Re: how to compare living standards


"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote

But lathes built for machine shops can hardly be defined
as a personal toy.


Well, lathes are built for sale. Most are indeed sold to businesses. But a
(very) few do become hobbyist toys. Same goes for, say, airplanes.

During WW2, one of the "drives" promoted by the government was "Send your
typewriter to war". Typewriters were necessary capital equipment for the
vast bureaucracy that sprang up to manage the war effort. Like lathes,
typewriters were professional equipment that (some) people had bought for
personal use. The nation owned more capital, in the form of typewriters,
than an IRS-type definition of "capital" would have included, just before
the war.

My only point is that "capital" is not defined entirely by what an object
_is_. How it is _used_ makes a difference.


Inventory produced for sale is classified as investment
as a matter of necessity when there are only
two classification options - investment or consumption

But widgets in inventory are not of much use in _producing_
widgets, which is the real meaning of investment.


The overall economy is a very complex mechanism, with an enormous diversity
of inputs which it transforms more or less efficiently into outputs. I
cannot easily make a case that a stockpile of, say, neckties is as useful
for the economy's
future production of widgets as a stockpile of, say, palladium. But neither
can I say, with absolute confidence, that a sewing machine is "capital"
because it can produce neckties, while an inventory of neckties is _not_
capital.

These are minor quibbles at the fringe, however. In the main, we agree:
real investment is the combination of labor and other resources we devote to
increasing our future production, and not the cash we spend to buy shares of
stock from each other.

-- TP


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