Can employers pay arbitrarily low wages?

[joel]

This is split off from another thread:
http://www.theologyweb.com/campus/sh...&postcount=123

No, I'm simply questioning what conditions change for the worker over the owners of production, as the profits tend towards zero. You suggested they [the worker] would be the first to suffer.

First to suffer from luxury tax. They are among the first to benefit from profits tending towards zero.

Though I did not understand that the owners of production had already decided that they were to make no profit. I.e., I assumed their intake stayed relatively stable as they cut all possible costs. As this is within their power, I wondered why they would not take that avenue. You suggest that is because:

[Here you inserted a different quote than was my real explanation.]

The real reason was found in another passage of my post. If they were to increase their profits by pushing down wages, it would mean that entrepreneurs would flock from other lines of production to this one where it is more profitable. But the expanded production in this line means that labor is bid up (to bid it away from the other lines and the competitors in this line). Wages would be bid back up until the old state was reached, and profits were again zero.

This of course depends to the labour pool. You assume it is constricted, I assume that it is not. if there is plenty of cheap labour about, the 'bid' can be small as the poor are willing to work (they can't eat their shoes to survive). This is more a reference to the unskilled working poor.

The labor pool, however large, is finite. There are only so many potential workers (and each have a reservation price). Supposing there were no minimum wage, consider what would happen if wages (let's talk about the unskilled labor) fell to, say, 1 penny per day. This would cause the quantity of unskilled labor demanded to skyrocket. Existing firms would want to hire tons more labor. People would want to start new firms to hire labor. Individuals would want to hire tons of labor around the house. (Just think of all the labor you would be willing to pay for at 1 penny per day. (ignoring for the moment, your moral qualms--if anything, moral qualms prevent, rather than exacerbate arbitrary low wages.))

But, all of these people would find that they cannot find enough labor to fill the massive demand. There would be a massive shortage of labor. In order to get the quantity of labor services they demand, people would have to bid workers away from other people. This pushes wages up.

Clearly, economic law prevents employers from paying arbitrarily low wages. If I offer wages lower than other demanders of labor services are willing to pay, then I won't be able to hire anyone (or at least not as much labor services as I'd like). This is no different than the price of, say, iron. A producer cannot pay arbitrarily low prices for raw iron, because others (who are willing to pay more) will bid the iron away from them. A person who offers to pay less than the market-clearing price will not find enough willing sellers.

The company the employs the lowest paid workers has an advantage over the employers paying their workers more.

That depends.
Let's call the lower-paying firm(s) A,
and the higher-paying firm(s) B.
All the workers obviously prefer working for B. If B wishes, they may hire all the workers. A will have zero workers, and will make zero profit. Zero advantage. B has all the advantage.

Your statement assumes that there is no competition for labor--that the employees of A will always remain employees of A, regardless of the low wages, and never quit and go to B.

Those other employers follow suit to survive;

In the above case, A will have to follow suit (raise its wages) to survive.

we [those that disagree with the principles behind unrestricted Laissez-faire capitalism] are thankful for government regulated minimum wage.

I am convinced that you (plural) simply do not understand the workings of unhampered markets. You disagree with a straw man.

[Zarathustra]

This is split off from another thread:
http://www.theologyweb.com/campus/sh...&postcount=123

Ohh, I thought I had dodged that bullet... As is quite evident, I haven't even taken economics 101. My arguments are based on anecdotal evidence contained in current and historical documentaries. The focus of those documentaries is for the most part the lowest common worker. They are of course in part propaganda, maybe you can educate me a little.

Note also, that I have recourse only to question the fundamental assumptions of the economic model you are arguing from. This might get tiresome, I will be asking basic questions.

One of those principles I am questions is the idea that the lowest sale price is the best for an item, i.e., I wonder if consumers are unconscious with respect to their use of money, and the consequence of the choice they make when they use their money.

First to suffer from luxury tax. They are among the first to benefit from profits tending towards zero.

This only seems to bind if the profit was already at zero when the tax was introduced. Else, the tax, while decreasing the length of time until profit reaches zero, benefits the worker in that process? Given that there would be no marked decrease in quantity.

The real reason was found in another passage of my post. If they were to increase their profits by pushing down wages, it would mean that entrepreneurs would flock from other lines of production to this one where it is more profitable. But the expanded production in this line means that labor is bid up (to bid it away from the other lines and the competitors in this line). Wages would be bid back up until the old state was reached, and profits were again zero.

Does this assume that the agents playing in your economic model are fully rational?

Does it also mean that the agents playing in your model understand how best to play the game?

Does your model also take into accounts the risks involved, and the costs, of entrepreneurs moving into a new market?

You want to draw on a possible equilibrium, does that equilibrium exist outside of the model itself?

Last I checked, there are an extensive amount of minimum wage jobs, somewhere there is a reason preventing the market balancing those positions into the business becoming zero profit. (and therefore the worker benefiting from that shift)

Why would an entrepreneur stay in a zero profit business? Surely better to sell the assets and move into a new market? They are up as long as their short-term profits are benefiting them, this seems is 'rational' for an entrepreneur that has no emotional attachment to that particular business.

The labor pool, however large, is finite. There are only so many potential workers (and each have a reservation price). Supposing there were no minimum wage, consider what would happen if wages (let's talk about the unskilled labor) fell to, say, 1 penny per day. This would cause the quantity of unskilled labor demanded to skyrocket. Existing firms would want to hire tons more labor. People would want to start new firms to hire labor. Individuals would want to hire tons of labor around the house. (Just think of all the labor you would be willing to pay for at 1 penny per day. (ignoring for the moment, your moral qualms--if anything, moral qualms prevent, rather than exacerbate arbitrary low wages.))

I would only be earning 1 penny a day, therefore I could not afford to hire anyone. Nor, could I afford to start a business. The reason that I am a labourer is because I don't have any business ideas. Possibly because I was not educated, I amI unskilled.

Irrespective of your hypothetical, if I was able to get away with paying people the least I could to do a job, then this it is rational for me to do so. Lets say that for every job that actually exists (not your model) there are two people that want the employment. One can it seems, create competition in the labour market, so that labourers compete with each other for a position, and drive down the value of their labour.

But, all of these people would find that they cannot find enough labor to fill the massive demand. There would be a massive shortage of labor. In order to get the quantity of labor services they demand, people would have to bid workers away from other people. This pushes wages up.

Again this doesn't seem to capture reality. Fine, this might be a mechinism in part of your model, but unless one is able to find credit for the
'potential' businesses that are created with the excess labour, the amount of positions open to labourers does not increase. Again, back to competiton between labourers, that need to live. In essence the necessity to live becomes the catalyst for competition that benefits the employers.

Clearly, economic law prevents employers from paying arbitrarily low wages. If I offer wages lower than other demanders of labor services are willing to pay, then I won't be able to hire anyone (or at least not as much labor services as I'd like). This is no different than the price of, say, iron. A producer cannot pay arbitrarily low prices for raw iron, because others (who are willing to pay more) will bid the iron away from them. A person who offers to pay less than the market-clearing price will not find enough willing sellers.

I'm suggesting it's not the same. If I do not sell iron, then I do not survive, this is an extremely powerful motivator to compete. Even if I sell iron way below the real value of that iron, if I must and the dude across the street is (there is a finite demand for iron) selling it for 3 pennies, I sell mine for 2.99 pennies.

Outside of the economic model, does a human have any other ends that it ought to be able to fulfill? The problem Marx had, yes Marx, is that by selling my labour only the the extent that I make merely biological ends meet, I alienate myself from what it is to be human.

That depends.
Let's call the lower-paying firm(s) A,
and the higher-paying firm(s) B.
All the workers obviously prefer working for B. If B wishes, they may hire all the workers. A will have zero workers, and will make zero profit. Zero advantage. B has all the advantage.

You assume that there is not an excess of labour. I disagree with that assumption. The world only needs so many of a particular product, therefore only a finite amount of workers to produce it.

Your statement assumes that there is no competition for labor--that the employees of A will always remain employees of A, regardless of the low wages, and never quit and go to B.

Yes, I do assume that there is limited mobility within the lower wage jobs.

In the above case, A will have to follow suit (raise its wages) to survive.

Only if B has enough places.

I am convinced that you (plural) simply do not understand the workings of unhampered markets. You disagree with a straw man.

Correct. What is the purpose of an unhampered market?

[joel]

One of those principles I am questions is the idea that the lowest sale price is the best for an item, i.e., I wonder if consumers are unconscious with respect to their use of money, and the consequence of the choice they make when they use their money.

It's not really right to say that consumers pay "the lowest sale price", as if various sale prices are a given fact. What determines those prices? Price tends to clear the market, to adjust to make quantity supplied equal to quantity demanded. If the price rose above that, there would be (wasteful) surplus. If the price fell below that, there would be shortages.

You are right in the sense that, all else being equal, a consumer will prefer to pay a lower price. Just as, all else being equal, the seller will prefer a higher price. But the actual price will tend to be the one that equilibrates the supply and demand.

You are also right that consumers generally do not care what the history of the good was. They don't care what the costs were in producing it. Thus costs do not determine sale prices. The are sunk costs and have no bearing on our present actions. (The actual cause-and-effect is the other way around: expected sales prices determine costs.)

This only seems to bind if the profit was already at zero when the tax was introduced. Else, the tax, while decreasing the length of time until profit reaches zero, benefits the worker in that process? Given that there would be no marked decrease in quantity.

Suppose the tax happens to simply freezes things as they are, and thus there is "no change", or as you say, it decreases the gap between now and profits reaching zero. So looking at that you might say there was no change or little change. But then you're comparing the wrong things. The no/little change is a comparison of two points in time. What you really need to compare is not before and after the tax law, but what things would have been otherwise--without the tax.

Without the tax, the (greater) opportunity for profit would have induced entrepreneurs to expand production. In doing so, they would have had to hire additional labor, thus bidding up wages. Thus in this case, the tax prevents the increase in wages that would have occurred. (Or in the case we are affected by a minimum wage, the expansion would have reduced unemployment.) Thus the burden of the luxury tax is in those lost wages and lost jobs (that they would have had without the tax). And the burden of the tax falls most heavily on them.

Note that this expansion (and what I was talking before about entrepreneurs flocking to this line of production), does not necessarily require new entrepreneurs entering the market. It could also be that the existing actors in that market expand their production (perhaps by withdrawing other investments from elsewhere and investing more of their capital here, or by further restricting their present consumption so as to be able to invest more in this line of production, or by attracting additional outside investors).

Does this assume that the agents playing in your economic model are fully rational?

No, it just assumes that people try to make profits (more exactly, they try to maximize their "psychic profit", not just monetary profit).

Entrepreneurial profits exist only because of imperfect knowledge and imperfect reasoning. If everyone was fully rational with perfect knowledge and was able to anticipate the future equally well, then there would not be any profit differentials such as I described. In practice, profits go to those who are best able to anticipate and meet future consumer demand--those who are better able to serve the masses of consumers than their fellow entrepreneurs are (and deal with the risks & costs).

You want to draw on a possible equilibrium, does that equilibrium exist outside of the model itself?

No the existence of an equilibrium is derived from the "model"--from the fact that people act, that they try to achieve goals.

Last I checked, there are an extensive amount of minimum wage jobs, somewhere there is a reason preventing the market balancing those positions into the business becoming zero profit. (and therefore the worker benefiting from that shift)

I didn't say minimum wage laws never have any effect.
In fact, if they are having an effect, then that law is preventing the market from balancing.
If the minimum wage is below the equilibrium (for some kind of labor) then it has no effect. If, on the other hand, the equilibrium wage is below the minimum wage then it will cause a surplus of labor--that is, it will cause unemployment. (You can't assume that all the workers who would have earned the lower equilibrium wage without the law will still have their jobs and be earning minimum wage with the law. On the contrary, at least some of them will end up unemployed, when they would have been earning a wage.)

