Comments on Profit and Capital
Comments on Profit and Capital
Yeah, I know, Marx wrote three volumes on this, and in 2014 Piketty published in English a more than 700 page book on it that ended up on the bestseller list, although neither of these resolved the long-running debates about the nature of profit or of capital, which continue to swirl. We have seen recently someone claiming that distinguishing between retained and distributed earnings is the key to understanding profit, and failing to do so means all of economics as we know it is wrong. But then there have been many other views that this view does not remotely address. Regarding capital itself, which profit is usually thought of as being one of the sources of income related to, let me quote the following that notes a range of views out there.
“What really is capital and what does it mean for value, growth, and distribution? Is it a pile of produced means of production? Is it dated labor? Is it waiting? Is it roundaboutness? Is it an accumulated pile of finance? Is it a social relation? Is it an independent source of value? The answers to these questions are probably matters of belief.” From Catastrophe to Chaos: A General Theory of Economic Discontinuities, Kluwer, 1991, p. 125.
I leave it the imagination (or googling) of the reader as to who the author of that book is, although I note that the quotation appeared in the second edition of the book that came out in 2000.
So there are surface issues regarding the nature of profit and capital, and there are deeper issues. This quotation lists some of the deeper arguments that have been made by different schools of economics. The “pile of produced means of production” is basically a Principles textbook orthodox position, which rules out financial definitions, with many “people in the street ” thinking it is an “accumulated pile of finance,” a later answer in the list. People teaching intro econ courses like to pound on wrongness of this popular view, ultimately falling back on the argument that capital is a “factor of production,” which means that whatever it is one must be able to use it in actual production processes.” Machinery and buildings and other such “produced means of production” do that, so they count, and the building of them is what “real investment” is, not just somebody using some money to buy some financial assets, which is what the person in the street usually means by “investing my capital.” We spend lots of time disabusing them of their delusions, we who know that “money is an illusion,” and that while finance is very important in the functioning of modern economies, piles of money or financial assets do not in and of themselves actually produce something. Rather they are indicators and means for determining who gets to own those actually productive forms of “real capital,” oh to throw out another term.
So some of the later definitions seek to get at the foundations of where this producing of these productive means of production come from, all that “real capital investment.” So, if we are inclined to a Ricardo or Marx labor theory of value view, then all we see about is either produced by current or past labor. That truck over there was put together by workers with machines in a factory, with those machines made by worker and some other machines, which in turn were made further in the past by yet other workers and other machines, and so on and on until we can reduce all of those produced means of production to being really a bunch of current labor plus a whole string of past labor going way back into the depths of time from many many now-dead workers.
Curiously, although the Austrians abjure the labor theory of value, the theory of “roundaboutness” is theirs, notably Bohm-Bawerk anyway, and he derived it precisely from looking at this sort of Ricardo-Marx argument that I laid out. So past time gets dragged in, with the longer that stream of past labor goes into the past, well, the more roundaboutness, and this is what he said was capital, and to get at another question raised, how it came to be an “independent source of value,” from just current labor time.
But dragging in time gets us to”waiting,” which also drags in finance, given that we are talking about saving, which is usually done by piling up financial assets of one sort or another, some of which may pay yet another source of capital income, namely interest. Proto-neoclassical, Nassau Senior, got on this one, although this is deeply part of the official neoclassical canon, which in the formulation of Irving Fisher had the real rate of interest being that which established the intertemporal equilibrium between the willingness to wait by not consuming today, and effectively the marginal product of infestment, or capital is you prefer, coming from the production side, those produced means of production, with an implicit assumption that what does not get consumed and so saved, ends up being invested to create that “real capital,” waiting being crucial to all this.
Of course the “social relation” answer is the deeper Marxist view, the part that distinguishes Marx from Ricardo.
Quite aside from this there is the surface aspect of profit and capital, which turns out to be quite complicated, even the trivial surface matter of accounting to measure it. I said in an earlier post that it is at one level simple, for a firm at least, profit is revenues minus costs. But agreeing on the proper accounting measure of that gets messy, even for the simplest of firms. One has to pick a time unit, although a year is pretty conventional for tax reasons, if nothing else. But what gets counted as revenues? Sales? How about money gained from lawsuits? How about money from illegal bribes that is unreported?
