually is?

Buyers try to get the lowest price, and sellers try to get the highest. Labor and subjective value might represent boundaries, but that's it.

Buyers only seek the lowest price on items they wish to purchase.

"Exploitation" implies immorality. That human labor (physical and mental) produces all goods and services is a simple fact.

Really?

So an Intel I7 CPU, which no human hand has touched prior to packaging, is a simple illusion? It doesn't exist because Marx failed to grasp automation?

Machines are tools, like hammers and scalpels. Machines increase efficiency, but ultimately there's still a human behind whatever efficiency is gained. Somebody has to program the machines, somebody has to inspect and maintain them, somebody has to build them, somebody has transport the product to market, somebody has to invent them, etc etc etc.

Machines allow people to dramatically increase the productivity of the work that they do, but they don't relieve people of the need to do work.

The question is who should benefit from the increased productivity?

Should it be the owners alone? Or should it be the workers as well?

 

[ShackledNation]

Marx did not understand the structure of capital, and his understanding of value was also incorrect. The labor theory of value, like the cost theory of value, does not accurately explain reality. The entire notion of exploitation was based around the labor theory of value, and once you recognize that subjective value theory is much closer to the truth, the entire economic model of Marxism collapses.

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

Correct, the amount of labor does not have anything to do with prices of final goods. Also correct that supply and demand set prices. But subjective value is part of demand. Demand is the combination of valuing something and having the means to exchange for it. It is important to think of demand subjectively, and not objectively. People value things differently, so it is not possible to aggregate the "amount of demand" in an entire economy. You simply cannot add wanting apples and wanting computers together.

Buyers try to get the lowest price, and sellers try to get the highest. Labor and subjective value might represent boundaries, but that's it.

The first statement is correct. Labor, for purposes of this discussion, can be added to a broader term, "cost of production." So labor, resources needed to produce, etc. make up costs of production. As I think you agree, costs of production do not determine prices. Supply and demand do. If costs of production are higher than the market price, less goods will be produced, the supply will be decreased, and the market price of the final good will rise. If costs of production are far lower than the market price (meaning a greater opportunity to profit) producers will expand their supply of goods, and prices eventually will fall. The cost of production is really just another price, or more correctly collection of different individual prices (materials, labor of each worker, etc). The price of a final good is determined by the subjective valuations of consumers and the supply of the good. The same is true of the price of the various costs of production. In this way, goods that are more highly demanded (and thus in relative terms more scarce) will be more expensive, ensuring they are used the most carefully.

Subjective value, really, is just an extended explanation of demand.

The next part I decided to respond to line by line. I read the entire thing, so I am not responding out of context, it is just easier to respond to the below in this way.

"Exploitation" implies immorality.

Agreed.

That human labor (physical and mental) produces all goods and services is a simple fact.

Correct. Of course machines produce goods as well, but ultimately human labor is behind the machines. I want you to remember your use of mental human labor.

It follows that people who don't work, whether because they're unemployed or wealthy, too old or too young - or whatever other reason - are subsisting on the efforts of others.

This is not true. If one saves their hard earned money, and retires, they are not subsisting on the efforts of others. If they are not working because they have money saved up and no longer need to work as much because of those savings, then they simply put off consumption in the present at the time of earning the money to enjoy less work and more consumption in the future. It absolutely does not necessarily follow that people who do not work are subsisting on the efforts of others if they are supporting themselves with past work. The rich would fall into this category. Much of their wealth was simply saved and accumulated, potentially over generations. It is money that was worked for but that has yet to be spent. They are not subsisting on the efforts of others, they are subsisting on their own past efforts.

Many owners of capital also have much more mental labor, rather than physical, which is why you may think they are not working. That is not to say they are smarter than the workers they employ. It takes a lot of organizational skill to estimate how much people value something, how much you can produce, who can do the job of producing it, what materials you will need, how much it will cost...they are not sitting around doing nothing. They are being paid to plan their businesses. If they plan correctly, they make a profit. If they plan badly, they suffer losses.

It also follows income derived from profits is unearned income, which is what the tax code says it is. This is meant to be positive, not normative. It's not a value judgment. (Though personally I think the development of a class of extremely rich, unproductive people is probably unhealthy.)

As I explained above, profit is clearly earned. The way the tax code defines it is irrelevant. The tax code in the US is a mess. Those who make profit are not profiting off labor, but their own organizational and entrepreneurial labor. Again, this is where Marx went wrong. He thought prices were determined by labor, and profit was an exploitation of labor. But prices are determined by supply and demand. Demand is determined by subjective value. It is the job of the producer to determine what people are valuing and how best to provide it. That is a vital service, and if they succeed they are paid for it. There payment is called profit.

What's important is that when too much of the income goes to the owners, rather than than the workers, workers can afford to buy less and less stuff. When they can't afford to buy stuff, effective demand for the stuff they're making goes down. When there's not demand, workers get laid off, which decreases demand even more. It's not a cycle that automatically ends by itself. It's an enormous, unnecessary waste that could be fixed, given the right policies.

