--
--------- Forwarded Message ---------
DATE: Wed, 22 Jan 2003 18:15:17
From: keith wilde <[EMAIL PROTECTED]>
To: Rodney Shakespeare <[EMAIL PROTECTED]>
Cc:[EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Rodney,
I am using your response to Gunnar Tomasson as the
text for my response to you, so that I can make some
comments about his remarks as well. I will cut and
paste, always trying to be coherent.
[Gunnar referred to Bohm-Bawerk, via Samuelson]:
Samuelson comments: >
> "The experienced reader will recognize that these
can be related to Bohm-Bawerk's three famous causes
for interest. His third cause, technological
superiority of roundabout processes, and his first
cause, the expectation by the typical consumer that
his future dollars will have
lower marginal utility because his income will be
higher in the future (as a result of technological
progress or of the productivity of roundaboutness),
relate to [Samuelson's own] factor (1). Bohm's second
cause – systematic time preference by consumers for
present rather than future goods, for rational
reasons of life's uncertainties and brevity or for
irrational > reasons - relates to (2)....." (p. 613)
[You (Rodney) replied]:
I was talking about a man and a shovel (and that's
what Keith Wilde was talking about ) but rather than
deal with this issue you give a lengthy quotation
about an "experienced reader" recognising three causes
for interest.
[I (KW) interject: It was Samuelson who was talking
about a man and a shovel.]
[Rodney continues]
As far as I can see, the quotation has little to do
with the man and the shovel although it may possibly
indicate a recognition that technical processes make
an input into production and so the owner of those
processes is entitled to a financial return.
The first quotation is largely gobbledy-gook. What on
earth are "roundabout processes"?
[KW AGAIN]: This is the core of capital theory in
economics, and is related to the question you ask
below. It means Robinson Crusoe making himself some
fishing tackle rather than standing in knee-deep water
trying to catch a fish with his bare hands.
[BACK to Rodney]:
However, assuming that you really wish to discuss
interest… .
[KW Again]:
For B-B and most later economists, waiting,
roundaboutness and interest are the substance of
capital. This is a contrast to your focus, which I
call “embodied technology”.
[Rodney]:
These are matters of importance to discuss but they do
not appear to relate to the man and the shovel.
[KW]:
They relate indirectly. Gunnar’s comments relate to
capital; yours are focused on technology. Ultimately,
you are concerned with the distribution of product
(i.e.. incomes). You want the man and the shovel to
divide the product between them on the basis of how
much each contributed. I am telling you, and
Samuelson is telling you, and William Petty is telling
you, that what you want to do cannot be done. At least
no one has succeeded yet—or so it seems to me. If you
have succeeded and can point me to the appropriate
pages in your book I will be most grateful that what I
have been seeking for so many months finally does
appear; that is, a cogent link between your
productiveness argument and the Kelso financial
techniques for spreading capital ownership.
[Rodney (still to Gunnar)]:
Quite why anyone should agree with the statement "....
THE WHOLE VALUE of the product must in principle be
divided between LABOR AND LAND, if the process of
production is to proceed with ideal perfection," I
fail to see.
[KW]:
This relates to roundaboutness as the diversion from
grabbing fish to stuff in one’s mouth to making tackle
instead. All capital is a combination of labor and
natural resources, plus accumulating ingenuity (a
human contribution). To get a feel for this, read the
poem that Michael Lane circulated a couple of weeks
ago, about the evolution of technology for the past
12,000 years. There is a much shorter form (by my
co-author), about the shovel directly, in our article
in the JSE on binary economics. (I think it is called
Democratic Capitalism vs. Binary Economics.) What B-B
was saying is that all payments could be traced to
either a human workman (a mechanic or the gardener who
fed him while he built the tool) or to the owner of
natural resources, if it were not for the fact that
scalawags get in between and are able to profit from
the imperfect knowledge or mobility of the other
actors.
I would like to believe that the following will now
make more sense to you. (I.e. Gunnar’s quotation from
Schumpeter):
> "[In an exchange economy] the businessman considers
as his costs those sums
> of money which he must pay to other individuals, in
order to procure his wares or the means > > of
producing them, that is his expenses of production.
