Re: Profit versus Interest

On Thu, 06 Dec 2007 12:30:51 -0800, Lysander wrote:

On Dec 6, 12:10 am, The Trucker <mik...@xxxxxxxxxxx> wrote:
On Wed, 05 Dec 2007 15:04:19 -0800, Lysander wrote:
On Dec 5, 2:07 am, The Trucker <mik...@xxxxxxxxxxx> wrote:
Smith and Ricardo us the word "profit" to describe the return to "capital"
and the word "interest" to describe the return to loaned money (in their
case, gold).

This is not really the case. Profit is more than the return to
capital. Profit is the return from all factors in production.

That is a lie, of course. I would expect nothing less from you.


Translation. This does not fit into the Trucker's misconceptions of
economic concepts therefore it is a lie.

See
Ricardo's definition of rent where he defines as the portion of the
PROFITS that are derived solely from the indestructible
characteristics of land.

This was nothing more than a slight slip of the pen by Ricardo.

Sure Ricardo was wrong the Trucker is right about Ricardian rents.

1. Ricardian rents are not the only land rents.
2. Land rents are not the only economic rents.
3. Only in one isolated place in all of his stuff does Ricardo make this
minor slip of the pen where he infers that rent is a sort of profit. It
is a nit.

When
scanning the WON
the return to land owners is styled as "rent" and the
return to capital is styled as "profit".

WON? Wealth of Nations, actually Opulence of Nations in the original?
Scanning will always get you in trouble. It is too easy to take things
out of context. So now you are trying to argue Smith?

Read again rent
is a component of profit.

In one minor slip of the pen in one isolated place in Ricardo. In all
other instances they are two completely separate returns.

The definition is clearly stated in the
beginning of Ricardo's chapter concerning rent. I have quoted it on
here before. Rent is the profit obtained from the indestructible
characteristics of land. Let me guess, Ricardo didn't mean that he
just wrote that.

No. He meant it for certain. And he was speaking specifically of
location rents. I have no disagreement with his definition of the cause of
Ricardian rents. That would really be rather ridiculous. I have a
disagreement with you lifting a slip of the pen out of all the stuff he
wrote and whirling it around like it was the golden fleece.

Ricardo goes into great detail
concerning land rent and and styles it appropriately in most places in his
work.


In all cases, the rent is the difference in profit obtain using from
using a superior grade of land. Read it again. The entire exposition
of rent shows how profits differ between grades of land.

That is not what it says in Smith for damned sure and I only find that
one slight slip of the pen in Ricardo. I have read it many times and it
never seems to change. Rent is the return to land ownership regardless of
the owners _USE_ of it. And profit is the return to the ownership of
capital regardless of the owners _use_ of it. I don't particularly like
what I read, but it _IS_ what is there.

Profit is not just the return from capital.

Oh but it is exactly that in Smith's WON, liar. And also in Ricardo's
stuff.


Read it again.

It hasn't changed.

It can be had from using only labor and land. Rent is part of profit
and is the excess return from holding a grade of land above the lowest
grade.

In WON, rent was defined as the return to the owners of land. And it made
no difference to Smith as to _WHY_ the rent was forthcoming. It makes no
difference now as to why the rent of land is forthcoming.

Wrong. To Ricardo the reason is important. The rent is defined
comparatively not absolutely. In Ricardo's ideas if the market is
competitive then the lowest grade land makes 0 profit.

It yields zero rent. And unless the user of the land is also employing
some form of capital _NO_ profit will _EVER_ be forthcoming; only wages.

All grades
above the lowest earn rent,

Only if they first allow for the earning of wages (which is normally
assumed)

profit above 0.

No capital, no profit.

You can not have rent just
from owning land.
You must have land better than other land in use.
The excess profit that is gained from the indestructible
characteristics of land, those are the characteristics that define the
grade, is rent.

The word "profit" has no place in this example. The income received from
the ownership of the better land is styled as "rent" and it has nothing to
do with a return to capital which is styled as "profit".

Not how much someone gains from owning land. Land
owners who own the lowest grade receive no rent. IIRC, there is quite
a discussion where Ricardo shows how his idea of rent differs from
Smith.

It really does not differ from Smith but that Ricardo does a whale of a
job of describing why the differing locations create differing rents. Yet
the return to any of them is still called rent.

I really believe you missed the discussion on market rent versus
economic rent. Both Smith and Ricardo refer to two rents. The amount
paid to the landlord that is market rent. That is the return from
holding land and the grade makes no difference as to if you have
market rent or not.

I think the term is "rack rent". And like I said: the return to land
ownership is rent. It is also economic rent and it is often Ricardian
rent.