Again with the "too much." The price of a final good and the price of labor are not related in the ways you seem to be assuming. The bigger problem in this last statement, however, is the assumption that the business cycle is caused by falls in aggregate demand, leading to more layoffs, and thus more falls in demand, until the economy is in recession. This theory was advocated by Keynes, and it is not correct.

Ultimately, aggregate demand is aggregate supply. This is Say's law (which Keynes is said to have refuted, but he refuted a mischaracterization of Say's law. In other words, he refuted his own strawman).

Thus, there can never be any shortage of aggregate demand, since aggregate demand is nothing but aggregate supply as expressed by the supply of money.

This article goes into depth, and I will quote from it.
It Is Not the Aggregate Demand, Stupid! - Jeremie T.A. Rostan - Mises Daily

"Imagine an economy that produces 100 goods per year, and has a fixed stock of money of 150 coins. Each year, individuals spend 80 coins on consumption, and invest 20. The remaining 50 coins are held in cash balances and, in the aggregate, are never in circulation. Simplistically, let's assume that, in this situation, each good is worth 1 coin and there is no unemployment.

One day, for some reason, individuals increase their cash balances, meaning that they "hoard" more coins than before. Suddenly, they spend and save, respectively, 72 and 18 only. 10 coins are thus added to cash balances. While aggregate supply is unaffected (100 goods,) aggregate demand (the supply of money) falls to 90 coins. Clearly, this only means that, ceteris paribus, each good is now worth 0.9 coins only — i.e., that 1 coin is now worth more than 1 good. Less money is spent in the economy, but the monetary unit is worth more. Production (aggregate supply) is unaffected, and cash balances have increased.

True enough, this Humean metaphor is deceiving: money is, as Hayek coined, a "loose joint," meaning that the structure of prices takes time to adapt itself to changes in the supply of money. But this, in turn, means that there can never, never, never be any shortage of aggregate demand (level of spending, supply of money) in the economy and that the best thing a government can do when consumption and/or investment are decreasing is to laisser faire.

Pumping money into the economy for fear of a shortage of aggregate demand would only distort a structure of prices that is already adapting to new spending patterns."

 

[ShackledNation]

One way or the other, in EVERY economic system that is a GOING CONCERN, capital or resources MUST BE put aside for FUTURE endeavors.

In our system, the folks who put asdide that capital, do so from the profits made today.

Those profits are generally the result of paying workers LESS than 100% of the value of their labor.

Now there's isn't a serious economist no matter how conservative they are, who would question that.

But in this place, a place loaded with constitutional scholars who never studiued the law, and economic theorists who never studied economics, even the most apodectic truthm the most pedestrian of observations is questioned by people wholly ignorant of what is being disucssed.

Hence instead of having real discussions, this boards completely cluesless serves up the same old stupid content FREE arguments daily.

Jesus people, READ A ******* BOOK!

Oh please. Get off your high horse. Before you lecture us about reading, go read "Human Action" by Ludwig von Mises or the simpler "Economics in One Lesson" by Henry Hazlitt.

 

[Uncensored2008]

Machines are tools, like hammers and scalpels. Machines increase efficiency, but ultimately there's still a human behind whatever efficiency is gained. Somebody has to program the machines, somebody has to inspect and maintain them, somebody has to build them, somebody has transport the product to market, somebody has to invent them, etc etc etc.

So then, the MIND rather than labor is the basis of production?

Machines allow people to dramatically increase the productivity of the work that they do, but they don't relieve people of the need to do work.

In this case they do. No human hand touches the product. Not only do humans NOT work on it, they can't. The microcircuitry is 30 nanometers thick, about the thickness of a single silicon molecule.

The question is who should benefit from the increased productivity?

Everyone benefits. There isn't a person on Earth today who hasn't benefited from the electronic revolution.

Should it be the owners alone? Or should it be the workers as well?

How much do you think the machines should be paid per hour?

 

[georgephillip]

Land.
Labor.
Capital.

Take away any of the above and there is no final product to sell?

Really?

So without land, Google ceases to exist?

Marx wrote from the perspective of the 19th century. He understood feudal relations with the landed gentry. His ideas are simply not relevant to the modern world.

Communists are trying to stick an 8" floppy disk into a SD flash slot, and are confused why it doesn't work, convinced that if they just try again, it will somehow succeed.

"(Google) Facilities and history

"The four core buildings, totaling 47,038 square meters (506,310 sq ft), were built for and originally occupied by Silicon Graphics (SGI). The office space and corporate campus is located within a larger 26-acre (110,000 m2) site..."

Without land, I'm a little unclear about the existence of those four core buildings.

Marx also wrote from the perspective of a generation which was deeply influenced by the French Revolution. Marx saw capitalism in an adversarial relationship with democracy. Even communists aren't confused about that. Are you?

