More Ritchie

Don\’t know whether this comment will get through, given that "The debate is over".

"But the policy is based on the simple model that the market rules, that there is a stable equilibrium, that the gifts of nature are free (and should be free) and that profit maximising (or ‘greed is good’) is what business is all about."

Only one out of four there correct Richard.

1 "The market rules"…..except when it doesn\’t. Any and every economist accepts, even insists, that markets do not provide the optimal outcome in all cases. As I\’ve pointed out above this is true for public goods: even the most viciously right wing (or "neo-liberal" if you prefer) would include defence, the criminal justice system and almost all (Larry Lessig perhaps excluded) would accept copyright and patents as at least one valid way to correct what would be a pure free market and non-optimal outcome (others like Dean Baker have different ideas of how to do this but almost all agree that the pure free market outcome is non-optimal).

The argument is not that all markets all the time produces an optimal outcome. It is not over whether interventions can improve upon market outcomes. It is only over *when* do interventions improve upon market outcomes. Again, as I mention above, the existence of externalities leads to "neo-liberals" not only accepting but actually campaigning for certain interventions: as with the London Congestion Charge.

2) "Stable equlibrium". No, we do not argue that there is a stable equilibrium. Technology changes, desires change, thus there is not and will not be a stable equilibrium.

3) "Gifts of nature are free (and should be free)". No, we do not argue so. See above. Certainly, when demand for a gift of nature is below the sustainable supply we argue that there is no problem with it being treated as free. But we are the very people who argue that a price has to be put on those gifts when demand exceeds sustainable supply. Again, see above.

4) "Profit maximising is what business is all about". Yes, this is the one you\’ve got correct. But there are provisos of course. For example, only profit maximising where one is indeed taking account of externalities (again, see above). For a business maximises profit in the long term by servicing the desires of consumers. And that is what it really is all about, how best to organise the various resources available to as to maximally (to the extent which is possible at current levels of technology) satisfy the desires of, to maximise the utility of, the population.

13 comments on “More Ritchie

  1. Tim, you’re being very generous in allowing full credit on Ritchie’s “profit maximising ” response, containing as it does the sneering “greed is good” aspersion.

    Even though it is not terribly polite to smack the guy down completely – you did in fact smack the guy down completely.

    My own reaction to people whose understanding extends not much further than “xyz is in business to make a profit” and “greed is good” is to ask a few questions.

    1. Can you name any successful enterprise (government excepted), whose expenditures always exceed its revenues?

    2. Is “greed” – for want of a better term – just another choice in our lives, or is it a part of our natures?

    3. Can you name an enterprise (government excepted) that has no need to be concerned with providing something that people will voluntarily purchase?

    4. Do the New York Yankees, after all, show up at the Stadium, night after night, only to keep score?

  2. All humans desire to acquire various things and, as a generality, prefer to have more than less.
    The word “greed” is a specifically pejorative word applied to what is perceived as an unhealthy, immoral, or otherwise (enlarged) distortion of the natural tendency; at base, it is always an expression of opinion about which reasonable men may differ. The term itself conveys nothing as to whether the person described is honest or not, though the idea of greediness is implicit in most concepts of dishonesty, as the subject desires more than that to which he is lawfully entitled.

    When used in political context, the word is nearly always, actually, used to camoflage the frank greed and dishonesty of the utterer to possess, to his own account or that of others of his persuasion, that which already is the rightful property ore share of another (or others).

    It (use of the word) is so transparently simple that only the incurably stupid (or, more frequently, those appealing to the incurably stupid) would be caught dead using it.

  3. I think Richard Murphy takes an odd view of how academic subjects are often taught by dismissing the early stuff in an economics course as too simplistic.

    During GCSE physics we assumed certain things, such as constant acceleration. During A-level physics, we then learned that acceleration can vary, and with that came the UVAST formulae which governed almost all our studies of moving objects. Then at university, first semester of mechanical engineering, we learn that the UVAST formulae don’t work any more because they leave out the effects of air resistance, and we need to have some elderly bearded bloke woffling on and drawing thousands of Greek letters the length of the blackboard to model moving objects through a fluid. Yet even then we were told to assume certain things, meaning the model does not exactly match real life. No doubt in a PhD a student would have to introduce yet more variables and still have to carry out a few dozen real-life experiments to confirm it.

    RM’s view seems to be that we can dismiss what I learned in GCSE and A-level physics because it the models do not represent exactly the real world. I don’t know about subjects other than physics or engineering, but in this field at least, the simplified “building blocks” of the theory are essential to understanding the real world. I’m assuming it is the same with other subjects, including economics.

  4. Tim Newman:

    The analogy you make between the different studies (physics and engineering on the one hand and economics on the other) is appealing but, ultimately misleading. As matter of fact, it suffers from a certain misconception that is, itself, at the very heart of what constitutes the near-universal regard for the “unsatisfactoriness” of economic science; furthermore, it recapitulates (though I am sure you did not intend it so) the arguments made for nearly two centuries by the “enemies” of economic science, those for whom the domination of such study is seen as key to their plans for the totalitarian management of human society.

    Economics is as “scientific” as is any other science except in one regard: its method is not (and cannot be) that which is called the “scientific method,” characterized by the process known as “induction.” And it is precisely the attempt to utilize this method and to press the study into a form superficially comfortable to those familiar and practiced in the natural sciences which has led to failure upon failure and the widespread general low regard with which economists, generally, are viewed.