Economic rent is gained when you have land that is
more productive than other land and that rent is derived from the
indestructible characteristics of land.

So what the hell is your point? Land rent is what the owner of a hunk of
land receives simply because he is the owner. And it has not a damned
thing to do with "profit" which is a return to the owner (or maybe also
the user) of capital.

Economic rent
is the return above that which is necessary to keep the factor in
production.

This is clearly not Ricardo's definition read it again. You are
actually defining profits from market rent not economic rent.

I have never claimed this was Ricardian rent. I have said that Ricardian
rent is a form of economic rent. So is rack rent and so is the excess
wages paid to a union member that would be due to barriers to entry
into being a worker. You keep wanting to insist that I am saying a bunch
of stuff that I never said.

The cost of land is a big fat zero and any return to ownership
of it is rent.

Market rent not economic rent.

No, Bosco. It is economic rent by virtue of the definition of economic
rent even in neoclassical terminology. It is not excluded from "economic
rent" because it is "market rent" or "Ricadian rent" or "Blue rent" or
"Yellow rent".

To have economic rent you have to have
above normal returns to your land. There is marginal land that gives
normal returns and then superior land that gives economic rent. You
are talking market rent not economic rent.

No. Any return to land ownership is economic rent. Economic rent is the
super-class and the other variants are the subclasses. Land rent (which
includes Reicardian rent), although the dominant class of rent, is not the
only economic rent.

That is about as clear and concise and obvious as
anything can ever be.


Yes if you define it as market rent. You have no concept of what
economic rent. Stop scanning and actually read you might understand it
better.

http://en.wikipedia.org/wiki/Economic_rent

If you don't like the article then change it. Otherwise suck on it.

This is true of the neoclassical economists also but for the
fact that they ALSO try to hide "rent" inside the word "profit".

Rent has always been part of profit.

Only when the shysters are allowed to define the word "profit" as being
whatever they would like.


No. See Ricardo's definition. Rent is the portion of profits obtained
from the indestructible characteristics of land.

Garbage. One slip of the pen in a verbose explanation of land rent does
not create the definition of profit which is otherwise quite well defined.

See above and read Ricardo.

I have.
Ch.1, On Value in paragraph 1.32
"the profits of capital were greater or less"


Which means nothing in of itself. This is just a snippet. It does not
say profit is only the return on capital. He speaks of profits of
labor as well.

I want to see this... Give us the paragraph, please.

So what. Ch. 2 defines rent.

Enough of your crap:

ricP: Ch.2, On Rent,ref3 in paragraph 2.2

"Rent is that portion of the produce of the earth, which is paid to the
landlord for the use of the original and indestructible powers of the
soil. It is often, however, confounded with the interest and profit of
capital, and, in popular language, the term is applied to whatever is
annually paid by a farmer to his landlord."

Ch.1, On Value in paragraph 1.37
Speaks of the profits taken by the suppliers of the tools in the trade
of hunting and fishing and comments on the effect that wages will have
on the profits.

BINGO THE EFFECT WAGES HAS ON PROFITS. See profits are more than the
returns to capital.

NO, Bosco. "The Profits taken by the suppliers of the tools" says exactly
what it means to say: The return to the supplier of the tools is styled
as _PROFIT_. The amounts returned to "supplier of the tools" is profit
whether it is a lot or a little (and it will indeed vary in this case
due to both the wages and the market price of the game/fish), just as the
return to the fisherman and hunter are styled as _WAGES_ regardless of the
amount. If there is a political barrier to entry into producing tools or
there is a fisherman union preventing people from being fisherman then
there would also be some economic rent in this deal.

But the profits are always derived from the ownership of the
tools. And this does not change anywhere (certainly nowhere in CH.1
with many occurrences of the word "profit".


Again the profits being derived from ownership and the profits being
only returns to capital are two different things. I derive profit from
owning a building.

That is a building used for commerce (capital) and the return to the
ownership would be profits.

My employees and capital contribute to profit.

Probably so.

My
profit is total revenue - total cost.

Yes. As an accountant that is very true and it is also probably true in
the economic sense also unless there is some barrier like land ownership.

Revenues are derived from owning
the capital and hiring workers.

Well, uh, no. Revenue is derived from selling a product or service
normally. The building purchase and the hiring of the workers are
actually costs.

Cost are opportunity cost of the capital
and wages. Understand?

