8 ms·

The basic tenet of capitalism is that trade is not zero-sum: it actually creates wealth. If I have I pay you $10 for a service that costs you $5 to provide, yo

by smanek 18y ago

The basic tenet of capitalism is that trade is not zero-sum: it actually creates wealth. If I have I pay you $10 for a service that costs you $5 to provide, you've actually created $5 of wealth out of thin air. I end up with a service that I value more than $10 so I come out ahead, and you end up with money that you value more than the marginal cost of providing me that service so you come out ahead. As a simple check, the average person (in the world) today is better off than the average person 50, 100, or 1,000 years ago. Even though are population has increased significantly, our wealth has increased even more.

timr 18y ago
Wealth is not created when I pay you $10 for something that you made for $5 -- wealth is created when you use labor to add value to natural resources. To this end, capitalism is very much a zero-sum game. There are only so many resources to exploit, and once they're gone (or otherwise locked up), that's it for growth.
- smanek 18y ago
  You can add value to natural resources by using labor. But that isn't what I was talking about. I was talking about the wealth added by trade. As a simple example, let's say I have a large bag of peanuts - but I'm allergic to peanuts. And you have a copy of Smith's 'The Wealth of Nations' (which you clearly have no interest in reading ;-)). By trading my peanuts for your book, we both come out ahead and no one is worse off - the trade itself creates value. Every time any trade/purchase takes place, value is created. Both parties are better off than they were before the trade - otherwise they wouldn't have chosen to be involved in the transaction.
  - timr 18y ago
    I must have missed the part of Wealth of Nations that you're citing. Because when I read it, Smith defined "wealth" only in aggregate, as the "net revenues" of the labor of a society. So ignoring, for the moment, the fact that Adam Smith's definition of "wealth" isn't the only one (and the fact that you're using the terms "wealth" and "value" interchangeably), I think you've misinterpreted what he wrote. In other words, you're really stretching to use his notion of "wealth" as an argument that trade creates more wealth. Wealth generation does not occur when an item is traded -- it occurs when an item is created, using labor. Smith goes out of his way to say this: "The value of any commodity, ... to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities" (Wealth of Nations, Book 1, chapter V) The peanuts in your example didn't gain or lose value when they were traded for a paperback. Nor did the paperback gain or lose value. We merely created a market that defined their values as equivalent. Confusing this process for wealth creation is a big reason why we're in the economic mess that we're in today.
    - SamReidHughes_ 18y ago
      You're misinterpreting reality with that quote, because labor that produces inherently more valuable goods is inherently more valuable labor than labor which does not. Part of the wealth that goes into the peanuts and book is the extremely valuable labor of finding out who needs what resources.
- davidmathers 18y ago
  "wealth is created when you use labor to add value to natural resources" That (the labor theory of value) is exactly what all the classical economists (Adam Smith, David Ricardo, Karl Marx) got wrong.
  - timr 18y ago
    No offense, but it's fairly amusing that you're so confident about this statement, when other people in the same thread are equally confidently arguing that Adam Smith isn't saying that at all. I've got to defer to the guy who said that internet geeks don't know what they're talking about when it comes to economics.
    - davidmathers 18y ago
      No offense taken. My statement is so non-controversial that I have no problem saying that anyone who disagrees with it truly has no idea what they're talking about. The "marginal revolution" is one of the major events in the history of economics. EDIT - here's some useful wikipedia links: http://en.wikipedia.org/wiki/Labor_theory_of_value http://en.wikipedia.org/wiki/Labor_theory_of_value http://en.wikipedia.org/wiki/Marginal_utility http://en.wikipedia.org/wiki/Marginal_utility EDIT #2 - paragraph 3 from wikipedia: Different labor theories of value prevailed amongst classical economists through to the mid-19th century. It is especially associated with Adam Smith and David Ricardo. Since that time, it is most often associated with Marxian economics; while modern mainstream economics replaces it by the marginal utility approach.
- skmurphy 18y ago
  How does intellectual property and knowledge fit into this framework? How much of the value of software is in the natural resources used to package it? If the Industrial revolution was about using steam engines to build steam engines and we use software to write software, is labor really the only differentiating component?
old-gregg 18y ago
As a simple check, the average person (in the world) today is better off than the average person 50, 100, or 1,000 years ago. Even though are population has increased significantly, our wealth has increased even more. I will have to do a research on this. It's a very interesting claim and you didn't provide any sources. I'm not convinced. I think we've been heavily "borrowing from the future" i.e. even current rates of consumption/household growth are not sustainable, again - I got these conclusions and trends from Diamond. Also forget for a second about words like "wealth" and "dollars" and look at basic resources instead: fish, meat, oil, wood and minerals. Currently we're consuming them at the rate faster than they can regenerate, I hope we can agree here. To me, that's an indication that technology isn't keeping up. Look up the rising numbers of meat and fish consumption in China and compare them to agricultural output of the world (all these facts are googlable).
- smanek 18y ago
  I'm simply using dollars as a universally understood metric for wealth (where wealth is the 'value' of actual goods and services). Obvious data that supports my claim (that life is better for the average person today than it was 100 years ago) is that the average worldwide life expectancy has increased from 31 years in 1900 to over 65 years in 2006 (http://www.who.int/global_health_histories/seminars/presentation07.pdf http://www.who.int/global_health_histories/seminars/presenta...). If memory serves, child mortality rates, homicide rates, and per capita energy production all paint a similar picture. Even though there are some limited basic resources (land, water, etc), we are always learning to use them more efficiently. Our yield for most crops, per acre, has increased over ten fold in the last 100 years. Look into Norman Borlaug's Dwarf Wheat and the Green Revolution for proof.
  - old-gregg 18y ago
    Ok, you're supporting the claim that technology is winning the race. May I ask a hypothetical question: if all countries had social/economic systems identical to US, with full access to US technology, democracy, political stability, etc (kinda imagine them all being US states), do you honestly believe the whole world would enjoy the same standard of living we do?