Now, you can complain about the equilibrium wage being below the minimum wage, but the minimum wage law does not solve the problem. The only real solution to the problem is for the economy as a whole to accumulate more capital goods. The amount of capital per capita is what matters. Only a rise in that amount can really raise real wages and benefit the masses.

Why would an entrepreneur stay in a zero profit business? Surely better to sell the assets and move into a new market?

The answer to that question requires a finer explanation. We have to better define what we mean by profit. What is it exactly that is tending to zero. Really to understand this, we have to understand where the rate of interest comes from, which is a whole other discussion. I'll try to summarize without going into a lengthy discussion of interest. And I can explain more if you are interested:

Suppose you run your own business. Naively you might first calculate profit (P) as your sales price (revenue R) minus your money costs (C).

P = R - C

But it turns out this is not exactly correct, unless you consider not just your money costs but your opportunity costs. First of all, you might be doing work (management or other labor) in your business. You should take into account your opportunity cost. You could instead be employed by someone else earning wages. Thus your working for yourself means a forgoing of those wages. Instead you are self employed. So we need to take into account this opportunity cost:

P = R - C - W

Where W is the wages you could have been making otherwise. (Another way to look at it is that instead of doing that work, you'd have to hire someone else to do it, and pay them W, and then you could earn W elsewhere or enjoy leisure time.)

There is one other opportunity cost. You own business assets. You have wealth tied up in those assets. You could shut down your business, sell those assets and do other things with that wealth. For example, you could use it for present consumption. Thus we can see that your role as a capitalist (owning those assets) means you are forgoing present consumption--you are restricting your consumption. Or you could use that wealth and invest it in some other line of production or simply lend it to someone else at interest. In general, we can represent this opportunity cost as interest (I). You are forgoing the next best rate of return you could make elsewhere: this tends to be equal to the going rate of interest. So,

P = R - C - W - I

This P is profit. This is the value that tends toward zero. If P were negative (indicating losses), then you clearly would be better off doing something else. People will tend to want to stop this line of production and do something else. People will tend to seek out those areas where P is the largest. But that very action pushes P downward. People will shift investment from where P is negative to where P is positive, making all the P's tend toward zero. In a final state of equilibrium P would be zero in every line of production.

P = 0 = R - C - W - I

But (and here is the answer to your question) people would still engage in those productive activities even though there are zero profits. Business owners would still receive net income: wage and interest income

W + I = R - C

Another way to put it is that profits (P) tend toward zero, but the rate of interest (I) does not. It is interest, not profits, that keeps the structure of production running. (Profit seeking is what impels entrepreneurs to make adjustments to the structure of production, to change it so it better serves the mass of consumers. Profits are possible only when production has gotten out of line with consumer demand and needs to be adjusted. Profits are like a "reward" for making those adjustments. Losses are like a "punishment" for not making needed adjustments or making adjustments in the wrong direction.)

They are up as long as their short-term profits are benefiting them, this seems is 'rational' for an entrepreneur that has no emotional attachment to that particular business.

That's true. The entrepreneur will try to maximize their psychic profit. If they have a particular affinity (or dislike) for a particular business, then they will take that into account as opportunity costs (we could include that in, say C or W perhaps). Their affinity (or dislike) for the business will cause the monetary profit to be less (or greater). It will really be the psychic profit (rather than strictly the monetary profit) that tends toward zero. The difference between the psychic profit and money profit can be considered an act of consumption on the part of the entrepreneur. Insofar as the entrepreneur stays more invested in a less monitarily profitable business simply because he enjoys it (or other attachment), he himself pays the cost and to that extent (and in this respect) is a consumer rather than a producer--serving the consumption of this attachment to some degree as opposed to serving the other consumers' demand. (One example where the consumption aspect is more obvious is if your attachment is the fact that you make donuts and like to eat them. Your eating of some of the donuts is your own consumption (part of your psychic profit), and you will pay the cost in the form of lower monitary profits.)

I would only be earning 1 penny a day, therefore I could not afford to hire anyone. Nor, could I afford to start a business. The reason that I am a labourer is because I don't have any business ideas. Possibly because I was not educated, I amI unskilled.

Okay, fair point. Then not you personally. But other people (who are earning skilled-labor wages and interest returns and making profits) would hire tons of labor, around the house (for their own consumption) or in a business (to serve other peoples' consumption).

Irrespective of your hypothetical, if I was able to get away with paying people the least I could to do a job, then this it is rational for me to do so.

Yes, all else being equal, you would prefer to pay lower wages. The problem is that all else is not equal. Paying higher wages usually means getting more (and better) applicants.

Lets say that for every job that actually exists (not your model) there are two people that want the employment. One can it seems, create competition in the labour market, so that labourers compete with each other for a position, and drive down the value of their labour.

You are considering a case in which the supply and demand for labor is unequal--there is a massive surplus of labor. But you cannot simply take that as a given. Your explanation of things must take into account its causes, not just its effects. What could cause such a surplus to persist? You are correct that such a situation would drive down the price of labor. But that would, in turn, tend toward eliminating the shortage. The supply of labor would reduce, and the demand (the number of jobs and the number of hours offered in each job) would increase, until the surplus disappeared.

If you took the surplus as a given, then you might suppose that the situation would result in an endless downward spiral of wages. But in reality it is not a self-perpetuating situation, but a self-correcting one. The surplus tends to be eliminated, and wages stabilize (at equilibirum, where supply and demand are equilibrated).

However, something could prevent this process from happening. For example, the government could step in and impose minimum wage laws to prevent wages from falling any further. Then the unemployment will persist.

Again this doesn't seem to capture reality.

It's not the case today, because we currently have a surplus, not a shortage of labor. This is because wages are above the market-clearing wage. If wages were below that, then we would have a shortage, rather than a surplus.

Fine, this might be a mechinism in part of your model, but unless one is able to find credit for the 'potential' businesses that are created with the excess labour, the amount of positions open to labourers does not increase.

I think you are suggesting that the number of job offers does not increase as wages drop. That is obviously not true. I, myself, do not currently hire any labor around my house. But if the going wages dropped far enough there are all kinds of jobs that I would begin to hire people to do: yard work, gardening, repairs and maintenance, new construction, cleaning, cooking, driving me around, etc.

For a business, there are possible jobs for which the marginal revenue is less than the wages of additional labor (e.g., I could hire one more person in my bakery, but the additional revenue would be less than the additional cost of hiring the worker). If going wages were to drop below the amount of that additional revenue, then I would hire the additional worker, and then I then I would compare the increase of revenue and cost of hiring yet another worker, etc.

The quantity of labor demanded rises as price falls, just as the demand for anything.

Again, back to competiton between labourers, that need to live. In essence the necessity to live becomes the catalyst for competition that benefits the employers.

That may make the supply of labor very inelastic below a certain price. (Though below an even lower price (subsistence), the supply might probably become very elastic.) If the demand happens to meet the supply in that inelastic region, then, yes, the equilibrium supply would be greater and wages lower than otherwise. (It would not, however, create an arbitrary downward spiral of wages. This motivation of the workers does not change the laws of supply and demand, it only affects the shape of the supply schedule.)

If we consider this a bad thing, then the only really effective fix is to increase the amount of capital-per-capita--to shift the demand schedule up, so it meets the supply schedule above that region of inelasticity.

Outside of the economic model, does a human have any other ends that it ought to be able to fulfill? The problem Marx had, yes Marx, is that by selling my labour only the the extent that I make merely biological ends meet, I alienate myself from what it is to be human.

Yes, there is a heirarchy of needs (part of one's preference order)--e.g., http://en.wikipedia.org/wiki/Maslow%...archy_of_needs . Human actors will seek to meet their more urgent needs first. Maslow suggests that humans will not act to achieve self-actualization until they have first met their other needs. But the act of meeting those lower on the heirarchy does not alienate us from being human, it is an inseperable part of human action. Not having the means to do more is simply not having the means.

(And, ultimately, all human action is economic action, regardless whether money is involved. All human action is about applying available means toward goals (felt needs), and thus having to choose among possible goals and how best to use the available means.)

You assume that there is not an excess of labour. I disagree with that assumption.

No, I don't. There clearly is involuntary unemployment today. What I'm saying is that in an unhampered market, that state of affairs cannot persist. It persists today because of external factors (such as minimum wage laws and special privileges granted to unions by the government).

The world only needs so many of a particular product, therefore only a finite amount of workers to produce it.

In the end, in the big picture, demand is unlimited. There is no end to the possible goals that Man comes up with. Man is very creative.

Now it can happen that man cannot use more than a particuar amount of any given good. But this happens only in rare cases. The reason it occurs is that because human action requires combining different goods. Let's say there are two goods A and B, and A is not very useful except in combination with B. But suppose that A is way more plentiful than B. B is the limiting factor. Thus the rest of A will go unused. This implies that the price of A will be zero.

A maximum like you describe exists only in such a case--where the needed complimentary factors are the limiting factor. One case this exists is the atmosphere, which has a price of zero and I can breathe for free. Another case where this can happen is with land. Sometimes land is not the limiting factor. Instead, labor and/or machinery can be the limiting factor in which case some land is left idle/unused, and the price of the market value of that piece of land effectively drops to zero.

But, the very fact that a good has a nonzero price in the market implies that people would use even more of it if more were available. Then we know that it is not limited by other goods.

Now, you are suggesting that when such a limit is reached, then there are no more jobs, because there is no additional demand for that good. True, there is not currently addinitoal demand for additional units of that good. But there necessarily must be an increased demand for the other good (B)--the limiting factor. Thus there will be increased demand for the labor in the production of more of the limiting factor(s). Thus there is not a net loss of jobs, just a shifting from one line of production to another.

The demand for a good (rarely) comes to an end, not because human desires become satiated, but because of other limiting goods, creating opportunity for profit by expanding production of the limiting factors, which includes new jobs in that line. (incidentally, labor is very often the/a limiting factor, thus pushing wages upward.)

Yes, I do assume that there is limited mobility within the lower wage jobs.

But if wages were below the market-clearing wage, then employers would be willing to pay higher wages, mobility costs, and other benefits, just to entice them to switch (to bid them away) from the other employer.

Correct. What is the purpose of an unhampered market?

That's a broad, open-ended (and somewhat ambiguous) question that could be answered in various ways.

I might answer that markets (really, people engaging in mutually-beneficial voluntary exchange) should be unhampered because anything else is immoral: a violation of liberty and justice.

I might answer, in the words of Murray Rothbard, that it is "eminently realistic, because it is the only theory that is really consistent with the nature of man and the world" (http://mises.org/rothbard/newlibertywhole.asp#p23). Anything else is a violation of human nature.

I might answer that unhampered markets best allow humans to achieve their most urgent goals.

Is that what you are asking?
Or are you asking why individuals want to engage in exchanges and other cooperation with others?

[themuzicman]

Joel, Joel, Joel....

You don't have to try to use logic. This circumstance exited in the 1800s, and workers were exploited and lured into conditions where they could never leave a company because of debts owed and such.

It gave rise to Unions and Organized labor, which resulted in many labor regulations, including the minimum wage.

Now, this isn't to say that the present condition is perfect, but all the logic and posturing in the world can't change the past.

[joel]

You don't have to try to use logic.

Yes, you do. Can't do controlled experiments. History alone cannot reveal to us cause and effect relationships, and can be interpreted only in light of a theory of cause and effect. Otherwise you are simply engaging in the fallacy of post hoc ergo propter hoc.