Opportunity is not a cost. Understand? The cost of the structure and the
cost of any equipment and the cost of wages and even the cost of interest
on a loan for the furniture and the furniture itself is a cost along with
all the other costs. But so far in this presentation we see no _RENT_
being hidden as PROFIT. All of the gain in this scenario is, in fact,
BOTH an accounting profit and an economic profit with perhaps some wages
thrown in. So pay yourself a reasonable fee for your active participation
in the enterprise from the gross ACCOUNTING profit and the rest is
economic profit.

Ch.1, On Value in paragraph 1.60
An alteration in the permanent rate of profits, to any great amount, is
the effect of causes which do not operate but in the course of years;
whereas alterations in the quantity of labour necessary to produce
commodities, are of daily occurrence. Every improvement in machinery,
in tools, in buildings, in raising the raw material, saves labour, and
enables us to produce the commodity to which the improvement is applied
with more facility, and consequently its value alters.


Ricardo is making the case that capital is part of value as well and not
just labor. The difference between labor theory of value between Smith
and Ricardo is that value is obtained by capital as well as labor
because labor went into capital.

I will not pretend to understand Ricardo's value theory which is really a
price theory. But Smith doesn't even deal with anything other than what
we would call current incidence of labor. He is wrong on that as well
because of rent, but he does not attempt to do what Ricardo attempts to do
at all.

Therefore capital determines intrisic
value, which is different from market value. This does not mean profit
is the return on capital. Quite the contrary. The cost that determine
the value are not JUST labor with Ricardo but also capital. Therefore
profit is the difference between intrisic value and market value. The
intrisic value is determined by capital AND labor not just labor as
Smith stated. Therefore profit is the return to capital and labor.

BWAHAHAHAHAHAHAHAHA!!!!

We do not
use subjective measures of value

BWAHAHAHAHAHAHHAHAHAHAH!!!!!!! That may well be true, but it is more
because you don't have a clue what value might be.


Judging from your statements, I have a much better understanding of what
subjective value is. I was actually taught something about it as an
undergraduate by an old school professor and read a lot on my own
because of an interest in Ricardo.

and the way modern economics
approaches situations is entirely different from the classical
economist.

This part is actually true. You people proclaim that _ALL_ "value" is
based on speculation and ownership. It is just one big casino for you.


Wrong. Price is value. Price is based on scarcity of the resource.

Like poker chips.

Scarcity gives value.

Nope. I once fell for that. I grew up.

It solves the inexplicable predicament to
subjective value, that is if Diamonds have no use, this was before they
learned to cut with them, and water is necessary for life why do
diamonds have a high price and water is free? Simply because diamonds
are more scarce. Value has nothing to do with speculation or ownership.
It is based on scarcity.

Whether something will serve as a store of value is very much dependent on
the scarcity of the thing in question. But that is not value. Value
itself is anywhere and everywhere the capacity to forgo discomfort/labor
in the actual use or consumption of some desirable thing that can be used
or consumed. A diamond is valuable only because it is recognized as a
store of actual value; a token that can be used to command the labor of
others thus rescuing the owner from the discomfort/labor he might have to
undergo to use or consume some object of his desire. Absent a market the
diamond is about worthless as spit. So value can only exist for a
neoclassical economics if there is a market. For _real_ economists a
market is not necessary to the existence of value. Price and value are no
the same just as cost and value are not the same.

Sure things like comparative advantage still hold but modern
economics is derived more from the marginalist movements than from
the classical economist.

So called "modern economics" is total crap.


I doubt you even understand what the term marginal means.

There was a time long ago when I didn't. It means "at the margin"; that
place where a trade may or may not occur in a liquid market. I'm pretty
sure that isn't the _CORRECT_ definition, but it is close enough. But i
used the term as a pun; a dig on the value of the "marginalists".

The marginalist approach sometimes gives similar solutions to the
classical economist but I do not see this as evidence that modern
economics is neoclassical. Even when the term is used it often refers
to some of the classical results holding, ie. Solow with
technological change, or classical ideas built in the model, ie.
labor human capital models where Smith's idea of compensating
differentials are incorporated.

As it turns out Smith and Ricardo also screwed up in that they really
did not go far enough with the concept of rent. Henry George comes the
closest to getting things right and he also screws up in his failure to
properly handle the question of money.


In your opinion.

Yes. That is correct. "Those are my opinions.
And you can't have em" -- Bart Simpson


What the Trucker takes exception to, rightfully or wrongfully, is the
absence of the use of land in modern economics. The old Ricardian
definition no longer applies because land is no longer a factor that
is analyzed.

Yet another absolute lie from lysander:


No lie there. Rent has always been defined in Ch.2 not chapter 1 and
economics today does not model land as a factor of production. Curious
as to why you have quotations only from ch.1 which is where rent is
defined. Oh yeah that was just a slip of the pen.

