Summations Only

Percy responds to my Message 273: No. I am arguing that the science is incomplete. I am not saying it is wrong per se. It's like you only have made observations down to 40 feet below sea level and declare to know the ocean. Your observations are so far adequately supported within their context.Did you ever notice that "economics" does not end in "ology"?

No, I'm not missing your point, you're just confusing total revenue with net income. Expenses are deducted from total revenue to get net income, and a loan is an expense. Assuming our business owner generates the same amount of total revenue either way, he will have lower net income with a loan.Let us say the total revenue is $1,000,000, that non-loan expenses are $900,000, and that loan expenses are $50,000. Without the loan he has net income of $100,000, while with the loan he has net income of $50,000. In other words, without the loan he creates wealth in the amount of $100,000, while with the loan he only creates wealth in the amount of $50,000.Let's further say that interest on the loan was $40,000. The holder of the loan has therefore created wealth in the amount of $40,000. I know you prefer to describe this in other terms. I know that you would prefer to say that the business owner created this wealth and that the loan holder is a leech sucking the lifeblood out of the business owner. But the fact of the matter is that the $40,000 in income appears on the loan holder's income statement, not the business owners.The obstacle to your understanding is in believing that people own the product of their labor no matter what the conditions of their employment or their business agreements (such as loans). If you make a chair for your employer the value you added in making the chair does not belong to you, it belongs to your employer. If you create value with the help of a loan the portion you pay in interest does not accrue to your bottom line but to your loan holder's.Another way to arrive at the same answer is to ask who pays taxes on what money. The loan holder pays taxes on the $40,000 of the business owner's net revenue that the business paid in interest. It would be truly cockeyed if the business owner had to pay both the $40,000 interest payment and the taxes on it, but if your argument were actually correct that he created that $40,000 in wealth then he would be responsible for the taxes on it.I think what you're continuing to miss is the rationale I've supplied several times now for why the loan holder deserves anything for making his money available, for why the availability of capital is itself a means of creating wealth. If the loan holder's capital instead sat in mattress then our business owner would never start a business and would instead just draw a salary somewhere. Making capital available in the form of a loan makes it possible for our business owner to leverage his labor into a more productive form. Interest is what is earned for making the business possible in the first place. This is a service of incalculable value to an economy. It's why capitalist economies so fantastically outperform communist economies. For the sake of discussion let us assume that I completely bollixed up my explanation involving the price/value ratio. How long are you going to continue to ignore the attempts to clarify to you what I was trying to say? Again, I proposed the price/value ratio as a rough measurement tool for merchants to judge the competitiveness of their pricing. Your arguments against it were as silly as, "Oh, you've invented the wheel? Well, let me try to use it as a hammer. Gee, that didn't work, what a completely stupid invention!" Or as silly as, "Oh, you've invented the formula for the area of a circle? Well, let me try to use it for a square. Gee, that didn't work, what a completely stupid formula!"But as I said before, this example is working as an obstacle to understanding so I'd prefer to drop it. I actually think we largely agree about value because I agree with a characterization you provided earlier. I agree with you that consumer impressions of value are reflected in the demand curve. I think they are influenced by many factors, though I include a factor you don't, the observed range of existing market prices. But this seems a minor difference in the grand scheme of things.--Percy

How do the methods of accounting do that?Here's where we're at:You offer a chart of GDP and income that shows that those at the top make proportionally more than the rest. You then say that this shows that "the wealthiest have overwhelmingly appropriated the gains of increased productivity". You say that the peoples' hard work at the bottom, and socialist programs like roads, are what contribute to most of the productivity. When I point out that we don't have any data on how different things increase productivity, you then blame the accounting methods for that. But those methods are how we got to your chart in the first place, so if they've got it all fucked up then whay are you starting with them? What this should teach you is that if you want to get yourself some money, you need to start holding some shares of some companies! Or, the first and most important facilitating factor. If nobody provides the capital to get the project started, then it can't ever create any wealth at all, no matter how good the idea is. Now, you're right that there are some things like free software that don't fit the model, but that doesn't mean the model is useless. No, we can't see that. The investors are the ones who are "responsible" for the wealth creations in the sense that they're the ones incurring all the risk by allowing their capital to be used for the project. Certainly the hard work at the bottom contributes, but there's lots of people with lots of ideas and you're gonna need money to get things rolling. Its the people that take the risk and invest the capital that facilitate the wealth creation. Too, I have an agreement with my employer that, as a salaried employee, any innovations I invent here at work are the sole property of the company and not me. Products I've invented were idealized by my own mind, but I don't have my own chemistry lab to do the R&D in. And the highway I take to work in the morning would be there regardless of me working or just sitting at home playing Diable III instead. I don't think your idea of what wealth trickling down means is accurate. It doesn't mean that the wealthy loose the size of their proportion, it means that as they grow, everybody else grows along with them. And we do see everyone growing along with the wealthy in that chart. The owner of the company I work for already had money from his family before he started this company. That he built this business by risking that capital, and thus provided me with an opportunity to pull a salary that yields money with which I can then invest into other companies and start creating wealth of my own, is how his wealth has trickled down to me. He still has way more money than I do, and is making more than I am, but at least I have some and am making some now too. If he hadn't risked his money in the first place, then I wouldn't have had this opportunity. TDE is the idea that if you remove the disincentives to people doing that, then everyone benefits as a whole. I'd rather create some wealth for myself. Speak for yourself. I've invested some of my money into a company that I believe is going to take off and am doing my part in creating wealth for myself. Then don't get drunk at work this afternoon and instead find some good companies to invest your spare money into.