Googleplex - Wikipedia, the free encyclopedia

 

[Uncensored2008]

"(Google) Facilities and history

"The four core buildings, totaling 47,038 square meters (506,310 sq ft), were built for and originally occupied by Silicon Graphics (SGI). The office space and corporate campus is located within a larger 26-acre (110,000 m2) site..."

Without land, I'm a little unclear about the existence of those four core buildings.

Dude, Google was written in a college dorm room at Stanford by Larry Page and Serge Brin. They had no land at all.

They BOUGHT the land from the proceeds made from Google.

Marx also wrote from the perspective of a generation which was deeply influenced by the French Revolution. Marx saw capitalism in an adversarial relationship with democracy. Even communists aren't confused about that. Are you?

Marx lacked a grasp of what capitalism is. Marx called the feudal factories of 19th century Germany "capitalist," when they were nothing of the sort.

 

[georgephillip]

However, all your theories depend on the idea that Land and capital are irrelevant to the production process.

Wrong again.

While I believe labor (and land) are prior to and independent of capital, I recognize all three factors of production are indispensable to the production of goods and services.

I would add one more factor, namely the cultural inheritance of society, defined by CH Douglas "...as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization."

Social Credit - Wikipedia, the free encyclopedia

Maybe they should start making those I-Pads out of chocolate, so that when everything else goes to shit, we will both have something to eat, and feel good about. Only kidding.

We all do benefit from, invention, discovery, vision, that is the point. You want to control the terms on how, who, and degree without paying your dues. Starting to see the light? If you bring it to the table, you have more of a say than someone that wants to just take it from you without fair compensation. Check this out, Just got to love Gary Cooper.
In perspective here, without condoning violence here, there are valid points.

[ame=http://www.youtube.com/watch?v=Zc7oZ9yWqO4]The Fountainhead - Howard Roark Speech (Ayn Rand) - YouTube[/ame]

Cooper's character gives the impression that human creators produce their edifices without using the collective inheritance of techniques and tools that have been handed down to all of us since the dawn of civilization. Language would be first and foremost among those cultural inheritances.

I'm saying in today's economy capitalists control the terms of how and who benefits from thousands of years of cultural inheritances that rightly belong to all human beings collectively, and this isn't fair compensation by any stretch of language.

But it does create a lot of millionaires and phony philosophers.

 

[Intense]

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser. Buyers try to get the lowest price, and sellers try to get the highest. Labor and subjective value might represent boundaries, but that's it.

"Exploitation" implies immorality. That human labor (physical and mental) produces all goods and services is a simple fact. It follows that people who don't work, whether because they're unemployed or wealthy, too old or too young - or whatever other reason - are subsisting on the efforts of others. It also follows income derived from profits is unearned income, which is what the tax code says it is. This is meant to be positive, not normative. It's not a value judgment. (Though personally I think the development of a class of extremely rich, unproductive people is probably unhealthy.)

What's important is that when too much of the income goes to the owners, rather than than the workers, workers can afford to buy less and less stuff. When they can't afford to buy stuff, effective demand for the stuff they're making goes down. When there's not demand, workers get laid off, which decreases demand even more. It's not a cycle that automatically ends by itself. It's an enormous, unnecessary waste that could be fixed, given the right policies.

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser. Buyers try to get the lowest price, and sellers try to get the highest. Labor and subjective value might represent boundaries, but that's it.

Fair market value is not going to be less than the cost to get the product or service there for long, if one plans to keep doing what one is doing. If there is no profit margin, why on earth would anyone continue to operate at a loss? Nice try though.

That's what "lower boundary" means - that If the market price goes below labor costs the thing will stop being produced.

Exactly. The same relates to Over Taxation.

 

[lehr]

According to the IRS, the answer is mostly not.

Of the richest of the rich only 6.5% of income was from working, as of 2007. The rest came from things like interest, dividends, and capital gains.

In other words, the kind of income you get without having to wake up in the morning.

Which raises the question: if the rich are consuming without working, who is doing their work for them?

Link

its none of your business - as long as they did not steal the money - IT BELONGS TO THEM !


NO MORE COMMUNIST DEMOKRAT CLASS ENVY - THAT IS DANGEROUS

" VIET-NAM : THE NECESSARY WAR " by michael lind

" hanoi mass murders - like the u.s.s.r. and red china was genocide on basis of class rather then race " p. 136

COMING TO A CITY NEAR YOU !

 

[Sundial]

Marx did not understand the structure of capital, and his understanding of value was also incorrect. The labor theory of value, like the cost theory of value, does not accurately explain reality. The entire notion of exploitation was based around the labor theory of value, and once you recognize that subjective value theory is much closer to the truth, the entire economic model of Marxism collapses.

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

Correct, the amount of labor does not have anything to do with prices of final goods. Also correct that supply and demand set prices. But subjective value is part of demand. Demand is the combination of valuing something and having the means to exchange for it. It is important to think of demand subjectively, and not objectively. People value things differently, so it is not possible to aggregate the "amount of demand" in an entire economy. You simply cannot add wanting apples and wanting computers together.