Why is it curious when we having a disagreement over the word "profit" to
be in some chapter other than the "rent" Chapter?

But here is where lysander gets his lie:

Ch.1, On Value,ref in paragraph 1.88
In that case I should say, that wages and rent had fallen and profits
risen; though, in consequence of the abundance of commodities, the
quantity paid to the labourer and landlord would have increased in the
proportion of 25 to 44. Wages are to be estimated by their real value,
viz. by the quantity of labour and capital employed in producing them,
and not by their nominal value either in coats, hats, money, or corn.
Under the circumstances I have just supposed, commodities would have
fallen to half their former value, and if money had not varied, to
half their former price also. If then in this medium, which had not
varied in value, the wages of the labourer should be found to have
fallen, it will not the less be a real fall, because they might
furnish him with a greater quantity of cheap commodities than his
former wages.


Not Ricardo is talking about market rents here not economic rents. See
ch. 2 for the difference.

Actually he is talking about _PROFITS_ here in chapter one. That was the
topic here.

What we see is that the payments to "wages" and to "rents" will reduce
the returns to "capital",

Note the rent here is market rent not economic rent. The Trucker can not
distinguish between the two.

IN this case it is not relevant. Why the hell would I worry over it. And
I will not address your point about the "rent". There are other times
and other places where we will do that. The subject is _PROFITS_ being a
return to _real_ capital.

i.e. will reduce the _PROFITS_ which are nonetheless
still the return to _real_ capital.
Read again profit is the return to capital and labor.

The return to labor for most sane people and most certainly the
classical economists is styled as _WAGES_.

A variation in wages will also reduce
the profits as is much discussed in CH. 1. yet this does not infer that
wages are a part of or subset of "profit". The return to _real_
capital will vary inversely with the cost of rent and wages. That does
not mean that "rent" is a subset of profits.


Wrong again. Profits are the return to labor and capital. Capital only
has value to Ricardo because labor was used to make it. Ricardo argues
that capital is the embodiment of past labor.

And so does Marx and they are both probably quite right as far as it goes.
Nonetheless, in any particular enterprise the return to capital is styled
as "PROFITS", the return to labor is "WAGES" and the return to land
ownership or other political contrivances is styled as "RENT".

Note again in Ch.1 Ricardo has not yet defined economic rent and is
referring to market rent. This makes perfect sense in that market rent
is a cost to using land and wages are a cost. So cost dropping and
profits rising is not surprising.

No.... It isn't surprising, but it _IS_ irrelevant. I think we may be
able to agree here: If it isn't WAGES, and it isn't RENT, than it must be
PROFIT. And what you will find is that it is impossible to have a profit
without _real_ capital. Whether labor was employed to create capital is
not relevant. Nor is it relevant that any form of _real_ capital also
includes _land_ (natural resource) in its production. Here :::

Land + Labor = goods. Some goods are, in fact, _CAPITAL_ goods.

Modern economics does not see land as a direct input rather more like
a fixed cost.

And that is a very big part of why "Modern economics" is bunk.


According to someone who does not even understand classical economics
much less modern.

(snicker)

For a factor with X labor and Y capital can still produce the same
amount of 20 acres or 200 acres of land.

This is really cute here.... We have labor and capital "producing"
land. Only in neoconomics is this possible.


I actualy meant produce the same amount with 20 or 200 acres.

I couldn't resist :)

Land may be a requirement for production but is not a factor of
production outside of farming.

BWAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!! But fiat money _IS_ of course.


Money is never a factor of production. See the discussion of the
classical dichotomy.

Doubling the land and keeping capital and labor the same does not
have any impact on production.

However, by MOVING the capital and the labor to a different LOCATION we
will have a great impact on production -- please open a koolaid stand
in Alaska in the winter.


Here we go with locations. Oh so move the kool aid stand to Australia in
the winter.
So we often
leave land out.

You leave it out because it is the primary source of income for the
people that keep you employed whether you are smart enough to
understand that or not. Smith and Ricardo and the Physiocrats had the
same disease. It goes with the territory.


Yeah right. Sorry but I know the source of income of my clients. It
isn't land. I can't calculate lost benefits and wages for people who
only hold land.

Using land as an input only makes sense in farming.

Please find someplace to put up that office building that doesn't use
any land or any surrounding infrastructure. And since the land is
"cheaper" in Death Valley, then build it there.


Here again, the Trucker shows his ignorance. To be an input in the
production function changing the amount must change the output.