But it is on the cost side where things get really hairy, and some of those disputes end up with the schools of economics also. So, we know that since Marchall standard economists have counted the “opportunity cost of capital” and indeed of other factors in principle, as costs, with accountants most definitely not counting those. Accountants like things to be easily measured and straightforward, whereas deciding what is the “niormal rate of return” throws one into much messier territory without a definite answer. But even avoiding that sort of thing, there are competing schools of accounting. So does one look af FIFO or LIFO? In looking at the costs of a machine, is it the original amount paid for it or the cost of replacing it, and so on? In short, even the surface matters of accounting are a huge mess once one looks beneath the surface at all,
And none of this, not the deeper issues, nor even the surface accounting issues, are remotely resolved by declaring that one must focus on the division between retained and distributed earnings. Heck, that does not even fully explain firm investments, as only about half of the funding for investments comes from retained earnings, at least in the US economy. But, maybe this does not matter if one is trying to build a general theory of all economics on such a shallow and empty accounting identity.
Addendum: There is far far far more I could talk about here, but let me add just a few remarks on one issue that has had a lot of attention recently, the rising share of capital income at the aggregate level, which, whle not the whole explanation of it, has correlated with the rising income inequality going on in most nations of the world during the last several decades. Of course this was the main theme of Piketty’s book. He had the data, but his theoretical explanations drew lots of criticism, including from me. He fell back on his r> g argument, which was good for marketing the book, but was easily shown not to do the trick to explain the rising capital income share even on a garden variety aggregate neoclassical production function analysis. Of course, Cobb-Douglas such functions are useless in this matter as they generate constant factor shares. And then there is the whole Cambridge capital theory critique of aggregate capital and aggregate production functions, ironically a critique at least partly shared by more sophisticated Austrian economists as well. Many dumped on him for throwing in land with the capital stock and returns to land as capital income, which some have argued carries a lot of the weight on the empirical findings. In the end when pushed, he has tended to fall back on waving his hands about politics and the collapse of unions and social-political power trends for at least part of his explanation, which looks to me to be playing a big part of it. Needless to say, focusing on the division between retained versus distributed profits does not remotely address the question of how much of national income is going to capital forms of income.
You bring out many of the issues of capitalist based economy and economics…. which have been theorized, created, debunked, confirmed (both debunking and confirmations apply however to subsets of time or place), with volumes written on them by different “schools” of thought by different people with “new” insights or old ones refined with “new” interpretations.
There is however a fundamental basic which defines capital… it is the real value of that which is not direct labor.
In a barter system labor was exchanged for goods directly … the goods could be accumulated and stored (wheat for the most common example) … wheat was capital.
Money or currency as a mobile and transferable form of capital started with Khengis Khan who guaranteed a bill of sale of one good for a price in trade for another good.. The bill of sale, being guaranteed (and enforced) became a currency… transferred, bought and sold just like money today because it represented the value of the goods.
So you have to distinguish between capital represented by a currency or representations of currency and capital as a physical asset. It get’s confused since for most to time, a precious metal which had intrinsic real value because it was difficult to obtain, therefore a relatively scarce asset, but also relatively mobile and easily transferrable, and also controllable (by whatever king or ruler commanded the military that used the slaves to mine the precious metal ore).
Where as with a bill of sale representation of capital it’s value was based solely and only on the trust that it’s value was guaranteed by in that case Genghis Khan’s military and governors to enforce it… and they did, but it changed the nature of transactions of goods from a direct barter system among traders to a currency system of trade…. making the transactions “financial” rather than “barter” economics.
And “interest” is the time value of an asset.. Interest is the rent cost of using an asset belonging to another…. rent for time of its use. When you borrow somebody else’s store of wheat for a year you must replace both the store of wheat and then some the next year after harvest.
And then there’s risk charges… since there is some uncertainty of whether the wheat will be replaced in full, on time, and with the rents included on borrowing the wheat, a risk charge is added to the rents.
