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The problem with this explaination is that it focuses on the technical aspect and not on the economical one : how is the value created shared among the people i

The problem with this explaination is that it focuses on the technical aspect and not on the economical one : how is the value created shared among the people in the economy? Technological progress allows concentration of power in the one who holds the capital, as he will be the main one to benefit from a more efficient capital : with the new machine you can make 15 buns whereas you made less with the new one. The employee is not paid more : the capitalist earns the cost saved. Problem is that the capitalist doesn't spend 100% of his income : he will consume some, invest some and save the rest in unproductive accounts or stocks. He may produce 50% more hot dogs, but the demand will not follow. Economics theory says that in this case prices may go down, but that would mean a lowering of the capitalist's profits. He may in this case reduce quality in order to lower the prices while preserving his margins. Hence we see here 3 things : accumation of capital in a few hands, an era of deflation and low yields due to low demand and high monetary stock needed to be invested, and a reduction of quality of the product. The last one is counter intuitive but may be seen in reality : buildings have reached the point where it's commodity, replaced every 30 years, clothes are worthless and the quality of food has been decreasing for the last 30 years (at least in my country, France). If we get richer everyday, why can't we make buildings that are aesthical, solid and durable anymore? Why is quality food reserved only for rich people?

apsec112 10y ago
Returns to capital in the form of ownership of companies (including eg. the source code to automate labor that's owned by those companies) have been flat. Higher returns on capital have almost entirely been caused by higher housing prices. See eg. Rognlie's paper at http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf.
- GFK_of_xmaspast 10y ago
  It's almost as if the rate of profit tends to fall.
  - eli_gottlieb 10y ago
    It's almost as if the real solution to our problems is worker control of the means of production.
- lmm 10y ago
  George was and remains right. Economic growth is captured by landowners; the solution is to tax and redistribute at that point.
  - antisthenes 10y ago
    The non-violent solution is thus a land-value tax. Hopefully forcing most if not all the non-economically active people to move to cheaper COL areas. That is not to say we should discourage home ownership, but we should discourage multiple home ownership for the purpose of rent extraction. Land is a zero-sum market and landlords who are against development and housing construction are effectively stealing value from those who would use thee homes as a residence.
- choxi 10y ago
  Does "returns to capital in the form of ownership of companies" mean "returns to capital on stocks and equities"? I'm confused because returns on equities certainly haven't been flat.
ajss 10y ago
> Why is quality food reserved only for rich people? Are you kidding?
- TheSpiceIsLife 10y ago
  While that was my reaction, in the interest of quality and depth of conversation it would be good if you expanded on why you disagree here. I'm not sure what the parent meant by this. Quality what? Lobsters? Fresh fruit and vegetables; nuts, seeds, and whole grains; animal flesh - these are all relatively inexpensive compared to processsed "value added" food products, regardless of where you are in the world.
  - vertex-four 10y ago
    The issue, of course, is time to prepare food. If you're well-off, you can choose to spend time cooking, or have someone else do it for you sometimes - if you're not, then you might not have time to spend cooking (especially if you have children), and almost definitely won't have the mental or physical energy to prepare three healthy meals a day. Job insecurity is draining and causes low-paid workers to put significantly more effort into their work than they're paid for, and many people across the US (and some other countries, like the UK) suffer from it.
    - concinds 10y ago
      In my country, people watch TV an average of 3 hours every single day. It isn't billionaires doing that. It's people that "don't have time to go to the gym". And while Millennials might laugh at this, they're spending just as much on social media sites, Netflix and YouTube. This whole "I don't have enough time to not neglect myself" it just excuses all the way down. Everyone can find time to exercise and eat well. People using "not enough time" as an excuse is just a symptom of low self-esteem and self-neglect, which is the real issue. That's the epidemic, and there's great inequality there, though it isn't tied to socioeconomic status.
      - vertex-four 10y ago
crdoconnor 10y ago
>Technological progress allows concentration of power in the one who holds the capital In practice we only see this when a technology market is straitjacketed by intellectual property laws. The lack of patentability of software is one reason why the market is so innovative - it diffuses that concentration of power.
- georgemcbay 10y ago
  "The lack of patentability of software is one reason why the market is so innovative" uh..? I hate to burst your bubble, but software patents are common. The idea that software (as a representation of math) is not patentable died back in the early 1990s.
- MustrumRidcully 10y ago
  It could if the internet ecosystem wasn't dominated by platforms that concentrate exchange and thus the value created. Linux is very innovative but lacks enough users to endanger the mains OSes of the market.
Pyxl101 10y ago
