14.3.1 Formalize such a process. 19.3.1 Productivity from strikes. 21.3.1 Will not need to strike. 23.3.1 Sharing the profit. 25.3.1 Representing their constituents. 26.3.1 22:28 No initiative of your own. 26.3.1 22:32 Dictatorship and chaos. Date: Wed, 28 Mar 2001 11:46:29 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00314.html Patrick Gunning wrote: > If decision-making in this was was efficient, then it would have passed > the market test and we would see a huge number of worker-managed firms > today. This, of course, is faulty logic. Why has something not yet happened? To say that simply because something has not yet happened proves it won't happen in the future is a logical fallacy. If there were a better system of government than what we have now, why hasn't it proliferated? If there were a more superior biological being than what we have, why haven't they taken over the world? The evolution of economic organization is a process - of which you are a part as you read and debate this. Perhaps other logical arguments may prove that no better system of government is possible, or no "more fit" biological beings are possible, but it is shoddy methodology to an attempt to disprove something by resting on the "empirical" evidence that it hasn't happened yet. If you want true empirical evidence, then I would welcome true experiments (with controls and variables) in social and economic structure - so long as those involved are there voluntarily. I invite you to read the discussion on experimental evidence at http://csf.colorado.edu/mail/ipe/2001/msg00121.html > democratic decision-making... is extremely inefficient and for very many > reasons... First, I claim that when team production is directed by a > decision-maker who stands to lose or gain the greatest proportion of > what is to be gained or lost by the team (a residual claimant, in the > economics literature), the decision is likely to be most efficient. When > a decision-maker has to share his gains with others, it is likely to be > inefficient from the standpoint of team profit. It really is rather humorous to see you once again making a stand against democracy. Indeed, "from the standpoint of team profit" is right. You are assuming there is a direct relationship between "team profit" and the welfare of the entire team - when in fact they are unrelated, and depend merely on the whim of the decision maker. If the vast amount of increasing profit is going to Mr. Decision-Maker, what good is it to the rest of the team? Efficiency can be measured as the amount of gain reaped for the amount of effort expended. That begs the question: amount of gain for whom? Surely autocratic decision making is "efficient" for the autocrat. Efficiency with respect to the rest of the company is a different story - and that is why they are so motivated to go on strike. > But if the benefits are shared, there is a free rider problem It would be up to the employees to determine whether the free rider deserves continued alliance with them, or the same pay. You really must stop assuming democracy forces everyone to have equal salaries. If they decide Mr. Decision- Maker has really made some great contribution, then they would be free to give him whatever they felt reasonable. However, this is not to say employees won't be motivated to help the free rider perform better, whether through education or non-material means. Much of your analysis appears to suffer from a very limited understanding of human motivations. Money and goods are not the only reasons people do what they do. What is that rising sense of rage when you feel your intelligence is being insulted (such as when you read the first sentence of this reply)? What is that sense of satisfaction when you feel you have just made a profound argument? Why do high-paid actors accept roles in low budget films in hopes of landing peer approval in the form of an Academy Award? It is pride. Beyond the material goods necessary for biological comfort, the argument can even be made that pride is the underlying motivation for any additional material gain - the need to impress themselves or those around them. Pride is dependent on culture and sub-culture, and thus is as malleable as they are - as the culture or sub-culture changes, so do the things people are proud of. > Second, I claim that when the decision cannot even be made except by > means of some collective decision-making process (with voting rules, > constraints on elected representatives, campaigning, lobbying, etc.) > the inefficiency is compounded. Is it not inefficient to have to spend every spring digging up dirt and burying stuff, every summer getting water to pour over that dirt, and every autumn getting stuff back from the fields? Would it not be more efficient to simply not make food? Effort is expended for a purpose. The purpose of democracy is to ensure everyone involved is able to live a decent life. Surely this won't happen if Mr. Decision-Maker not only has the power, but is expected to give himself as much as he can out of the revenue of the company. We return to the question of "efficiency for whom" - I think we can both agree totalitarian decision making is very efficient for the totalitarian (until he is overthrown of course).
Date: Mon, 26 Mar 2001 22:32:24 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: ipe@csf.colorado.edu Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00308.html > The "local democracy" you describe below sounds like the dictatorship of > the proletariat, minus official state participation. I suppose it would depend on whether your definition of "dictatorship" is the same as your definition of "democracy." > Also sounds like chaos. Well, no more than self-determination, democracy, diversity, and market economies are chaos. Your point? Some people call liberty and freedom what others call anarchy.
Date: Mon, 26 Mar 2001 22:28:21 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00307.html Patrick Gunning wrote: > You assume that workers are like robots who do the same jobs day after day. > And you assume that the conditions of the market do not change. How have you arrived at this conclusion? Workers only produce something so long as they have customers to buy them. When the need is gone, they simply move on to something else. Simple market economics (again, I refer you to http://csf.colorado.edu/mail/ipe/2001/msg00125.html). > without supervision and incentives to work, real human beings will not > normally act the same as they do with these conditions... Workers could > not be maintained and consumers would be less well served than if the > resources were moved elsewhere. Can people not supervise themselves? Have you no initiative of your own? Who are your supervisors' supervisors? Clearly the chain of supervision must stop somewhere - why does that final person not need supervision? Incentives for employees to work are the same whether or not there is an employer or not - keeping the business afloat so they can continue to make a living. Can I not assume that you understand market economics well enough to know customers are the ones that determine the value of products? ...and that their spending determines whether companies succeed or fail, and where resources are moved to? > Without an employer whose profit depends on his rapidly adjusting his > commands to employees, his workforce, the conditions of work, and his > incentive system; the profits would rapidly decline. How rapid do you think this decision making is? How much of it is rash and how much is well researched and well reasoned? What makes you think a top-down decision making process is necessarily better than a democratic one? One person making decisions is much more likely to overlook things that a larger number will not. I doubt that you are implying that the decision making process in the Soviet Union was both rapid and accurate at the same time because of its top-down structure... and yet it seems that is what you're hinting at. If not, then how is your reasoning different in the Soviet case?
Date: Sun, 25 Mar 2001 23:02:50 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00302.html Patrick Gunning wrote: > > No new laws are required. As implied by the preceding paragraphs, the > > existing laws that require workers to give up a portion of their revenue > > to the nominal owners need merely to be ignored. > Moreover, nobody is _forced by law_ under capitalism to give up a portion of > what they earn to the owner of other resources... Where are these existing > laws? > Viewed in general and in the long run, increased safety regulation > of the workplace would come at the expense of employers, employees, and most > importantly consumers. Consider the following account of local democracy in action and see if you can find the new laws (or lack thereof): Management at a company announces some layoffs because it will move part of the company to a new location (perhaps in search of lower labor standards), or they commence a lockout in retaliation for the attempts by the employees to organize a union. The next day, the employees all show up for work anyway and go about their usual business, producing goods, rendering services. Nothing seems to have changed - but at the end of the day, the employees decide (unilaterally) to give themselves raises, allocate some money for equipment and new jobs, and decide to cut prices to make their customers happy. How can they afford this? By simply not handing any money over to the employer or any upper management that is not on their side. The financier, in response, sends in some private mercenaries. The local police (representing their constituents, made up largely of the employees of the company) and the employees of the company themselves defend the premises. The private mercenaries are arrested for assault and the financier is arrested for incitement to violence. Clearly, political actions have occurred, but what would be the economic consequences if such action continued to be commonplace? Minimum wage laws would not be needed - even workplace safety regulations would not be needed so long as it was the employees determining for themselves the conditions of their work environment. Consumers can enjoy lower prices. Only two objections have been brought up so far: First, how "winning enterprises" will be encouraged, which was discussed in http://csf.colorado.edu/mail/ipe/2001/msg00125.html - second, how new businesses will be funded, discussed in http://csf.colorado.edu/mail/ipe/2001/msg00106.html. In addition to long-term effects, the immediate short-term detriment to the local economy caused by layoffs and lockouts would also be alleviated by such action. > Yet again, you assume that resources are somehow given to the population > and fixed. As opposed to this I have persistently claimed that resources > must be identified and produced. You have not shown how fixed or unfixed resources affect the proportion of the population working as part of the entourage of the rich. No matter how unfixed the amount of resources available, that one person who is spending much more than everyone else will have a disproportionate percentage of those resouces allocated to him, irrespective of how much the amount of available resources is changing.
Date: Fri, 23 Mar 2001 11:43:01 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00296.html Patrick Gunning wrote: > > When there's more profit to be made by serving the rich > > (because they can spend more) by becoming butlers or maids, why bother > > making products for the poor? Thus, overconentration (yet again) results > > in a market that is not responsive to the needs of the general population. > if the demand by some people who are classified as poor is sufficiently high, > a supply by other people who are similarly classified will arise to satisfy > it. There will be incentives for entrepreneurship to emerge among the poor > and for poor people to produce knowledge that is most suitable for satisfying > the wants of the poor. Will the butlers and maids only buy goods from the > rich producers? Actually, the butlers, maids, accountants, and lawyers of the rich will buy goods from those even poorer than they are. Consider this scenario (any similarities with real people purely coincidental): let's say a family, say the royal family, has the right by law to print money. As much as they want. What would such a scenario do to the economy around them? They will be able to hire the best of servants for whatever needs they want fulfilled. The most educated writers, the most methodical engineers, the most skilled architects, etc. Thus, these direct hirelings of the ruling family become the "upper class." This upper class in turn spends their money at the best coffee houses, the most well trained theatrical productions, upscale clothing stores. Those who work there become the middle class. Eventually this money printed by the royal family "trickles down" (if you will) to those at the bottom who produce goods used by everyone (say farmers) or other members of the lower classes. No matter what the poor do in this economy, its structure ensures that there will always be a disproportionate number of people producing goods and services for a small minority. That, of course, is just a hypothetical situation. Which population would ever be so simple as to allow some family to simply print money? However, even putting aside the creation of credit money in modern banking, there are other analogous so-called "fountains of wealth" in play today. One of which is the person who nominally owns a factory, a piece of land, or a set of office buildings and computers, but does not actually use them. Instead, thousands of other people are actually using them to produce things that are sold on the market. These people are forced by law to give up a portion of everything they earn to the person who nominally owns that factory, land, building, or whatever. This is the limited definition one might give to the word "capitalism" (as opposed to the other definitions which include things like private personal property and a market economy), but that's merely a semantic debate. > a law that requires that decisions in already-formed firms be made by > employees will reduce efficiency enough that most firms will not make profit > and go out of business. In some special cases, a group of workers could set > up a profitable firm in which they made decisions and shared the profit. > However, the number of cases is small because profit sharing reduces any > particular individual's incentive to contribute to the total profit... > I assume that you are advocating such a law. Please stop assuming that all those who object to your logic are of the "big regulatory government" persuasion. No new laws are required. As implied by the preceding paragraphs, the existing laws that require workers to give up a portion of their revenue to the nominal owners need merely to be ignored. You have not shown that employee decisions reduce efficiency. If the argument is merely over the unwieldiness of an electoral process on every decision, representatives (subject to recall) can be elected to handle all the decisions not important enough to consult the entire company. If you are talking about the motivations of individual employees, we are back to the psychology discussion in http://csf.colorado.edu/mail/ipe/2001/msg00246.html with the additional observation that rank and file workers do not feel much incentive to contribute to the total profit precisely when they do not feel like they are sharing the profit - as witnessed by their willingness to go on strike. > > There are two things the word "profit" may mean: (1) Revenue minus the cost > > of raw materials and the wages / salaries of the employees, or (2) revenue > > minus merely the cost of raw materials. Stock prices reflect the first, > > because they often result in dividends for the financier. Profit in the > > first case can be increased by reducing the pay of the employees. > If this were always true, why would employers pay any wages at all? And if it > was true at any particular time, employers would not be maximizing their > profit. Do employer lobby groups not fight the minimum wage? Do they not try to eliminate workplace regulations like those intented to prevent on-the-job injuries? Of course they try to maximize profit (in the first definition) - and they pay only as little of a wage as they can get away with. To do otherwise would not be maximizing the profit returned to shareholders. Do we not agree on this point? It would seem the only disagreement we should have would be whether this was a good thing or a bad thing with respect to the overall economy.