We confuse interest on an asset with the risk charge on borrowing since they are commonly lumped together in one rate…. but in reality the rate is composed of rent + risk and they are separately determined in a competitive market. How well the risk is assessed in a composite of borrowing assets determines the success or failure of the asset owner.
These are the fundamentals of capital finance…. the rest, as you well describe are variations depending on points of view or how one decides to define or set a value.
But one thing hasn’t changed since Genghis Kahn’s enforced guarantee of a bill of sale: Trust that the value of an asset represented by currency (contract of transaction) is fixed and enforced.
And the enforcement part of this generally requires a government (or paid enforcers in non-government transactions). It is thus that there exists a “political economy” .. and thus economy requires gov’t which immediately makes them inseparable and indistinguishable in transactions in trades of assets.
Thus gov’t, and therefore politics of a gov’t define the rules of transactions and how assets will be valued … letting the market then define the value only under those rules.
However, and this is the critical part of economics, no asset has any value without labor. A piece of land cannot produce anything a human can use without applying labor to it. It may have potential value… that potential only realizable by the application of labor … human exercise of time and energy. Game in a forest has potential value but only has any value if and when a human traps or kills or milks, or shaves it , or puts it to work under harness by human control by the expenditure of human time and energy.
And so I have always asked myself why it is that capital should have any more value than labor since each depends wholly and entirely on the other in equal quantity. Yet capital does have greater value and that can only occur by rules.. the rules that define how value will be determined and thus the rules of gov’t which is to say political economy”.
And thus clearly, since the rules are enforced by gov’t , then those who constitute gov’t have made the rules such that labor is valued at less than par with capital. And that can only occur if those who constitute gov’t are those who also prefer labor be valued at less than par with capital. And then by cause and effect analysis, those that constitute gov’t are those with capital or who depend on those with capital.
In that context then capitalism is an economic system that can only exist in the form we have known it to exist by the ability of capital owners to enforce the rules they make themselves to prefer greater value on their capital than is provided to labor’s value.
This can be synopsized with the oft repeated phrase: “Might makes right”…. which is in fact, and unfortunately in the modern world, an outgrowth of human evolutionary behavior, tempered only as much as necessary to maintain civilization .. which is to say societies not in chaos..
Barkley, a final note on the topic… food for thought.
The difference between labor and capital is that capital can be accumulated &/or saved over time. Labor possesses neither of these attributes.
So why is it that one who accumulates or saves an asset over time and then profits on sale or by lending it (interest and risk rents) does not share the profit equally with the labor that provided the asset’s initial purchased value?
The profit occurs only with the passage of time, plus luck and circumstance which has no human content.. e.g. is independent of the asset owners human labor (mental or otherwise).
You can say that the asset owner was taking risk and thus the profit is the asset owner’s labor value of risk. But pure risk produces no net profit… since pure risk has equal probability of profit and loss. Therefore asset owners in composite cannot profit on pure risk and thus there is no labor value in pure risk taking.
Thus if asset owners on balance profit by time ownership of the asset it is not due risk taking, but a bias beyond risk. That bias can only be in asset owners having an advantage over labor. Whence the source of that advantage?
There are as best I can figure, only two possible sources of advantage:
1) The asset purchaser has obtained knowledge not available to others … how and from whom this knowledge is gained can only come from sources who supply that knowledge willingly to the asset owner or else the asset owner obtains it by stealing that knowledge from it’s source
Further one can say those who supplied that knowledge to the asset owner did so by being paid by the asset owner to provide him(her) that knowledge. Then the issue becomes why those with the knowledge that others were not provided were able to know it without anybody or even everybody else also knowing it… e.g. how could the knowledge be kept from being publically available knowledge?
I can think of three reasons why it wasn’t publically available knowledge.
— a) it was acquired by education not available to others for whatever reasons, though the knowledge thus acquired was not secret or proprietary but only available to those who could afford the education to acquire it.
— b) It was acquired in the course of a person or group’s activities or employment as product of direct or indirect effort to acquire special information / knowledge and held for profit by sale to the highest bidder.