The first statement is correct. Labor, for purposes of this discussion, can be added to a broader term, "cost of production." So labor, resources needed to produce, etc. make up costs of production. As I think you agree, costs of production do not determine prices. Supply and demand do. If costs of production are higher than the market price, less goods will be produced, the supply will be decreased, and the market price of the final good will rise. If costs of production are far lower than the market price (meaning a greater opportunity to profit) producers will expand their supply of goods, and prices eventually will fall. The cost of production is really just another price, or more correctly collection of different individual prices (materials, labor of each worker, etc). The price of a final good is determined by the subjective valuations of consumers and the supply of the good. The same is true of the price of the various costs of production. In this way, goods that are more highly demanded (and thus in relative terms more scarce) will be more expensive, ensuring they are used the most carefully.

Subjective value, really, is just an extended explanation of demand.

The next part I decided to respond to line by line. I read the entire thing, so I am not responding out of context, it is just easier to respond to the below in this way.


Agreed.


Correct. Of course machines produce goods as well, but ultimately human labor is behind the machines. I want you to remember your use of mental human labor.


This is not true. If one saves their hard earned money, and retires, they are not subsisting on the efforts of others. If they are not working because they have money saved up and no longer need to work as much because of those savings, then they simply put off consumption in the present at the time of earning the money to enjoy less work and more consumption in the future. It absolutely does not necessarily follow that people who do not work are subsisting on the efforts of others if they are supporting themselves with past work. The rich would fall into this category. Much of their wealth was simply saved and accumulated, potentially over generations. It is money that was worked for but that has yet to be spent. They are not subsisting on the efforts of others, they are subsisting on their own past efforts.

Many owners of capital also have much more mental labor, rather than physical, which is why you may think they are not working. That is not to say they are smarter than the workers they employ. It takes a lot of organizational skill to estimate how much people value something, how much you can produce, who can do the job of producing it, what materials you will need, how much it will cost...they are not sitting around doing nothing. They are being paid to plan their businesses. If they plan correctly, they make a profit. If they plan badly, they suffer losses.

It also follows income derived from profits is unearned income, which is what the tax code says it is. This is meant to be positive, not normative. It's not a value judgment. (Though personally I think the development of a class of extremely rich, unproductive people is probably unhealthy.)

As I explained above, profit is clearly earned. The way the tax code defines it is irrelevant. The tax code in the US is a mess. Those who make profit are not profiting off labor, but their own organizational and entrepreneurial labor. Again, this is where Marx went wrong. He thought prices were determined by labor, and profit was an exploitation of labor. But prices are determined by supply and demand. Demand is determined by subjective value. It is the job of the producer to determine what people are valuing and how best to provide it. That is a vital service, and if they succeed they are paid for it. There payment is called profit.

What's important is that when too much of the income goes to the owners, rather than than the workers, workers can afford to buy less and less stuff. When they can't afford to buy stuff, effective demand for the stuff they're making goes down. When there's not demand, workers get laid off, which decreases demand even more. It's not a cycle that automatically ends by itself. It's an enormous, unnecessary waste that could be fixed, given the right policies.

Again with the "too much." The price of a final good and the price of labor are not related in the ways you seem to be assuming. The bigger problem in this last statement, however, is the assumption that the business cycle is caused by falls in aggregate demand, leading to more layoffs, and thus more falls in demand, until the economy is in recession. This theory was advocated by Keynes, and it is not correct.

Ultimately, aggregate demand is aggregate supply. This is Say's law (which Keynes is said to have refuted, but he refuted a mischaracterization of Say's law. In other words, he refuted his own strawman).

Thus, there can never be any shortage of aggregate demand, since aggregate demand is nothing but aggregate supply as expressed by the supply of money.

This article goes into depth, and I will quote from it.
It Is Not the Aggregate Demand, Stupid! - Jeremie T.A. Rostan - Mises Daily

"Imagine an economy that produces 100 goods per year, and has a fixed stock of money of 150 coins. Each year, individuals spend 80 coins on consumption, and invest 20. The remaining 50 coins are held in cash balances and, in the aggregate, are never in circulation. Simplistically, let's assume that, in this situation, each good is worth 1 coin and there is no unemployment.

One day, for some reason, individuals increase their cash balances, meaning that they "hoard" more coins than before. Suddenly, they spend and save, respectively, 72 and 18 only. 10 coins are thus added to cash balances. While aggregate supply is unaffected (100 goods,) aggregate demand (the supply of money) falls to 90 coins. Clearly, this only means that, ceteris paribus, each good is now worth 0.9 coins only — i.e., that 1 coin is now worth more than 1 good. Less money is spent in the economy, but the monetary unit is worth more. Production (aggregate supply) is unaffected, and cash balances have increased.

True enough, this Humean metaphor is deceiving: money is, as Hayek coined, a "loose joint," meaning that the structure of prices takes time to adapt itself to changes in the supply of money. But this, in turn, means that there can never, never, never be any shortage of aggregate demand (level of spending, supply of money) in the economy and that the best thing a government can do when consumption and/or investment are decreasing is to laisser faire.