This circumstance exited in the 1800s, and workers were exploited and lured into conditions where they could never leave a company because of debts owed and such.

Define "exploited." and "lured". How did debts prevent people from switching jobs? Indeed, would that not be all the more incentive to switch to a better-paying opportunity?

As for the history, Mises said it well,

"The history of capitalism in Great Britain as well as in all other capitalist countries is a record of an unceasing tendency toward the improvement in the wage earners' standard of living. This evolution coincided with the development of prolabor legislation and the spread of labor unionism on the one hand and with the increase in the marginal productivity of labor on the other hand. The economists assert that the improvement in the workers' material conditions is due to the increase in the per capita quota of capital invested and the technological achievements which the employment of this additional capital brought about. As far as labor legislation and union pressure did not exceed the limits of what the workers would have got without them as a necessary consequence of the acceleration of capital accumulation as compared with population, they were superfluous. As far as they exceeded these limits, they were harmful to the interests of the masses. They delayed the accumulation of capital thus slowing down the tendency toward a rise in the marginal productivity of labor and in wage rates. They conferred privileges on some groups of wage earners at the expense of other groups. They created mass unemployment and decreased the amount of products available for the workers in their capacity as consumers."
http://mises.org/humanaction/chap21sec7.asp

It gave rise to Unions and Organized labor, which resulted in many labor regulations, including the minimum wage.

Unions were not very popular until the state and federal governments started granting them special privileges. Unions were also disliked because they often resorted to violent means. Now, I have no problem with groups of people forming unions (cartels) to (nonviolently) agree on prices that they will accept. What I disagree with is granting special privileges to them (or anyone else). There is no grounds for believing that unions holding wages above the market-clearing wage would be any different than minimum wage laws. The result is still unemployment (or lower wages in other markets) and reduced production (and thus higher real prices for consumer goods). At best it is the benefiting some workers at the expense of other workers.

The real cause of the increase of real wages and working conditions over the past centuries is the increase in capital per capita.

[Zarathustra]

Hi Joel,

I will respond only to a sample of your comments. If I do not respond, this is likely because you made a good point, or I have no background to retort. I also have limited time for non-essential writing. My main questions are more about your understanding of the human character, and whether the economic model has potential to do violence to it.

You are also right that consumers generally do not care what the history of the good was. They don't care what the costs were in producing it. Thus costs do not determine sale prices. The are sunk costs and have no bearing on our present actions. (The actual cause-and-effect is the other way around: expected sales prices determine costs.)

Yes, that is the worry, the consumer does not know the history of the item they are buying. This allows the seller, were it the case that their work related activity was not regulated, to abuse their workers. Something which happens in the poorer countries, the countries in which there is a surplus of labour.

It might well be the case that a few hundred years of abuse is needed before the country is able to work itself into a position to give its workers rights.

Suppose the tax happens to simply freezes things as they are, and thus there is "no change", or as you say, it decreases the gap between now and profits reaching zero. So looking at that you might say there was no change or little change. But then you're comparing the wrong things. The no/little change is a comparison of two points in time. What you really need to compare is not before and after the tax law, but what things would have been otherwise--without the tax.

Yes, and how is the social structure is changed with the tax. The money does not disappear into the ether, and is in all likelihood working for the worker in some other facet of their life.

No, it just assumes that people try to make profits (more exactly, they try to maximize their "psychic profit", not just monetary profit).

Interesting.

Entrepreneurial profits exist only because of imperfect knowledge and imperfect reasoning. If everyone was fully rational with perfect knowledge and was able to anticipate the future equally well, then there would not be any profit differentials such as I described. In practice, profits go to those who are best able to anticipate and meet future consumer demand--those who are better able to serve the masses of consumers than their fellow entrepreneurs are (and deal with the risks & costs).

Fair enough.

No the existence of an equilibrium is derived from the "model"--from the fact that people act, that they try to achieve goals.

Yes, but how are those goal chosen or determined? The model implies that the choices people make are determined. Hence, that economics has 'laws'. Part of the problem with certain historic characterizations of the human character is that it reduces actors to things that operate in the machinery of some idea. Often that idea is forced on people, rather than it being a natural expression of their nature. Yet people are also quick to reduce human nature to that of an mere animal, or to that of a determined system, where the laws of human nature can be defined in a system. I hazard you away from equating human nature with economic nature.

I didn't say minimum wage laws never have any effect.
In fact, if they are having an effect, then that law is preventing the market from balancing.
If the minimum wage is below the equilibrium (for some kind of labor) then it has no effect. If, on the other hand, the equilibrium wage is below the minimum wage then it will cause a surplus of labor--that is, it will cause unemployment. (You can't assume that all the workers who would have earned the lower equilibrium wage without the law will still have their jobs and be earning minimum wage with the law. On the contrary, at least some of them will end up unemployed, when they would have been earning a wage.)

Yes, the minimum wage is there to protect the worker from earning less than the requirements for a reasonable human life. Those that still have to work 60 hour plus, even on minimum wage, to make ends meet are denied that. I will return to that in a following section.

Now, you can complain about the equilibrium wage being below the minimum wage, but the minimum wage law does not solve the problem. The only real solution to the problem is for the economy as a whole to accumulate more capital goods. The amount of capital per capita is what matters. Only a rise in that amount can really raise real wages and benefit the masses.

Yes, or you can introduce a tax system that places a minimum on what role an actor can play in a society. While this reduces the possibilities for those that have high capital, overall actors will have more oppertunity filled lives (I will discuss the form of that opportunity later). That is, the society first makes its primary concern that each individual is at a certain level of funcionality, thereafter it looks to allow luxuries to the entrepreneurs.

The answer to that question requires a finer explanation. We have to better define what we mean by profit. What is it exactly that is tending to zero. Really to understand this, we have to understand where the rate of interest comes from, which is a whole other discussion. I'll try to summarize without going into a lengthy discussion of interest. And I can explain more if you are interested:

Suppose you run your own business. Naively you might first calculate profit (P) as your sales price (revenue R) minus your money costs (C).

P = R - C

But it turns out this is not exactly correct, unless you consider not just your money costs but your opportunity costs. First of all, you might be doing work (management or other labor) in your business. You should take into account your opportunity cost. You could instead be employed by someone else earning wages. Thus your working for yourself means a forgoing of those wages. Instead you are self employed. So we need to take into account this opportunity cost:

P = R - C - W

Where W is the wages you could have been making otherwise. (Another way to look at it is that instead of doing that work, you'd have to hire someone else to do it, and pay them W, and then you could earn W elsewhere or enjoy leisure time.)

There is one other opportunity cost. You own business assets. You have wealth tied up in those assets. You could shut down your business, sell those assets and do other things with that wealth. For example, you could use it for present consumption. Thus we can see that your role as a capitalist (owning those assets) means you are forgoing present consumption--you are restricting your consumption. Or you could use that wealth and invest it in some other line of production or simply lend it to someone else at interest. In general, we can represent this opportunity cost as interest (I). You are forgoing the next best rate of return you could make elsewhere: this tends to be equal to the going rate of interest. So,

P = R - C - W - I

This P is profit. This is the value that tends toward zero. If P were negative (indicating losses), then you clearly would be better off doing something else. People will tend to want to stop this line of production and do something else. People will tend to seek out those areas where P is the largest. But that very action pushes P downward. People will shift investment from where P is negative to where P is positive, making all the P's tend toward zero. In a final state of equilibrium P would be zero in every line of production.

P = 0 = R - C - W - I

But (and here is the answer to your question) people would still engage in those productive activities even though there are zero profits. Business owners would still receive net income: wage and interest income

W + I = R - C

Another way to put it is that profits (P) tend toward zero, but the rate of interest (I) does not. It is interest, not profits, that keeps the structure of production running. (Profit seeking is what impels entrepreneurs to make adjustments to the structure of production, to change it so it better serves the mass of consumers. Profits are possible only when production has gotten out of line with consumer demand and needs to be adjusted. Profits are like a "reward" for making those adjustments. Losses are like a "punishment" for not making needed adjustments or making adjustments in the wrong direction.)

Very Interesting.

That's true. The entrepreneur will try to maximize their psychic profit. If they have a particular affinity (or dislike) for a particular business, then they will take that into account as opportunity costs (we could include that in, say C or W perhaps). Their affinity (or dislike) for the business will cause the monetary profit to be less (or greater). It will really be the psychic profit (rather than strictly the monetary profit) that tends toward zero. The difference between the psychic profit and money profit can be considered an act of consumption on the part of the entrepreneur. Insofar as the entrepreneur stays more invested in a less monitarily profitable business simply because he enjoys it (or other attachment), he himself pays the cost and to that extent (and in this respect) is a consumer rather than a producer--serving the consumption of this attachment to some degree as opposed to serving the other consumers' demand. (One example where the consumption aspect is more obvious is if your attachment is the fact that you make donuts and like to eat them. Your eating of some of the donuts is your own consumption (part of your psychic profit), and you will pay the cost in the form of lower monitary profits.)

Interesting again.

Okay, fair point. Then not you personally. But other people (who are earning skilled-labor wages and interest returns and making profits) would hire tons of labor, around the house (for their own consumption) or in a business (to serve other peoples' consumption).

slaves you mean? anyone that cannot afford, or only afford, the basics of lifeafter they have sold their labour, is homomorphic with a slave.

You are considering a case in which the supply and demand for labor is unequal--there is a massive surplus of labor. But you cannot simply take that as a given. Your explanation of things must take into account its causes, not just its effects. What could cause such a surplus to persist? You are correct that such a situation would drive down the price of labor. But that would, in turn, tend toward eliminating the shortage. The supply of labor would reduce, and the demand (the number of jobs and the number of hours offered in each job) would increase, until the surplus disappeared.

Hmm, well, the over-production of humans in part drives up the amount of labour. That, and that the resources that those humans can turn into goods is also finite. That market has a lot of workers, and only so many resources that can become products. The result is competition within the labour market.

If you took the surplus as a given, then you might suppose that the situation would result in an endless downward spiral of wages. But in reality it is not a self-perpetuating situation, but a self-correcting one. The surplus tends to be eliminated, and wages stabilize (at equilibirum, where supply and demand are equilibrated).

Again, the model is based around the notion of endless potential growth around both the creation of new uses for labour, and resources to fuel the production of those new products. Is that a reasonable assumption?

However, something could prevent this process from happening. For example, the government could step in and impose minimum wage laws to prevent wages from falling any further. Then the unemployment will persist.

Yes, there is for that reason also a welfare system. This is part of the reason I would prefer to live in european states (not the UK, the UK has seemingly been destroyed by the open market). Not of course because I would bludge off the production of others. Rather, that while not everyone has the opportunity (there aren't enough jobs to go around) to work, those that do are better off and pay for the privilege of working by giving some of their labour to those that are yet to make it into the system. Allowing both parties live better overall lives.

It's not the case today, because we currently have a surplus, not a shortage of labor. This is because wages are above the market-clearing wage. If wages were below that, then we would have a shortage, rather than a surplus.

Yet people on minimum wage still find it difficult to make ends meet. Many working more than 60 hours a week. How would reducing their earnings help keep them out of poverty? A minimum wage, and placing those that do not have extensive commitments (i.e., lack dependents) on welfare seems a more humane way of dealing with wealth inequality.

I think you are suggesting that the number of job offers does not increase as wages drop. That is obviously not true. I, myself, do not currently hire any labor around my house. But if the going wages dropped far enough there are all kinds of jobs that I would begin to hire people to do: yard work, gardening, repairs and maintenance, new construction, cleaning, cooking, driving me around, etc.

Yes, but those people would not earn enough to live within the society. They would in effect be your slaves (work-houses). I'm suggesting that an increase in workers does not imply that the worker is in the position to be human. Again, I will discuss why I think this.

