The doctrine of the wages-fund

Appendix J

§1. This appendix covers a strange (and now forgotten?) debate over capital and labor. Although capital complements labor, some economists seemed to think that the “wages fund” (money available for wages) is limited by the amount of capital. This makes no sense to me in aggregate but it can matter in particular circumstances.

§2. In aggregate, wages depend on the balance of supply and demand (e.g., population versus economic activity), always mediated by relative market power.

§3. There is a connection between the markets for commodities and the markets for the capital and labor inputs to those commodities, but those connections are weaker or stronger depending on a number of factors (time, trade, substitutes, etc.). Many economists have wasted their time trying to identify the connection (e.g., Marx with labor theory of value).

§4. When is comes to divvying up the “national surplus” among various factors of production, relations are neither simple nor stable. There are many elements to consider.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Read: NYC’s yellow cabs are getting hit by the 1-2 whammy of competition and a post-COVID loss of customers. Medallions are selling for <10% of their prior high prices.
  2. Read: Less shopping is good for sustainability… and workers
  3. Read: This author wants a “more equal” form of capitalism but fails to notice how much better capitalism is compared to feudalism, communism, and the rest. D’oh!
  4. Read: Why we eat bad food (hint: industrial agriculture)
  5. Read: Beware of Wish-Cycling: “Sometimes it’s just better to trash something. Recycling—either at home, at the dump, or a second-hand store—is only beneficial if it can actually be turned into something new or reused”
  6. Read: An Indian family that home schooled its kids “on the road” and Americans who “rage quit” for home schooling. (The common theme here are schools that can’t teach very well.)
  7. Read: How to hide your personal data from the internet
  8. Read: The sperm count “crisis” may not really be a crisis?
  9. Read: Civilization will not end if “we” (rich people) buy 25% less stuff
  10. Read: “The one Covid-19 intervention that definitely worked was mask mandates

Ricardo’s theory of value

Appendix I

§1. Ricardo didn’t spell out all his assumptions, connect his theories with the real world, or bring logical vigor to his 1820 Principles of Political-Economy, which has led to — according to Marshall — unfair critiques that focussed on his inconsistencies rather than his larger ideas.

§2. Marshall gives many examples of where Ricardo’s partial or over-simplified statements led to confusion. The most significant misunderstanding was where Marx, using Ricardo’s own words, concluded that Ricardo thought that value arose only through labor inputs whereas Ricardo considered other inputs’ influences in other parts of his work.

§3. Marshall spends a few pages documenting arguments about the relations between production cost (supply), utility value (demand) and price, which reconciles the two in the same way as each blade of scissors (Marshall’s analogy) jointly produce a cut.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Who killed the recumbent bicycle?
  2. American cities are starting to remove highways to heal neighbourhoods (often home to minorities) torn apart by policies in the 1950s
  3. Will bitcoin’s energy consumption (and decentralised blockchain) “unleash” renewables? Related: Bitcoin goes mainstream, so what will happen with its cyberpunk culture?
  4. Watch: “Sponsored content” on “news” shows is legit disturbing
  5. Watch: A drum and bass DJ raves thru London on a bike
  6. Read: The curious structure of Master Classes (e.g., learning to write from Malcolm Gladwell)
  7. Watch: This is COVID+Satan+metal ridiculous 🙂
  8. Read: Swimming in the wild will change you
  9. Watch: I always knew that “raw water” was a bit of a hippie scam, but this video’s ridicule hits a new level
  10. Watch: Expensive wine is for suckers

Limitations of the use of statical assumptions in regard to increasing return

Appendix H

§1. Production with increasing returns to scale (or marginal returns) creates a problem with the supply curve (sloping down?) and implies (natural) monopoly power.

§2. Marshall says it would be hard to find equilibrium if demand and supply are both sloping down. Later economists “fixed” this problem, I think, by holding scale constant in the short run (via fixed costs) and then allowing for flat or rising marginal costs. It seems that Marshall was looking at the long run, i.e., where there are no rigidities from fixed costs.

§3. Whoops! Marshall didn’t make that mistake. He discusses how rigidities are likely to affect production (scale) and thus allow for equilibrium (rising supply costs). That said, he does note that some industries with rapidly falling supply costs can result in “plunging” market prices as supply runs ahead of demand. This can happen with new technologies (e.g., cheap airlines) or trade (cheap good from China), for example.

§4. Marshall ends by arguing that declining marginal costs are unlikely in the long run for an entire industry, since demand would never exceed supply. That said, some firms in the industry might have cost advantages, and thus the opportunity to earn quasi-rents in the short run compared to firms on the margin, assuming all receive a market price.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Read: A look into the work of a Mississippi River pilot
  2. Read: COVID and digital nomads
  3. Read: Surprise (not!) — lots of fraud in the PPP bailouts for small businesses
  4. Listen: All drugs should be legalized
  5. Read: What if Remote Work Didn’t Mean Working from Home?
  6. Read: The Economics of Dining as a Couple
  7. Listen: Pipe Dreams: The Urgent Global Quest to Transform the Toilet
  8. Listen: “…the challenges facing Black America go beyond racial discrimination and the threat of police violence…
  9. Read: Can plastic be “infinitely” recycled?
  10. Listen: Finally, a central banker (and economist) who makes a lot of sense

The incidence of local rates, with some suggestions as to policy

Appendix G

§1. By “rates”, Marshall means local [property] taxes. He begins by noting that taxes that cost more than they give are “onerous” whereas those that give back more than they cost (easy when they are focussed on collective goods rather than private subsidies) are “beneficial”. Since rates are local, they will attract/repel workers and citizens based on that benefit/cost calculation.