> Technological progress allows concentration of power in the one who holds the capital, as he will be the main one to benefit from a more efficient capital I do not think that is true. The consumers of all goods and services also benefit from technological progress, because they become cheaper, more widely available, higher quality (different ways of saying the same thing). Technological progress in the last ~200 years has radically improved the lives of everyone, most significantly by freeing them from being subsistence farmers and clothes-makers. Even though most people today do not own a lot of capital, the cost of living well has come down so substantially that even poor people today arguably have much better quality of life than historical kings. For example, the majority of US households below the poverty line own an automobile, have multiple televisions with cable TV, a refrigerator, air conditioning, mobile phones, etc. [1] Despite owning no capital, the life of even those in poverty is astronomically better off than 200 years ago. Are you familiar with the trope where poor people from the distant past would wear clothes until they literally turned into rags? The reason that happened is because clothing was ridiculously expensive compared to today. There was an article about this on Hacker News about two years ago called "The $3500 Shirt - A History Lesson in Economics" [2]. To summarize, in the pre-industrial age, a single shirt required so much labor that its cost was on the order of $3500 - $4000 in modern dollars. Buying a single piece of clothing could cost you multiple months' wages. > Back in the pre-industrial days, the making of thread, cloth, and clothing ate up all the time that a woman wasn't spending cooking and cleaning and raising the children. That's why single women were called "spinsters" - spinning thread was their primary job. "I somehow or somewhere got the idea," wrote Lucy Larcom in the 18th century, "when I was a small child, that the chief end of woman was to make clothing for mankind." [2] NPR also published an article on called "The History Of Light" [3] which traces how much light (like candle light or lamp light) you could buy with a day's worth of labor, at various points in history. In Babylonian times, your day's wages could buy you 10 minutes worth of light. Light was therefore relatively expensive and in-affordable. By the 1990s, a day's wages can buy about 20,000 hours worth of light. Light is so cheap everyone has practically unlimited amounts, which led to substantial changes across modern society. Technological progress has drastically improved the lives of everyone. It has not made everyone rich, but those in poverty today are phenomenally better off than at any time in the past. [1] http://www.heritage.org/research/reports/2011/09/understanding-poverty-in-the-united-states-surprising-facts-about-americas-poor http://www.heritage.org/research/reports/2011/09/understandi... [2] https://news.ycombinator.com/item?id=8940950 https://news.ycombinator.com/item?id=8940950 [3] http://www.npr.org/2014/05/02/309040279/in-4-000-years-one-thing-hasnt-changed-it-takes-time-to-buy-light http://www.npr.org/2014/05/02/309040279/in-4-000-years-one-t...
ArkyBeagle 10y ago
"...how is the value created shared among the people in the economy? ...Technological progress allows concentration of power in the one who holds the capital..." Capital as the term is usually used is getting a severe beating right along with labor. Goods used to be much more capital-intensive than they are now. Look at the rotting carcasses of factories in Detroit. And I am sorry - but you immediately switched from "wealth" to "power" and in a service economy, those are disjoint - perhaps in-opposition - things. Buildings are built to the aesthetics of rich people - in the "mount the TV over the fireplace" style. There's a critic who tears apart crappy McMansion aesthetics all day long. Things like strip malls are an artifact of incentives in real estate development. And good quality food is plentiful and in cases, quite cheap.
- emodendroket 10y ago
  > Capital as the term is usually used is getting a severe beating right along with labor. Goods used to be much more capital-intensive than they are now. Look at the rotting carcasses of factories in Detroit. What the heck are you talking about? Those factories didn't shutter because you don't need a factory to make cars anymore.
- MustrumRidcully 10y ago
  Quality food is cheap? Have you ever lived in a big city? If you come to Europe, you'll see that building a nice house wasn't reserved to the rich. And anyway, if we believe GDP figures, a rich man 200 years ago had the purchasing power of a middle-class american living in a McMansion. Capital can depreciate, of course. It did, and wealth went from the rustbelt to the techies and financiers who own the algorithms.
colechristensen 10y ago
There's a rough transition, but eventually we'll get to the point that everything is so cheap that people will produce it for fun, not profit. Think of how much free open source labor there is, people working together to produce software on their own free time because they like to do it. I see much of the future economy functioning like this, but it only can when automation reaches a level where people can produce enough having fun. If everyone can purchase a small factory that lives in a room which can built copies of itself, large portions of the economy disappear which is excellent. It could turn most of the economy into small local barter-economies where people did what they wanted and exchanged the outputs with other specialists in their area. (There have been and still are local economies that still function very much like this at least to a degree) For it to work you have to remove scarcity which is what automation does. Switching from one to the other will be awkward, but it will work eventually. This is quite a lot like what Marx thought would happen, he was just wrong in his estimation of how effective 19th century automation was going to be.
- MustrumRidcully 10y ago
  Thanks for the sci-fi, but you underestimate the scarcity of other things : land and natural ressources.