Pumping money into the economy for fear of a shortage of aggregate demand would only distort a structure of prices that is already adapting to new spending patterns."

Choosing to set something aside to consume later does not change the nature of the thing. If it was earned to begin with, it's still earned later on. If I said otherwise, I was wrong.

On the other hand, income produced from property is unearned income, regardless of where the money to purchase the property came from.

I'd argue that most of the wealth of the wealthy was accumulated originally through profits, rent, capital gains, etc., and that the wealthy are not consuming the principle, in any case, because if they were, they'd be getting poorer. They're not getting poorer because they're living off income produced by property, not the property itself.

Agree that organizing, managing, making projections are all forms of work. However, the fact that someone is an owner does not prevent him from also being a worker, and the fact that he does work does not transform that part of his income that is unearned into earned income. To take a simple case, if someone owns a small business, and also manages it, he would take a salary from the business, as well profits (assuming the business is profitable). The profits are unearned, the salary is earned. (the practical consequence is that the salary is taxed at a higher rate than the profits, which is why some owners pay themselves the least they think the can get away with.)

I disagree that owners do the job of "determining what people value and how best to produce it." There are people who do that. But mostly they're paid a salary. Even owners of businesses, who do manage their own businesses, are supposed to pay themselves a salary. Whether they do or not, however, the fact that they work does not transform that part of their income that is unearned (profits) into earned income.

Partly this is semantics. If you're convinced there's no such thing as unearned income, then there's probably nothing I can do to convince you of its existence. On the other hand, if you do believe there is such a thing, I'd be curious to know what you think it is.

I have no idea what you mean when you say aggregate demand is the same thing as aggregate supply. Does that mean supply is the same as demand? Should we call it supply and supply, then, rather than supply and demand? If not, what is it about aggregating demand that turns it into supply?

There are a number of problems with the 150 coins hypo. One is that money doesn't work that way. The supply is elastic. There isn't a set amount. Another is that it's not an accurate model of human behavior. When demand falls, employers don't keep all their employees but pay them 10% less. They fire people instead. Another is that what you're talking about is deflation, which - according to most economists - is destructive itself. Another is that you're assuming a simple, direct relationship between money supply and prices. Another is you're ignoring the distribution of income.

 

[bripat9643]

Cooper's character gives the impression that human creators produce their edifices without using the collective inheritance of techniques and tools that have been handed down to all of us since the dawn of civilization. Language would be first and foremost among those cultural inheritances.

How does that entitle welfare parasites to anything he has produced? They certainly didn't participate in what he created. They're just here to cash in.

I'm saying in today's economy capitalists control the terms of how and who benefits from thousands of years of cultural inheritances that rightly belong to all human beings collectively, and this isn't fair compensation by any stretch of language..

They only control the terms of who benefits from what they produce. You and all the other parasites are free to cash in on our "cultural inheritance" any time you like. Unfortunately, you can't do it, can you?

Sucks to be you, I imagine.

 

[dblack]

On the other hand, income produced from property is unearned income, regardless of where the money to purchase the property came from.

What about income earned from putting your property to good use? (i.e. doing something with it that helps other people). Would payment received for doing that be 'unearned'?

Partly this is semantics. If you're convinced there's no such thing as unearned income, then there's probably nothing I can do to convince you of its existence. On the other hand, if you do believe there is such a thing, I'd be curious to know what you think it is.

It is semantics. It's also sophistry. It's a coy little game you're playing equivocating on a narrowly relevant technical term. The English language lends itself to that kind of obfuscation, but it's best to keep such shenanigans out of a conversation if you want to be taken seriously. You have to decide (and state) what you mean when you say 'unearned'. Is it merely a tax code designation for non-wage income? Or is it 'money for nothing'? Because those aren't the same things.

Let's see if you can actually answer some direct questions about this claim that profit is 'unearned'. Do you think that the things people do to generate 'profit' provide a service to others or not? If not, then why do other people give them this money? Why would they pay them if not for something they valued?

 

[ShackledNation]

Prices of things are set by the law of supply and demand, not by the amount of labor that goes into making them, or by the subjective opinion of the purchaser.

Correct, the amount of labor does not have anything to do with prices of final goods. Also correct that supply and demand set prices. But subjective value is part of demand. Demand is the combination of valuing something and having the means to exchange for it. It is important to think of demand subjectively, and not objectively. People value things differently, so it is not possible to aggregate the "amount of demand" in an entire economy. You simply cannot add wanting apples and wanting computers together.


