4 ms·

>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > This

by efxhoy 6y ago

>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit. In the econ 101 textbook simplified free market that the author is refering to firms do not make any economic profit. If a firm in a free market is turning an economic profit more firms will enter that market, raising supply, lowering price and driving profits to zero.

crdrost 6y ago
This this this, so much this. The economic definition is for a “perfectly competitive market,” one with extremely low barriers to entry. And one of the arguments about these markets is that they are the least profitable markets because firms in a less-profitable market will want to jump the extremely low barriers to switch into that market; this dilutes per-firm profits in the competitive market and concentrates them in the less-competitive market. Economists consider those least-profits an “opportunity cost” of spending your time in the first place, and if you include that as an explicit cost then the “profit” is indeed zero.
dmalvarado 6y ago
As an econ major, I've come to the conclusion that the dismal science is equal parts making models and explaining why they don't work.
- mkoubaa 6y ago
  the dismal science is too generous
  - onionisafruit 6y ago
    “The dismal science” is an established name for economics. Similar to the sweet science or the gay science.
    - donw 6y ago
      I know boxing is the "Sweet Science", and a quick search seems to indicate that "Gay Science"[1] comes from Nietzsche, and seems to refer to... poetry or song? A better translation from the original German is probably "Joyful Science", though. Not sure if that's where the parent was going, but I learned something new today. [1] https://en.wikipedia.org/wiki/The_Gay_Science https://en.wikipedia.org/wiki/The_Gay_Science
      - prewett 6y ago
        "Gay" originally meant "happy", and while "happy" and "joyful" are different, they are at least reasonably close. Wasn't Nietzsche nihilist, though? Seems like it would be hard to be joyful if your science leads to nihilism.
        donw 6y ago
        There are a lot of flavors of nihilism, so I'm not sure that having a pessimistic worldview precludes joyfulness. I'd call myself a realist -- and I think there's a lot of overlap with nihilism there, in that I try and see the world "as it is", and not "how I wish it was". The world is a messy, ugly, dark place. It really is, and it's kind of amazing how people go out of their way to pretend that either that darkness doesn't exist, or that it's somebody else's job to keep it at bay. There is a light in our world, though -- it's us, if we choose to be. And so, regardless of the futility in the grand scheme of things, I invest effort to find joy in all that I can, and bring that sense of joyfulness to those around me, because it makes my corner of the world just a little brighter.
        ganafagol 6y ago
        > The world is a messy, ugly, dark place. [...] > There is a light in our world, though -- it's us, if we choose to be. I can easily argue the opposite. The world itself is beautiful. Just sit at a mountain top or in the forest or on a beach and take in their beauty. Look at stars, galaxies, how they interact, it's absolutely stunning. Or zoom in looking at microbes, cells, molecules, atoms. The world is a gorgeous place. What brings darkness is people. So much hate, greed, awful intrigues, all over the place. Look at the U.S. today, it's the epicenter. Everybody could be so happy. But no, hate because somebody wants to raise taxes. Or wears a gun. Or "wants to take away your 2nd amendment". Or is a misogynist. All covered over with a culture that expects everybody to find everything amazing, wonderful, best country in the world, or hate, cancel, exclude. It's not the world that's ugly. It's the people.
tprice7 6y ago
This is correct, but it doesn't address a fundamental misunderstanding of the parent comment. The prediction that wages = MPL alone does not predict a lack of profit, since the marginal product of labour is generally less than the average product of labour due to the law of diminishing returns. (I would agree though that "the value of what he produces" is an ambiguous phrase and seems closer to APL than MPL). It is true regardless that the theory predicts an economic profit of zero, but to see why it's necessary to consider the rental cost of capital. Also, since many firms own rather than rent capital, they often have a positive accounting profit even though economic profit is zero (economic profit is less since it takes into account opportunity cost: if you are using your own capital then you can't rent it out to someone else).
- efxhoy 6y ago
  Yes, exactly right and well put. It's always difficult to jump into online discussions about economics because you need to give the entire econ 101 micro course in single comment just to make sure everyone is talking about the same thing.
  - tprice7 6y ago
    Fair enough. I had a much more verbose comment earlier and it took me a second attempt to get it more concise while still conveying the essential point. The Blaise Pascal quote comes to mind, "I would have written a shorter letter, but I did not have the time."