Date: Wed, 21 Mar 2001 14:42:53 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00285.html Patrick Gunning wrote: > > whatever it is that employers do could just as easily be replaced by a > > democratic structure in which the employees make the decisions. The > > differences include more people in control of their own lives and the > > decentralization of power. The loss of productivity due to strikes by > > labor unions would be replaced by simply having organizations analogous > > to labor unions control the companies - so long as these organizations > > are truly democratic, one would expect much less loss of productivity > > from strikes in these newly democratic companies. > I view this statement as pure assertion. Which statement do you believe is the assertion? That employers making decisions can be replaced by employees making decisions, as was discussed in http://csf.colorado.edu/mail/ipe/2001/msg00125.html? Or are you referring to the statement that strikes would be less common if employees controlled their companies? This may require some explanation. A strike results when the opinions of a company's management differs from the opinions of the rank and file employees of a company. The employees go on strike in an attempt to get management to change their behavior. If the employees themselves controlled the company, then it logically follows that they will not need to strike in order to make the company behave differently, they need only change their own policies. > You seem to have bought into a crude Marxism and socialism that equates > market power with political power. It is true that money can buy special > privilege and political power. However, the supplier of special privilege > and political power is the entity that has (and, by definition, always > retains) the power to imprison and kill. It can provisionally rent out > some of this power or use it to benefit some at the expense of others. > But it always retains final authority and control over it. While I will not dispute that market power often results in political power, that is not the point being made. Market power is the power to determine where resources are allocated. The more market power (ie. spending power) an individual has, the more he is able to determine where resources are allocated. An analogous example is the market share measurements used in industry - Coke may have 30% of the cola market, Pepsi may have 20%. While it is true that expanding the size of the cola market can help both companies, that is a different concern than the one in which, say, Pepsi is losing market share. The concentration of spending power means that resources allocated for the rest of the population are dropping in their share of the total amount of resources available. When there's more profit to be made by serving the rich (because they can spend more) by becoming butlers or maids, why bother making products for the poor? Thus, overconentration (yet again) results in a market that is not responsive to the needs of the general population. > > What is democracy if not collective decision making? If what you are > > arguing against is centralized democracy, then I agree - one vote every > > four years for a head of state is not as responsive to the general > > population as many "votes" over the course of a day, everyday > I am not arguing against centralized democracy, whatever that means As an aside, the amount of centralized democracy is what the writers of the American constitution had to grapple with. What was the Federal government allowed to do, as opposed to what state governments did? The same issue is raised with respect to the European Union - how much sovereignty are the nations of Europe willing to give up in deference to the EU? (See http://csf.colorado.edu/mail/ipe/2001/msg00106.html) > What in the world is "responsive production?" And what is "quality of the > conditions of production" and "quality of the result of production." Who > judges quality? ...I have provided the best reason of all why businesses > _are_ typically run by single individuals -- that profits will be higher > if they are. My initial judgment of the remarks you make here is that you > don't understand how stock markets work. If stockholders fail to be > concerned with profit in a business in which profit can be earned, > stock prices will fall and someone who is concerned with profit will > take over. "Responsive production" is just short-hand for an economy that produces goods and services that are responsive to the wants and needs of the people living within that economy (as opposed to producing things not nobody wants, or things only for a small minority of the population while the rest of the people do not have have enough of what they need). "Conditions of production" just refers to the environment that the workers have to put up with in order to do their work - in a democratically run company, the quality of these conditions is judged by the employees themselves. "Results of production" is just another way of saying what it is that is being produced - in a market economy, the quality of these results is judged by the spending of consumers. Is your claim that profits are higher when businesses are run by single individuals based on empirical evidence or logical reasoning? If it is the latter, I have not understood your argument. There are two things the word "profit" may mean: (1) Revenue minus the cost of raw materials and the wages / salaries of the employees, or (2) revenue minus merely the cost of raw materials. Stock prices reflect the first, because they often result in dividends for the financier. Profit in the first case can be increased by reducing the pay of the employees. In the second case, the survival and behavior of companies does not have to be determined by the stock market. Instead, it can simply be determined by consumers. Again, this has been discussed before at http://csf.colorado.edu/mail/ipe/2001/msg00125.html
Date: Mon, 19 Mar 2001 16:22:17 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again URL: http://csf.colorado.edu/mail/ipe/2001/msg00280.html Patrick Gunning wrote: > what is the basis for your claim that "it is the workers that are producing > wealth?" Are you claiming that employers do not also participate in the > wealth production and that, in some cases, they are not more responsible > than the workers? Ah, it's deja vu all over again - hardly unexpected. See http://csf.colorado.edu/mail/ipe/2001/msg00112.html and msg00125.html - again, whatever it is that employers do could just as easily be replaced by a democratic structure in which the employees make the decisions. The differences include more people in control of their own lives and the decentralization of power. The loss of productivity due to strikes by labor unions would be replaced by simply having organizations analogous to labor unions control the companies - so long as these organizations are truly democratic, one would expect much less loss of productivity from strikes in these newly democratic companies. > > rulers would accept citizens that had the right to unilaterally decide > > their own rules and rulers? The answer, of course, is that it is not > > up to the rulers of nations to decide such things - it is the citizens > > who take that right and form the nation. > Your analogy between firms and nations does not work for me. Firms form > within the context of an already-established property system. Nations form > through negotiation by factions that control force or through the brute > force of the powerful. By making an analogy between rulers and employers, > you imply that employers are slavemasters who command their workers by means > of coercive threat. Ah, but from where did you get your premise of companies forming within the context of "an already-established property system"? There have been two discussions we have been having - goals and methods. Goals may or may not be achieved by various methods. The goal that resulted in the methods we are discussing is that of a market that is responsive to the wants and needs of the general population. The goal is not the prolonging of some existing set of property laws - in fact, that set of property laws are themselves one among many methods of supposedly ensuring the economic system is functioning well enough to provide for the population. In other words, these laws should only be prolonged if, in fact, they can be shown to aid the goals of the population. If not, then they deserve to be replaced. > Me against democracy? ...My argument here is that _collective_ decision- > making about what to produce, how to produce it, and how to distribute what > is produced are practically always less desirable to the vast majority of > people than individual decisions that occur under a private property system > with free markets and the absence of government-supported special privilege. What is democracy if not collective decision making? If what you are arguing against is centralized democracy, then I agree - one vote every four years for a head of state is not as responsive to the general population as many "votes" over the course of a day, everyday, as is the case whenever someone makes a purchase in the market economy. Each purchase is, in effect, a "vote" on where resources should be allocated. However, when some segments of the population has many many more "votes" than others (back to overconcentration again), then the allocation of resources in the economy reaches a point at which it no longer accurately reflects what everyone wants. > But democracy is not a good means of running a business. In business, it is > crucial, insofar as this is consistent with the need for financing, to make > a single individual responsible for decisions that affect profit. The > environment of private property rights and free markets gives people an > incentive to develop incentive systems that are pointed in the right > direction. You have not provided any reasons for why businesses must be run by single individuals - and in fact, they are not. There are boards of directors and there are voting shares of stock. Business decisions do have to be justified to the board, the shareholders, or the bank making the loan - so that at least they are satisfied. However, since shareholders have a direct stake in neither quality of the conditions of production nor quality of the result of the production (but only a direct stake in the return on their investment), power in the hands of the employees is a step toward responsive production (see also http://csf.colorado.edu/mail/ipe/2001/msg00146.html)
Date: Wed, 14 Mar 2001 13:57:33 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Overconcentration yet again Patrick Gunning wrote: > > And one of the ways we can ensure that consumers will tend to have > > relatively equal amounts of spending power is by allowing the power > > to decide salaries, wages, and bonuses to rest in the hands of each > > company's workers. > I read these sentences, D., but they seemed to me like (a) wishful > thinking rather than a practical plan I assume you mean "plan" as in what policies a government should implement to bring about such a scenario. However, I am not advocating the government do anything at all, but rather refrain from doing certain things - namely, when a trade union decides to assume control over the company they work in, that they simply be allowed to do so without violence from state instruments. > In the present context, this question is: who would hire workers who > had the right to unilaterally decide their own salaries, wages, and > bonuses? (Therefore, who would be willing to produce wealth under these > circumstances?) The second question here does not seem to follow logically because it is the workers that are producing wealth - and one would assume they are willing if they are the ones taking the initiative to do whatever it is they want to do. As for the first, the analogous problem is how nations are started - which rulers would accept citizens that had the right to unilaterally decide their own rules and rulers? The answer, of course, is that it is not up to the rulers of nations to decide such things - it is the citizens who take that right and form the nation. Some practical ways to help make such transitions run smoothly would include democratic run banks or other investment organizations, with a jurisdictional and electoral scope encompassing those most directly affected by the decisions made by such instruments of the financial structure. > Do you think that the employees in each firm would vote for equal > salaries, wages, bonuses, etc. Indeed, what does a "bonus" mean under > these circumstances? Surely, the result of a bonus, by the usual > definition, is inequality. You are probably assuming things about my political ideology that you shouldn't be. Yes, indeed a bonus would be inequality - and that would be just fine. And no, the employees would not, in fact, be required to vote everyone equal pay - it is entirely up to them. [What good is a democracy if you're only allowed to choose one thing?] The difference, however, is that the disparity in pay scales will in all probability not be nearly as disproportionate as they are in today's corporations - of course, there's nothing stopping workers from deciding some key paper pusher really deserves more money in a year than they will earn in several lifetimes, but it will be the workers who are responsible for their choices. > Beyond this, within the various workers' organizations, what is to > block corruption, privilege-seeking and all of the other negatives that > we observe in democratic decision-making? Well, it is almost gratifying to see you coming out against democracy. What would block corruption in an autocratic system? If the king can't get a higher income by accepting bribes, he can simply change the law and make his corruption legal. "Corruption" is the term given to injustices that are not justified by the law - what, then, is the recourse to legalized corruption? Democracy allows the removal of such officials and laws - and even if the organizational structure makes such change difficult, in reality there's not much preventing a population in agreement from acting outside existing structures. Democracy just attempts to formalize such a process.