§2. A building on land will be more/less profitable over the long term (think net present value) if it fits/misses the neighbourhood’s character, and this character changes over time.

§3. Onerous rates can reduce the value of a building to those who may rent it; even beneficial rates can be bad if they deliver value far later than they are collected.

§4. It’s a good idea to have the same national tax on building values (close to my idea), whereas local rates (on building and/or land value) may need to vary with local conditions. Hopefully they are beneficial!

§5. The incidence (burden) of rates will balance out over time, but it can be onerous (or beneficial) in the short run, which will tend to affect decisions on where to live/work/build.

§6. Speculation occurs at the border between town and outlying areas (e.g., farms), i.e., where the gap between current (use) value and future (converted) value is greatest.

§7. Landlords and farmers tend to share the burdens of rates over the long term, due to lower turn over of occupation.

§8. Rates on residential property should be higher than those on commercial property because turnover is lower in the former (benefits and costs can sync over time) and competition for location is higher in the “commercial” sectors (where rent is an important part of costs/profits).

…while taxes, and especially graduated taxes on expenditure in general [e.g., VAT], present great technical difficulties to the tax collector; and further cost much more to the consumer directly and indirectly than they bring into the revenue; taxes on houses are technically simple, cheap in collection, not liable to evasion, and easy of graduation (p 661).

§9. Marshall says, again, that the costs and benefits of rates need to be balanced over the long run, to make sure that those who pay also receive the benefits from their contributions.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Listen: Daniel Kahneman on Why Our Judgment is Flawed — and What to Do About It
  2. Watch: “Chinatown” architecture in the West is not authentic. Instead, it’s aimed at avoiding discrimination.
  3. Read: What is the Dutch obsession with pavement cafes all about?
  4. Listen: If you treat discussions and debates like a soldier (“defend the position!”) rather than a scout (“what’s interesting over here?”), then you are likely to feel right but be wrong over the long term.
  5. Read: Monopoly was invented to demonstrate the evils of capitalism
  6. Read: Reusable plastic shopping bags are actually making the problem worse
  7. Read: The bad science behind “wash hands and keep distance but ignore masks”
  8. Read: Internet 1.0 was freedom and exploration. Internet 2.0 was exploitation via algorithms. Internet 3.0 will put everything behind paywalls.
  9. Listen: The weird origins of Daylight “Savings” Time and other time trivia
  10. Read: How the Personal Computer Broke the Human Body: “What Zuboff observed was that as intellectual engagement with the work went down, the necessity of concentration and attention went up. What the computer did was make the work so routine, so boring, so mindless, clerical workers had to physically exert themselves to be able to focus on what they were even doing. This transition, from work being about the application of knowledge to work being about the application of attention, turned out to have profound physical and psychological impact on the clerical workers themselves.”

H/T to PB

Barter

Appendix F

In this very short appendix, Marshall explains how the exchange rate in a barter economy (e.g., apples for nuts) will be somewhat arbitrary compared to prices in an economy using money.

In a barter economy, each side has a willingness to trade based on the marginal utilities (MU), since (assuming one has nuts to trade for apples) MU is rising as their stock of nuts is falling, and MU is falling as their stick of apples is rising. In a monetary economy, prices are more stable because (it is assumed) the stocks of both apples and nuts are “unlimited” because apple traders can use cash to buy anything, not just nuts.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Read: Predictable shenanigans with carbon offsets in California“Mark Trexler, a former offsets developer who worked in earlier U.S. and European carbon markets, said the board should have anticipated the perverse incentives created by its program. “When people write offset rules, they always ignore the fact that there are 1,000 smart people next door that will try to game them,” he said. Since the board set up a system that “incentivizes people to find the areas that are high-density, or high-carbon, that’s what they’re going to do.””
  2. Listen: The birth of techno in Berlin
  3. Watch: In this 1983 video, Grandmaster flash explains how to mix records. History!
  4. Read: It’s not a ‘labor shortage.’ It’s a massive reassessment of work in America
  5. Listen: (Negative) carbon credits are getting more attention, but can they work?
  6. Watch: Tracking down the other 99% of plastics that are NOT floating in the middle of the ocean
  7. Read: Finally! “Indigenous leaders launch $2.1 billion class-action lawsuits against Canada over lack of drinking water
  8. Read: Are dentists making money on unnecessary procedures? Sadly, yes.
  9. Read: Louisiana’s refineries, chemical plants and other polluting locations are typically located in areas where freed slaves lived — areas that are still predominately Black. Coincidence? No, systemic racism.
  10. Read: Social Justice Groupthink: Liberalism and science, Pluckrose and Lindsay remind us, are “systems—not just neat little theories—because they are self-skeptical rather than self-certain . . . They are self-correcting.” Enlightenment empiricism encourages us to critique our own beliefs and modify them, however reluctantly we may do so. “People in liberal systems are free to believe anything they wish, and they’re free to argue for anything they want, but to claim that such beliefs are knowledge and demand they be respected as such is another matter.” Social Justice dogma, which demands uncritical adherence, is the opposite of liberal, although the political right has muddied the waters for years by grouping us all into a collective rubric of “liberal,” “the left” or “radical.”

H/T to BZ