Re: Don't Forget Mises -- and Dump the Third Way!

royls_at_telus.net
Date: 09/11/04 

Date: Sat, 11 Sep 2004 21:38:52 GMT

On Sat, 11 Sep 2004 07:00:39 -0400, Robert Vienneau
<rvien@see.sig.com> wrote:

>In article <41408ceb.4873848@news.telus.net>, royls@telus.net wrote:
>
>> >I had written:
>
>> >A diagram is useful for visualizing the money and real flows in
>> >this story:
>> >
>> >
>> > +--- Consumption goods ----- -- $ Total receipts -+
>> > | +- $ Workers consumption -> RETAIL |
>> > | | +- Consumption goods -- & <-- Net product -+ |
>> > | | | +-- $ Capitalist WHOLESALE | |
>> > | | | | consumption -> MARKETS - New capital | |
>> > | | | | +- $ investment -> goods -----+ | |
>> > | | | | | | | |
>> > | | | | | | | |
>> > | | \|/ | | \|/ | \|/
>> > | | Owners <------------ $ Profits ------------ INDUSTRY
>> > | | (inter-
>> > | +- Workers <------------ $ Wages -------------- industry
>> > +--> ------------- Labor ----------------> flows)
>> > HOUSEHOLDS
>> >
>> >
>> > FIGURE 1: ASCII VERSION OF NELL DIAGRAM
>> >
>> >Note the owners provide no direct inputs into production in the Nell
>> >diagram.
>> >
>> >Roy responded by noting some of the money that certain households
>> >spend:
>
>> >"?? What about the investment flow that results in new capital goods??"
>
>And later:
>
>> > "...I did not mention money."
>
>> >Clearly Roy is confused about his own posts.
>
>> No, I am not. Please look at the diagram you posted. It shows
>> investment by owners creating new capital goods. Which part of that
>> don't you understand?
>
>Ok, Roy is confused about my post. In the above diagram, the arrow
>labeled "Net product" coming from the lower right represents a
>hodgepodge of many different kinds of goods. It is a list.
>
>Some of the goods in that list are consumption goods, like various
>kinds of cereal. Some are capital goods, like various grades of
>steel in some specified shapes.

Robert is here studiously ignoring the fact that workers do not pay
for the latter, and owners do.

>In either case, those goods are made in the industrial sector,
>as represented in the diagram in the lower right hand corner
>of the diagram. Labor applied to capital goods is what produces
>the goods comprising the net product.

And what ensures that the necessary labor and capital goods are
devoted to producing new capital goods rather than only consumption
goods? Blank out.

>The diagram does NOT show investment creating new capital goods.

Then please explain where the invested $ go, and where the new capital
goods come from.

>The investment shown on the diagram is a monetary flow, as
>indicated on the diagram by the symbol "$".

This is the Humeian essence of Marxism: to see Event B invariably
following from Event A, to know that the intention of those who effect
Event A is to effect Event B, and yet to refuse to know that Event A
is the cause of Event B.

Please explain why owners are spending money on investment that does
not yield any new capital goods. What exactly are they getting for
their money? Who is producing the new capital goods and not being
paid for them, and why?

>The diagram does show all the net national product as owned by
>somebody. It suggests the accounting identity:
>
> Total receipts = Workers consumption
> + Capitalist consumption
> + investment
>
>The value of the net product evaluated in some sort of monetary
>terms, is the sum of the value of the consumer goods going to the
>workers (evaluated in the same monetary units), the value
>of the consumer goods going to the capitalists, and investment.
>
>Note the capital goods, in this stylized description of, say,
>the U.S. economy, never exist in households. (Some) households
>only purchase ownership in the institutions (firms) that possess
>those capital goods.

No. The diagram clearly shows the invested $ going into the retail
and wholesale markets, not the financial sector. New capital goods
are being produced. Who buys them if not owners, and how are they
paid for if not by investment $?

>Clearly Roy has confused money and capital goods.

No. Clearly Robert just refuses to know the fact that placing an
order for capital goods, with the intention and ability to pay for
them, is what results in them being produced.

>> >Roy also brought up a false theory:
>
>> >> No. Money is not capital, and it is not brought into existence by
>> >> saving, either. It is simply accumulated by saving. Capital
>> >> represents production that is not consumed but by further production,
>> >> and in that sense is saved for productive use rather than being
>> >> consumed directly for the satisfaction of human desires.
>
>[snip]
>
>> >I show that theory to be mistaken here:
>> >
>> > <http://www.dreamscape.com/rvien/Economics/Essays/sraffa2.html>
>
>> No, you do not.
>
>Section 7.5 shows that theory to be mistaken.

No, it does not. All it shows is that Solow's definition of the rate
of interest is tautological, and therefore true by definition. Solow
makes some false assumptions to simplify his argument (and the math),
but that does not invalidate the underlying concept that interest
arises from the greater future production that current capital
investment makes possible.

-- Roy L