26.2.1 Not need legal laws. 27.2.1 The first cause. Date: Thu, 8 Mar 2001 10:48:27 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Social Darwinism vs. the Age of Reason URL: http://csf.colorado.edu/mail/ipe/2001/msg00246.html Patrick Gunning wrote: > > The more a person can spend, the more he affects the market. If > > he says he feels like a lot of tulips or caviar, then his > > purchasing power is such that he can substantially increase the > > market price of tulips and caviar (and thus make it appear as > > if the production of tulips and caviar are suddenly much > > more essential to the survival of the general population). > I don't follow. What is overconcentration of wealth, why is it a > problem for a nation that is getting wealthier, and why do you feel > that Smith's system of natural liberty would lead to this outcome? Of course, there isn't a clear threshold above which a person's wealth can be considered "overconcentrated" and below which it is not. Rather it can be seen from the point of view of how much that person's spending affects market prices - the more his spending affects market prices, the more his wealth can be considered overconcentrated. It is a problem for a nation "getting wealthier" (however you measure it) because it means his spending habits are able to change the allocation of labor and resources such that a disproportionate percentage of the total resources available is being used to fulfill his desires rather than what the rest of the population requires. Even if the total wealth of the nation can be determined to be growing, this gap of resource allocation is dangerous not only because economic power is being centralized, but also because market prices are no longer an efficient way of determining what the general population wants. As for whether Smith's pet system leads to this type of scenario, that depends on whether you believe his system has been applied. Whether it has or not, this type of scenario is readily observable today. Third World farmers growing "gourmet" coffee to be consumed by those with much higher incomes, sweatshop labor producing clothing they cannot afford, chauffeur services that the drivers themselves could never hire on a regular basis... If those working in such industries could better spend their time producing what those of their own economic class buy, thus ensuring a greater supply of the goods and services they actually use, why does such labor continue to be wasted on things those of their economic class do not consume on a regular basis? The answer is the effect that too much wealth concentrated in too few hands has on the market. > > Why do so many economists dream of Nobel Prizes after all - > > do they really just want the cash prize and new employment > > opportunities? > Do they really dream of such things? How do you know? Should I berate myself for stooping to answer rhetorical questions? Well, of course, I'm not going to provide a reference to some list of psychological studies on the motivations of economists (maybe in my next life as a psychology major with too much time on my hands), but we'll just have to extrapolate the characteristics of human nature into that subset of humanity known collectively as "economists." People want glory and recognition. People want material goods that will help them avoid death. People want love and sex. Perhaps some want certain things more than others, but that's up to the peculiarities of their personalities. There are those who are willing to give up one for the other - some take pride in their abstinence or vows of poverty while others do not. It is not just higher salaries that produce incentive - unless you are willing to accuse people like Mother Teresa of suffering from the same rare case of motivational insanity as those who donate their money to charities rather than hoard it. > Democratically-run local banks? Perhaps you could elaborate. The problem presented is the way banks and other investment firms are being run today - not democratically, not transparent, not necessarily responsible to the wishes of those who have to put up with the financial structure they find themselves within. The danger is that economic decisions that rest in the hands of just a small number of people is less likely to take into account the requirements of the general population. One solution is to devolve that power into the hands of the employees and/or depositors. Whether representation should be along the lines of a House of Representatives or a Senate is up to the employees and depositors to decide. Whether and how much important decision making should be left to direct voting or to elected representatives is just a matter of practical convenience.
Date: Tue, 27 Feb 2001 20:36:38 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: Patrick Gunning pgunning@aus.ac.ae CC: ipe@csf.colorado.edu Subject: Re: Social Darwinism vs. the Age of Reason URL: http://csf.colorado.edu/mail/ipe/2001/msg00233.html Patrick Gunning wrote: > My argument is that we can find the real answer by putting ourselves in the > shoes of the lawmakers and trying to figure out which laws they would choose. > When Adam Smith wrote about the "system of natural liberty," he was asking his > readers to recognize that the laws embodied in a system of strongly enforced > private property rights and the elimination of special privilege would be a > good choice for a people who wanted their nation and themselves to be wealthy > in a material sense. The first cause, in this argument, is national and personal material wealth. Everything else rests on these goals - property rights and privilege elimination are only justifiable so long as they further rather than hinder the goals of national and personal material wealth. If it is determined that some property rights work in contrary to national and personal wealth, then these rights must be abolished, because they do not follow logically from the first cause. Overconcentration of spending power is one such example, because it is a drain on the resources available to produce goods and services for the general population. The typical argument made is that wealth creation would be hindered by preventing the overconcentration of wealth. Thus, such wealth concentration is both positive and negative in relation to our first cause. However, if material incentive can be replaced by alternative psychological incentives, then wealth concentration can be avoided without losing incentive. Why do so many economists dream of Nobel Prizes after all - do they really just want the cash prize and new employment opportunities? > The solution to the invention problem that is usually recommended is a > patent and copyright law. There is substantial debate in economics about > whether such laws would help or hinder wealth production... In any case, > not many economists regard the "technological externality" problem as a > major reason to shift to some other system, like a centrally planned one. Patent and copyright laws themselves are centrally planned, as is enforcement of these laws - which also require the collection of taxes to fund such enforcement. While the laws may help the creation of new ideas, they hinder the application of these new ideas, because only a limited number of people will be allowed to make use of these ideas. Nations without intellectual property laws actually have a distinct advantage in that they can make free use of the ideas copied from other countries without restriction - whereas only a subset of the population in the country from which the idea originated can take advantage of it. How does a nation in isolation create the incentive to generate new ideas? If it's material incentive you're after, the resources freed up by no longer having to create, interpret, enforce, and litigate these laws can be used to reward these ideas. Alternatively, the nation could resort to psychological incentives by consulting their psychologists and sociologists. > I am not sure what you mean by markets without capitalists. In modern > economics, the concept of the _capitalist_ is a role referring to the > act of guaranteeing that lenders or others who help produce a product > will be paid in the event that a business fails. Even relatively poor > people, including workers who are not fully paid until the product they > help produce is sold or who come to rely on an employer to care for them > over a long period (like the Korean auto workers perhaps), are capitalists > in this sense. By capitalist, I am only using a generalization. It is not so much a person's role in the production-cycle I'm concerned with, but his role in the consumption - how much a person affects the market whenn he spends his money. The more a person can spend, the more he affects the market. If he says he feels like a lot of tulips or caviar, then his purchasing power is such that he can substantially increase the market price of tulips and caviar (and thus make it appear as if the production of tulips and caviar are suddenly much more essential to the survival of the general population). In general, those who can afford to spend this much obtain their money from what I would call "capitalist" activity. As for who will pay the bills of a newly started business, I think capitalists can easily be replaced by democratically run local banks - banks that would be much more likely to be concerned with the needs of the local population.
Date: Mon, 26 Feb 2001 06:16:43 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: Patrick Gunning pgunning@aus.ac.ae CC: ipe@csf.colorado.edu Subject: Re: Social Darwinism vs. the Age of Reason URL: http://csf.colorado.edu/mail/ipe/2001/msg00222.html Patrick Gunning wrote: > why start a discussion of competition with biology, the roots of > which lie in the study of plants and non-human animals? Why not > start with Adam Smith's idea of competition under the condition > of the "system of natural liberty?" The latter phrase refers to > a strongly-enforced private property rights system. The difference is that the conditions of nature cannot be avoided while the conditions of law are man-made. Laws of physics are true laws because they cannot be broken, even if one tried to. The same is not true of the laws of man. Thus there is no more natural liberty than there is a "natural law" that prevents one person from killing or stealing from another. If there were such a physical law, then we would not need legal laws forbidding such actions in the first place. So the real question is, why do these legal (or moral or religious) laws exist? > The idea maintains that competition under these circumstances > serves the interests of consumers and that it will bring wealth > to a nation. If any system of social behavior can survive for so long (for example, competitive markets or Christianity or they way your cells work together in your body), there must be something right about it to allow it to survive for so long. However, that does not mean competitive markets can't be improved, or that different parts of Christianity can't be emphasized to better promote justice and peace, or that there are no better ways to rearrange our genetic code to prevent various diseases. Yes, competition between companies allows consumers to have the ability to choose a better product - however, it also presents obstacles to technological advancement, not only because trade secrets are not shared and have to be reinvented in each company, but also because companies have to waste valuable resources on projects unrelated to better products, like protecting their secrets and patents and uninformative advertising. > To respond directly, your thesis is based on a view that assumes > the historical necessity of the evolution of moral values. Against > this view, I would argue that a distinguishing characteristic of > human beings is the ability to learn from mistakes and to rationally > plan their future. Yes, indeed we can decide our laws just as we can now conduct genetic engineering. Systems of thought are no more static than our genetic codes. They both change and mutute, sometimes into something more able to propagate itself, sometimes into something less able to. Tens of thousands of years ago, how did bands of early humans organize themselves? Clearly there must have been much trial and error (memetic mutations) and the systems that developed that were most able to propagate themselves are still around today. If these memes aided the survival of their carriers, then they were more likely to be passed on. We can indeed insert well thought out memes into our belief systems just as we can now also insert carefully chosen genes into our gene pools. However, our choices may or may not be the right ones - they will have to bear the test of time. There may develop a system in the future that does not require markets to determine the best distribution of resources, but until then I agree markets are a fine way to accomplish this, with one important memetic "mutation" - markets without capitalists. Because the overconcentration of wealth results in unbalanced distribution of labor and resources, one method of preventing such overconcentration is to allow salary determination to rest in the hands of all the employees of a company. Because a king's subjects are much less likely to pay him a big salary than if the king himself chose his salary, the spectrum of spending levels across the economy become much more even. The result is that labor will not be distributed in such a way that a disproportionate number of people will be trying to satisfy the wants of a very few.