— c) It was proprietary knowledge of gov’t or other institutional insiders on future actions to be taken, but which knowledge was “leaked” by some members of the gov’t or institution in order to use it to profit on selling the proprietary information though it was not knowledge to disclose… in other words they stole it by being members of a gov’t or institution and had acquired it but did not own the information or allowance to disclose it.
Thus in 1 of 3 possible sources of the knowledge acquired it was by not following the rules… a theft as it were in fact.
In 2 of 3 possible source that knowledge was within rules. However in one of those 2 sources, it was by having sufficient funds to acquire a special education not available to most others, and certainly not the public at large…. this can be considered a bias in acquisition of knowledge by acquisition of wealth and means not available to most.
In only 1 of 3 possible sources of knowledge was it acquired by unbiased means within the rules… e.g. labor expended to acquire special new knowledge (in modern terms we call it innovation or development or invention) held for the specific purpose of a transaction of sale at cost of labor + overhead + profit.
But then the asset owner that profits on purchasing that knowledge not available to others was only able to do so because they had capital available to do so. Whence the source of that capital?
Possibly by having sold their own labor to acquire it or possibly by having profited from a prior asset purchases held for time to sell at profit by prior knowledge gained … etc. you can take it back to the original source of knowledge obtained in the first transaction — which could be at different points in time from any of the three knowledge sources. Indeed, depending on perhaps birth family that was already a capital owner, it would be reasonable to expect such capital ownership to be transferred though time by associations and familiarizations learned from the birth family.
2) The asset owner’s profit bias is due to rules which are biased to give asset owners profit advantage in holding assets for time or the absence of rules that require they share the profit equally with the labor that provided the asset value in the first place.
The summary is that asset accumulation and time use of assets to profit is already
— a bias not available to labor, and is
— then further advantaged by asymmetry’s of knowledge / information which favor’s asset owners over labor, and then is
—further biased again by the rules designed to provide asset owners profit advantage over labor.
I forgot to define profit. It is critical to define it in the context of economy and asses, labor and capital.
In subsistence farming or the use of labor to survive by any other means labor is exchanged for food, housing, clothing and protection (security). There is no excess remaining of the labor effort and time expended over time.
Profit is the excess of the product of labor not required to meet subsistence. Profit may be used and is by definition used to improve the standards of living over subsistence living.
By using efficiencies of cooperative labor, e.g. divisions of labor specialties, the same expenditure of time and effort result in the composite labor effort having profit which increases the standard of living of labor.
Thus, depending on the degree of cooperative use of labor efficiencies by labor, labor’s standard of living changes… hopefully, increasing as efficiencies of cooperative labor increase… offset of course from time to time by factors beyond human control — natural events.
At any point in time therefore “subsistence” living is defined as the standard of living at which there is sufficient cooperative efficiencies of labor to maintain the then acquired standard of living.
Profit is that which is then the product of labor in excess of maintaining the then existing standard of living.
And since the excess is a product of human expenditure of time and effort beyond that standard of living then acquired, the rate of improvement of standards of living is a direct function of the rate at which an excess product of labor can be generated (rate meaning excess per unit time and effort of humans).
This your final, final note?
I hit “post comment” unintentionally before finishing.
The rate at which the excess is achieved is called the rate of productivity gain and thus productivity’s gain implies the rate at which labor increases it’s standard of living.
I say “implies” because that’s not what actually occurs in fact Labor does not gain in standards of living at the rate of labor’s productivity gains.
This is just empirical evidence that a bias exists by rules to limit labor’s standards of living below the level labor has increased their productivity gain. In other words a rule based bias favoring capital over labor.
Final, final, final note?
Run, maybe, maybe not… who knows?
Just two comments from me.
The first is that your definition of capital looks like that of Piketty that I discussed that does not agree with more widely used ones because it includes land as capital. Land is certainly not direct labor, and it is an important input, especially in certain industries, and the income it “earns” or “receives,” if you prefer (not going to get into Georgist arguments here, although they are based on Ricardo’s view, who had a labor theory of value view) is rent, not profit.