> We complete his calculation in that we also include
in costs the money value
> of his personal efforts. Then costs are in their
essence price totals of
> the services of labor and of nature. And these price
totals must always
> equal the receipts obtained for the products. To
this extent, therefore,
> production must flow on essentially profitless. That
the economic system in
> its most perfect condition should operate without
profit is a paradox. If
> we remember the meaning of our statement, the
paradox vanishes, at least in
> part. Of course our assertion does not mean that if
it is perfectly
> balanced the economic system produces without
results, but only that the
> results flow entirely to the original productive
factors. [...]
>
> "This is not so opposed even to classical doctrine
as it may seem to some
> readers. The cost theory of value and especially the
Ricardian labor theory
> very strongly suggest the same conclusion, and some
doctrinal tendencies
> such as the tendency to label all kinds of revenue,
sometimes even interest,
> as wages are explained by it. If in classical times
it was not expressly
> stated, it is first because the older economists
were not very rigorous in
> recognising the consequences of their own
principles, and secondly because
> our conclusion appears too blatantly to contradict
the facts. Bohm-Bawerk
> was indeed the first who expressly said that THE
WHOLE VALUE of the product
> must in principle be divided between LABOR AND LAND,
if the process of
> production is to proceed with ideal perfection."
('The Theory of Economic
> Development', Oxford University Press, 1961, pp.
31-32).
[All of the above was cut and pasted from]:
----- Original Message -----
From: "Gunnar Tomasson" <[EMAIL PROTECTED]>
To: "Rodney Shakespeare"
<[EMAIL PROTECTED]>; "Keith
Wilde" <[EMAIL PROTECTED]>
Cc: <[EMAIL PROTECTED]>; <[EMAIL PROTECTED]>
Sent: Tuesday, January 21, 2003 2:49 PM
Subject: Re: Re productiveness of capital
[Passing now to Rodney’s direct response to me]:
> ----- Original Message -----
> From: "Rodney Shakespeare"
<[EMAIL PROTECTED]>
> To: "Keith Wilde" <[EMAIL PROTECTED]>
> Cc: <[EMAIL PROTECTED]>;
<[EMAIL PROTECTED]>;
> <[EMAIL PROTECTED]>
> Sent: Tuesday, January 21, 2003 6:50 AM
> Subject: Re: Re productiveness of capital
>>
> > Keith,
> You say that my statement about conventional
economics is false and add
> > that conventional economics has many ways of
calculating productivity.
> Yes, and I can think of three -- labour
productivity; capital productivity
> and marginal productivity -- and binary thoughts on
the matter are on pages
> > 122 -122 of the Ashford/Shakespeare book. Please
read those pages and
> them comment further, should you wish. …
KW: Interesting list. I am not familiar with the
ratios that you call labor productivity and capital
productivity. Capital to Output ratios are a similar
calculation, and I understand their use in ideas for
development strategy from the past, but the two you
illustrate are not part of my experience. Your
exposition of marginal productivity in relation to
distribution of final output is, however, and your
account is generally conventional up to the point of
your inferences about its application. Further
comment below.
[BACK to Rodney]:
> > In the case of the fully automated factory, there
is no human input into
> > the production -- THAT is the matter which you are
trying to avoid.
[KW]: No, I am not trying to avoid it. I have
understood your meaning on that point from the
beginning, although you do make it progressively more
clear and definitive. That is what I have in mind by
saying that your concept of productivity is focused on
one man operating one progressively better machine.
It doesn’t make a lot of difference (to me) if the one
man gets wonderfully more productive as the machine
gets better or if what previously took a few men to
operate now gets done with no directly visible input.
So, yes, I’ll accept the elevator with no operator as
an example of what can happen with technological
progress. Disagreement arises with your next
statement:
 > Maintenance is not input (my doctor
maintains me but, after payment for my
> > repair, has no claim on my output); nor are
repair, design or construction
> > part of the production process. That is how binary
economics views the
> > situation whereas you are choosing to view it
through the glasses of the
> > "congealed" labor theory.