Because there's lots of people with lots of ideas and much less investors. If there were more investors than idea creators, then the credit would rest more upon those creating the ideas. But when you have shitpiles of ideas and limited investors, the onus is on the investors to determine which ideas are worth it. And they're the ones taking all the risk by using their own capital.Take American Idol as an analogy. Was it the winner's hard work in practicing singing that got them to be the American Idol, or was it the people who weeded through the tons of applicants and found which ones were the best, paid for the sets and broadcasting, and promoted the program to the public? If there were tons of judges and only a handful of applicants, then more of the credit would go to the singers and their hard work. The singers had their talent regardless of being on the show, but it was the show that made them the Idol, not just their singing skills.You can't create wealth by just having the idea, you have to have people invest in it.Even with Facebook, judging from the movie, they couldn't get anything done until Mark's roomate got that money from his dad so they could get the business started. Best idea ever but nothing happened until somebody invested.

Message 29

Umm... is there any additional wealth created at all? Do our two farmers create different amounts of wealth from one another?Is the only difference here that in one scenario the person creating the wealth has to share it while in another he doesn't? Don't be ridiculous, Percy. This simple fact doesn't make the loan holder's acquisition of this wealth anymore justified just because he writes it on a piece of paper.Is a thief an okay guy if he enters the family heirlooms he stole from your house on his income ledger? Of course not!But as everyone has already said, what appears in the accounting books is irrelevant. We understand that we work within a system that appropriates wealth to the owners of capital disproportionate to their actual contribution to the creation of that wealth. But who the law says owns the wealth has nothing to do with who actually created the wealth. Not at all. I am well aware that in our system those who own the means of production also own the products produced. The loan holder deserves compensation simply because he is capable of demanding it and the enforcing agencies in power support his cause. Obviously the availability of capital is essential to the creation of wealth. But you aren't talking about the availability of capital. You're talking about the unavailability of capital. Someone else owns the land that the farmer needs for generating wealth, and this makes that capital unavailable. Afterall, the capital was available since the beginning of time, until someone stuck a sign in the ground and mustered forces to ensure that the capital remained unavailable to anyone unwilling to give to the 'owner' of that capital his demanded compensation.And so you still haven't addressed the point I raised: both farms generated the same amount of wealth, so how can you say that the banker or original owner of the land were in anyway responsible for the wealth generated by the first farmer when the second farmer put in identical work hours and generated an identical amount of wealth?Where's the wealth generated by the banker? The original land owner? Let's follow our noses and figure out where that money really came from! Fair enough.We can drop the discussion of value for now.There's still this thing about wealth creation, though.Jon

Let's say you're well off and have a million dollars in the bank. You want to help local businesses, so you begin making small business loans with no interest. You figure each time a business pays back their loan you'll loan the money back out and keep helping the community, and this will go on forever.But after a while you discover that not all the businesses are successful and that your million dollars is gradually being drawn down and that within 20 years there will be nothing left. So you begin becoming more careful about which business proposals you approve for loans, and you begin charging a small amount of interest to cover the risk that some might fail so that the million dollars remains a million dollars.But evaluating the business proposals takes time and effort, as does administering and collecting on the loans, so you increase your interest rates again as payment for your own labor.Do you now realize that you're arguing that you shouldn't be paid for your labor because all you're doing is loaning money? Basically your argument is that people shouldn't be paid if they manage money instead of something else.--Percy