The other is that you are completely wrong in your claims about Chingis Khan inventing transferable bills of exchange and banking. The Tuscan bankers and their associates in Flanders were at it before him. The word bank comes from the Italian “banca,” meaning “bench,” where merchants would sit and do money exchanging and lending and sending out and receiving these long distance bills of excahnge. The original such bench was in Siena next to the Piazza Campo, and ironically Siena is the home of the world’s oldest continuously existing bank, Monte dei Paschi di Siena, founded in the 1400s, some time after that original banking, and just recently bailed out again financially.
I’m sorry to burst your belief in the Tuscan’s, but it was indeed Ghengis Khan who introduced transferable bills of exchange as currency, and then followed it with actual paper currency the values of which were defined and enforced by his gov’t under pain of death.
You’re conflating “banking” with currency… banking as defined by the Tuscan’s was exchange of coinage … gold, silver minted pieces. Currency as paper with prescribed and enforce value of exchange wasn’t introduced to Europe until after Marco Polo described it on returning from the Khan Empire.
Unfortunately , I no longer have my book on the biography and history of the Khan dynasty so cannot cite the precise academic source.
I looked for other documentation on the web.
I’m sure you can find others with more diligence than I’ve used in the last 5 minutes.
“The first is that your definition of capital looks like that of Piketty that I discussed that does not agree with more widely used ones because it includes land as capital. Land is certainly not direct labor, and it is an important input, especially in certain industries, and the income it “earns” or “receives,” if you prefer (not going to get into Georgist arguments here, although they are based on Ricardo’s view, who had a labor theory of value view) is rent, not profit.”
“definition of capital ….more widely used ones…”
My only reference to land was that is has no value without the application of labor to utilize or obtain something of value from it, nor did I refer to it as capital.
Land is, like air and water, a fundamental basic resource which humans (and other forms of living things) utilize to survive in the basic sense, and from which humans can thrive in the more productive sense.
Let’s make this very simple: Humans describe “value” since without humans “value” doesn’t exist… so value is a human relative invention. Land, air, water (on planet Earth) exist whether humans exist or not. Therefore land, air, & water are necessary predicates for human life (via an evolutionary process over billions of years). To the extent humans apply their time and energy to surviving and prospering with increasing standards of living by utilizing those resources upon which they depend for life itself, then land, air, and water have “value” which can only be derived from the exercise of human labor.
What-ever else you might want to describe related to land must necessarily emanate from the above. I don’t think, and am indeed absolutely certain, this is not arguable.
What you are saying about “capital” is that there is a singular definition of it.. one which serves capital owners interests by the rules they used to define what land is. (or in some definitions, isn’t).
Since capital can be accumulated and saved over time, while labor cannot, then the application of labor to land creates an asset which may be saved, stored and accumulated over time.
Thus those assets that emanate directly from the application of labor to land necessarily depend on land, and thus to the extent these land based assets are not fully and immediately consumed, but are saved, and/or accumulated over time, then in reality land is one form of capital if and when it can be used through the application of labor to create a value which can be saved and/or accumulated.
Any other definition of land or to define it as “not capital” is pure propaganda provided by those who own land…. e.g. which brings us to the concept of “private property rights”… which is another of the necessary elements comprising a capitalist economic system capitalism..
BTW, I’ve read Piketty’s book in depth (just once so far though) and followed the controversies and arguments with some interest. But as yet, all of those controversies and arguments are simply based on which set of rules (related to the economic system) are or should be or have been in the past, applied and enforced. So it’s still all only relevant to who or what gov’t rules apply and to whose greatest interest and benefits those rules were made to benefit.
And as I’ve tried to point out they have been set by those that have the power to set them… which is to say in all cases. those who control gov’ts. .. All evidence to date is that those who control gov’t are those with the most wealth which is to say those who have been able to save and accumulate assets over time and by time plus asymmetrical information) also profited.
Also I think you misunderstand “rents” vs “profits”.
Rents are income (value) obtained by the owner of an asset when the asset has been borrowed from the owner and used by another (non-owner). In modern economics rents are also used to describe excess profit…. that which is obtained by an owner by being able to charge a price for an asset or it’s use by another from having monopoly power — or in other words by avoidance of competitive markets.. by whatever means.