22.2.1 A dominant or submissive relationship. 23.2.1 Directly with the third party. Date: Mon, 26 Feb 2001 17:28:32 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: the competition state URL: http://csf.colorado.edu/mail/ipe/2001/msg00228.html Patrick Gunning wrote: > Mises presents two arguments in favor of free international trade (among > nations whose governments are capable of protecting private property > rights). The first is that, compared with the alternative of isolation, > it promotes world peace. The second is that it permits an expansion > of the sustainable population by means of the benefits of trade. A > government that chooses isolation, on the other hand, compels its people > to forego the advantages of international trade. While I agree that isolation is not in the best interests of a population of people, let me point out some problems with the reasons just given against isolation: 1. What could be more peaceful than total isolation? When was the last time the people of earth had a war with any race of life forms from another galaxy? While it may be true that relying on someone else for your survival may promote peace with them, any relationship that opens up can also be negative rather than positive. Oppression, colonialisation, and the corruption of the target governments (via campaign contributions for example) are also states of peace that can promote the prosperity of the "dominant" nation, but would generally not be considered positive with respect to the "victim" nation. 2. Increased sustainability is a good thing, but it can also lull a nation into a false sense of security. When you don't have any direct influence over the economics or politics of your trading partners, you can never be sure they will always be willing or able to produce what you need, nor can you be sure that they will provide you with these goods even if they do have them. It may require your nation to commit itself to something like the amount of aid the U.S. gives to less than democratic nations like Saudi Arabia every year, just to help ensure a steady stream of incoming oil. Dependence on the goods of other nations may force the strong ones to become oppressors and the weak ones the servants. Again, this is not to say that nations should isolate themselves. North Korea is a good example of why that is undesirable. Even if your nation can achieve self-sufficiency today, there's no guarantee that a local random disaster in the future will not wipe you out, at least for a while. At those times of emergency, it would be beneficial to have neighbors that are prosperous and able to help. You can neither depend entirely on your own economy, nor the economy of other nations, but taken together, they result in a kind of insurance that no local disaster will wipe anybody out. Thus, traditional religious morality (and cooperative evolution) has favored generosity and charity - the rescue of a temporarily weak population will mean it will be around to rescue others in the future.
Date: Fri, 23 Feb 2001 07:49:25 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: "Hector E. Maletta" hmaletta@overnet.com.ar CC: ipe@csf.colorado.edu Subject: Re: the competition state URL: http://csf.colorado.edu/mail/ipe/2001/msg00211.html "Hector E. Maletta" wrote: > > (unless it just chooses to take the money and ignore the > > capitalist thereafter). > If only things were so easy. I wonder whether the author of the > post is able to take his salary from his employer and ignore the > employer's wishes thereafter. I wish I'd be able to do so. Alas, I'm > not, nor are most governments, especially in the so-called emerging > economies. "Taking the money and running," of course, is merely an option somewhere between doing what the capitalist says for no pay, doing what the capitalist says for pay, ignoring the capitalist and his money altogether, confiscating his money, or imprisoning the capitalist and taking the money. The employer-employee relationship is similar to the investor-nation relationship. The employees (or nation) do not have to do what the employer (investor) says, as long as they have no desire to influence the behavior of the employer in the future - in this case, as long as they don't expect any more money from the employer in the future. The question comes down to who really needs whom - while the money that employers and investors can supply is a convenient way for the employees (or nation) to obtain the goods necessary for their survival, it is not really the money that they need, but the goods that are produced by a third party. The money is merely an instrument of accounting and can easily be replaced by dealing directly with the third party workers or nations that actually produce the goods needed locally. The employees need merely use the output of their own work to obtain the goods that they need directly. > On the other hand, losing national sovereignty is not necessarily a > loss. Think, for instance, in the loss of sovereignty suffered by feudal > lords when the first Industrial Revolution forced kings to impose > central authority over their territories in order to have nation-wide > markets. Was that a loss? For the feudal lords probably, but for > society? This, of course, depends on whether you prefer kings or lords - neither of which is guaranteed to have the local population's best interest in mind. The loss of sovereignty to a foreign capitalist provides no better guarantee - and is, in fact, a step backwards if the nation truly was controlled by the population already. For example, while the loss of control by a local feudal lord to a distant king may not be all that bad, the loss of control by a local democracy to a distant authority is much more dangerous. > Be it a loss or a gain, it was a necessity, given the state of > advancement of capitalism at the time: it needed a national market to > develop properly and in the optimum scale of production. Yes, while it may be true that it could be more efficient for all the coffee growing to occur in, say, South America and all the wheat growing to occur in, say, North America, the argument of efficiency relies on the assumption that these goods being produced in various parts of the world will actually find its way around to everyone. It would also be much more efficient for all nations to be at peace, and thus no longer have to waste resources on military development. However, because peace is not a given, nor is the distribution of efficiently produced goods. Wars, trade disputes, and other international disagreements are constantly disrupting this flow of goods - and thus the country would be protecting itself by ensuring that local production of needed goods is always available. Even if these industries are not competitive on an international scale, they are a source of local security (and therefore wealth). > Certain developing countries are certainly > unsustainable unless they grow rapidly to match population pressure and > to meet the growing needs of the population. There are two ways to sustain a growing population - produce what you need or rely on others to produce what you need. Say, for example, that international banking is a profitable enough industry to sustain your growing local population. Should all growing populations, then, focus on high profit industries like banking and electronics? Who will be growing the food? If the entire world population is growing, it is not more banking or consumer electronics that it needs, but more food and shelter. While short-term profits may allow an emerging economy to sustain itself for a decade or so on cash crops and "cash industries," it is actually a distribution of labor and resources in the wrong direction.
Date: Thu, 22 Feb 2001 17:51:16 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu Subject: Re: the competition state URL: http://csf.colorado.edu/mail/ipe/2001/msg00208.html Hector E. Maletta wrote: > it should be noted what all this entails for the State and what > turns it into a 'competition state' or a 'competitive government' is the > fact that national governments are no longer a power unto themselves, > but must compete with other states in an effort to lure private capital > to their shores. > Of course, the need to be competitive imposes limitations to what > governments can actually do. The need to create conditions alluring to > capital seriously limits its effective sovereign power. Of course, this loss of national sovereignty lies on the assumption that the governments need private capital to keep their economies running. While it is true that the investment allows it to purchase goods and resources from other nations, the investment comes at a cost - as you have described - the loss of independence (unless it just chooses to take the money and ignore the capitalist thereafter). If economic security is the goal of a population, it is in its interest to wean its economy off reliance on foreign investment. It will instead have to rely on its own resources, or otherwise trade what they produce for resources they cannot obtain locally. Again, permanent reliance on resources (oil, for example) that come from other nations is risky because the local population will have little control over what happens overseas - and thus be forced into either a dominant or submissive relationship with their vital trading partners. While the latter is clearly not desirable, neither is the former because the dominated populations will constantly be seeking to free themselves - forever requiring a drain of military and propaganda resources. Thus unless a nation is willing to continuously allocate resources to ensure good will with (or, at least, control of) its trading partners and thus be able to continuously rely on foreign oil for its economy, it would be safer in the long run to develop local alternative sources of energy (or other vital goods) while economic conditions are favorable, thus maintaining (or regaining) their sovereignty in the future.
Date: Thu, 8 Feb 2001 16:58:35 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: mckeever@ccnet.com Subject: Re: Ravi Kanbur on Poverty URL: http://csf.colorado.edu/mail/ipe/2001/msg00146.html An excellent analysis and discussion by Ravi Kanbur on the kinds of arguments going on at the World Bank - some comments... >From http://www.people.cornell.edu/pages/sk145/papers/Disagreements.pdf > it is quite possible for public services to worsen considerably and yet > for this effect to not show up in the income-expenditure based measures > of poverty incidence. If the bus service that takes a woman from her > village to her sister's village is cancelled, it will not show up. If > the primary school text books disappear, or if the teacher does not turn > up to teach, it will not show up. But those with ground level operations > and personnel will pick these up. And to them, as well as to the poor, > the claim that poverty has gone down will ring hollow. None of this is > to say that it is not useful to calculate nationally representative, > household survey based, income-expenditure poverty measures. It is > simply to say that focusing on them solely misses out on disaggregated > details which others can help to fill in, and which influences the > perceptions and assessments of these others. > the lack of mutual comprehension is leading to polarizatoion, with Group > A often retreating into the formal technical bunker, and simply repeating > their findings without trying to understand what Group B is trying to > say, and Group B dismissing Group A analysis as either out of touch with > reality or, even worse, actively manipulated to get certain answers. > Neither of these positions is healthy, and bridging the aggregation > divide is essential if we are to move forward. It's unfortunate that Group B's criticisms of the economic measurements used by Group A causes the former to ignore them altogether and the latter to focus only on refuting or dismissing their criticisms. If income-expediture measurements do not take into account the services the population used to get through government expenditure, then the measurement should be recognized as incomplete, and steps taken to fill in the gaps pointed out by Group B. Even if criticism is aggressive and not constructive, they still often rest on valid objections to the problem in question, and should not be ignored if Group A would like to maintain a reputation of theoretical completeness. A similar criticism is often made of the GDP - the country appears more productive if I hire someone to paint my house rather than if I paint it myself. It's disappointing to see economists wholeheartedly admit such weaknesses in their measurement methods, but then take an "Oh well, what can ya do?" attitude and then continuing to use their faulty measuring tools. > it is no use to be told that over a five to ten year horizon things will > pick up again. In fact, it is not even good enough to be told that in > the medium term things will be better than they would have been without > the shock of this policy change because without the policy change things > were in decline anyway. All this is true, but short term survival trumps > medium run benefits every time, if the family is actually on the edge of > survival. As Keynes might have said, in the short run they could all be > dead. Agreed. It is equally restricting to be forced by the government to do something as it is not to have anything one can do at all. What good is it to be thrown out of an "inefficient" government run enterprise if there are no options as to what to do next? If the economic restructuring is supposed to make the most efficient use of the resources available, then even before this "inefficient" government job disappears, there should be many other job openings willing to take each person. It's quite difficult to get everyone to accept your "reforms" as for-the-best if you are merely threatening them with being put in a situation in which they will have no choice but to do whatever it is you expect them to do. An economy is made up of a collection of individuals. Even if a policy is supposed to benefit the entire population, efforts should be made so that each individual within it has the choice to stay where they are now, and to weigh the personal benefits of taking advantage of the new policy. Indeed such personal choice is more an aspect of market mechanisms than centrally planned ones. > The implicit framework of those supporting rapid and large scale > privatization is one where state monopoly is replaced by a competitive > structure of firms without monopoly power. The implicit framework of > those more cautious in this regard is one of a state monopoly, which > might be at least somewhat responsive to the needs of consumer through > political pressure, being replaced by a private monopoly with no such > restraints. Often the new private companies will openly admit that they have to represent their investors, whereas most governments would at least claim that they are trying to do what is best for as many of their people as possible. What is also missing from this discussion is the question of who represents the employees. Governments nominally represented them as well before privatization, but after, their representation has been lost. While the market itself is arguably representative of consumers, employees will have to resort to either union representation or simply democratic control over their places of work. Their are two kinds of privatization, but only one that is promoted by foreign capital. One is privatization by selling off government enterprises to financiers, who then wield absolute power over the businesses they now own. While they may be forced to compete with other financiers for consumers and employees, their ultimate goal is, of course, the return on their investment - which can be aided by reducing government oversight over the health and safety requirements of their products and reducing labor standards and the power of labor unions to drive up their costs of production. The other kind of privatization is not promoted by foreign capital because it doesn't involve them at all. That is the handing over of government businesses to the employees themselves - to be run democratically - thus still fulfilling the goal of more non-monopolistic sources of alternative products. While it may be true that these businesses may still seek to decrease consumer- protection regulation, those in control of the businesses now are more likely to be the same types of people who will be consuming their products. In addition, the business transparency required in order for each employee to participate in the governance of a company makes it more difficult for anti- consumer policies to escape public scrutiny.