The quantity of labor demanded rises as price falls, just as the demand for anything.

Yes, it reduces the human author to a thing.

That may make the supply of labor very inelastic below a certain price. (Though below an even lower price (subsistence), the supply might probably become very elastic.) If the demand happens to meet the supply in that inelastic region, then, yes, the equilibrium supply would be greater and wages lower than otherwise. (It would not, however, create an arbitrary downward spiral of wages. This motivation of the workers does not change the laws of supply and demand, it only affects the shape of the supply schedule.)

Fair enough.

If we consider this a bad thing, then the only really effective fix is to increase the amount of capital-per-capita--to shift the demand schedule up, so it meets the supply schedule above that region of inelasticity.

Or we introduce a system of socialism. While it 'violates' and 'distorts' your economic model, it aims to protect the lowest worker from inhumane conditions. I grant that this might only be possible in already wealthy countries, and that that wealth comes from the hard work under your economic structure of our ancestors. My hat goes off to them and what they suffered to give us this world; if only people, the rabid consumers, understood what they could be.

Yes, there is a heirarchy of needs (part of one's preference order)--e.g., http://en.wikipedia.org/wiki/Maslow%...archy_of_needs . Human actors will seek to meet their more urgent needs first. Maslow suggests that humans will not act to achieve self-actualization until they have first met their other needs. But the act of meeting those lower on the heirarchy does not alienate us from being human, it is an inseperable part of human action. Not having the means to do more is simply not having the means.

The act of fulfilling basic needs is a necessary component of what it is to be an animal. Animals are tied to their environment, and their 'purpose' is to fill biological imperatives. Humans on the other hand, have something animals lack, choice. To make a human's choice the same as fulfilling only her biological imperatives is to reduce human life, choice life, to animal life. leisure time, is the time in which a human has the opportunity to engage their choice, and to produce art (i.e., that which does not fit within economic life (ownership of course does)). This is what is characteristic of human life. Human life stands outside an economic system, animal life is economics.

(And, ultimately, all human action is economic action, regardless whether money is involved. All human action is about applying available means toward goals (felt needs), and thus having to choose among possible goals and how best to use the available means.)

No, that is a model that you impose on what it is to be human. To be human is to learn to see beauty in the world, and to love and have compassion. These are not economic goals, nor are they animal goals. I'm surprised a Christian cannot see that.

No, I don't. There clearly is involuntary unemployment today. What I'm saying is that in an unhampered market, that state of affairs cannot persist. It persists today because of external factors (such as minimum wage laws and special privileges granted to unions by the government).

As long as regulation allows for human life, over economic life, then your model, however efficient at the goals you see as 'human', is flawed.

In the end, in the big picture, demand is unlimited. There is no end to the possible goals that Man comes up with. Man is very creative.

Yes, there are limits, the Eco system is one. Further, that creativity is being wasted on the production of money profit. What a pity people so often lack an understanding of the power of their choice, (once they have produce the necessities for life, completed their economic task)

Now it can happen that man cannot use more than a particuar amount of any given good. But this happens only in rare cases. The reason it occurs is that because human action requires combining different goods. Let's say there are two goods A and B, and A is not very useful except in combination with B. But suppose that A is way more plentiful than B. B is the limiting factor. Thus the rest of A will go unused. This implies that the price of A will be zero.

Maybe certain economic goods are incommensurable with what it is to be human. I suspect you will want to reduce those also to economics. Certain choices humans can make, are not in terms of transforming material goods into ends.

A maximum like you describe exists only in such a case--where the needed complimentary factors are the limiting factor. One case this exists is the atmosphere, which has a price of zero and I can breathe for free. Another case where this can happen is with land. Sometimes land is not the limiting factor. Instead, labor and/or machinery can be the limiting factor in which case some land is left idle/unused, and the price of the market value of that piece of land effectively drops to zero.

yes, the environment. This ties into the fallacy of endless growth. Again, at the expense of what we ought to nurture. The human life.

That's a broad, open-ended (and somewhat ambiguous) question that could be answered in various ways.

Good!

I might answer that markets (really, people engaging in mutually-beneficial voluntary exchange) should be unhampered because anything else is immoral: a violation of liberty and justice.

I think it is immoral to reduce human actors to animal actors. I fear that your model of what it is to have liberty, is animal liberty.

I might answer, in the words of Murray Rothbard, that it is "eminently realistic, because it is the only theory that is really consistent with the nature of man and the world" (http://mises.org/rothbard/newlibertywhole.asp#p23). Anything else is a violation of human nature.

Your version of human nature.

I might answer that unhampered markets best allow humans to achieve their most urgent goals.

Again, up to a certain point I agree. The free market is good up until a certain point, after that point, when a nation is wealthy enough, other considerations need to take place. Like how to raise children to self-realization. This requires some form of socialism, where the actors realize that to be human is more than to be a means of money production. I am happy that the rich european countries have legislated this basic point.

Is that what you are asking?
Or are you asking why individuals want to engage in exchanges and other cooperation with others?

I'm asking whether the model takes into account what it is to be human. And while it does to the extent that it allows for our animal nature to rech higher tiers in Maslow's pyramid, its usefulness to the creation of the reality of those higher tiers is missing when it reduces the lowest worker to wage slavery in an already rich economy. Once the infrastructure is set up by the invisible hand, it is time to move away from that model of the human life.

[joel]

My main questions are more about your understanding of the human character, and whether the economic model has potential to do violence to it.

The economic model is basically this:
Humans act. They strive to achieve goals. The means for achieving the goals are limited. The goals are unlimited.

Yes, that is the worry, the consumer does not know the history of the item they are buying. This allows the seller, were it the case that their work related activity was not regulated, to abuse their workers. Something which happens in the poorer countries, the countries in which there is a surplus of labour.

Again, a surplus cannot persist in an unhampered market.
So the "abuse" can only be "being paid the market-clearing wage", which is equivalent to "being paid the marginal revenue due to their labor."
How would the consumers change their behavior if they thought the workers were abused? The demand for the product might drop? But that would mean a decrease in both quantity and price. The producer would have to contract production, meaning laying off workers and lowering the wages of those he retains. That's even worse. On the contrary, an increase in consumer demand would be better for the workers. Greater "abuse" will mean higher wages, better conditions, etc.

Yes, and how is the social structure is changed with the tax. The money does not disappear into the ether, and is in all likelihood working for the worker in some other facet of their life.

More likely it is spent on destructive foreign wars and padding the pockets of bureaucrats. wasted on withdrawing productive resources from the market, thus reducing the availability of consumer goods and making them more expensive--making the worker even worse off.
(you seem to have some naive view of government.)

Yes, but how are those goal chosen or determined? The model implies that the choices people make are determined.

The answer to that question is beyond the scope of pure economics. It is perhaps a question for psychology. It does not affect economic laws how those goals are chosen or what they are. What we can assume, though, is that they may be likely to change (and change frequently). Some people may be more noble in their goals. People will also have immoral goals. People are creative and come up with new goals, and their priorities may be constantly changing. Economics takes as given the fact that people have these (changing) goals and priorities, and leaves it to other fields of study to explain their origin.

Part of the problem with certain historic characterizations of the human character is that it reduces actors to things that operate in the machinery of some idea. Often that idea is forced on people, rather than it being a natural expression of their nature. Yet people are also quick to reduce human nature to that of an mere animal, or to that of a determined system, where the laws of human nature can be defined in a system. I hazard you away from equating human nature with economic nature.

Yes, economics alone cannot tell us specifics of what any particular human is going to decide to do. On the other hand, we can deduce some things that must be true about every human action. For example, people arrange their goals in an order of priority. So we can conclude that a person will strive to achieve those goals that they feel are most urgent first (among those goals that they believe that they have the means to achieve). But then from this we can deduce the economic law of diminishing marginal utility: that if a person acquires additional of the same means, they will apply it to goals felt to be less urgent (because we can assume that the means they already had were directed toward the most urgent goals). Therefore each additional increment of a means is less-urgently useful than the one before, thus the law of diminishing marginal utility. Other economic laws are derived similarly.

This is not a reducing of humans to machinery or animals. It is simply deduced from the fact that people will choose what they want. It is true whether the goals felt to be most urgent are base or noble, moral or immoral, creative or unoriginal, simple or complex, etc., regardless of the intelligence, knowledge, or wisdom of the person. Thus these laws in no way restrict or deny the nobility, creativity, self-actualization, or free will (or good or evil, etc.) of Men.

Yes, the minimum wage is there to protect the worker from earning less than the requirements for a reasonable human life.

Yes, that is the intent. But that is not the effect. Suppose workers are earning $5/hr and then minimum wage is set at $6/hr. The intent is that then all those workers will then make $6/hr. The effect is that (at least some of them) will instead make 0--a decrease of $5/hr. The intent was to protect them from earning less than $6. Unfortunately it causes them to earn even less than otherwise--zero.

It also has the effect of reducing production. This in turn will result in higher consumer-good prices. If this effect is greater than the rise in wages, then the $6/hr is actually worth less than the previous $5/hr. Furthermore, the higher wage rate is likely to decrease total payrolls. There is no guarantee that any worker will be better off. And it is certain that some workers will be worse off. (Thus any workers who do happen to benefit from the minimum wage law do so at the expense of their fellow workers.)

Yes, or you can introduce a tax system that places a minimum on what role an actor can play in a society. While this reduces the possibilities for those that have high capital, overall actors will have more oppertunity filled lives (I will discuss the form of that opportunity later). That is, the society first makes its primary concern that each individual is at a certain level of funcionality, thereafter it looks to allow luxuries to the entrepreneurs.

First of all, owning capital is not a luxury, but comes at an opportunity cost. It implies the restriction of consumption--waiting rather than indulging. Secondly, it is the capital goods that cause real wages to be what they are. If you damage capital, then you damage the interests of the workers. Therefore you cannot benefit the workers at the expense of capital. (For a dramatic example, you could take all the seed corn and give it to the workers to eat. But then everyone, including the workers, will starve next year. You could take some of the seed corn, but this reduces next years harvest, which is the only thing out of which new seed and the wages of the workers can come. Thus you may benefit them in the very short run but you'll harm the long term interest of the workers.)

Your intentions are noble, but your suggested means are actually counterproductive to that goal.

slaves you mean? anyone that cannot afford, or only afford, the basics of lifeafter they have sold their labour, is homomorphic with a slave.

How is it better for them to force them to receive no wage at all than a small non-zero wage?
Plus, you are forgetting that my very point is that the above scenario cannot persist in an unhampered market. That the state of affairs in that scenario (a shortage of labor) will drive wages upward.

Hmm, well, the over-production of humans in part drives up the amount of labour.

Now who is equating humans with machines or animals?
Government welfare can only tend to make such a problem worse, by subsidizing children.
Also, historically, less hampered markets have tended to result in the demand for labor increasing faster than the supply. This has been the amazing trend in western nations for the past few hundred years, improving the conditions of the masses more than anything else in history.

Again, the model is based around the notion of endless potential growth around both the creation of new uses for labour, and resources to fuel the production of those new products. Is that a reasonable assumption?

No, what I said there did not assume a growing economy, but only a "stationary" one.
Though there may in fact be endless potential for growth.
And there are always more uses for labor. (just ones of diminishing utility (at any given point in time))

Yes, there is for that reason also a welfare system.

Welfare may be well-intentioned, but it too has the effect counterproductive to its goal.

Yet people on minimum wage still find it difficult to make ends meet. Many working more than 60 hours a week. How would reducing their earnings help keep them out of poverty?

Not even necessarily reducing their earnings.

