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I'm referring to 'capital' in the economic sense, not financial sense. Here's the Wikipedia definition: >>In economics, capital consists of an asset that can

I'm referring to 'capital' in the economic sense, not financial sense. Here's the Wikipedia definition: >>In economics, capital consists of an asset that can enhance one's power to perform economically useful work. For example, in a fundamental sense a stone or an arrow is capital for a caveman who can use it as a hunting instrument, while roads are capital for inhabitants of a city. and >>Capital is distinct from land (or non-renewable resources) in that capital can be increased by human labor. At any given moment in time, total physical capital may be referred to as the capital stock (which is not to be confused with the capital stock of a business entity). Increases in capital essentially mean increases in automation. >>If you have a job which can be automated at a cost equivalent to a $10/hour wage, it doesn't get automated when the wage is $9 and does when it's $11. The money doesn't inherently come at the cost of some other automation, it may (and if the other automation is profitable, more likely does) come from selling some bonds or other assets you own, or by borrowing it from a bank which just creates the new money from nothing as banks do. Not inherently, but generally. There's generally an opportunity cost. If the business has to pay $11 instead of $10, that extra $1 represents more resources being expended on accomplishing that task, which leaves less resources for other things. Yes there are always situations where some extra cost leads to a business or a combination of businesses unlocking productivity that was otherwise dormant, but there will be cases of the opposite, of an extra cost exacerbating wastage, beyond the value of the extra cost. You can't assume that an extra cost will lead to more efficiency gains than efficiency losses. The reasonable assumption is that the two variables will balance each other out, and on average, a $1 an hour increase in the cost of accomplishing a task will mean $1 less resources going into other productive tasks. >>A lot of these things are actually good -- if people sell real estate to buy automation equipment then housing prices come down. That's an overly optimistic and unsupported assumption. The profitability of holding real estate will not go down relative to investing in manufacturing as a result of manufacturing costs increasing.

AnthonyMouse 7y ago
> I'm referring to 'capital' in the economic sense, not financial sense. But then your whole argument doesn't work, because it's possible to convert financial capital (e.g. land holdings or corporate shares) into economic capital (automation) by selling it and using the money to buy machines. The machines don't have to be diverted from some other use, they can be created when they wouldn't otherwise have existed. > If the business has to pay $11 instead of $10, that extra $1 represents more resources being expended on accomplishing that task, which leaves less resources for other things. You're assuming that money directly represents current-day resource allocation with a lack of flexibility. Suppose there is a 25 year old guy who builds machines, gets paid a lot to do it, and currently works 40 hour weeks. If you want more machines, he has to put in more labor and you have to pay him enough for that. When you decide to do it, he instead works 60 hour weeks and gets paid even more, but only saves the money to put his kids through college or have a more secure retirement some decades in the future, or uses it to buy other labor instead of other capital. You spent money, but that isn't an economic resource, it's a financial one. The person spending the economic resource is the person making the machines, and that isn't being reallocated from making other machines, it's being reallocated from going bowling and watching Netflix. > That's an overly optimistic and unsupported assumption. The profitability of holding real estate will not go down relative to investing in manufacturing as a result of manufacturing costs increasing. But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment. The financial capital to pay for that has to come from somewhere, so it does, and demand for competing investments like real estate declines because the investors have to use more of their profits to pay for automation instead of having them to use for land speculation.
- CryptoPunk 7y ago
  >>The machines don't have to be diverted from some other use, they can be created when they wouldn't otherwise have existed. Of course, that's capital formation. You're not going to get more capital formation as a result of artificially raising manufacturing costs. >>You're assuming that money directly represents current-day resource allocation with a lack of flexibility. I don't understand what you mean and how it relates to my point. >>But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment. If my profit margin goes down, it's possible I close shop and invest the financial capital in real estate. Making manufacturing cost more does not cause more to be spent on manufacturing. Let's imagine for a moment that all capital was automation capital, and that the only kind of investment was investment into new automation machinery. Will you acknowledge that in this scenario, a rise in minimum wage would lead to less output, and less investment into new automation?

AnthonyMouse 7y ago

> I'm referring to 'capital' in the economic sense, not financial sense. But then your whole argument doesn't work, because it's possible to convert financial capital (e.g. land holdings or corporate shares) into economic capital (automation) by selling it and using the money to buy machines. The machines don't have to be diverted from some other use, they can be created when they wouldn't otherwise have existed. > If the business has to pay $11 instead of $10, that extra $1 represents more resources being expended on accomplishing that task, which leaves less resources for other things. You're assuming that money directly represents current-day resource allocation with a lack of flexibility. Suppose there is a 25 year old guy who builds machines, gets paid a lot to do it, and currently works 40 hour weeks. If you want more machines, he has to put in more labor and you have to pay him enough for that. When you decide to do it, he instead works 60 hour weeks and gets paid even more, but only saves the money to put his kids through college or have a more secure retirement some decades in the future, or uses it to buy other labor instead of other capital. You spent money, but that isn't an economic resource, it's a financial one. The person spending the economic resource is the person making the machines, and that isn't being reallocated from making other machines, it's being reallocated from going bowling and watching Netflix. > That's an overly optimistic and unsupported assumption. The profitability of holding real estate will not go down relative to investing in manufacturing as a result of manufacturing costs increasing. But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment. The financial capital to pay for that has to come from somewhere, so it does, and demand for competing investments like real estate declines because the investors have to use more of their profits to pay for automation instead of having them to use for land speculation.

CryptoPunk 7y ago
>>The machines don't have to be diverted from some other use, they can be created when they wouldn't otherwise have existed. Of course, that's capital formation. You're not going to get more capital formation as a result of artificially raising manufacturing costs. >>You're assuming that money directly represents current-day resource allocation with a lack of flexibility. I don't understand what you mean and how it relates to my point. >>But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment. If my profit margin goes down, it's possible I close shop and invest the financial capital in real estate. Making manufacturing cost more does not cause more to be spent on manufacturing. Let's imagine for a moment that all capital was automation capital, and that the only kind of investment was investment into new automation machinery. Will you acknowledge that in this scenario, a rise in minimum wage would lead to less output, and less investment into new automation?