6.2.1 The whims of those who produce. Date: Wed, 07 Feb 2001 07:33:19 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: "Hector E. Maletta" hmaletta@overnet.com.ar, ipe@csf.colorado.edu Subject: Re: IMPORTANT International Finance Congress URL: http://csf.colorado.edu/mail/ipe/2001/msg00137.html "Hector E. Maletta" wrote: > Of course, the currency of a currency is a matter of popularity. If > users stop wishing to have it, its value would diminish against other > currencies, and ultimately it may cease to have any international value, > thus ceasing to be a convertible currency in the sense that there would > be no customers willing to purchase that currency (paying with other > currencies). In that case, the concerned currency would only survive as > a domestic unconvertible currency, good only for domestic transactions, > as is the case now with almost all Third World and ex-socialist > currencies. Assuming that these domestic currencies are still accepted in the countries they are issued, then they, of course, do represent some value to the person who desires the goods produced in that country. These domestic currencies could immediately be exchanged for the goods desired. The difference is whether one would want to hold on to this domestic currency, or to spend it immediately. In cases of inflation, spending it immediately would be the wiser choice, unless one predicts need for that currency again sometime in the future. Assuming what one is buying from that country is just to be consumed or used (rather than eventually traded back for other goods), far better to buy it now than to wait until you can no longer buy as much. This is true even with respect to low inflation currencies like the US dollar, simply because there is inflation. The difficulty lies in the fact that single individuals have little immediate use for all the goods that they can convert their dollars to, because single individuals are rarely self-sufficient. However a segment of the population that is more or less self-sufficient can immediately convert their dollars to the goods and machinery that they will need, because they do not rely on future trade with the country they are buying from, and thus have no need for further contact with it after their initial transaction of trade. > Why om earth Central Banks and private investors in Asia or Africa > should shun the buck to favor other currencies is, however, not clear. > In fact, it is highly unlikely. It is to be recalled that an investor's > "currency portfolio" consists of financial instruments denominated in > various currencies, whose composition is decided on the basis of the > investor's belief in the stability and the likelihood of increases in > the relative value of a currency relative to other currencies. That > belief stems from an assessment of the monetary policies and the > economic outlook of the national economies where the currency is issued. > Unless the US economy gives signs of faltering relative to the economies > of Europe or Japan, or it becomes evident that US monetary policies are > unsound (or at any rate less sound that monetary policies in Europe and > Japan), few investors would have any interest in selling their dollar > assets and expand their assets in other currencies. The original post used as an assumption that the US dollar was faltering, and sought discussion as to what to do if it did. There may not be good reason to abandon it now, but it's not hard to imagine scenarios in which there are, even if the US economy were sound. For example, other nations may decide to dump their dollars - perhaps out of nationalism, perhaps out of malice, perhaps out of insanity. Whatever the reason, if enough nations dump their dollars, its drop in value would force even more nations to do so - if they want to protect themselves. This behaves rather like a stock market crash. Assuming there's no intrinsic value to the dollar, then the more sellers of dollars there are, the less reason to hold on to it. At some point, even the average person in the US could "abandon" their dollars and start holding on to the currencies of other nations - or whatever else they think other people will be willing to trade for, whether rational or irrational, food or gold, oil or bonds. > On the other hand, there is some degree of international transmission > of inflation, in the sense that if the Fed injects "too many" dollars > into the US economy, causing inflation in the US, part of those dollars > would end up in international waters, and contribute to creating > monetary expansion (and thus inflation) also in other countries. Agreed. Unless other nations do not know how to establish their own stable currency, it would be risky for them to base their currencies on the US dollar, because that would mean they are leaving their economic policies in the hands of US policy makers - people they have no direct influence over. > I'm not convinced of the soundness of this argument. If, say, a > decrease in the world demand for dollars results in an increase in world > demand for Yen, the value of the Yen would increase (relative to other > currencies). This does not mean that the supply of Yen available to > purchase goods and services decreases. All Yen rise in exchange value > relative to other currencies, including those invested in financial > securities and those in the pocket of the average Japanese. Leaving > aside any exogenous expansion in the supply of Yen provided by ther Bank > of Japan, the appreciation of the Yen would cause increased imports of > US goods into Japan, at lower Yen prices than before, thus causing > deflation, not inflation. A fine assessment - I should have distinguished between whether the institutions dumping dollars were buying what you have saved up or buying what you are using your savings to buy. In the first case, as you've said, the result is deflation. The second leads to inflation (from your point of view). For example, if I had my savings in Euros, and purchase Yen on a regular basis with my Euros, the result of some institution buying up more Yen would mean that I now have to spend more to buy Yen for myself - thus inflation. This is rather silly since this example involves only other currencies, but it would be a different case if instead of Yen being bought up, the institution in question were buying up commodities like grain and oil with their dollars.
Date: Tue, 6 Feb 2001 13:51:17 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu Subject: Re: IMPORTANT International Finance Congress URL: http://csf.colorado.edu/mail/ipe/2001/msg00131.html > the increasing number of publications concerning the feasible crisis of > the U.S. Federal Reserve System, world stock market and results in > worrying rise of inflation which will be tailed the depreciation the > U.S.D., the core world reserve currency. > The Congress will focus on key issues and stabilization policy for > U.S.D. in several cases. Nowadays many financial experts perceive a trend > towards currency blocks based on the dollar, the euro and the yen. > The Organizing Committee is sure that, at any case, the above assumptions > can help participants of the Congress to take the right decision about the > composition of their currency portfolio and to indicate projects for > investments. > There is every indicators instability in the financial world. The menace > of destabilization of the world financial system is growing since it can > provoke the outflow of U.S.D. from Asia and Europe as well to the U.S.A. What if the US dollar "fails"? What if Asia and Europe start to decrease the amount of US dollars in their currency portfolios in the same way that they are slowly trying to sell off their stocks of gold? As US dollars are released into the market in such large quantities, the effect on the value of the US dollar is similar to the effect that a major gold discovery has on the price of gold. Larger supply, lower prices. The result is "inflation" - at least with respect to the people who are counting their fortunes in US dollars. However, for those whose savings are not measured in US dollars, there is no inflation - as a matter of fact, these people will actually be able to buy more US dollars (if they so desired) because the price has gone down. However, this isn't the entire picture, because it also depends on what those institutions in Asia and Europe are exchanging their US dollars for. Whatever it is they are buying up, the supply of that goes down, so there indeed can be inflation even from the point of view of someone who does not have savings in US dollars. But what to buy? Should the US dollars be replaced by yens and euros? This comes down to the question of why money is valuable in the first place. It is considered valuable only because other people consider it valuable. One person wants it because other people are willing to exchange goods and services for it. If other people weren't willing to exchange goods and services for it, then there would be no reason for me to want it. Thus its value is rather circular - regardless of whether it is dollars, yens, or euros. The same applies to gold and silver. If financial institutions in Asia and Europe (or Microsoft or whatever) instead decide to exchange US dollars for gold and silver, then the price of gold and silver go up. However, they do so on the assumption that other people will be willing to trade goods and services for gold and silver as well. If they weren't willing to do so, the only reason I would want either would be for a little decoration and perhaps to rewire some of my personal electronics. Non-circular value comes from the things that these nations and groups of people use and use up everyday - food, clothing, energy, etc - and the means to produce them. When a nation accumulates these things, even if nobody else wants to trade their goods and services for them, the nation can still just keep on going. Economic security comes from a little paranoia - the ability to survive a full economic blockade even in times of peace and goodwill - so that in case a true human or natural disaster does disrupt the nation's trade with its partners, it would hardly feel the effect. > All of them can impact on the situation and slowing down the process of > instability in the financial world as a whole. The other main theme at > the Congress is the Government's role in the maintenance of the financial > stability, which had been put at the recent world Economic Forum in Davos. > The task of two participants of this International Finance Congress is > to make out the difference between the speculation for a fall and hidden > panic at stock market using supplementary information and after weigh the > pros and cons, take steps to minimize financial losses of the states, big > corporations and private investors during crisis and postcrisis period. There are two kinds of instability - instability in financial structures and instability in the lives of a population of people. While one kind of instability may lead to the other, it is also true that financial stability can be sacrificed if need be, for the well-being of a population (assuming that the very purpose of having some kind of financial structure is to make the lives of the population more convenient). If the security of a population requires that an existing financial structure be abandoned, then so be it. It is true, however, that if the purpose of government policy is to protect the financial assets of large specialized corporations and investors, it will have a difficult job on its hands, because most likely, neither is capable of self-reliance - they depend on trade with others for their very survival. It is not easy making sure those others that they trade with will do what is expected from them. Protecting the security of a self-sufficient segment of the population is much simpler. The government need merely make sure they have what they need to continue being self-sufficient. While it is true that a City of the Wealthy may live it up for a while by living off the labor of the poor in the country, their situation is unstable, because their security rests on the whims of those who produce for them. If the self-sufficient parts of the economy suddenly decide to cut off trade with them, they will have no recourse but oppression (assuming they are unwilling or unable to join those who are self-sufficient). What is more dangerous is for one nation to lose its self-sufficiency and live off the labor of those in other nations. Even if those doing the work do it willingly, any natural disaster that disrupts or slows the supply lines could have incredibly undesirable consequences.