By, (a) making it so affected workers can earn a nonzero wage instead of zero wages and/or (b) increasing total payrolls and/or (c) reducing consumer-good prices thus actually increasing real wages (though nominal wages fall), and (d) increasing the rate of accumulation of capital in the economy, thus increasing real wages over time.

Fair enough.

Or we introduce a system of socialism.

No, that has the effect opposite the one you intend.

if only people, the rabid consumers, understood what they could be.

Yes, we do have a problem today with overconsumption. Government intervention is a major cause of this. The government shifts investments away from productive uses and to present consumption through its taxing, borrowing, (and money printing) and spending. It constantly urges people to spend-spend-spend and not save (because that supposedly "stimulates" the economy). It creates incentives toward that end. It artificially pushes down interest rates (below the market rate) which reduces the incentive to save, and thus people will consume more instead. It also makes it easier to get consumer (including mortgage) loans to consume more now. So instead of saving and being more productive, people are consuming more and going deeper in debt. The government bails out big corporations and subsidizes risk invarious other ways, impelling people to save less and consume more.

All this tends to make everyone, especially the poor, worse off.

Humans on the other hand, have something animals lack, choice. To make a human's choice the same as fulfilling only her biological imperatives is to reduce human life, choice life, to animal life. leisure time, is the time in which a human has the opportunity to engage their choice, and to produce art (i.e., that which does not fit within economic life (ownership of course does)). This is what is characteristic of human life. Human life stands outside an economic system, animal life is economics.

First of all, what if no human being had the means to achieve anything beyond basic needs? What are you going to do about that? (That is, by the way, the state of affairs that socialism tends toward.)

Secondly, humans even in such a state still can choose (as long as they have that liberty). They could choose a "higher" goal at the expense of a basic one. They can decide they would rather die next week than not paint that painting now.

Thirdly, all human action is economic action. Taking leisure time is an economic action. producing art for its own sake is an economic action. All human action involves choosing among desired goals, based on limited means, even if it simply a matter of choosing whether to do something now or later, to do X first or Y first. Economics does not mean only money and exchange. It refers to a striving to make economical use of all the means available according to our priorities of goals.

(You may note that even noble goals like art require material means: physical space and ground to stand on, canvas, paints, tools, time, energy (and the food that provides that energy), etc.)

No, that is a model that you impose on what it is to be human. To be human is to learn to see beauty in the world, and to love and have compassion. These are not economic goals, nor are they animal goals. I'm surprised a Christian cannot see that.

There's no such thing as an "economic" goal. (Again, economics does not tell us which goals to strive for. It is just about making the best use of the means available.) There are only goals, whether they are love, beauty, goodness, truth, etc. (Or even goals of violence and immorality.) Yes, absolutely, we ought to choose good, true, beautiful, and noble goals. But, we cannot achieve everything that would be desirable to achieve (at the very least we cannot achieve everything right now). We have limited means (even for goals of beauty, love, compassion, etc.). Thus we have to choose among the possible (good) goals. We have to forgo some of them in the achieving of others. We have to forgo some good goals for other even better ones. In other words, we ought to try to make the most economical use of all the means available (among other things, the (limited) means include our time, energy, physical ability, mental capacity, ingenuity/creativity).

(Also note that even money is not a goal but a means. (Except, perhaps, for the (rare) complete miser.))

In the end, in the big picture, demand is unlimited. There is no end to the possible goals that Man comes up with. Man is very creative.

Yes, there are limits, the Eco system is one. Further, that creativity is being wasted on the production of money profit.

No those are means. Yes means (like the eco-system) are limited. That's what I said. Goals are unlimited.
(And don't forget that nearly always money profit is sought as a means to yet further ends. It is merely the medium of exchange.)

Maybe certain economic goods are incommensurable with what it is to be human.

There are no "economic" goods, just goods, whether bread or friendship or honor. And a priority order on them. Ultimately, a person must arrange all of them on the same priority scale.

Goals are not economic or not. Means are not economic or not. Both are misuses of the term. "Economic" applies only to uses of means towards goals. It is those uses that are economic or not: whether this use best achieves one's highest-priority goals. But every human action involves such a judgment (of economics) and choice.

Certain choices humans can make, are not in terms of transforming material goods into ends.

Perhaps. But still involve having to choose how best to use other limited means, such as time, mental energy and capacity, etc. The very fact that you have to make a choice (that is, you have to choose between (at least) 2 alternatives, forgoing one for the sake of the other), implies that your means (whether material goods or other means) are limited--otherwise you would not have to choose. You could have both alternatives simultaneously.

This ties into the fallacy of endless growth. Again, at the expense of what we ought to nurture. The human life.

Again, nowhere did I assume endless growth. (Though I don't see why that is impossible.)

And in the big picture growth can mean nothing more than an increase of means (whether material or other means). So growth, by definition, cannot be contrary to what we most want to achieve (or nurture). That would be a logical contradiction. If we had a growth of one kind of thing (say material means) such that this was at the expense of being able to nurture what we most want (and ought) to nurture, then that is, by definition, not growth, but a contraction. It means we acted un-economically. That is we used scarce means toward a less important goal at the expense of a more important goal. That is what it means to be uneconomical.

Your version of human nature.

How does it differ from yours?

I'm asking whether the model takes into account what it is to be human.

Yes, absolutely.

Once the infrastructure is set up by the invisible hand, it is time to move away from that model of the human life.

Thus killing the golden goose, and reverting us to the stage of not being able to afford self-actualization. There is no other model consistent with human life and human nature.

[themuzicman]

Yes, you do. Can't do controlled experiments. History alone cannot reveal to us cause and effect relationships, and can be interpreted only in light of a theory of cause and effect. Otherwise you are simply engaging in the fallacy of post hoc ergo propter hoc.

Umm... experiments are supposed to give us an indication of reality. History is reality. We don't need experiements.

Define "exploited." and "lured". How did debts prevent people from switching jobs? Indeed, would that not be all the more incentive to switch to a better-paying opportunity?

The money was owed to the employer, who mandated that the debt be paid before the employee could quit.

As for the history, Mises said it well,

"The history of capitalism in Great Britain as well as in all other capitalist countries is a record of an unceasing tendency toward the improvement in the wage earners' standard of living. This evolution coincided with the development of prolabor legislation and the spread of labor unionism on the one hand and with the increase in the marginal productivity of labor on the other hand.

Notice the development of unions and pro-labor legislation.

The economists assert that the improvement in the workers' material conditions is due to the increase in the per capita quota of capital invested and the technological achievements which the employment of this additional capital brought about. As far as labor legislation and union pressure did not exceed the limits of what the workers would have got without them as a necessary consequence of the acceleration of capital accumulation as compared with population, they were superfluous.

This last part is pure speculation. The presence of a union causes all businesses to act to prevent unions from coming to their shop, thus they pay and treat people better. Duh.

As far as they exceeded these limits, they were harmful to the interests of the masses. They delayed the accumulation of capital thus slowing down the tendency toward a rise in the marginal productivity of labor and in wage rates. They conferred privileges on some groups of wage earners at the expense of other groups. They created mass unemployment and decreased the amount of products available for the workers in their capacity as consumers."
http://mises.org/humanaction/chap21sec7.asp

No issues, here. Unions do tend to slow the development of capital. However, without them, the worker would have been far worse off.

Unions were not very popular until the state and federal governments started granting them special privileges. Unions were also disliked because they often resorted to violent means.

No, this isn't a biased view at all.. what happened to WORKERS who engaged with unions? That's right, it was essentially a war. Both sides were violent.

Now, I have no problem with groups of people forming unions (cartels) to (nonviolently) agree on prices that they will accept. What I disagree with is granting special privileges to them (or anyone else). There is no grounds for believing that unions holding wages above the market-clearing wage would be any different than minimum wage laws. The result is still unemployment (or lower wages in other markets) and reduced production (and thus higher real prices for consumer goods). At best it is the benefiting some workers at the expense of other workers.

This is true, however, the benefits of unions in the past was the prevention of absolute exploitation of workers by industry owners. Today, of course, our economy has arrived at the point where unions are largely superfluous (although not entirely)

But they did play a role in the development of the rights of workers in their day.

The real cause of the increase of real wages and working conditions over the past centuries is the increase in capital per capita.

I would disagree in part. The increase in real wages comes from supply and demand. In the US demand for labor combined with increases in technology and efficiency has generally created a higher wage than minimum. An increase in wealth doesn't always necessarily translate into higher wages. Employers don't pay employees more just because they're making more profits. They pay more to hire and retain better employees.

So, this past part, while there may be a correlation, isn't a basis for causation.

I will say that unions tend to mess with supply and demand, as we're seeing in the auto industry today. GM and Chrysler (and probably most UAW workers) make way more than waht their market value would otherwise be. But that is only an indication that the union has outlived its usefulness in many cases.


Michael

[joel]

Umm... experiments are supposed to give us an indication of reality. History is reality. We don't need experiements.

Continuing the Mises quote:

"It is obvious that this controversy [whether labor legislation helped or hurt the workers] cannot be settled by appeal to historical experience. With regard to the establishment of the facts there is no disagreement between the two groups. Their antagonism concerns the interpretation of events, and this interpretation must be guided by the theory chosen. The epistemological and logical considerations which determine the correctness or incorrectness of a theory are logically and temporally antecedent to the elucidation of the historical problem involved. The historical facts as such neither prove nor disprove any theory. They need to be interpreted in the light of theoretical insight."

The money was owed to the employer, who mandated that the debt be paid before the employee could quit.

That should be illegal if it isn't. If the employee can can and wants to fulfill his obligation and work for someone else, the law should protect his right to do so. No involuntary servitude "except as a punishment for crime whereof party shall have been duly convicted." (13th Amendment)

It seems such a situation is a coercive hampering of the market, rather than an unhampered market.

This last part is pure speculation.

No more speculation than the alternative view. The facts can be interpreted only in light of an antecedent theory.

And here is part of your theory:

The presence of a union causes all businesses to act to prevent unions from coming to their shop, thus they pay and treat people better. Duh.

Sure, they may be able to push wages/conditions above the market-clearing level. But then (as I already quoted) to the extent that they did that, "they were harmful to the interests of the masses. They delayed the accumulation of capital thus slowing down the tendency toward a rise in the marginal productivity of labor and in wage rates. They conferred privileges on some groups of wage earners at the expense of other groups. They created mass unemployment and decreased the amount of products available for the workers in their capacity as consumers."

To which you say,

No issues, here.

Then we agree. the effect was a net loss to the workers.
But then you contradict this saying,

Unions do tend to slow the development of capital. However, without them, the worker would have been far worse off.

And I have no idea how you derive this conclusion. You ignore the direct connection between capital and wages. You ignore the fellow workers that were hurt (with lower wages and/or unemployment). You ignore the rise in consumer-goods prices. There is no grounds for your conclusion. On the contrary it seems to me to be pure speculation, in conflict with reason.

No, this isn't a biased view at all.. what happened to WORKERS who engaged with unions? That's right, it was essentially a war. Both sides were violent.

Just to be clear, what are you referring to? By both sides, do you mean the union workers and the non-union workers? The non-union workers (derogatorily called "scabs") were usually the primary target of union violence. Again we can see how any benefits (if any) to some workers from union and labor laws comes only at the expense of their fellow workers.

This is true, however, the benefits of unions in the past was the prevention of absolute exploitation of workers by industry owners.

Which you still haven't defined. What do you mean by exploitation? Surely you don't mean in the Marxist sense? Is paying the market-clearing wage exploitation?

I would disagree in part. The increase in real wages comes from supply and demand.