I believe that “congealed labor” is a term used by
Marx. Bohm-Bawerk’s notion of roundaboutness is less
tendentious. I believe there are some distinctive
differences also, which I can’t call to mind at the
moment. It is useful to have this definitive
clarification of the binary position.
[NO comment on this next section, which merits
discussion separately, in another place.]
> > Yes, fuel is also an input factor in production
becasue it does work -- look at the foot of
 > page 24 of the A/S book where, under the
list of examples of non-human capital asset,
 > >there is "minerals, raw materials" and
these are separate from "quarries, mines, oil and
 > >gaswells." The Green insight that
everything depends on fuel is really a focus on just
 > > part of the non-human contribution to
production.
> >
> > And did I say that the automated machine does all
the work? I think I said the
 > >automated factory which includes all the
non-human inputs which would include computers,
electricity and fuel.
> >
[KW]: I am excising most of my original quotation
from Samuleson, about the shovel and the man. Your
(Rodney) reaction follows:
> >
> > Well, for a start, if my memory serves me
correctly, certain people in
> > COG Ownership debate objected to my saying that
man and shovel work
> together and co-operate together. They preferred to
allege that all the work is
> done by the man. However, I now call in the
Arch-high-priest of conventional
> > eocnomics (samuleson) in support for he says
"Together the man and
shovel can dig my cellar." And he says TOGETHER. He
does NOT attribute it all to the man.
[KW]: This is what I referred to yesterday as your
straw man. I don’t recall that anyone in the COG
discussion said that all the work was done by the man.
Certainly no conventional economist would have said
it, which is why I quoted Samuelson to you. The sense
in which product is attributable to labor and “land”
only is the one provided by B-B—i.e. “waiting” or
roundaboutness. You can use “co-operating together”
as a metaphor if you wish, but if you are
contemplating a long-run future for binary economics I
think you should re-consider this attribution of will
to inanimate objects.
Now we come to the really critical problem:
[Rodney]:
> > However, as I have most certainly stated to you
before, Keith, the difficulty in deciding exactly
what proportion is attributable to man or spade is
NOT an excuse for saying that therefore they must be
equal or something.
[KW interjection: I agree, but it seems to me that it
is you who is calling down an arbitrary judgment on
what the proportions are or ought to be. I don’t know
of any economist who values his peer-group status who
would dare make an assertion of this kind. Economists
have measurements. Where are yours?]
Very many court cases have difficult issues to decide
and the court decides it -- if necessary, in a rough
and ready way.
[KW again: i.e., arbitrarily.]
Conventional economics, however, always fodges the
issue becasue, to make clear admisison of the role
of non-human capital in production immediately opens
up the issue of who owns what.
[KW]: Well, you have just seen and seized the word of
the arch high priest that economists do acknowledge
the role of non-human capital, so where does that
leave the inference in the back half of your
statement? I don’t see that it follows, even if the
premise were true. It isn’t fudging the issue to
accept the principle in Petty’s metaphor of
conception. Economists do not just lie down and die
before the problem, however. They have made an effort
to measure the shares (in AGGREGATE) that go to labor
and owners, and they have developed a rationale that
explains the empirical evidence in a way that is
believable to most of us who care to put them
together. This seems to be completely aside from
issues of ownership. Economists can read, and we know
that ownership is badly skewed—it is economists who
make the measurements after all! Most economists I
know would also prefer to see ownership more broadly
distributed. But to see that the payments to labor
are roughly 70% of the total, decade after decade,
does not by itself inspire an ardent curiosity about
who owns what.
Your account of marginal productivity theory of
distribution (in chapter 4 of your book) strongly
suggests that economists believe entrepreneurs
actually try to measure the value of marginal products
in taking decisions on hiring more labor or investing
in new plant or equipment. Students may get confused
on that point, but a little experience soon disabuses
them on the notion. There seems also to be an
underlying implication that economists take the
marginal productivity theory of distribution as the
basis for arguing that the existing market system is
optimal in the sense that every factor gets the share
of collective product that it “deserves”. You could
probably dig up some literature that lent credibility
to this notion, but I don’t think it would get many
signatories at a conference of professional
economists. The theory simply puts together the
concept of a marginal product (as you have described
it) and the value of an incremental input given the
price that people are willing to pay for the product.