19.1.1 Gold standard, but without the gold. 23.1.1 The flight of venture capitalists. 29.1.1 Decentralized government planning. 1.2.1 Determine how resources are allocated. 2.2.1 13:04 Loss of income that is unnecessary. 2.2.1 16:30 Lack of key decision making. 4.2.1 The survival of the species. Date: Mon, 5 Feb 2001 11:26:23 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00125.html > Given the changing conditions of the environment, population, technology, > and competition; it seems a misunderstanding of business to say that "once > a business gets off the ground and starts being able to support itself, the > employees no longer have a use for the investors." In a "dynamic" world, a > business that rests is a business that fails. Your assumption that the > productivity of workers will be maintained by them without financiers to > channel money away from losing and into winning enterprises does not, in my > view, correspond to how the global trading system really works. Yes, the world does indeed change. And yes, these changes will often require new approaches because the problems will be new. But no, the financier is not essential to the economy as the only source of resource reallocation. Besides financier and government funding, there are two other ways money is channeled "away from losing and into winning enterprises" - One, the market itself does that. Businesses that better fulfill the needs of those participating in the market will automatically have more money simply because they will have more customers. At the other end, if a "losing enterprise" truly is a losing enterprise, then they won't have enough paying customers to keep them going. Consumers, in this case, replace financiers. Two, faced with the fact that a losing enterprise will put them out of business, employees themselves will put aside part of their revenue to study new approaches and alternatives. Even with today's undemocratic corporate structure, managers are still employees (as you've said), and they are much more responsible for the R&D budget of their companies because they are much closer to the problem and the mission, and thus more likely to understand it better.
Date: Sun, 04 Feb 2001 09:18:24 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: Norman Mikalac mikalac@worldnet.att.net, ipe@csf.colorado.edu Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00121.html Norman Mikalac wrote: > > Since in the absense of truly scientific experiments in which one company > > is run as a "co-op" (as you say) and one is run by capitalists, we have > > only theories. What do you propose is the cause of your co-op movements > > always performing worse than capitalist ones? Lack of incentive because > > they aren't paid enough? Lack of key decision making because capitalists > > actually know more about the work they are doing? I don't mean to pose > > such unfairly rhetorical questions, but without logical reasoning nor > > real empirical results, your statement cannot stand. > by "scientific method" i assume you mean using the customary rules of > logic and evidence. if in this forum we are to make statements about > social events that are corroborated by "scientific method", then we > wouldn't have anything to talk about. for example, look at the previous > posts under the title of this thread. where is the scientific method > used, i.e., demonstrate the logical sequence of propositions (validity) > corroborated by facts (truthfulness). > i suggest that before you criticize the posts of others, you submit your > own posts to your rules. Indeed, you should expect no less from me. The distinction I am drawing is between true experimental evidence and inferences masquerading as empirical data. It really is a shame that there isn't more true experimentation between various competing theories of economics and social organization in the world - provided that the participants are there of their own free will. It would not only be fascinating or even enlightening, but in the spirit of diversification, it would be conducive to the survival of the species. There are two ways we learn about our world. Empirical data and logical reasoning. If all our experiments perfomed in the same way produce the same result, then we take that as truth, even if we can't explain it. Gravity, for example, has no good logical explanation other than the fact that this is something we observe almost without exception. What I would like to avoid is the kind of argument that goes like this: "Of course, Somethingism doesn't work. Just look at what happened in Eastern Europe!" "That wasn't real Somethingism, because it didn't fit this this and that criteria. Someotherthingism is what really doesn't work. Just look at what happened in South America!" "How can you even say South America had Someotherthingism? It was just the opposite of Someotherthingism because of that that and this, and was in fact more like Somethingism than Someotherthingism!" What happens in these type of debates? People bring out all the examples and couterexamples from their mental arsenals of "empirical evidence" but nothing gets explained. No principles or theories are discussed. No sequence of causality is indicated. The argument becomes fruitless and both sides remain unconvinced. In subjects as complex as politics and economics, such that true experiments are very difficult to conduct, conclusive evidence is hard to come by - this, in fact, is what allows such different ideologies to survive so long. It is the more concrete sciences that are able to coalesce around a single "ideology" because true experiments are easier to perform and easily reproducible empirical evidence is harder to refute. However the absence of truly experimental evidence does not mean no truths can be determined. Mathematics, for example, does not require experiments, but only reasoning from axioms and definitions. Unless we have truly reproducible experiments in economics, this is all we have. We will actually have to explain why things happen the way they happen, rather than pretend that history is instead made up of deliberate experiments performed with controls and variables.
Date: Fri, 2 Feb 2001 16:30:40 -0800 (PST) From: John Yu cyu@oz.net To: mikalac@worldnet.att.net CC: ipe@csf.colorado.edu Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00114.html >i think that the failure of the co-op movements to make any significant >impacts in capitalist economies shows how ineffective the workers are in >improving productivity w/o the assistance from capitalists. That, I must say, is a rather unscientific argument. Empirical deductions ought to be based on the scientific method. Merely pulling out one aspect of an experiment and claiming that is the root cause of all the results is just posturing. Real experiments have controls - you vary only one thing between the two experiments - for example, substituting water for vodka, or democracy for autocracy. If the two results you are comparing differ in many other initial variables, then any number or combination of the differing variables could be the cause of your results. Since in the absense of truly scientific experiments in which one company is run as a "co-op" (as you say) and one is run by capitalists, we have only theories. What do you propose is the cause of your co-op movements always performing worse than capitalist ones? Lack of incentive because they aren't paid enough? Lack of key decision making because capitalists actually know more about the work they are doing? I don't mean to pose such unfairly rhetorical questions, but without logical reasoning nor real empirical results, your statement cannot stand.
Date: Fri, 2 Feb 2001 13:04:47 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00112.html > show me how common labor can raise its own productivity. I > maintain that its productivity is due to the employer and financier who > persuade common labor, with the offer of pay, to be employees rather than to be > self employed or not work at all. There is nothing about being an employee that makes a person more productive than if he were self-employed. Is the employer's role of paying more for more productivity that important? The same incentive would be there if employees paid themselves more for more productivity. This role of determining how much compensation each employee should get for his work can just as easily be taken over by the employees themselves. The difference is that the financier is always looking to leave some of the revenue of the company for himself, rather than leave it all up to the employees. This reduces the employee incentive to be more productive, because only a fraction of their productivity is rewarded. > Second, I maintain that government officials could not succeed anywhere as > well in causing workers to be productive in the sense that they would use > their labor to produce the goods that consumers most wanted. Indeed, if it is the employees of a company who determine the salary and wage rates within the company, government officials do not have to be involved at all. It is the consumers that are responsible for the company's revenue, after all. In fact I agree that oversight from a government official who is not part of the company is hardly better than oversight from a financier. Presumably your government official represents consumers in that it is mainly concerned with the output of the company. Financiers, on the other hand, are mainly concerned with the money going into the company. Neither represents the people who are doing the work - who, of course, are also concerned primarily with the money going into the company. However, to the employees, the money going to the financier represents a loss of income that is unnecessary. Once a business gets off the ground and starts being able to support itself, the employees no longer have a use for the investors. A balance has to be made between enabling new businesses to get off the ground with only workers but no machinery or natural resources, and preventing the people who helped them get off the ground (namely investors in your case) from becoming parasites to the company, and reducing the incentive of the employees to work.
Date: Thu, 1 Feb 2001 16:49:34 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00110.html > The purpose for your distinction, which is based on scope, appears to be to > draw parallels between the power of government and the power of some > financiers. The question I would ask is why such parallels are important to > you. I agree that financiers can have affects on people that are more important > that those of the government. I also agree that their mistakes can cause > greater damage than those made by government officials. But why is it important > to emphasize this fact? There is nothing magical that happens to a person when he starts working for the government as opposed to when he was not part of the government. It is still the same person, with the same mental capacity and same personality traits. But why is central government planning so often blamed for the failures of various national economies? What is it that makes a market economy work? Central planning leaves allocation of resources up to one or a very few people. A market allocates resources based on market pricing - everyone who participates in the market helps determine how resources are allocated. Thus a market accounts for the needs of everyone who has purchasing power. It better fulfills the needs of a population because it takes into account more than just the opinions of a few central planners. This is significant because replacing a few government planners that have too much economic influence with non-government planners that have the same or nearly the same scope of influence is like replacing the frying pan with the fire. In fact, even if non-government sources stopped investing in the economy, the very act of spending money in the market affects it. The more one person can spend, the more people will be working to fulfill that one person's needs. This results in less resources available to fulfill the needs of those who cannot afford to spend as much. Thus you have poor people building mansions that they themselves will never live in - or otherwise producing goods that people of their own social class will never consume. It is interesting, however, that it is not income disparity or asset disparity themselves that hurt society, but the actual spending of it. In the case in which the wealthy only spend their money on charity, then the market responds with more jobs in the charitable foundation sector. Thus while charitable spending can alleviate the extreme unequal allocations of human resources, it merely masks the symptoms, rather than presents a cure. > After all, the employees are only responsible for part. What are the > implications of giving them more than part of the receipts if they are not > responsible for producing more than that part? Wouldn't that reduce the > incentives of the employers and financiers to do the things that cause > productivity to rise? Can you suggest a way (i.e., a general rule for > government policy) that would give employees a larger part without at the > same time causing a reduction in productivity. Do investors really increase productivity? Is it not the employees who are doing the work and improving the technology? Yes, each employee is responsible for only a fraction of what a company produces, but all the employees taken together is responsible for everything the company produces. To give them anything less than all the revenue that the company receives is to dampen the incentive of the employees. The government need only step out of the way when employees vote themselves higher salaries and wages, taken out of the company's revenue.