by efxhoy 6y ago

crdrost 6y ago

This this this, so much this. The economic definition is for a “perfectly competitive market,” one with extremely low barriers to entry. And one of the arguments about these markets is that they are the least profitable markets because firms in a less-profitable market will want to jump the extremely low barriers to switch into that market; this dilutes per-firm profits in the competitive market and concentrates them in the less-competitive market. Economists consider those least-profits an “opportunity cost” of spending your time in the first place, and if you include that as an explicit cost then the “profit” is indeed zero.

dmalvarado 6y ago

As an econ major, I've come to the conclusion that the dismal science is equal parts making models and explaining why they don't work.

mkoubaa 6y ago
the dismal science is too generous
- onionisafruit 6y ago
  “The dismal science” is an established name for economics. Similar to the sweet science or the gay science.
  - donw 6y ago
    I know boxing is the "Sweet Science", and a quick search seems to indicate that "Gay Science"[1] comes from Nietzsche, and seems to refer to... poetry or song? A better translation from the original German is probably "Joyful Science", though. Not sure if that's where the parent was going, but I learned something new today. [1] https://en.wikipedia.org/wiki/The_Gay_Science https://en.wikipedia.org/wiki/The_Gay_Science
    - prewett 6y ago
      "Gay" originally meant "happy", and while "happy" and "joyful" are different, they are at least reasonably close. Wasn't Nietzsche nihilist, though? Seems like it would be hard to be joyful if your science leads to nihilism.
      - donw 6y ago
        There are a lot of flavors of nihilism, so I'm not sure that having a pessimistic worldview precludes joyfulness. I'd call myself a realist -- and I think there's a lot of overlap with nihilism there, in that I try and see the world "as it is", and not "how I wish it was". The world is a messy, ugly, dark place. It really is, and it's kind of amazing how people go out of their way to pretend that either that darkness doesn't exist, or that it's somebody else's job to keep it at bay. There is a light in our world, though -- it's us, if we choose to be. And so, regardless of the futility in the grand scheme of things, I invest effort to find joy in all that I can, and bring that sense of joyfulness to those around me, because it makes my corner of the world just a little brighter.
        ganafagol 6y ago
        > The world is a messy, ugly, dark place. [...] > There is a light in our world, though -- it's us, if we choose to be. I can easily argue the opposite. The world itself is beautiful. Just sit at a mountain top or in the forest or on a beach and take in their beauty. Look at stars, galaxies, how they interact, it's absolutely stunning. Or zoom in looking at microbes, cells, molecules, atoms. The world is a gorgeous place. What brings darkness is people. So much hate, greed, awful intrigues, all over the place. Look at the U.S. today, it's the epicenter. Everybody could be so happy. But no, hate because somebody wants to raise taxes. Or wears a gun. Or "wants to take away your 2nd amendment". Or is a misogynist. All covered over with a culture that expects everybody to find everything amazing, wonderful, best country in the world, or hate, cancel, exclude. It's not the world that's ugly. It's the people.

tprice7 6y ago

This is correct, but it doesn't address a fundamental misunderstanding of the parent comment. The prediction that wages = MPL alone does not predict a lack of profit, since the marginal product of labour is generally less than the average product of labour due to the law of diminishing returns. (I would agree though that "the value of what he produces" is an ambiguous phrase and seems closer to APL than MPL). It is true regardless that the theory predicts an economic profit of zero, but to see why it's necessary to consider the rental cost of capital. Also, since many firms own rather than rent capital, they often have a positive accounting profit even though economic profit is zero (economic profit is less since it takes into account opportunity cost: if you are using your own capital then you can't rent it out to someone else).

efxhoy 6y ago
Yes, exactly right and well put. It's always difficult to jump into online discussions about economics because you need to give the entire econ 101 micro course in single comment just to make sure everyone is talking about the same thing.
- tprice7 6y ago
  Fair enough. I had a much more verbose comment earlier and it took me a second attempt to get it more concise while still conveying the essential point. The Blaise Pascal quote comes to mind, "I would have written a shorter letter, but I did not have the time."