The first statement is correct. Labor, for purposes of this discussion, can be added to a broader term, "cost of production." So labor, resources needed to produce, etc. make up costs of production. As I think you agree, costs of production do not determine prices. Supply and demand do. If costs of production are higher than the market price, less goods will be produced, the supply will be decreased, and the market price of the final good will rise. If costs of production are far lower than the market price (meaning a greater opportunity to profit) producers will expand their supply of goods, and prices eventually will fall. The cost of production is really just another price, or more correctly collection of different individual prices (materials, labor of each worker, etc). The price of a final good is determined by the subjective valuations of consumers and the supply of the good. The same is true of the price of the various costs of production. In this way, goods that are more highly demanded (and thus in relative terms more scarce) will be more expensive, ensuring they are used the most carefully.

Subjective value, really, is just an extended explanation of demand.

The next part I decided to respond to line by line. I read the entire thing, so I am not responding out of context, it is just easier to respond to the below in this way.


Agreed.


Correct. Of course machines produce goods as well, but ultimately human labor is behind the machines. I want you to remember your use of mental human labor.


This is not true. If one saves their hard earned money, and retires, they are not subsisting on the efforts of others. If they are not working because they have money saved up and no longer need to work as much because of those savings, then they simply put off consumption in the present at the time of earning the money to enjoy less work and more consumption in the future. It absolutely does not necessarily follow that people who do not work are subsisting on the efforts of others if they are supporting themselves with past work. The rich would fall into this category. Much of their wealth was simply saved and accumulated, potentially over generations. It is money that was worked for but that has yet to be spent. They are not subsisting on the efforts of others, they are subsisting on their own past efforts.

Many owners of capital also have much more mental labor, rather than physical, which is why you may think they are not working. That is not to say they are smarter than the workers they employ. It takes a lot of organizational skill to estimate how much people value something, how much you can produce, who can do the job of producing it, what materials you will need, how much it will cost...they are not sitting around doing nothing. They are being paid to plan their businesses. If they plan correctly, they make a profit. If they plan badly, they suffer losses.


As I explained above, profit is clearly earned. The way the tax code defines it is irrelevant. The tax code in the US is a mess. Those who make profit are not profiting off labor, but their own organizational and entrepreneurial labor. Again, this is where Marx went wrong. He thought prices were determined by labor, and profit was an exploitation of labor. But prices are determined by supply and demand. Demand is determined by subjective value. It is the job of the producer to determine what people are valuing and how best to provide it. That is a vital service, and if they succeed they are paid for it. There payment is called profit.

What's important is that when too much of the income goes to the owners, rather than than the workers, workers can afford to buy less and less stuff. When they can't afford to buy stuff, effective demand for the stuff they're making goes down. When there's not demand, workers get laid off, which decreases demand even more. It's not a cycle that automatically ends by itself. It's an enormous, unnecessary waste that could be fixed, given the right policies.

Again with the "too much." The price of a final good and the price of labor are not related in the ways you seem to be assuming. The bigger problem in this last statement, however, is the assumption that the business cycle is caused by falls in aggregate demand, leading to more layoffs, and thus more falls in demand, until the economy is in recession. This theory was advocated by Keynes, and it is not correct.

Ultimately, aggregate demand is aggregate supply. This is Say's law (which Keynes is said to have refuted, but he refuted a mischaracterization of Say's law. In other words, he refuted his own strawman).

Thus, there can never be any shortage of aggregate demand, since aggregate demand is nothing but aggregate supply as expressed by the supply of money.

This article goes into depth, and I will quote from it.
It Is Not the Aggregate Demand, Stupid! - Jeremie T.A. Rostan - Mises Daily

"Imagine an economy that produces 100 goods per year, and has a fixed stock of money of 150 coins. Each year, individuals spend 80 coins on consumption, and invest 20. The remaining 50 coins are held in cash balances and, in the aggregate, are never in circulation. Simplistically, let's assume that, in this situation, each good is worth 1 coin and there is no unemployment.

One day, for some reason, individuals increase their cash balances, meaning that they "hoard" more coins than before. Suddenly, they spend and save, respectively, 72 and 18 only. 10 coins are thus added to cash balances. While aggregate supply is unaffected (100 goods,) aggregate demand (the supply of money) falls to 90 coins. Clearly, this only means that, ceteris paribus, each good is now worth 0.9 coins only — i.e., that 1 coin is now worth more than 1 good. Less money is spent in the economy, but the monetary unit is worth more. Production (aggregate supply) is unaffected, and cash balances have increased.

True enough, this Humean metaphor is deceiving: money is, as Hayek coined, a "loose joint," meaning that the structure of prices takes time to adapt itself to changes in the supply of money. But this, in turn, means that there can never, never, never be any shortage of aggregate demand (level of spending, supply of money) in the economy and that the best thing a government can do when consumption and/or investment are decreasing is to laisser faire.

Pumping money into the economy for fear of a shortage of aggregate demand would only distort a structure of prices that is already adapting to new spending patterns."

Choosing to set something aside to consume later does not change the nature of the thing. If it was earned to begin with, it's still earned later on. If I said otherwise, I was wrong.

Correct. And what you call "unearned" is merely earned money that has been set aside.

On the other hand, income produced from property is unearned income, regardless of where the money to purchase the property came from.