Date: Mon, 29 Jan 2001 11:19:32 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00106.html > > The market can decide what is valuable without needing any centralized > > planning from those who control large venture capital funds. > this appears to be a contradiction in terms. Centralized planning is > defined as planning by the government. What you are referring to is > decentralized planning by "those who control large venture capital > funds." Three questions are raised by your comment. > Your discussion seems to imply that government bureaucrats could serve > consumers better. Indeed I know what you are referring to when you say centralized planning is government planning. That's the traditional definition. However I am drawing a distinction between the central/decentralized planning axis and the government/non-government axis. Here are the alternatives that are not accounted for in the traditional definition of centralized planning. 1. Centralized non-government planning: For example, the analyst in charge of the Fidelity Magellan Fund, or any large investment firm with a lot of liquid capital to play with. What happens is that one (or a very small number) person is making decisions that affect a disproportionately large segment of the economy. A few decisions to move investments from this industry to that industry can cause dramatic changes in those parts of the economy. The upgrading or downgrading of an analyst's evaluation of a company's stock can mean the difference between a company's survival or bankruptcy. How is this similar to tradional centralized government planning? It is similar because decision-making has been centralized - a very few people can have a large affect on the economy. This in itself isn't a recipe for disaster, but the fact is that people (even supposed investment gurus) are fallible. It is the same danger as leaving the economy in the hands of a central government planner - even if he were actually trying to do the best for the people, one eyeball is apt to overlook many more things that many eyeballs will not. 2. Decentralized government planning: It just depends how decentralized you want to go. From national to state level? State to county? County to town? Town to neighborhood? Neighborhood to family? Family to family members? At some point, this stops becoming a government and just becomes a typical market economy. So it is not the fact that "it's the government" that makes something central planning, it's the scope of the planning. For example, the people in the town may organize their own local bank - run democratically, with depositors determining which parts of their local economy the bank should invest in. Is this government? If democracy is associated with governance, then this is undoubtedly government planning - yet it is decentralized. > what do you mean by "control." In the hypothetical pure market economy, > if venture capital is not employed to serve consumers, part of it will > be lost. Because of this, it can be argued that the true controllers > are the consumers and that the venture capitalists are, in terms of the > function they perform, the servants of the consumers. There are consumers of products and consumers of labor. It can be argued that venture capitalists and companies are in fact consumers as well, because they hire labor. Again, people are prone to mistakes. When you give anyone a lot of economic power, you are giving them the power to make very large mistakes. What if the venture capitalists turn out to be wrong? What if they get caught up in a fad and start investing in very poorly thought out endeavors? The more removed an investor is from everyday living, the more likely he will invest in something foolish. Not only does something like a dot-com crash result in a disruption of an area's future economy, it has also used up valuable human and material resources when they could have been better spent doing something else of more real value during the build-up before the crash. > The hired manager is an employee, not an employer. Strictly speaking, the > employer is the individual or group (1) who is ultimately responsible for > the decisions about what to produce and how and (2) who bears the > uncertainty connected with the prospect for loss. > Nor, in the modern corporation, is there a clear line between an employee > and a stockholder, as my brother would demonstrate. He has worked on the > assembly line at Daimler-Chrysler for 20 years and who owns a substantial > amount of stock, which he acquired by taking advantage of a employee subsidy > on stock purchases. True, bearing risk does "have value" so to speak. However, the employees bear risk as well. If the company fails, they lose their income. Because they have to endure risk anyway, they may as well take over the decision making as well. They are, after all, the ones doing all the work. If they are not able to do as they please with all the revenue, then the full incentive is not there. The employee-as-a-stockholder example is no different from the mere wage-employee, as long as there are stockholders that are not employees. Wage and salary employees are those who only receive a part of what the produce, while someone who is not an employee gets the rest. The same is true if the employees are only part stockholders. The only real difference is in the accounting.
Date: Tue, 23 Jan 2001 16:27:28 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes URL: http://csf.colorado.edu/mail/ipe/2001/msg00103.html > Also, the venture capitalists, in your terms, own two things: (1) claims to > resources and goods and (2) their own expertise in choosing profitable > projects. Oh I think a country can survive the loss of the second. The market can decide what is valuable without needing any centralized planning from those who control large venture capital funds. > Regarding the first, money, properly understood, is a claim to goods > and resources. In moving these claims abroad, a venture capitalist causes a > greater proportion of the resources of the country to be devoted to supplying > the demands of foreigners. What actually happens is that she trades her money > for foreign currency, thereby (in the absence of sterilizing actions) reducing > the world price of the domestic currency. This prompts an increase in quantity > of country's exports demanded and a decrease in the quantity of imports > demanded. This kind of scenario requires two conditions - neither of which have to be met. One, the government (since it is sovereign on its own soil) can choose to invalidate its own currency, and replace it with a new one. Any old currency held by the flight of venture capitalists would become as worthless as the paper it was printed on. Two, the people of the nation themselves (independent of the government) can choose no longer to accept the old currency as payment for goods. They can instead demand payment in commodities - or alternatively, accept payment in currency (domestic or foreign), but only hold it for so long as it takes to be immediately traded for other commodities. > The problem, of course, is how one measures the value of what the employees > "have done." You seem to assume that only the employees are responsible for the > production of goods. If you are writing about a market economy, this is > nonsense. Employers are also responsible and make a contribution. Agreed. However, there are three general types of people we are dealing with: employees, managers, and investors. I presume what you are saying is that managers also make a contribution. This is undeniable. But how much is their contribution worth? Since the economics within a company is not market driven, then it becomes a political matter. Who decides who gets what salary depends on your opinion of democracy, representative democracy, aristocracy, and monarchy. > it contradicts my assumption of a clear distinction between the producers of > technology and complementary resources and the people who supply common labor. > So it is beside the point. You are writing about something different from me. Indeed we are writing about different things. There is no clear line between who is merely providing labor and who is providing invention. It is not a step function, but a slope function. The only truly clear distinction is between an employee and a stockholder who is not an employee (and makes almost no real contribution other than a few proxy votes once a year).
Date: Fri, 19 Jan 2001 15:13:44 -0800 (PST) From: John Yu cyu@oz.net To: ipe@csf.colorado.edu CC: pgunning@aus.ac.ae Subject: Re: Common labor productivity and its causes > Nevertheless, if, under these conditions, unions were somehow > able to force employers to share the profits of higher productivity > due to their actions; entrepreneurs would still innovation less and > supply fewer complementary resources than otherwise. Besides, fewer > people would choose to be entrepreneurs. You are making a false assumption which is only true in some cases. The incorrect assumption is that an entrepreneur is another word for innovator and that it is the innovators that are the "capitalists" who hire (and are subsequently accused of exploiting) labor. While it is true that this is often the case in small businesses, it is not in larger ones. In larger ones (like the tech industry), it is the innovators that are hired. In this case, it is the investors that have too little technical knowledge to be the ones improving productivity. > Suppose that unions or governments in one country were successful in > forcing the producers of technology and the resources that complement > common labor to pay wages equal to the increases in productivity they > cause. Do you believe that those producers would not tend to move > elsewhere? This, again, is a false distinction between labor and producers. Labor and producers are, in fact, the same thing. It takes labor (both mental and physcial) to produce something. The only risk that governments and unions have of losing, is losing investment. Venture capitalists may certainly take their fiat money and precious metals to some other country, but that does very little to hurt the productive ability of a nation. The natural resources, the land, and the people of the country remain. Even machinery requires labor to move. It is very difficult for a capitalist to pack all that up in a suitcase and skip town with. What does the country use as currency if all of it has fled to other places? Quite simple really. Like O'Donnell has mentioned before, "money" can be issued based on a basket of goods like the Consumer Price Index. Rather than banks making loans, it is the producers of the goods that issue the money. I make 100 units of commidity X, I sell five 20-commodity-X notes to some agency that issues notes based on a more diversified index of commodities. No loans to default on. When the notes are redeemed for the goods they represent, they are invalidated. No inflation (with respect to the goods on the index). It works rather like a gold standard, but without the gold. > However, as a general rule, the idea that a government can achieve greater > efficiency or growth by restricting entrepreneurship or its profits, when > there are no obvious public goods or externality situations present, seems > absurd. What is more absurd is for employees not to be paid for what they have done. In fact, if money is going to be the standard of economic incentive, then it is the producers of goods (that is labor) that should reap all the rewards, while investors get none. Anything less would not be full incentive. If you are apprehensive about letting a government decide which employees should be paid how much, then the employees can decide for themselves. Self-rule.