However an owner of land profits when the owner utilizes the land to extract a value from it that they then sell at profit… Those are not rents in the terminology of economics and finance.
There is also another concept of rents from assets. That is when the asset is publically owned … e.g. not able to be owned by humans … air is an example, but land can be asserted to be a public asset as well, and when land is thus asserted then any profit obtained from the land by a user of the land is also called rents. But this is just a subset of the basic definition of rents when a person or group usurp the use of public land for their own profits.
A better and more accurate description of when “land can be asserted to be a public asset as well, and when land is thus asserted then any profit obtained from the land by a user of the land is also called rents” is better described as theft.
For you, this is becoming a matter of control. I believe you are somewhat over the top in your pursuit of it and answers. Nest your comments, there is no need for multiple comments to two short paragraphs of the author. Relax . . . There is nothing to prove.
I am not going to comment on your garbled remarks on rent, profit, capital, and land as they are so contradictory and incoherent you should be embarrassed for having written them here.
However, on the other matter, I hate to burst your bubble about Genghis Khan and bills of exchange, but, no, he played no role whatsoever in inventing, and in fact did not use them at all. The problem can be seen by looking at both of your silly links, one written by some blogger named “Brian,” and the the other put out by some coin shop. Both of them, which contradict each other regarding important details, report that what Khan did, and then his grandson, Khubilai, did again even more so, was to develop a certain form of durable paper money made from the bark of mulberry trees. Now this paper money was better than other paper money, although paper money had been being produced in China since at least 140 BCE, so neither of them can be credited with inventing paper money, merely making a more durable type of it that could be carried across the Silk Road, which Genghis Khan did reestablish, a genuine economic achievement that linked the world economy.
Now there is a source of confusion in some of the literature. So, if you look at the Wikipedia entry for “Pax Mongolica” you will see the claim made that you did, that GK “introduced bills of exchange to Europe.” However, when you look at the provided link it becomes clear that what is being referred to as “bills of exchange” are merely this mulberry tree bark money already mentioned..
So, how does a bill of exchange differ from regular paper money? It involves a specific debt. According to Wikipedia again, its earliest prototypes appeared in Tang China, well before GK. But the full development came in medieval Europe, with more elaboriate prototypes appearing in Italy and Iberiia in the 12th century, prior to GK’s 13th century conquests. The full proper development of bills of exchange came as I said from Tuscan-Flanders trade in the 13th century, about the same time as GK’s conquests, with the key cities being Florence and Bruges at each end of the international use of these.
The definitive source is p. 39 of the Charles Kindleberger’s Financial History of Western Europe. A more recent source is Dimitrios Havlidis, Medieval Currency Banking and Currency, available this year at https://www.lostkingdom.net/economy-medieval-banking-currency .
Run, when Authors’ provide information that I find to be misleading or inaccurate, or who leave out information which is Germaine to the topic (either intentionally or by lack of knowledge) or when I believe there is far more to the subject than it implies is the case, I often think it is incumbent on others to elaborate and/or identify mis-information, mis-leading or just false content, express alternate reasoning, or provide additional information to give other readers a more complete picture.
I’m sure you know that each topic is actually a form of discussion on AB’s web-site…. somebody authors a piece expressing opinion or a view of things or information they find important enough to discuss.. if there is no discussion then AB is a presentation platform only.
I’m not sure what you mean by “control”… I have zero control of anything except myself. In responding to comments or the author’s content I make every attempt to provide accurate information, with sources, and maintain a rational basis for my expression, and provide my own opinion’s on occasion as well.
Mostly I’m simply interested in the author’s topic or some super-or sub-set of it and normally have some knowledge that is applicable to the topic, or I spend my time to become more knowledgeable.
However, I’m vehemently opposed to mis-leading information, nuanced information which supports misleading or false information posted on AB (or other discussion sites I read .. like two others?) or a point of view or position that supports or defends ideologies or preferences to which I’m opposed, especially when they are narrow minded, bigoted, based on known false premise, unsupported premises, illogical foundations, circular argument, nuanced prejudices, and nationalist (“U.S. is superior;”; “our way of life is best”) belief systems.