apsec112 10y ago

Returns to capital in the form of ownership of companies (including eg. the source code to automate labor that's owned by those companies) have been flat. Higher returns on capital have almost entirely been caused by higher housing prices. See eg. Rognlie's paper at http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf.

GFK_of_xmaspast 10y ago
It's almost as if the rate of profit tends to fall.
- eli_gottlieb 10y ago
  It's almost as if the real solution to our problems is worker control of the means of production.
lmm 10y ago
George was and remains right. Economic growth is captured by landowners; the solution is to tax and redistribute at that point.
- antisthenes 10y ago
  The non-violent solution is thus a land-value tax. Hopefully forcing most if not all the non-economically active people to move to cheaper COL areas. That is not to say we should discourage home ownership, but we should discourage multiple home ownership for the purpose of rent extraction. Land is a zero-sum market and landlords who are against development and housing construction are effectively stealing value from those who would use thee homes as a residence.
choxi 10y ago
Does "returns to capital in the form of ownership of companies" mean "returns to capital on stocks and equities"? I'm confused because returns on equities certainly haven't been flat.

ajss 10y ago

> Why is quality food reserved only for rich people? Are you kidding?

TheSpiceIsLife 10y ago
While that was my reaction, in the interest of quality and depth of conversation it would be good if you expanded on why you disagree here. I'm not sure what the parent meant by this. Quality what? Lobsters? Fresh fruit and vegetables; nuts, seeds, and whole grains; animal flesh - these are all relatively inexpensive compared to processsed "value added" food products, regardless of where you are in the world.
- vertex-four 10y ago
  The issue, of course, is time to prepare food. If you're well-off, you can choose to spend time cooking, or have someone else do it for you sometimes - if you're not, then you might not have time to spend cooking (especially if you have children), and almost definitely won't have the mental or physical energy to prepare three healthy meals a day. Job insecurity is draining and causes low-paid workers to put significantly more effort into their work than they're paid for, and many people across the US (and some other countries, like the UK) suffer from it.
  - concinds 10y ago
    In my country, people watch TV an average of 3 hours every single day. It isn't billionaires doing that. It's people that "don't have time to go to the gym". And while Millennials might laugh at this, they're spending just as much on social media sites, Netflix and YouTube. This whole "I don't have enough time to not neglect myself" it just excuses all the way down. Everyone can find time to exercise and eat well. People using "not enough time" as an excuse is just a symptom of low self-esteem and self-neglect, which is the real issue. That's the epidemic, and there's great inequality there, though it isn't tied to socioeconomic status.
    - vertex-four 10y ago

crdoconnor 10y ago

>Technological progress allows concentration of power in the one who holds the capital In practice we only see this when a technology market is straitjacketed by intellectual property laws. The lack of patentability of software is one reason why the market is so innovative - it diffuses that concentration of power.

georgemcbay 10y ago
"The lack of patentability of software is one reason why the market is so innovative" uh..? I hate to burst your bubble, but software patents are common. The idea that software (as a representation of math) is not patentable died back in the early 1990s.
MustrumRidcully 10y ago
It could if the internet ecosystem wasn't dominated by platforms that concentrate exchange and thus the value created. Linux is very innovative but lacks enough users to endanger the mains OSes of the market.