Subject: Re: A Good Keynesian Enema ! What the World Needs ? Date: Thu, 13 Nov 1997 23:59:07 +1100 (EST) From: Leigh Harkness (leigh@pcug.org.au) William F. Hummel wrote: >I assume in your discussion of money that you are referring to >some aggregate measure of the U.S. money supply measured in >dollars. The only source of such money is the Federal Reserve >and/or the U.S. banking system. No, I do not mean US money supply necessarily. I am in Australia and what I am saying applies to the Australian money supply, but it may also apply to the US or the money supply of another country. >However Income from exports cannot >increase that supply unless accompanied by an increase in the >monetary base by the Fed or an increase in commercial bank loans. I was writing about the situation under the fixed exchange rate system. Under that system, when the banking system purchased foreign currency and increased its foreign reserves, it increased the domestic money supply. The floating exchange rate system was intended to prevent such effects and particularly the effect of running down foreign reserves when spending on imports exceeds income from exports. I think President Nixon introduced the floating exchange rate in the US to stop running down the US gold reserves when he was creating money to finance the Vietnam war and so generating excess demand. >The purchasing power of that money is a different subject. Yes. >Money created in the banking system does not finance spending in >excess of production, unless spending via consumer loans gets >ahead of production. Such lending can cause current account >deficits, but not necessarily -- lending to purchase a GM auto, >for example. Normally business requires bank financing ahead of >production simply because of the time delay between the >investment and the output. The money created in that sort of >lending is non-inflationary. There is a simple principle to how money works in the economy: When we work we produce goods and services. The money we earn from selling those goods and services enables us to buy products up to the value of what we produced. That is, it constrains expenditure to income (or production). Hence, while everyone works for their money or borrows it from someone who has worked for it, the economy cannot buy more than it has produced. But you could imagine that if a forger crame along who could produce perfect money, he could print money that would enable his expenditure to exceed his income. Everyone else who circulated that money would have first produced something before consuming. Their spending financed with that money would not cause excess demand as they would be buying no more than they produced. But the expenditure of the economy as a whole would be greater than its total income, or production, by the amount of money spent (or injected into the economy) by the forger. Money created when the banks lend more than is repaid to them has the same effect on the economy as money created by the forger. It is true that the borrower will eventually repay the loan. But the economy as a whole will experience excess demand (expenditure greater than production) by the amount total bank lending increases (ie the amount loans > repayments). The effect of this increase in the amount of money can vary depending upon the other constraints in the economy. In countries that have good international credit and are attractive to foreign investment (eg, USA, Canada, most of Europe, Austalia, New Zealand, etc.) the excess demand for goods can be met from imports. This causes current account deficits. In countries that are not attractive to foreign investors, the additional money can cause hyper inflation, as we saw in some South American countries in the '70s. In the former USSR, which could not get credit and had price control, the economy could not raise prices or buy imports to cope with the deficiency of products. Instead, the shops ran out of products to sell. So growth in the money supply from bank lending can have different effects. Regards Leigh _____________________________________________________________________ Leigh Harkness leigh@pcug.org.au
Date: Sun, 14 Jan 2001 08:41:57 -0800 From: "D. Gale" cyu@oz.net Organization: Dark Side of the Rainbow To: JulioHuato@aol.com CC: hmaletta@overnet.com.ar, pgunning@aus.ac.ae, ipe@csf.colorado.edu Subject: Re: Growth/Redistribution for Poverty Solution URL: http://csf.colorado.edu/mail/ipe/2001/msg00094.html > (1) Productivity growth is a necessary condition for increasing real wages > and, in general, improving the standard of living of a nation. No. While it is true that productivity growth most likely leads to improved standards of living, they are not directly linked. Here are some other examples: 1. Productivity growth with lowered standards of living: Mobilization for war. Whether war actually happens or not, increased productivity may only be in areas unrelated to living standards. This increased productivity can come at the expense of natural and human resources in parts of the economy that do directly affect living standards. Thus, rationing of everyday goods and reassignments to the production of weapons can lower living standards. This not only includes war, but also other "futile" endeavors, such as the building of pyramids in Egypt or, arguably, many of NASA's space projects. Of course, this also depends on how standard of living is measured - if increasing the number of hours a person spends in front of the TV should not count as a better standard of living, then that deprecates the productivity increase of TV studios. 2. Higher standards of living with less productivity: Take the reverse of #1 above. Work less, but produce different things - things more directly related to the general living standards of society. People often talk about the redistribution of wealth - however, they seem to miss something else as (if not more) important - the redistribution of labor. Who are you working for? Who is the ultimate "consumer" of your productivity? If a large percentage of the labor is serving the "ruling class," then great improvements in general living standards can be made by redistributing that labor into producing goods for the rest of society. > Under capitalism, in the absence of expropriations or forceful, > noneconomic events: There are peaceful methods that also do not have to involve the confiscation of property. There is personal choice of what you want to produce - people could quit their current jobs and insist on joining industries more focused on improving the general living standard, no matter what the wage differences are. There is personal choice of what you will accept as legal tender - even when one class has amassed large percentages of the world's gold (such as the U.S. after World War II) or the world's currency, people can choose no longer to accept that as payment for any goods and services. They can simply settle on a new standard if they determine the change of legal tender would be beneficial to their class economically - even if only to change again in the not too distant future, just to prevent over-concentrations of wealth. > Smith looked on earth and found that, ultimately, humans themselves give > up something to get their output: some expenditure of human effort (which, > given its quality, is measured in time units). Thus, at the end of the day, > the "marginal cost" of social output is, as in Jevons' old model, the > "additional" amount of "leisure" we give up producing it. Ricard and Marx > thought this was just common sense, and adopted the idea. The "value" of > social output is some "expenditure of human activity" or "human life time" > or, simply, "labor time." Agreed. If all our material needs could be taken care of (for example, with the invention of replicators in the distant future, a la Star Trek) what people pay for will change dramatically. Food and other commodities (while still retaining inherent "value" to human survival) will no longer play a part in the economy. Financial transactions in such a scenario will become even more focused on how much time a person is giving up for you, be it entertainment, education, or whatever.
From: John O'Donnell URL: http://csf.colorado.edu/mail/ipe/2000/msg01758.html Subject: Re: Gold standard and the fiat money system (was: Information requested: US..) Date: 20 June 2000 00:32 UTC thorthor wrote: > John O'Donnell wrote: > > First is the oft made confusion between "backing" and "standard." The "gold > > bugs" stance always argues for a standard but simultaneously demands backing. > There may be some confusion here. Just a few comments in an effort to clarify > the picture. > Gold standards have been run with relatively stable value of gold in terms of > paper currencies. For instance, in the US dollar - gold exchange standard > lasting for almost 20 years, gold was priced at $35. Yes, and so long as the demand for gold was such as to allow both the government and the public to hold some gold, the price of gold can be set by the government by offering to buy and sell at a set price. However, such a condition has nothing to do with the value of the currency relative to the goods and services people actually want. One need only look at the effect on gold trade following the establishment of the price at $35 per ounce. The immediate result was to increase the amount held by the U.S. government followed by a period of slower accumulation and eventually to a period of reduced holdings until the whole charade was dumped. > Prior to WWI the gold > standard run by the British had a gold value fixed at $21 (and an equivalent > fixed value in sterling) for decades. The central banks had little problem > in achieving a stable price of gold, which represented a backing for the > paper notes issued. What was a problem, however, was the amount of money in > the system, when a physical resource (gold) determined its supply. No, what was a problem was the value of the currency relative to all the goods and services people actually buy and sell has no relationship to the arbitrarily set price of gold. The "money" supply had no more limit then than now if one counts bank credits as is done in computing all current measures of money supply. The belief that economic performance is limited by the quantity of money and money substitutes rather than the quality of the monetary unit is one of many popular fallacies that allow governments to impose inflation in lieu of taxes. > Triffin's "Dollar Crisis" was about the US printing more money notes than > it had gold reserves to back. When the "allies" lost confidence in the > dollar and demanded gold for their dollar holdings, the system broke down > and dollars flooded the market. The inflation that followed prooved too > much liquidity had been injected into the system. No, the idiots who believed in gold backing bid up the price of gold to ridiculous levels only to later realize the demand for gold really wasn't that large. Now the governments that have no desire to hold the superfluous amounts of gold they hold have to be very slow in ridding themselves of the "treasure" accumulated in the false belief that gold is needed to "back" money issues. > The essential problem of a gold standard was its focus on the stable "value" > of money, with liquidity becoming the stochastic residual of the system. The > fiat money system, which measures value in reference to an evolving CPI > basket, has solved the problem of adequate liquidity. However, this has been > achieved with "value" in some sense having become the stochastic residual of > the system. Hence inflation may be the new "threat", not inadequate liquidity > (expressed as deflation and falling activity). No, the essential problem with the gold standard was its reliance on gold backing to manipulate the price of gold independent of the prices for goods and services that were actually relevant to people. > Specifically, the fiat money system may have a more unpredictable transmission > mechanism than is currently envisioned -- borrowing Marxist terms -- such that > central bank's focus on the "productive circuit" is misplaced, because the > "money-circuit" (which captures the money used for exchange AND finance) is > absorbing a growing amount of the supply, resulting in stable value of the > former. However, this may depend on the money circuit remaining in a positive > cycle (rising asset values). However, a shock to stock markets -- with prices > falling sharply -- could result in money returning to the productive circuit, > resulting in a rise of goods inflation. However, as the central bank controls > this process, the system may continue ad infinidum. That said, the question > arises if the US has again issued too much money for inflation to remain > stable, especially if the system is at some point subject to a truly exogenous > shock. The only problem with the fiat money system is the unwillingness of governments to maintain the value of its currency because of economists false belief that "depression" is an inevitable accompaniment of "deflation." > > A better choice of standard, even with its difficulty of frequent > > measurement, is an index based on a meaningful basket of goods and > > services such as that used for the CPI. > In short, the problem of a monetary system (stable value and ample liquidity) > may not have been solved as decisively by the fiat money system as its > proponents think. It is always a matter of a trade-off. The problem of a stable currency has not been solved because there are those who choose to remain blind to the fact that it is only the quality [i.e. -- value] of a currency that affects its usefulness and not its quantity. [i.e. -- dM/dQ = 0] -- -- jbod Tax Privilege, Not People ___________________________________________________ Come visit and see a new economic perspective -- http://www.reocities.com/CapitolHill/1067 Comments/arguments welcome.
From: John O'Donnell URL: http://csf.colorado.edu/mail/ipe/2000/msg01740.html Subject: Re: Information requested: US finance capital? which fraction ofthe bourgeosie? (70s vs 90s) (fwd) Date: 18 June 2000 02:28 UTC Roslyn Bologh wrote: > Could you elucidate the German critique of the gold standard and > internatinal financial practices (and Keynes similar position if you know > it)? The proponents of the gold standard are still with us today and ready > to jump in with their "solution" any time there is a financial or economic > crisis. Greenspan was a "gold bug" and may still be partial to the gold > standard. I can't offer you any comment on other's [German, Keynes's, Greenspan's] perspective of a gold standard ut I can suggest that much of the foolishness that surrounds the issue. First is the oft made confusion between "backing" and "standard." The "gold bugs" stance always argues for a standard but simultaneously demands backing. A little examination of the differences of the two will dispel this error. By insisting that money must be backed by gold [or any other commodity] the proponents destroy the ability of the selected commodity to be a standard. That is, because the price of the selected commodity for backing of money can be established by the monetary authority at any value between that which would result in all the commodity being held by the monetary agent [i.e. -- A price higher than that of all others desiring the commodity.] and a price that would result in all the commodity being held by the public. [i.e. -- A price sufficiently low that the entire supply of the commodity is desired by the public.] Therefore, the actual value of the currency in terms of relevant goods and services people actually want ultimately has nothing to do with the "standard" so manipulated. This is, of course, the same problem that governments now have with diminishing the stocks of gold held idle in government vaults. Try to sell it and the price will fall to some intolerably low price and the gold mining industry will collapse. Second comes the simple fact that only one ultimate purpose is required to give value to government issue and since governments require that they be paid in their own issue, any further "backing" becomes redundant to that purpose. Third is the problem of giving meaning to the standard of value. While it would be possible to use a single commodity as the standard of value [And such a choice would have the advantage of immediacy and continuity of measurement.] the only way such a choice would continue to be meaningful would be if the monetary authority and all other government agencies were forbidden from buying any of the commodity thereby leaving control of the supply of money as the only available mechanism for maintaining the value of the currency in terms of the standard. A better choice of standard, even with its difficulty of frequent measurement, is an index based on a meaningful basket of goods and services such as that used for the CPI. -- -- jbod Tax Privilege, Not People ___________________________________________________ Come visit and see a new economic perspective -- http://www.reocities.com/CapitolHill/1067 Comments/arguments welcome.

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