Yes, and the demand curve is equal to the marginal revenue (from labor) curve (also referred to as "marginal productivity"), just as with any other factor of production. The marginal revenue in turn is affected by the other factors of production: capital goods. An increase of any factor of production necessarily increases the marginal revenue for the other factors. Therefore an increase in capital goods necessarily increases the marginal revenue of labor, which is the demand for labor.

An increase in wealth doesn't always necessarily translate into higher wages.

True. Those with the wealth could choose to simply consume it.
But that's not what I said. I said an increase in capital--that is, capital goods, the complimentary factors of production.

Employers don't pay employees more just because they're making more profits.

They do if they want to expand production (thus hiring more labor) to make even more of those profits. (Or if outside investors and entrepreneurs enter the market to make some of those profits.)

They pay more to hire and retain better employees.

That is one reason. If they want to expand production, they will pay more even to hire and retain employees of the same caliber. (This will happen in the case of an increase in capital, or when consumer demand shifts from some other line of production to this one.)

(In fact, we cannot talk about wage rates for labor in general. Except in the sense that we can talk about prices of goods in general. If you are talking about higher quality labor services, then you are talking about a different kind of good (with separate supply and demand curves), not a unit of the same good. Really if we want to talk about what affects wage rates we need to consider effectively identical labor services.)

[Zarathustra]

Hi Joel,
I'm sorry about the previous post, I did not intend to send it yet, I must have tabed and entered at some stage. Here it is in some further clarity.

The economic model is basically this:
Humans act. They strive to achieve goals.

This is interesting. I expected the sphere of economic relations to be limited to only those that fulfilled the ends of self-love. I should have asked you to give this earlier, it makes understanding your constructions much simpler. That's the brilliance of principles.

In essence, your view seems to be one of absolute negative liberty. And you seem to be suggesting that it also encompasses the idea of freedom, the idea that a human being is something that has choice.

I think, certain kinds of development, for instance self-ralization, do not themselves need goals that have any material component. Outside of the basic animal requirements, and access to certain books because the development is occurring within an human animal. I will return to this in a later part of discussion.

The means for achieving the goals are limited. The goals are unlimited.

Yes, but I want to introduce some value to goals. Some goals are more valuable than others. For instance, the goal that I maximize my profit is more valuable than the goal of me exploiting you and taking your possessions. Why is that?

Again, a surplus cannot persist in an unhampered market.
So the "abuse" can only be "being paid the market-clearing wage", which is equivalent to "being paid the marginal revenue due to their labor."
How would the consumers change their behavior if they thought the workers were abused? The demand for the product might drop? But that would mean a decrease in both quantity and price. The producer would have to contract production, meaning laying off workers and lowering the wages of those he retains. That's even worse. On the contrary, an increase in consumer demand would be better for the workers. Greater "abuse" will mean higher wages, better conditions, etc.

Or, we can introduce a new actor on the stage, called 'the regulator'. This actors primary goal is to enforce rules that hamper the abuse that an employer can enact on its workers in a system where such abuse is likely to occur.

More likely it is spent on destructive foreign wars and padding the pockets of bureaucrats. wasted on withdrawing productive resources from the market, thus reducing the availability of consumer goods and making them more expensive--making the worker even worse off.
(you seem to have some naive view of government.)

Do I? I thought we were discussing an ideal world? My government would be an 'ideal' government. It would regulate to give most workers within the society a reasonable quality of life. The exact equilibrium position between unhampered and regulated markets is a component of this ideal. The purpose is to balance out extreme inequality on both sides of the continuum. Limiting those that are extremely talented in producing wealth, while propping up those that are not lucky enough to be born with sufficient capabilities to protect themselves from predatory business practices that pop up in 'real world' free-market economies. Again, I have the ideal socialist government, and you have the 'real world' version of unhampered markets.
In regard to your idealism, here is something Immanuel Kant once said: 'out of the crooked timber of humanity, no straight thing was ever made'. This is also one of Isaiah Berlin's favorite sayings. I hazard that you apply this to any system that has straight edged equilibrium.

The answer to that question is beyond the scope of pure economics. It is perhaps a question for psychology. It does not affect economic laws how those goals are chosen or what they are. What we can assume, though, is that they may be likely to change (and change frequently). Some people may be more noble in their goals. People will also have immoral goals. People are creative and come up with new goals, and their priorities may be constantly changing. Economics takes as given the fact that people have these (changing) goals and priorities, and leaves it to other fields of study to explain their origin.

Yet it also seems to prescribe laws to how goals are best to be achieved. Surely there can be goals competing goals within the six billion inter-relating goals that contradict the economic models goal of efficiency. Why would we value the economic model's goal of efficiency over those other goals that counteract that efficiency?

Yes, economics alone cannot tell us specifics of what any particular human is going to decide to do. On the other hand, we can deduce some things that must be true about every human action. For example, people arrange their goals in an order of priority. So we can conclude that a person will strive to achieve those goals that they feel are most urgent first (among those goals that they believe that they have the means to achieve). But then from this we can deduce the economic law of diminishing marginal utility: that if a person acquires additional of the same means, they will apply it to goals felt to be less urgent (because we can assume that the means they already had were directed toward the most urgent goals). Therefore each additional increment of a means is less-urgently useful than the one before, thus the law of diminishing marginal utility. Other economic laws are derived similarly.

Yes, but they also arrange their goals within the set of goals available in a society. For instance, that I lack the means to to be abused by an employer because that goal has been taken away from the employer. This is a real goal that the employer cannot have, unlike in the free market where the mechanism for the protection of a worker is an ideal equilibrium. This is not to say that the real world government is able to protect my rights as a worker in all situations, but it does a better job at it than the invisible mechanism of unhinged markets.

This is not a reducing of humans to machinery or animals. It is simply deduced from the fact that people will choose what they want. It is true whether the goals felt to be most urgent are base or noble, moral or immoral, creative or unoriginal, simple or complex, etc., regardless of the intelligence, knowledge, or wisdom of the person. Thus these laws in no way restrict or deny the nobility, creativity, self-actualization, or free will (or good or evil, etc.) of Men.

No, but the system of the inter-relating ends of human beings interact within might. That is, while all those goals are open to one in the ideal, the reality is that monopolies and anti-competitive business arises even in an environment where there is regulation. If I was an employer, and I could conspire against workers, why wouldn't I? Why wouldn't over subsequent generations, the wealth and means of production not fall into fewer and fewer hands until the system is reduced to an oligarchy? If it is possible to make owning all the worlds wealth my families ends, and they were a particular clever lot, why not?

Yes, that is the intent. But that is not the effect. Suppose workers are earning $5/hr and then minimum wage is set at $6/hr. The intent is that then all those workers will then make $6/hr. The effect is that (at least some of them) will instead make 0--a decrease of $5/hr. The intent was to protect them from earning less than $6. Unfortunately it causes them to earn even less than otherwise--zero.

Well, in most developed countries, to about half the minimum wage.

It also has the effect of reducing production. This in turn will result in higher consumer-good prices. If this effect is greater than the rise in wages, then the $6/hr is actually worth less than the previous $5/hr. Furthermore, the higher wage rate is likely to decrease total payrolls. There is no guarantee that any worker will be better off. And it is certain that some workers will be worse off. (Thus any workers who do happen to benefit from the minimum wage law do so at the expense of their fellow workers.)

Yes, the system is not ideal. Yet the regulation does exist, at some stage someone thought it was a good idea to introduce it (in basically every economy in the developed world). I suspect not for trivial reasons, sometimes the reality of an ideal system is its inversion, the tyranny of business ends.

First of all, owning capital is not a luxury, but comes at an opportunity cost. It implies the restriction of consumption--waiting rather than indulging. Secondly, it is the capital goods that cause real wages to be what they are. If you damage capital, then you damage the interests of the workers. Therefore you cannot benefit the workers at the expense of capital. (For a dramatic example, you could take all the seed corn and give it to the workers to eat. But then everyone, including the workers, will starve next year. You could take some of the seed corn, but this reduces next years harvest, which is the only thing out of which new seed and the wages of the workers can come. Thus you may benefit them in the very short run but you'll harm the long term interest of the workers.)

Fair enough.

Now who is equating humans with machines or animals? [IMG]file:///C:/Users/ZARATH%7E1/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif[/IMG]

Ohh, well, from an already present economic perspective the production of children are just a means to market freedom. no free market, without those things that set their ends to be a free market ends. [IMG]file:///C:/Users/ZARATH%7E1/AppData/Local/Temp/msohtmlclip1/01/clip_image002.gif[/IMG]

Government welfare can only tend to make such a problem worse, by subsidizing children.
Also, historically, less hampered markets have tended to result in the demand for labor increasing faster than the supply. This has been the amazing trend in western nations for the past few hundred years, improving the conditions of the masses more than anything else in history.

Yes, I do not have anything against partially hampered markets. We must also not forget the pillage of natural resources and the historic corruption that allowed western markets such world dominance.

No, what I said there did not assume a growing economy, but only a "stationary" one.
Though there may in fact be endless potential for growth.
And there are always more uses for labor. (just ones of diminishing utility (at any given point in time))

Ohh, I'm not suggesting stationary. Just controlled growth, controlled through centralized regulatory considerations. ideal clerks in government offices type deal, the government has its purpose only to regulate some sense of equality in every moment of the present labour trade.

Welfare may be well-intentioned, but it too has the effect counterproductive to its goal.

I would still prefer to live in most west European states over that of any American ones.

Not even necessarily reducing their earnings.

By, (a) making it so affected workers can earn a nonzero wage instead of zero wages and/or (b) increasing total payrolls and/or (c) reducing consumer-good prices thus actually increasing real wages (though nominal wages fall), and (d) increasing the rate of accumulation of capital in the economy, thus increasing real wages over time.

Interesting.

Fair enough.

No, that has the effect opposite the one you intend.

But all I intend it to reduce the inequalities within the system now, not in some ideal future where the market has reached equilibrium. I'm not stopping the market from developing, just slowing its rate so that most get to live in parity with their more skilled and educated fellows. So that overall social life is protected. The mentally ill are looked after, the poor sick are healed and what the 'real world' has defined as fundamental human rights, are protected.

Yes, we do have a problem today with overconsumption. Government intervention is a major cause of this. The government shifts investments away from productive uses and to present consumption through its taxing, borrowing, (and money printing) and spending. It constantly urges people to spend-spend-spend and not save (because that supposedly "stimulates" the economy).

Really, surely it's peoples choice if they want to spend their money, or does the government use persuasion? I thought the problem was that business found out how to connect ends and their emotions together. Thus, able to advertise and manipulate peoples ends (through focus groups) identify how best to create new markets (check out 'the merchants of cool' for an awesome new emergent market, the teen-aged girl!), and to get people to part with their cash, even getting them to mortgage their assets.

It creates incentives toward that end. It artificially pushes down interest rates (below the market rate) which reduces the incentive to save, and thus people will consume more instead.

Wait, that's not a law is it? Surely its the peoples choice.

It also makes it easier to get consumer (including mortgage) loans to consume more now. So instead of saving and being more productive, people are consuming more and going deeper in debt. The government bails out big corporations and subsidizes risk invarious other ways, impelling people to save less and consume more.

So the problem is not that people are spending their money on things that they don't need, and cannot afford? It's government that is to blame, really? People surely aren't coerced by low interest rates? Surely guns don't kill people, people kill people?

All this tends to make everyone, especially the poor, worse off.

Again, I would prefer living in a European socialist state over any state in America and particularly over England.

First of all, what if no human being had the means to achieve anything beyond basic needs? What are you going to do about that? (That is, by the way, the state of affairs that socialism tends toward.)

Does it? You're assuming that socialism means stationary markets, it doesn't.