I firmly believe that in a democracy, or any system that purports to be one, and where people have the “vote”, the only other way to influence the system besides the vote, is to discuss issues and make one’s opinions and foundations for them known to as many others as possible — public discourse — and follow through with exposing or defending reasoning used to support the opinions.
So what do you mean by “control”?
I am trying to help and guide you. It takes me a god awful amount of time to write something. I am never satisfied with it. And that is my down fall. Not angry at your comments. Your remarks are well written. Brevity always worked for me and I am known for what I do not say in the business world, doing what I say I will do, and my integrity. None of which applies to you.
OK Barkly, as I said I no longer have my original reference book on the subject of currency originating in China and bills of sale enforced by Khan.
The original point I made was that currency is only enforceable by a gov’t or ruling entity with the power to enforce, which makes any economic subject a political one .. hence “political economy” and thus one is indiscernible from the other…. thus rules made by the enforcing agency, and which agency is always composed of those with “capital” however you want to define it, and hence always biased to benefit capital owners at labor’s expense.
Your original post on the topic described accounting details defined by or not defined by those rules. They are arbitrary. I was simply trying to point out that “Profit and Capital” .. the subject and content of your post are pretty simple concepts with definitions independent of the “rules” made to refine or modify them.
If the Khan dynasty didn’t invent enforceable bills of sale which became used as currency independent of the barter exchange involved, I’ll accept that .. though it’s not clear from your sources that they didn’t and clear from my source book that they did…. so be that as it may it’s a peripheral aspect of the point I was making in any event: Currency requires a defined basis of exchange value and is only possible by enforcement of that exchange system and value… enforcement is by gov’t’s, rules by gov’ts, and those that control gov’ts’. You can agree with the rules or not but rules generally almost invariably serve the interests of those that make them. at the expense of others.
That’s the basis for “Profit and Capital”.
On the matter of the Khans, it is clear what the situation. What they invented was a particular form of paper currency made out of mulberry tree bark that could be carried over long distances. Paper currency was first issued in China more than a thousand years earlier by the government of the Han Empire, although there were periods after that during weak dynasties when the Chinese government did not do so. Paper currency was brought from China to Europe in the 13th century by Marco Polo, who traveled on the Silk Road reopened by the Khans, and visiting the regime of Khubilai Khan. This is a source of the illusion that somehow the Khans introducted something into Europe.
The confusion is that your source almost certainly was a historian who does not know economics. So what I read in the Wikipeadia Pax Mongolica entry ultimately came from some historian’s book about the Mongol empire. He is the one who somehow decided that this weird paper money should be called a “bill of exchange,” which it was not, but that terminology got out ignorantly into other lit. Bills of exchange are not currency per se, although they sometimes got used sort of as it. But bills of exchange involve specific debts, thus having more of a financial capital aspect to them than just plain old paper money, although that can also be viewed as a simple form of financial capital.
Let me address two other issues you have raised. One is your claim that all these currencies and bills of exchange were/are set up by governments and must be enforced them. This is part of the chartalist view, which says that money is what people pay taxes with, although I remind you that money is not capital in general. But in fact many of these instruments were not set up by governments and developed with little input from them other than governments perhaps enforcing that if somebody did not pay their debt they might get punished. This is what was involved with the bills of exchange, which were invented by the proto-banker merchants in Tuscany and Flanders, not their governments, although they did operate within friendly governmental systems, that let them do their thing. But the governments were basically sideshows in all that.
The other is the matter of definiing things, notably capital and profits, which as near as I can tell seems to have been the main source of your idea that I do not know what I am talking about and just put out a lot of confusing drivel in my main post,which you have been assiduously trying to straighten out with your numerious lengthy posts. The problem is that there is no universally accepted definitions of either of those, which is why I went through my journey through the various different views there are that have been out there, with many of them in fact being part of the meaning of capital and profits. Your effort to somehow pin this down with your supposedly definite definitions of these was, frankly, just a joke.