How so? How do you gain money from property? You have to actually do something with it. It doesn't just sit their and magically make money. You can rent it to someone (thus selling it for periods of time, thus providing a service) you can farm it and sell the food from the farm, you can start a business on it...exactly how does owning property result in unearned income?

I'd argue that most of the wealth of the wealthy was accumulated originally through profits, rent, capital gains, etc., and that the wealthy are not consuming the principle, in any case, because if they were, they'd be getting poorer. They're not getting poorer because they're living off income produced by property, not the property itself.

All of those methods (profits, rent, capital gains) are examples of earned income. Not by silly government definition, but by reality.

Agree that organizing, managing, making projections are all forms of work. However, the fact that someone is an owner does not prevent him from also being a worker, and the fact that he does work does not transform that part of his income that is unearned into earned income. To take a simple case, if someone owns a small business, and also manages it, he would take a salary from the business, as well profits (assuming the business is profitable). The profits are unearned, the salary is earned. (the practical consequence is that the salary is taxed at a higher rate than the profits, which is why some owners pay themselves the least they think the can get away with.)

Owners are workers. If they own something and do nothing with it, they make no money. The profit IS their salary! Calling part of their profit a salary in no way changes the means through which it was obtained. How can you not see this?

I disagree that owners do the job of "determining what people value and how best to produce it." There are people who do that. But mostly they're paid a salary.
Even owners of businesses, who do manage their own businesses, are supposed to pay themselves a salary. Whether they do or not, however, the fact that they work does not transform that part of their income that is unearned (profits) into earned income.

All salaries are derived from the profits of the company. What is leftover is for the owner of the company to keep for organizing the whole operation. You make this distinction between salary and profit that is false. They are only distinct for tax purposes.

Partly this is semantics. If you're convinced there's no such thing as unearned income, then there's probably nothing I can do to convince you of its existence. On the other hand, if you do believe there is such a thing, I'd be curious to know what you think it is.

Define unearned income. I agree with dblack that it amounts to sophistry on your part more than semantics.

I have no idea what you mean when you say aggregate demand is the same thing as aggregate supply. Does that mean supply is the same as demand? Should we call it supply and supply, then, rather than supply and demand? If not, what is it about aggregating demand that turns it into supply?

In order to demand something, you have to have the means to pay. Your supply is your demand. Think of a barter economy. If I have an orange and I want an apple, and the owner of the apple wants an orange, then there is a supply of one orange and one apple. It is with the supply of the orange that I can demand the apple. Demand is not simply want, it includes the means of paying. In a free market economy, you exchange goods. Money is the medium of exchange. Supply and demand are two sides of the same coin. You cannot have demand without supply, for you use supply to demand.

There are a number of problems with the 150 coins hypo. One is that money doesn't work that way. The supply is elastic. There isn't a set amount.

There is not a set amount because government and the system of fractional reserve banking creates more money. This leads to huge economic problems. However, the overall principle behind my example still holds true. Can you explain why specifically the affects the change in the supply of money would have that make my example incorrect?

Another is that it's not an accurate model of human behavior. When demand falls, employers don't keep all their employees but pay them 10% less. They fire people instead.

Actually, sometimes employers due simply pay their employees less. It's called a pay cut. But again, you are wrongly assuming that aggregate demand is will fall and create widespread unemployment. Demand in certain industries can fall, but this will be balanced by increasing in demand for other industries, or investment rather than spending (thus aiding in the productive processes). The capital structure may shift, and this may temporarily displace workers, but they will be hired again. The idea that aggregate demand as a whole will fall, result in unemployment, and then less aggregate demand, etc. is false.

Another is that what you're talking about is deflation, which - according to most economists - is destructive itself.

Deflation, in the example I mentioned, is not destructive at all. It is caused by an increase in the demand for money. While the supply of money and the demand for money have no systematic impact on aggregate growth, these forces do affect the distribution and allocation of resources. They shape the type and relative quantities of goods being produced. In short, they determine the structure, though not the level of production.

Another is that you're assuming a simple, direct relationship between money supply and prices.

In real life of course it is not that simple. But the example demonstrates basically what happens. There is a direct relationship between money supply and prices. If you increase the supply of money, assuming all other variables are constant, the prices of goods will rise. This is because an increase in the supply of money will lower its price, just like any other good. The price of money is its purchasing power. Creating more money will devalue said money, thus causing goods priced in it to rise, for they will be worth more in relation to it.

Another is you're ignoring the distribution of income.[/QUOTE
No I am not. That was a simple example to illustrate the concept, which I suspect went over your head.

 

[Sundial]

On the other hand, income produced from property is unearned income, regardless of where the money to purchase the property came from.

What about income earned from putting your property to good use? (i.e. doing something with it that helps other people). Would payment received for doing that be 'unearned'?

Partly this is semantics. If you're convinced there's no such thing as unearned income, then there's probably nothing I can do to convince you of its existence. On the other hand, if you do believe there is such a thing, I'd be curious to know what you think it is.