Of course if the money and capital were in the hands of the people with the ideas and willingness to workthe people capable of generating wealthinstead of the hands of a few elite who, by your own admission can do nothing useful with the money on their own (they just move it around), then we wouldn't really need the charade, would we?The system of 'investing' is only necessary because the means of production are owned by people incapable of using them for the generation of wealth.Why keep these noncontributing layabouts around? But you're not even talking about investors. You're talking about marketers, talent coaches, recording studio employees. You're talking about laborers.What did the investors add to the process other than a means for enriching themselves in exchange for the freeing up of some of their resource hostages?No one thinks the singers on American Idol are any better because someone owned the means of production and charged the laborers for their use of it. No one.Jon

I never made such an argument.The investor is a middle man taking advantage of the fact that there is a laborer possessing the ability to generate wealth with capital owned by someone who is not generating wealth with it.The investor would not exist were the capital necessary for the generation of wealth already in the hands of the laborers capable of generating wealth with it.Jon

You sure did make such an argument. The only thing I changed was that you're making the loans instead of the evil capitalist bastards. You are both the owner of the capital and the investor of the capital.I think the point you're trying to make is that if someone personally loans out their own money then that's okay, but if someone pays someone else to loan out their money then they're an evil capitalist bastard.Jon, do you own any CDs? Doesn't matter, you understand how they work, right? You're giving the bank your money to administer for you so that it can collect interest. The bank accomplishes this by loaning out your money and collecting interest on it, and then they pay a lesser amount of interest out to you, keeping the difference as a fee for their labor. How about that, you're an evil capitalist bastard! I think they tried that in Russia and the rest of the eastern bloc.Making capital available for economic investment is the way capitalism works. Capital is even in the name. Face it, you're just an anti-capitalist.--Percy

But don't the people who have good ideas deserve some of the credit for having them?When there are more workers than jobs, do you give the Human Resources Department all the credit for the goods produced by the workers they choose to hire? It is true that the onus is on them to pick and choose who to hire, but also the workers have to do some actual work, for which they surely deserve some credit.Edited by Dr Adequate, : No reason given.

What is the point of considering some idealistic fantasy? And ya know what, even if you did wave your magic wand and distribute the money all over, people are going to succeed and people are going to fail and the money is going to concentrate itself back into the pockets of a minority. Your thoughts on economics seem ridiculously naive or extrememly biased. Wait, I'm not an elite few and I've invested some of my money in a business. That's how I'm going to generate wealth for myself. Quote me. I've admitted nothing of the sort. "Just" moving it around is a huge and useful compenent of our economy and is actually doing something. I don't doubt that we can image scenarios where we don't need the "charade", but lets stick to the real world, okay? Owning and running a business is a vital component of wealth generation. Those people are using the means of production. Just because they're paying other people to do the grunt work for them doesn't mean they're not contributing.Face it, Jon, either your a grunt who's pissed that he didn't get a bigger piece of the pie so your demonizing those who were more capable than you, or your too young to understand yet. How old are you? Do you own any property? Have you invested any capital? Do you know what its like to feel the risk associated with those things? Do you know how hard it is to allow yourself to pull the trigger on those kinds of decisions? Its really easy to just clock in and make widgets all day and then clock out and go home and not have to worry about any of the things that are actually associated with generating wealth. Wihtout the idealized fantasy and unfounded assumptions, your question makes no sense and is unrelated to the discussion. Its an analogy, Jon. Its only analogous, its not the exact same thing.

What, like a pat on the back? Some monetary compensation? Benefits? Their name etched onto the product?Sure they deserve some of the credit, but what are you getting at? The pharaoh gets the credit for building the pyramid, not the thousands of laborers. They get that credit in the form of payment for their services. If they risk their own capital and invest in their own idea, then they could get all the credit. If they don't have the money, then their idea cannot be realized unless someone else invests in it. That person then incures all the risk and deserves most of the credit.

Just that --- they deserve some of the credit. Actually, what the pharaohs got was what they deserved, namely the blame. The names of Khufu and Khefren were a hissing and a byword for millennia, and serves 'em right. I was talking there about ordinary workers, not ideas-men. It was an analogy.Edited by Dr Adequate, : No reason given.

CS says: YIKES!!!! Shame on you for NOT rather wanting to create wealth for everybody. Well, bully for you, then.