So, as near as i can tell, your definitions of capital and profit look sort of look they draw on the labor theory of value, which is a known point of view I discussed, but is not in fact accepted by the vast majority of economists. So this leads you to such statements as your claim that land has value when “labor is applied” to it. Well, not the view of most economists, and I shall simply close this by nothing that Marx’s own view, the greatest of all labor value theorists, raw land did not have value, but it was a source of wealth for society.
But, if you wish to pursue this effort to define what profit and capital are, you are just barking up a tree, putting forth a narrow and not widely accepted view, going nowhere. Sorry,
Actually, it is not my problem that most economists don’t think land has value before labor is applied to it… that’s your problem. And it’s not me that’s going nowhere.. it is actually you and other economists like you who are going nowhere… you just don’t know it. It’s called delusion. I’m not trying to go anywhere I’m just pointing out a set of facts plus my opinion about how those facts relate to what you’re saying… which is obviously a different set of opinions. At least mine are supported by facts.
It is a fact that
a) value is a human noun… institution of human beings.
b) land only has value to humans. This is undeniable truth.
c) humans only value land if it has a human use for it. That is undeniable truth.
d) human use of land requires humans to expend time and energy to acquire the use land can provide. That is undeniable truth.
Economists can try to say these truths are false, but they do so only to define economics in a manner that satisfy the laws and traditions they have been taught. Those traditions go back a long way, and ultimately rest on the “might makes right” principle of human physical power to occupy and then defend a piece of territory (land). At least that’s my best guess. Otherwise economists are just liars and like to make up an artificial reality — alternate reality.
Maybe you can figure out how to defend the view of “most economists” without negating any of the above truths, but I’ve never found that such a defense exists.
It is my own supposition, theory, that the reason economists don’t want to view assets including land having value being sourced from the labor of humans (time and effort applied) is because it completely undermines the traditional view that capital’s source is labor and thus capital value as profit is acquired by luck & circumstance over time (emphasis and condition is TIME) or asymmetry of information, which doesn’t apply to human labor (as you already know), and thus capital is allowed to profit without sharing it equally with labor. Of course this is all inscribed in traditional law as well… which of course is written by those that govern and those that govern are those with the power of wealth which buys physical enforcement power. Duh!.
This is all rudimentary though .. and I’m sure you know this as well as any other half intelligent human who thinks about these things at all.
But tradition has a way of evolving… in all history over all time as we know it, so current whatever it is that “most economists” believe will change as well. It’s only a matter of the element we call time. . one way or another.
I will continue to be interested in what you have to say about things… like “sky is blue today” and other things. I’m always fascinated by how people think.
I hope you realize this thread has now scrolled off into obscurity, so nearly nobody will read further comments, including yours you just put up.
Sigh,,,, I had not realized,but I suppose I should not be surprised that you are one of those non-economist cranks who think he knows more than all the economists and who is going to straighten us all out with your facts or whatever. Unfortunately so far you have been massively incoherent, as well as factually incoherent, e.g. your nonsense drivel about the role of Genghis Khan in the history of financial instruments. This sort of nonsense will only convince people that you are an ignorant crank.
Anyway, you do it again here by completely misreading what I wrote and wallowing in more sillyi contradictions.
So, it is you who said that land only has value when labor is applied to it, a view you returned to at the end of this post. But upfront you somehow think that I am the one who claimed that “a majority” of economists think this. No, sorry, I noted that a majority disagree with this view, which relies on the labor theory of value, and the vast majority of us do not accept. So, the vast majority of us do think that undeveloped or worked on by land does have value, and that also happens to be my view, and it is also a simple fact in the real world. There is plenty of undeveloped land that sells for positive prices all over the world everywhere.
You also thikn think that somehow I am going to stand up for “most economists” to argue with your points a-b. Sorry to disappoint you, but I fully agree with a-c and I think pretty much all economists would agree with me. I can question d), but I am not going to waste time going on about it.
As it is, your final remarks show that you do believe in some sort of version of the labor theory of value. Fine, some economists agree with you, but claims by you that this is simply a “fact” is simply wrong.
I hope I am not going to have to waste much time dealing with endless ignorant and frankly stupid diatribes from you here, LT, and I think those in charge here have some limits to how much of it they will tolerate.
Have a nice weekend.