It is semantics. It's also sophistry. It's a coy little game you're playing equivocating on a narrowly relevant technical term. The English language lends itself to that kind of obfuscation, but it's best to keep such shenanigans out of a conversation if you want to be taken seriously. You have to decide (and state) what you mean when you say 'unearned'. Is it merely a tax code designation for non-wage income? Or is it 'money for nothing'? Because those aren't the same things.

Let's see if you can actually answer some direct questions about this claim that profit is 'unearned'. Do you think that the things people do to generate 'profit' provide a service to others or not? If not, then why do other people give them this money? Why would they pay them if not for something they valued?

Let's try to make this simpler - here's a definition of unearned income:

unearned income

Definition
An individual's income derived from sources other than employment, such as interest and dividends from investments, or income from rental property. opposite of earned income.

Do you agree with this definition? Do you believe there is such a thing as unearned income? If so, what is it?

Do you think that the things people do to generate 'profit' provide a service to others or not

People do a lot of things to generate profit. Some provide a service, others do not. If you, for example, buy gold at $100 and sell at $200, that's a capital gain, but you haven't created a good or service. You've simple transferred money from someone else, to yourself.

If not, then why do other people give them this money?

You have to be more specific. If you were talking about (for example) rent, people pay rent because they have to. If they're (for example) farmers, they can't do their work without access to the land.

If you're talking about gold, people buy it because they're hoping it'll continue to go up.

Why would they pay them if not for something they valued?

In the case of farmers, they value the use of the land. In the case of speculators, they value the chance to accumulate capital gains. Nobody said the things owners own aren't valuable; just that owning things is not work. Unearned income is not money for nothing; it's money obtained without work.

 

[georgephillip]

Cooper's character gives the impression that human creators produce their edifices without using the collective inheritance of techniques and tools that have been handed down to all of us since the dawn of civilization. Language would be first and foremost among those cultural inheritances.

How does that entitle welfare parasites to anything he has produced? They certainly didn't participate in what he created. They're just here to cash in.

I'm saying in today's economy capitalists control the terms of how and who benefits from thousands of years of cultural inheritances that rightly belong to all human beings collectively, and this isn't fair compensation by any stretch of language..

They only control the terms of who benefits from what they produce. You and all the other parasites are free to cash in on our "cultural inheritance" any time you like. Unfortunately, you can't do it, can you?

Sucks to be you, I imagine.

Not as much as reading the droppings from a brain dead shit bird like you, I imagine.

Creators and parasites are victimized by a banking system that gives itself cash with a few strokes on a keyboard then lends the money to others at interest, making everyone's dollars worth less and less while ensuring we work harder to pay off the FIRE sector's Wall Street gambling losses.

Which parasites, in your uneducated opinion, are responsible for the price of gold rising $1300 an ounce since 1982? Do you blame the long term unemployed for the Fed's decision in March of 2006 to stop revealing how many dollars were in circulation?

While I'm sure a functional illiterate like you finds all of this challenging, to say the least, it doesn't change the fact the richest parasites pose the biggest threat to the US economy. Apparently you're content to suck up whatever table scraps they toss your way.

Go ahead. It's probably what you do best.

 

[Intense]

Wrong again.

While I believe labor (and land) are prior to and independent of capital, I recognize all three factors of production are indispensable to the production of goods and services.

I would add one more factor, namely the cultural inheritance of society, defined by CH Douglas "...as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization."

Social Credit - Wikipedia, the free encyclopedia

Maybe they should start making those I-Pads out of chocolate, so that when everything else goes to shit, we will both have something to eat, and feel good about. Only kidding.

We all do benefit from, invention, discovery, vision, that is the point. You want to control the terms on how, who, and degree without paying your dues. Starting to see the light? If you bring it to the table, you have more of a say than someone that wants to just take it from you without fair compensation. Check this out, Just got to love Gary Cooper.
In perspective here, without condoning violence here, there are valid points.

[ame=http://www.youtube.com/watch?v=Zc7oZ9yWqO4]The Fountainhead - Howard Roark Speech (Ayn Rand) - YouTube[/ame]

Cooper's character gives the impression that human creators produce their edifices without using the collective inheritance of techniques and tools that have been handed down to all of us since the dawn of civilization. Language would be first and foremost among those cultural inheritances.

I'm saying in today's economy capitalists control the terms of how and who benefits from thousands of years of cultural inheritances that rightly belong to all human beings collectively, and this isn't fair compensation by any stretch of language.

But it does create a lot of millionaires and phony philosophers.

On the contrary, he does give the inventor, the developer, the discoverer, credit, he just distinguishes between the spirits of accomplishment and parasite. We are what we feed. One chooses to make use of prior knowledge, which is not a crime, I might add, the other feels entitled without pitching in. Government controls allot, Capitalist's control allot, yet there is still room for both of us to act freely and independently, with the hope of contributing to making the World a better place. There is no guarantee that there will not be obstacles and obstruction from any side of the equation.