Pyxl101 10y ago

> Technological progress allows concentration of power in the one who holds the capital, as he will be the main one to benefit from a more efficient capital I do not think that is true. The consumers of all goods and services also benefit from technological progress, because they become cheaper, more widely available, higher quality (different ways of saying the same thing). Technological progress in the last ~200 years has radically improved the lives of everyone, most significantly by freeing them from being subsistence farmers and clothes-makers. Even though most people today do not own a lot of capital, the cost of living well has come down so substantially that even poor people today arguably have much better quality of life than historical kings. For example, the majority of US households below the poverty line own an automobile, have multiple televisions with cable TV, a refrigerator, air conditioning, mobile phones, etc. [1] Despite owning no capital, the life of even those in poverty is astronomically better off than 200 years ago. Are you familiar with the trope where poor people from the distant past would wear clothes until they literally turned into rags? The reason that happened is because clothing was ridiculously expensive compared to today. There was an article about this on Hacker News about two years ago called "The $3500 Shirt - A History Lesson in Economics" [2]. To summarize, in the pre-industrial age, a single shirt required so much labor that its cost was on the order of $3500 - $4000 in modern dollars. Buying a single piece of clothing could cost you multiple months' wages. > Back in the pre-industrial days, the making of thread, cloth, and clothing ate up all the time that a woman wasn't spending cooking and cleaning and raising the children. That's why single women were called "spinsters" - spinning thread was their primary job. "I somehow or somewhere got the idea," wrote Lucy Larcom in the 18th century, "when I was a small child, that the chief end of woman was to make clothing for mankind." [2] NPR also published an article on called "The History Of Light" [3] which traces how much light (like candle light or lamp light) you could buy with a day's worth of labor, at various points in history. In Babylonian times, your day's wages could buy you 10 minutes worth of light. Light was therefore relatively expensive and in-affordable. By the 1990s, a day's wages can buy about 20,000 hours worth of light. Light is so cheap everyone has practically unlimited amounts, which led to substantial changes across modern society. Technological progress has drastically improved the lives of everyone. It has not made everyone rich, but those in poverty today are phenomenally better off than at any time in the past. [1] http://www.heritage.org/research/reports/2011/09/understanding-poverty-in-the-united-states-surprising-facts-about-americas-poor http://www.heritage.org/research/reports/2011/09/understandi... [2] https://news.ycombinator.com/item?id=8940950 https://news.ycombinator.com/item?id=8940950 [3] http://www.npr.org/2014/05/02/309040279/in-4-000-years-one-thing-hasnt-changed-it-takes-time-to-buy-light http://www.npr.org/2014/05/02/309040279/in-4-000-years-one-t...

ArkyBeagle 10y ago

"...how is the value created shared among the people in the economy? ...Technological progress allows concentration of power in the one who holds the capital..." Capital as the term is usually used is getting a severe beating right along with labor. Goods used to be much more capital-intensive than they are now. Look at the rotting carcasses of factories in Detroit. And I am sorry - but you immediately switched from "wealth" to "power" and in a service economy, those are disjoint - perhaps in-opposition - things. Buildings are built to the aesthetics of rich people - in the "mount the TV over the fireplace" style. There's a critic who tears apart crappy McMansion aesthetics all day long. Things like strip malls are an artifact of incentives in real estate development. And good quality food is plentiful and in cases, quite cheap.

emodendroket 10y ago
> Capital as the term is usually used is getting a severe beating right along with labor. Goods used to be much more capital-intensive than they are now. Look at the rotting carcasses of factories in Detroit. What the heck are you talking about? Those factories didn't shutter because you don't need a factory to make cars anymore.
MustrumRidcully 10y ago
Quality food is cheap? Have you ever lived in a big city? If you come to Europe, you'll see that building a nice house wasn't reserved to the rich. And anyway, if we believe GDP figures, a rich man 200 years ago had the purchasing power of a middle-class american living in a McMansion. Capital can depreciate, of course. It did, and wealth went from the rustbelt to the techies and financiers who own the algorithms.

colechristensen 10y ago

There's a rough transition, but eventually we'll get to the point that everything is so cheap that people will produce it for fun, not profit. Think of how much free open source labor there is, people working together to produce software on their own free time because they like to do it. I see much of the future economy functioning like this, but it only can when automation reaches a level where people can produce enough having fun. If everyone can purchase a small factory that lives in a room which can built copies of itself, large portions of the economy disappear which is excellent. It could turn most of the economy into small local barter-economies where people did what they wanted and exchanged the outputs with other specialists in their area. (There have been and still are local economies that still function very much like this at least to a degree) For it to work you have to remove scarcity which is what automation does. Switching from one to the other will be awkward, but it will work eventually. This is quite a lot like what Marx thought would happen, he was just wrong in his estimation of how effective 19th century automation was going to be.

MustrumRidcully 10y ago
Thanks for the sci-fi, but you underestimate the scarcity of other things : land and natural ressources.