It is another way of saying that a businessman will
hire either more labor or more capital, depending on
which one looks most valuable to him at the moment of
decision. It is a way of explaining why the
aggregated data show that human inputs consistently
receive about 70% of payments to factors. (See my
Samuelson quotation.) It is not an assertion that the
shares are optimal in a moral or political sense.
The price or cost of capital is a different question,
and brings up the issue of what capital really is.
That is the subject addressed by Bohm-Bawerk, and your
unfamiliarity with the notion of roundaboutness and
waiting is why you are mystified by his assertion that
the whole value of the product should be divided
between labor and land.
[BACK to Rodney]
The binary concept of productiveness (as you should
know after much lengthy debate with me) is designed to
clarify the relative contributiuons of human and
non-human physical contributions and thereby does NOT
accept the cop-out of Samuleson and his friends who
will do and say anything to avoid doing or saying
anything which opens up the question of the present
narrow ownership of large amounts of productive
capital.
[KW] That may be your intent, but I do not see where
binarians have actually provided either a theory or
empirical evidence to “clarify the relative
contributions”. Kelso and Adler said that the actual
contributions should be more like 10 for labor and 90
for capital, but where have they or you solved Petty’s
problem of deciding whether it is the egg or the sperm
that is to get the credit for the product, and in what
proportions? Kelso saw under-used capital as a
disgrace, and insufficient consumer spending power as
the source of the problem. His solution was to
increase collective output by bumping up tangible
capital assets substantially and making consumers the
owners of it. I see from re-reading your chapter 4
that the emphasis on binary growth is quite consistent
with Stephen Kane’s explanation in terms of isoquants
in 2001—that is, make capital cost less so that more
of it will be chosen in production decisions. Your
only argument in support of the 10-90 claim is
therefore the binary growth fantasy. It’s an
attractive notion, but is it realistic? You banish
realism by arbitrarily excluding maintenance, design,
etc. from your productivity concept. And then,
because human employment is seen to keep increasing
right along with capital investment, you explain this
away by saying it must be due to government
regulations or ounion power that force companies to
hire and pay more than they ought. Where is your
evidence for that claim? That was Samuelson’s
complaint against the Kelso plan for Puerto Rico,
remember?
[Rodney again]
 > Keith, one last matter, it's very easy for
people to criticise others but everything really gets
down to two matters:--
> > a) is the existing sytem/structure the best that
can be done?
> > b) what specific policy change is proposed to
improve things?
Binary economics criticised all the time but the
critics ultimately lose the argument because,
generally, they have no substantial alternative to
offer and, at best, are reduced to saying that
anything that is proposed for improving things
always results in things getting worse. If that's
always true, then discussions like this are
pointless--and you do not believe that, and neither do
I.
> > Rodney

> > PS
> > A huge amount of work is going on with the GJM of
which binary economics is a part.
[KW]
The existing system is certainly not optimal. It would
help matters substantially if only governments could
be coerced into keeping the laws they are sworn to
uphold. That was my preoccupation for several years
prior to my encounter with Kelso disciples. I was
diverted from that course because of a youthful
enthusiasm for social justice of a kind similar to
what you are promoting. I am cautious by nature,
however, and like to cross the t’s and dot the i’s
before casting my designs into the political arena.
Change does require the energy of activists, but the
campaign may sometimes gather more credible adherents
and bear better fruit if the plan is rigorously shaken
down before trying to get it implemented.
The Kelso schemes for democratized credit and expanded
ownership sounded very exciting to me at first. The
binary productiveness and growth arguments did not
appear to be critical elements in the prescriptions,
but the insistence of you and others on their
centrality caused me to wonder about the linkage
between the physical and the financial parts. Your
exchange with ‘creditary economics’ was therefore a
very useful opening to evaluate the another part of
the package. I look forward to more commentary of
that kind.
Keith

=====
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