BZZZZTTTT!!!! Reject. Changing the location will change the output.

An
office building of 500 sq. ft on 100 acres is the same as a 500 sq. ft.
office building on 10,000 acres. Expanding land 10 fold does nothing for
production. The land is a fixed cost that must be paid if you produce or
do not produce. It is not an input. It is treated the same as interest
on debt. A fixed cost not an input.

How nice......
What a load of authoritarian pig ***.

Today Economist refer to rent as above normal profit.

That is actually horse***, and is defended by a minor "slip of the
pen" by Ricardo and not to be found anywhere in the entire Smith WON.
And it is exactly as I have said: They hide the "rent" in the word
"profit".


So over 100 years of economists have used this definition and all the
Ph.D.'s and Noble Laurettes have Ricardo wrong but you do not. Sorry
when you say this is the definition it is not a slip of the pen. You see
it as so because you completely misunderstand Ricardo.

The definition of economic rent in latter day economics is as it is. But
we are having a problem because you want to actually _DEFINE_ rent as a
subset of profit and just blatantly _hide_ it. And only neoclassical
hoodwinks do that. This is a large part of the reason that I see
latter day economics as nothing but glorified finance and accounting.

Even if it was this has nothing to do with Ricardo. The modern
definition of rent goes back to Posner not Ricardo.

Where normal
profit is zero economic profit.

Total horse*** again unless you want to run on the Marxian value
theory. And I don't think you really want to go there.


Read on. This is not Marxist.

That is not zero accounting profit.
Zero economic profit is what happens in the long run under perfectly
competitive markets.

But of course, there is no such thing as that if you do not
redistribute ALL OF the rent. And that will probably get you real
close to Marx (no reward to risk and no advance).


That is what Georgist want to do. Zero economic profit is the long run
profit in Long Run perfect competition. It has nothing to do with
redistributing rents. It has everything to do with free entry and exit.
The lack of barriers to entry.

Yet barriers to entry _ARE_ the basis of economic rent. And you blatantly
do the same hiding of the rent in the word profit over and over again.

In this case the opportunity cost of production equals the explicit
cost of production.

Opportunity is not a COST.


Not an explicit cost. It is an implicit cost. The Trucker does not know
the difference between economic and accounting profits.

Oh but I do. It is you who insist on them being the same.

No you rarely
see opportunity cost on balance sheets or income statements. They are
not accounting profits. They are part of economic profits. Economic
profits determine if entry or exit would occur if there is a lack of
barriers.

The difference between your accounting profit and your economic profit is
actually called economic rent.

Economic profits can accounting profit to the next best
alternative. If it is above 0 people leave the next best alternative and
enter the industry. If <0 they leave the industry and go to the
alternative. Accounting profits say how much is left over after I pay
all the bills. Economic profits how much is left over compared to my
next best alternative. So I must make $100,000 accounting profits. If I
can make $80,000 working for someone else my economic profit is 20,000.

Why would that be? There can be but two reasons:

1. You have capital and are making a profit from it (like you invested in
an office, furniture, computers, advertising, and such).
2. You have a special deal with the fact that you own land or some
special privilege or there is a barrier to entry that you have overcome to
do this business as an enterprise as opposed to an employee and in this
case it is an economic rent.

I will work for my self. If I am offered 200,000 then I shut down and go
to work for someone else. Economic profits determine entry and exit.

It appears that the difference between your accounting and economic
profits is actually economic rent. Why don't you just call it that?

Rent says you are making profits above what it takes to be indifferent
to exiting the industry. This is bad when barriers to entry exist so the
rent is indefinite because no one can enter and take the rent away.

Yes. There is rent and there is profit. But you do not distinguish.
That was the point.

The opportunity cost being
what can be earned in the next best alternative. The idea is
equalization of profits among related industries.

No.... The idea is to *F*(K up the language so that communication and
rationality are destroyed.


Only because you don't understand the classical language must less
modern language do you think this.

You are not satisfied with messing up the language for latter day econ.
You must also try to change the classical definitions also.

Rent is not hidden in profit in modern economics.

With claims like you are making about Ricardo you can't possibly expect
anyone to believe that. But maybe you do...


The claims are what Ricardo said. Stop scanning ch.1 and RTFM.

In one place, in one sentence, Ricardo infers that rent is a part of
profit. In every other instance and in all of Smith, profit, wages, and
rent are separate and distinct.

None the less modern
rents are caused by all barriers to entry and not just exclusive use
of land.

I would normally delete this lengthy parade of prancing pig manure but
I thought I might keep it on display for all...


This is after he said that he could agree with the sentence I left.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend

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