Secondly, humans even in such a state still can choose (as long as they have that liberty). They could choose a "higher" goal at the expense of a basic one. They can decide they would rather die next week than not paint that painting now.

But i'm not suggesting that a human being does not work towards the ends of staying alive. Just that a part of her day needs to be spent not being coerced by her need to survive. A time needs to be open for her to express her choice however she see fit. In a rich economy, this ought to be open to everyone, irrespective of their value to the labour market. Unskilled workers are subsadised by skilled ones. Not in an absolute sense, but to the extent that the basics are covered for the lowest in a society by the excesses of the highest. Surely we do not value being talented more than we value being common?

Thirdly, all human action is economic action. Taking leisure time is an economic action. producing art for its own sake is an economic action. All human action involves choosing among desired goals, based on limited means, even if it simply a matter of choosing whether to do something now or later, to do X first or Y first. Economics does not mean only money and exchange. It refers to a striving to make economical use of all the means available according to our priorities of goals.

Yes, I reduced economics to the production of basic needs. My mistake.

I thought economics stayed out of what our goals actually are. Hence, why is it allowed to introduce the principle that I ought to be efficient in the fulfillment of a goal?

(You may note that even noble goals like art require material means: physical space and ground to stand on, canvas, paints, tools, time, energy (and the food that provides that energy), etc.)

Surely certain maxims are outside the sphere of economic ones?

There's no such thing as an "economic" goal. (Again, economics does not tell us which goals to strive for. It is just about making the best use of the means available.)

That itself becomes a goal. You are trying to convince me to value that goal. Currently, I think you live in an idealism.

There are only goals, whether they are love, beauty, goodness, truth, etc. (Or even goals of violence and immorality.) Yes, absolutely, we ought to choose good, true, beautiful, and noble goals. But, we cannot achieve everything that would be desirable to achieve (at the very least we cannot achieve everything right now).

Ohh, beauty goodness are just how you deploy judgment, they are practiced. Yet they are practiced not as a means to an ends. They lack interest, instead demanding respect. They are not goals, you do not set being moral as a goal, nor do you set seeing beauty in every flower as a goal.

We have limited means (even for goals of beauty, love, compassion, etc.).

Do we? Surely outside my upkeep there is nothing stopping me from loving, finding beauty in the world and having compassion for my fellows. It's only lazy people that spend their free time eating and watching television that stops themselves becoming more than they are. Again, their choice. The point is that they are given the option, not whether they choose to use it.

Thus we have to choose among the possible (good) goals. We have to forgo some of them in the achieving of others. We have to forgo some good goals for other even better ones.

Yay, we forgo your unrealistic goal for a free market that is not corrupt for socialism and mildy hampered markets. We exchange the evil or the ends of the unregulated other for the known 'evil' of government regulation and social protection.

In other words, we ought to try to make the most economical use of all the means available (among other things, the (limited) means include our time, energy, physical ability, mental capacity, ingenuity/creativity).

Why not use a human being to the maximum extent that we can, we make the most efficient use of their production as we can. But in so doing, we lose sight of certain other ends that have nothing to do with efficiency in the production of ends that are other peoples.

(Also note that even money is not a goal but a means. (Except, perhaps, for the (rare) complete miser.))

rare? You'd be amazed how hard it is to get funding for certain community projects. Funding that doesn't come from the government that is. Ohh i'm sure if people weren't being taxed they would give some of their excess profit to social programmes instead of reinvesting it into new ventures...
Bankers are another good example of the model citizen. The problem with sociopaths, is that so many seem to get so much power.

No those are means. Yes means (like the eco-system) are limited. That's what I said. Goals are unlimited.

Ahh, to dream, in the real world, individual goals are generally about pretty mundane things, like their next meal, and making sure their child can get healthcare. Irrespective it seems of their social rank, or the kind of skills they posses.

(And don't forget that nearly always money profit is sought as a means to yet further ends. It is merely the medium of exchange.)

Agreed.

There are no "economic" goods, just goods, whether bread or friendship or honor. And a priority order on them. Ultimately, a person must arrange all of them on the same priority scale.

Indeed.

Goals are not economic or not. Means are not economic or not. Both are misuses of the term. "Economic" applies only to uses of means towards goals. It is those uses that are economic or not: whether this use best achieves one's highest-priority goals. But every human action involves such a judgment (of economics) and choice.

Like I said, not every judgment.

Perhaps. But still involve having to choose how best to use other limited means, such as time, mental energy and capacity, etc. The very fact that you have to make a choice (that is, you have to choose between (at least) 2 alternatives, forgoing one for the sake of the other), implies that your means (whether material goods or other means) are limited--otherwise you would not have to choose. You could have both alternatives simultaneously.

Fine. I'm just suggesting that the time spent creating the means to live should be limited by regulation, not free market equilibrium. This is not because I want the economy to be stationary, just not growing at a maximally efficient rate so as to protect the worker throughout a part of the systems history. Rather than at the end of the system's evolution when the equilibrium to favor the workers has finally formed.

Again, nowhere did I assume endless growth. (Though I don't see why that is impossible.)

Sorry, I thought it was implicit within the system of efficiency. It's not impossible, we just need to make sure that petri dish that we live in can stand the kinds of goals that particular generations of humans set themselves, generations that lack foresight or an interest outside of lining their own pockets.

How does it differ from yours?

Not every action, or choice, is goal orientated. Some actions are free from material considerations.

Thus killing the golden goose, and reverting us to the stage of not being able to afford self-actualization. There is no other model consistent with human life and human nature.

Don't take such an absolutest stance. I'm not killing any goose. I'm just suggesting that the goose lays so many golden eggs, that the people, by voting, have made it their goal to give almost all a share. While it takes some money to do the sharing with, in the end, we are all just the little bit happier and just that little bit healthier.

[joel]

We're running into the character limit. I had to cut out some of my responses.

This is interesting. I expected the sphere of economic relations to be limited to only those that fulfilled the ends of self-love.

No, economics in general is the study of all human action. (Though a lot of economic science is devoted to exploring one subset of that: catallactics, which is interpersonal exchange, one kind of human action. Even this is not necessarily limited to material exchanges. There could be a pure exchange of service for service, or any voluntary interpersonal interaction.)

In essence, your view seems to be one of absolute negative liberty.

What is negative liberty?
I suppose you could note that liberty is essentially freedom, which is the state of being free, i.e., from something. In that sense it is a negative concept (the lack of something). But I don't know what kind of liberty would be different from that.

Do I? I thought we were discussing an ideal world?

I thought we were discussing the actual world.

In regard to your idealism, here is something Immanuel Kant once said: 'out of the crooked timber of humanity, no straight thing was ever made'. This is also one of Isaiah Berlin's favorite sayings. I hazard that you apply this to any system that has straight edged equilibrium.

I'm not sure what you are saying. I was never talking about an ideal world (except in the sense that an unhampered market can never be perfectly obtained because there will always be common crimes that go uncaught. We can never be perfectly free of violence, but it is a good goal to attain). I have been talking about the actual world. I never said that the economy is ever in equilibrium. This cannot be because data and people's priorities are constantly changing. What we can say is that at any given time, an unhampered market will likely be near equilibrium, because entrepreneurs are always pushing things toward equilibrium, though the economy never quite gets there because of uncertainty combined with the fact that we're chasing a moving target. Any noticeable divergence from equilibrium cannot last long in an unhampered market.

Surely there can be goals competing goals within the six billion inter-relating goals that contradict the economic models goal of efficiency.

Yes, the various goals of mankind can (and do conflict). But, in some ways, that's the very reason for the study of economics. Even for a single person, they must choose between goals where they cannot achieve both goals--you must forgo this goal in order to achieve that one. This is proven by the fact that every human action involves a choice. Thus each person has a priority (or preference) order of their goals (a "value scale").

As for conflicts of interest between individuals, that's where the beauty of unhampered markets really shines. A voluntary exchange is mutually beneficial. Rational people will discover that their own interests (their own value scale) is best served by voluntary mutual interaction (i.e., cooperation) with others, rather than by violent conflict or isolation. By the division of labor, the supply of means increases. As economist Ludwig von Mises said, "What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests....A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions...It makes for harmony of the interests of all members of society." http://mises.org/humanaction/chap24sec3.asp

For instance, that I lack the means to to be abused by an employer because that goal has been taken away from the employer.

By making you, instead, legally unemployable. But that makes you worse off. (What is the nature of this "abuse"? If one employer has hired the worker and paid the market-clearing wage and you think it is "too low." Then is the employer really "abusing" them? What if the employer simply stopped hiring anyone. Then he is no longer guilty of abuse. But now the worker has no job. He was better off being "abused." Recall that the worker too has a choice--can choose isolation, yet chooses to engage in societal relations because it makes them better off.

This is not to say that the real world government is able to protect my rights as a worker in all situations, but it does a better job at it than the invisible mechanism of unhinged markets.

No, it does a worse job. It makes workers even worse off than otherwise.

No, but the system of the inter-relating ends of human beings interact within might. That is, while all those goals are open to one in the ideal, the reality is that monopolies and anti-competitive business arises even in an environment where there is regulation.

Especially where there is regulation. Most monopolies are created by the government. Cartels and monopolies cannot typically last long in an unhampered market. Every day we run into monopolies and cartels created by or protected by the government. That is the problem we need to get rid of.

If I was an employer, and I could conspire against workers, why wouldn't I?

Due to competition from other employers and the demands of the workers (I won't voluntarily work for you for less than X).

Why wouldn't over subsequent generations, the wealth and means of production not fall into fewer and fewer hands until the system is reduced to an oligarchy?

In an advanced capitalist society, wealth is not self-preserving. It must be maintained by good entrepreneurs risking that wealth in the market

Mises addresses this concern here: http://mises.org/books/socialism/part3_ch25.aspx#_sec3
Some relevant points from there: "To own capital one must earn it afresh day by day. In the long run a capital fortune is not a source of income which can be enjoyed in idleness...there can be no question whatever of a tendency for fortunes to grow bigger and bigger. Fortunes cannot grow; someone has to increase them...if, as is generally the case, the heirs are not equal to the demands which life makes on an entrepreneur, the inherited wealth rapidly vanishes."

Family wealth in trade and industry tends to not last. Those families who cease to be merchants and put their wealth in land not to increase their wealth but to maintain it are the families that maintain their wealth. But then, "There are no ancient fortunes which thrive in the sense that they continually increase."

If it is possible to make owning all the worlds wealth my families ends, and they were a particular clever lot, why not?

You would also run into the problems of the inability of calculation under socialism--without market prices for capital goods.

Yet the regulation does exist, at some stage someone thought it was a good idea to introduce it (in basically every economy in the developed world). I suspect not for trivial reasons

Yes, by people who did not understand economics. People who perhaps had good intentions but were ignorant of the consequences of their actions.

Yes, I do not have anything against partially hampered markets.

I do. You speak as if there is an "equilibrium" point of partially hampered markets. But there is not. The intervention (hampering) ends up being counterproductive to the intended purpose. Thus rationally either the intervention must be abandoned, or even more intervention must be added in a chain reaction, the logical conclusion of which is complete despotism.

An example is that of price controls (whether minimum wage or the price of gas or milk or rent.) Suppose good-hearted people are concerned about the availability of, say, milk to the poor. So they impose a price cap on milk so that the poor can afford it. But then this has the unintended consequence of creating a shortage of milk. The net effect is that milk is even less available than before, which is the opposite of the intended purpose: to make milk more available. But such is the effect of any price control (including minimum wage). Rationally we must either abandon our scheme of price controls, or go a step further and control the prices of the factors of production of milk. But this propagates (and worsens) the problem to those goods. At each stage we never have the rational choice of the status quo. We must either go back or go forward. There is no rational middle ground between unhampered markets and complete despotism.