by smanek 18y ago

timr 18y ago

Wealth is not created when I pay you $10 for something that you made for $5 -- wealth is created when you use labor to add value to natural resources. To this end, capitalism is very much a zero-sum game. There are only so many resources to exploit, and once they're gone (or otherwise locked up), that's it for growth.

smanek 18y ago
You can add value to natural resources by using labor. But that isn't what I was talking about. I was talking about the wealth added by trade. As a simple example, let's say I have a large bag of peanuts - but I'm allergic to peanuts. And you have a copy of Smith's 'The Wealth of Nations' (which you clearly have no interest in reading ;-)). By trading my peanuts for your book, we both come out ahead and no one is worse off - the trade itself creates value. Every time any trade/purchase takes place, value is created. Both parties are better off than they were before the trade - otherwise they wouldn't have chosen to be involved in the transaction.
- timr 18y ago
  I must have missed the part of Wealth of Nations that you're citing. Because when I read it, Smith defined "wealth" only in aggregate, as the "net revenues" of the labor of a society. So ignoring, for the moment, the fact that Adam Smith's definition of "wealth" isn't the only one (and the fact that you're using the terms "wealth" and "value" interchangeably), I think you've misinterpreted what he wrote. In other words, you're really stretching to use his notion of "wealth" as an argument that trade creates more wealth. Wealth generation does not occur when an item is traded -- it occurs when an item is created, using labor. Smith goes out of his way to say this: "The value of any commodity, ... to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities" (Wealth of Nations, Book 1, chapter V) The peanuts in your example didn't gain or lose value when they were traded for a paperback. Nor did the paperback gain or lose value. We merely created a market that defined their values as equivalent. Confusing this process for wealth creation is a big reason why we're in the economic mess that we're in today.
  - SamReidHughes_ 18y ago
    You're misinterpreting reality with that quote, because labor that produces inherently more valuable goods is inherently more valuable labor than labor which does not. Part of the wealth that goes into the peanuts and book is the extremely valuable labor of finding out who needs what resources.
davidmathers 18y ago
"wealth is created when you use labor to add value to natural resources" That (the labor theory of value) is exactly what all the classical economists (Adam Smith, David Ricardo, Karl Marx) got wrong.
- timr 18y ago
  No offense, but it's fairly amusing that you're so confident about this statement, when other people in the same thread are equally confidently arguing that Adam Smith isn't saying that at all. I've got to defer to the guy who said that internet geeks don't know what they're talking about when it comes to economics.
  - davidmathers 18y ago
    No offense taken. My statement is so non-controversial that I have no problem saying that anyone who disagrees with it truly has no idea what they're talking about. The "marginal revolution" is one of the major events in the history of economics. EDIT - here's some useful wikipedia links: http://en.wikipedia.org/wiki/Labor_theory_of_value http://en.wikipedia.org/wiki/Labor_theory_of_value http://en.wikipedia.org/wiki/Marginal_utility http://en.wikipedia.org/wiki/Marginal_utility EDIT #2 - paragraph 3 from wikipedia: Different labor theories of value prevailed amongst classical economists through to the mid-19th century. It is especially associated with Adam Smith and David Ricardo. Since that time, it is most often associated with Marxian economics; while modern mainstream economics replaces it by the marginal utility approach.
skmurphy 18y ago
How does intellectual property and knowledge fit into this framework? How much of the value of software is in the natural resources used to package it? If the Industrial revolution was about using steam engines to build steam engines and we use software to write software, is labor really the only differentiating component?

old-gregg 18y ago

As a simple check, the average person (in the world) today is better off than the average person 50, 100, or 1,000 years ago. Even though are population has increased significantly, our wealth has increased even more. I will have to do a research on this. It's a very interesting claim and you didn't provide any sources. I'm not convinced. I think we've been heavily "borrowing from the future" i.e. even current rates of consumption/household growth are not sustainable, again - I got these conclusions and trends from Diamond. Also forget for a second about words like "wealth" and "dollars" and look at basic resources instead: fish, meat, oil, wood and minerals. Currently we're consuming them at the rate faster than they can regenerate, I hope we can agree here. To me, that's an indication that technology isn't keeping up. Look up the rising numbers of meat and fish consumption in China and compare them to agricultural output of the world (all these facts are googlable).

smanek 18y ago
I'm simply using dollars as a universally understood metric for wealth (where wealth is the 'value' of actual goods and services). Obvious data that supports my claim (that life is better for the average person today than it was 100 years ago) is that the average worldwide life expectancy has increased from 31 years in 1900 to over 65 years in 2006 (http://www.who.int/global_health_histories/seminars/presentation07.pdf http://www.who.int/global_health_histories/seminars/presenta...). If memory serves, child mortality rates, homicide rates, and per capita energy production all paint a similar picture. Even though there are some limited basic resources (land, water, etc), we are always learning to use them more efficiently. Our yield for most crops, per acre, has increased over ten fold in the last 100 years. Look into Norman Borlaug's Dwarf Wheat and the Green Revolution for proof.
- old-gregg 18y ago
  Ok, you're supporting the claim that technology is winning the race. May I ask a hypothetical question: if all countries had social/economic systems identical to US, with full access to US technology, democracy, political stability, etc (kinda imagine them all being US states), do you honestly believe the whole world would enjoy the same standard of living we do?