We must also not forget the pillage of natural resources and the historic corruption that allowed western markets such world dominance.

Theft or fraud hampers markets. To the extent that the markets thrived it was in spite of theft or fraud, and was hampered by it.

But all I intend it to reduce the inequalities within the system now, not in some ideal future

Drop the nonsense of "ideal" future. We are talking of actual cause and effect. You are proposing a temporary reduction of inequality by eating the seed corn today at the expense of our starving tomorrow. You are taking a very short-sighted view, not in people's actual interests. Instead of restricting our consumption today so that we have even more means tomorrow, you suggest increasing our consumption today at the expense of tomorrow.

But why force that upon everyone else? Why not simply choose that for yourself, and let others be? The unhampered market allows people to have and act upon their varying "time preferences."

Also forcing "equality" has a negative impact on the motivation people have to serve the consumers and the motivation to contribute to society. It also tends to create antipathy between "classes".

Really, surely it's peoples choice if they want to spend their money, or does the government use persuasion?

Governments have used both persuasion and coercion. I have no problem with persuasion (except insofar as it's from a pulpit created by coercion.)

I thought the problem was that business found out how to...advertise and manipulate peoples ends

The ability of advertisers to override free will is much exaggerated. The tools of advertising are at the disposal of producers of good products, just as much as poor quality products. In the end, the quality of the product will determine the effectiveness of the advertising. As Mises pointed out, "nobody believes that any kind of advertising would have succeeded in making the candlemakers hold the field against the electric bulb, the horsedrivers against the motorcars, the goose quill against the steel pen and later against the fountain pen."

The real problem is government force diverting savings to present consumption.

[The government] artificially pushes down interest rates (below the market rate) which reduces the incentive to save, and thus people will consume more instead.

Wait, that's not a law is it? Surely its the peoples choice.

Yes it is people's choice. But it has to do with their priority order (value scale). What we can state as a law is that, all else being equal, people prefer not to wait. People will be induced to wait only if their future benefit of waiting is greater than not waiting. And this extra benefit of waiting has to be greater than some threshold (varying from individual to individual according to their value scale and free-will choices). One person's preference order might look like:

8 loaf of bread 1 year from now
5 loaf of bread now
7 loaf of bread 1 year from now
4 loaf of bread now
3 loaf of bread now
6 loaf of bread 1 year from now

So, this person prefers 5 loaves bread now to 7 loaves of bread 1 year from now. Thus the threshold that would induce him to wait on 5 loaves is 3 additional in the future. He won't choose to wait unless he is offered at least 8 loaves (3 additional) in return for waiting. This is the origin of the rate of interest (whether we are talking of returns on capital or interest on loans).

Consider if the interest rate was high enough that this person would exchange 5 loaves to someone now in exchange for 8 loaves in the future. If the government steps in and forces the going interest rates down, so that he can only get 7 in the future for his 5 now, then instead of investing, he will prefer to simply consume his loaves now. Or, in the case he doesn't have 5 loaves, he still prefers 5 loaves now to 7 in the future, so he would be willing to take out a consumer loan--to agree to pay someone 7 loaves in the future for 5 today. Either way, his tendency to consume vs save increases.

Thus the government action changes the options available to this person and thus impels him to choose differently. Because some positive rate of time preference is universal, we can conclude that people in general will tend to consume more and save/invest less when the interest rate is pushed down by the government.

And this problem does not exist just with consumers but also within the lines of production which will shift and act as if they would have if consumers' desires had actually shifted in the direction of wanting to consume more and invest less. This tends to result in mal-investment. Incidentally, this is what causes market bubbles (and cycles of depressions).

You're assuming that socialism means stationary markets, it doesn't.

No, I'm not assuming. I have concluded from careful reflection that socialism necessarily results in a regressing (shrinking) economy. It cannot support/maintain a complex economy above the level of subsistance. World socialism would necessarily create economic chaos and send the world back into primitivism.

But i'm not suggesting that a human being does not work towards the ends of staying alive. Just that a part of her day needs to be spent not being coerced by her need to survive.

Who will she loot or mooch off of to change that? If she will not change it herself?
(This is not to disparage charitably helping her improve her means if she is unable. Or creating more capital so the opportunity for wages for her are greater.)

A time needs to be open for her to express her choice however she see fit. In a rich economy, this ought to be open to everyone, irrespective of their value to the labour market.

In other words, others must be forced by the Sword to produce the wealth to provide it for her. But that is slavery. (Unless you are talking about voluntary giving.) And a harming of her greatest benefactors.

I thought economics stayed out of what our goals actually are. Hence, why is it allowed to introduce the principle that I ought to be efficient in the fulfillment of a goal?

Pure economics does not say that you ought to be "efficient" in working towards your goals. What it says is that if you are wasteful, then you won't be able to achieve as many of your goals. You will have to forgo urgent goals that you would not have had to otherwise. It may also mean that you have to forgo goals that were more urgent (of higher value) and achieve only goals that you value less. By definition, people do not want to do this (unless the happen do desire their own wastefulness more urgently than all other goals they have to give up because of it. But then in that sense, they are being economical--they are applying their means to their most urgent goals.)

That itself becomes a goal. You are trying to convince me to value that goal. Currently, I think you live in an idealism.

Trying to maximize the achievement of your most urgently felt goals is not a separate goal in and of itself, but rather a law of human action.

Suppose your most urgent goals that you think that you have the means to achive are, in order:

A
B
C

You will act to apply your means to achieve them. If you say, "But my foremost goal is not to achieve my highest priority goals," then you are contradicting yourself. If there is something else you prefer to do besides A, B, and C, then that implies that the other thing (and not A, B, and C) is at the top of your priority order. If you prefer to give your means away to others more than anything else, that implies that your most urgent goal (A) is to do so and you will choose to use your means in that way. To use your means in another way would be, for you, uneconomical.

There is no way to refute this principle of human action without contradicting yourself. People always act to try to achieve the most urgent goals they think they can achieve. Which implies they use their means as economically as they can. Others might consider that use "wasteful" or "uneconomical", for possibly two reasons: 1) They have a different priority order than the other person and/or 2) they believe that the other person is mistaken about cause and effects--that the other person thinks such and such action will achieve A, but that it will not in fact achieve A.

They are not goals, you do not set being moral as a goal, nor do you set seeing beauty in every flower as a goal.

I disagree. I consider being virtuous (and becoming more virtuous) as a very important goal. Striving to recognize beauty is a noble goal. Striving to create beauty is also a noble goal. Truth, goodness, and beauty are absolutely goals to strive for.

We have limited means (even for goals of beauty, love, compassion, etc.).

Do we?

Of course. There are only 24 hrs in each day. Only 60 seconds in this present minute. You can be in only one place at a time. You have finite mental capacities and energy. You can wear out your mental energy and need to rest.

Surely outside my upkeep there is nothing stopping me from loving, finding beauty in the world and having compassion for my fellows.

Even the fact that you have to do the "upkeep" implies that your means are limited. The fact that you have to choose in order to act shows that your means are limited. Right now, do I focus my attention on this or that bit of beauty in the world? Surely you are not omniscient or omnipresent. Right now do I act upon my compassion for this person (or group) or that one? Surely you do not have the means to end all suffering in the world in a single stroke? No, you have limited means. You must make choices on how to use (or refrain from using) those means.

Why not use a human being to the maximum extent that we can...

No, no, no. That is slavery. You can use yourself and your own means to the maximum extent. (Anything else would not be an unhampered market, but would be an act of aggression.)

(Also note that even money is not a goal but a means. (Except, perhaps, for the (rare) complete miser.))

rare? You'd be amazed how hard it is to get funding for certain community projects. Funding that doesn't come from the government that is.

I think you are not understanding what a miser is. A miser values money not as a means but as an end. A playboy is not a miser, though he seeks large incomes. He does not want the money in and of itself, but for what it can be exchanged for. Money is a medium--a means to an end. A rich investor, even one who does not spend much on anything is also not necessarily a miser. If he valued the hoard of money more, he would not have invested or put the money in the bank, which involves forgoing holding that money. The true miser neither invests nor spends, but holds his collection of money for its own sake, in his mattress. But such a pure money-as-its-own-end is very rare.

Ohh i'm sure if people weren't being taxed they would give some of their excess profit to social programmes instead of reinvesting it into new ventures...

Yes, historically more government welfare means a drop in rates of private charitable giving. It is a disincentive, as well as making people less able to give.

Bankers are another good example of the model citizen.

No, the modern banking system (fractional reserve banking) is inherently fraudulent and insolvent and should be abolished. Being fraud, it is a hamper to markets. There is no reason banks should be given special legal privileges that no other businessman gets.

The problem with sociopaths, is that so many seem to get so much power.

That is one great reason to reduce the size and power of government.

Ahh, to dream, in the real world, individual goals are generally about pretty mundane things

I didn't say they were necessarily not mundane. I just said they [goals] were unlimited. If all those mundane things were achieved with means left over, people would still put those means to use on yet other goals.

Fine. I'm just suggesting that the time spent creating the means to live should be limited by regulation, not free market equilibrium.

The problem is that the means are limited in an economical sense, not by the market. No one is forced to engage in a free market. People do voluntarily because it makes their means less limited, not more. The problem is the limited means. Regulation does not do a single thing to produce additional means, and thus not a single thing to reduce the "limitation". On the contrary, it tends to have the opposite effect.

Again, nowhere did I assume endless growth.

Sorry, I thought it was implicit within the system of efficiency. It's not impossible, we just need to make sure that petri dish that we live in can stand the kinds of goals that particular generations of humans set themselves, generations that lack foresight or an interest outside of lining their own pockets.

Yes, indeed. Whether the economy grows is dependent on individual preference orders of their goals (as well as their knowledge/intelligence/wisdom/foresight). We could all choose to eat the seed corn, live it up today, and become extinct tomorrow.

Not every action, or choice, is goal orientated. Some actions are free from material considerations.

Every action is "goal oriented." Name one that isn't.
As Mises put it, "The incentive that impels a man to act is always some uneasiness. A man perfectly content with the state of his affairs would have no incentive to change things."
http://mises.org/humanaction/chap1sec2.asp

This does not necessarily have to do with material considerations.(Except that you have to eat.)

I'm not killing any goose. I'm just suggesting that the goose lays so many golden eggs

First, we aren't talking about a zero-sum game.
Secondly, if anyone, it is you talking about limiting the number of eggs the goose lays (or at least forcibly reduce the rate at which it grows).

[Cyber Disciple]

I hope that James 5:1-7 will be remembered in this debate.

I'm a supporter of Capitalism but I'm against those who exploit people and deny them pay in order to make a profit.

[joel]

I hope that James 5:1-7 will be remembered in this debate.

I'm a supporter of Capitalism but I'm against those who exploit people and deny them pay in order to make a profit.

If Alice agrees to pay Bob in exchange for labor services, and Bob does it and Alice does not pay the agreed-upon price, then that is a form of theft (fraud), which should be illegal. It is no part of an unhampered market (capitalism). But beyond that, how do you 'exploit' people? There is no justification here for a minimum wage law.

[Cyber Disciple]

well your example of of alice and bob is an example of exploitation.

My comment was more or less an effort to help people in this chat remember that whatever our views of economy . We should remember that our views should at least include the passages that clearly state God's opinion on what is an ethical economy.

[joel]

well your example of of alice and bob is an example of exploitation.

My comment was more or less an effort to help people in this chat remember that whatever our views of economy . We should remember that our views should at least include the passages that clearly state God's opinion on what is an ethical economy.

What does the passage you cited condemn? Fraud and murder. Certainly that should be illegal. But that has nothing to do with such things as minimum wage laws.