    “Getting back to basics” is a good idea. The problems that you see, however, arise because there is disagreement over just what can rightfully be acknowledged the “the basics.” My view (and that of the “Austrian School” and its chief theorist, Ludwig von Mises, to whose teachings I subscribe) is that the “basics” or starting point for economic science is the irrefutable fact that men “act,” i.e., that existence presents circumstances in which men are able to among alternatives and that they do, in fact choose, employing “means” to achieve “ends.” Everything which may be known of economics proceeds logically from that basis (and requires no math whatever other than simple arithmetic).

    I’d recommend ECONOMICS IN ONE LESSON (Henry Hazlitt). Or, if you really want to make complete sense of the subject, HUMAN ACTION (Ludwig von Mises). Either way (or both), keep your optimism handy—you’ll need it.

  5. Carol:

    I’d certainly be delighted to give you the courtesy of a reply but, to state the flat-out, plain truth, I haven’t the foggiest idea what you’ve got in mind (hard as it is for me to admit such a thing). Is it code of some sort?

  6. There’s humans (active) and there’s land (passive) – everything else is produced from these. We make all sorts of assumptions about humans in economics but the characteristics of land, which are pretty obvious, are largely ignored, with a tendency to conflate land and capital. Von Mises by ‘dissing’ LVT showed that he didn’t understand about land either.

    Tim adds: Carol. y response to you ofver at Murphy’s wasn’t published. About LVT and so on, I am one of those “right wingers” who support LVT. Although, of course, as a classical liberal I don’t see myself as right wing at all. Rather, I spend my time trying to improve the conditions of the poorest by railing against the current power structure….that sounds lefty to me really.

  7. The analogy you make between the different studies (physics and engineering on the one hand and economics on the other) is appealing but, ultimately misleading.

    If so, it is because I know very little about economics. I stand corrected.

  8. Tim Newman:

    I was not “correcting” your lack of economic education. You could, in fact, read 99.99% of all the economic literature in existence and listen to the most distinguished professors at the most prestigious universities and your knowledge would be nearly indistinguishable from what it is now. And that, at least partially, explains not only the tendency toward the recurrence of financial crises, tensions over international trade, etc.—all in the very face of this learned body of expert opinion.

    The principal difference between the mainstream and the Austrians is that (for several reasons) the mainstream is committed to a wholly-misplaced reliance on a natural-science, mathematically-enabled approach to a subject to which such method cannot be applied even partially.

    Try my reading suggestions. You won’t be sorry.

  9. Carol:

    Now I think I see where you’re coming from. Some variety of the Henry George idea of funding infrastructure expenditures from either a single tax on land or some regime in which the land tax would be the principal component?

    To “diss” implies “disrespect”–that’s the word for which it is a foreshortening. I don’t disrespect George’s ideas or those of his followers. Nor did Mises. What he did is to dismiss them as unworkable for a variety of reasons enumerated. The fact is, as I remember, that he was fairly short in his treatment and that shortness may have, for some Georgists, implied a lack of respect—I dunno. And I couldn’t refer you directly to Mises treatment(s) because none are identifiable in the Index to my copy of HUMAN ACTION.

    However, had there been the slightest “weak link” in whatever Mises wrote, I would have been “all over it” at one or another time, as I’ve been over his works, including that one, for over 35 years now.

    The imposition of a land tax, especially a land-based, single-tax regime, is, in my opinion, a tactical maneuvre of those desirous of bringing about socialism “through the back door,” though I don’t accuse any specific person or organization of spearheading a movement in that direction (I don’t keep up with that sort of thing. I’m interested in politics only as applicable to economic prosperity and human liberty and have little interest in economics as applicable to politics EXCEPT as it may infringe on liberty.)

    Though I haven’t read the piece to which I’m going to refer you, I know of its existence. It’s a piece (an essay) by Murray Rothbard on the subject of single-tax schemes (in general, I think, though I could be wrong). Some time ago, I scanned over it briefly and recollect very certainly some remarks on land tax plans. My suggestion for you is that you go to mises.org and use the “search” function by putting in something like “land-tax.” I’m virtually certain that the Rothbard essay of which I spoke will pop up prominently and, at least, you could learn whatever were Rothbard’s principal objections to turn over in your mind. I’m not that fond of Rothbard but intend to do the very same thing myself, so will maybe meet you back here for any further exchange that might be in order.

  10. You seem to have picked up your prejudices against land value tax from von Mises. Things have moved on a bit since his day. We’re not all single taxers – even if WE were there is no reason for others to reject LVT as part of a good tax system. Here’s a quote from von Mises: “Classical economy erred when it assigned land a distinct place in its theoretical scheme. Land is, in its economic sense, a factor of production, and the laws determining the formation of the prices of land are the same that determine the formation of other forms of production”. So obviously if the price of land goes up we just have to make some more!

  11. Carol:

    I’m against squalor, pain, and untimely death, too, Carol; would you characterize those as “prejudices?”

    You are certainly right that whatever my thoughts are in re LVT, they are derived from Mises: in fact, I consider his thought on the matter impregnable. And, contrarily to your expressed opinion, I am aware of extremely little in Misesian thought from which we have “moved on” since his death. Any actual analysis (of the content of that statement) would have to recognize that, at present, Mises and his thought, though consistently derided by most of the maintream and (in what passes for the popular mind) chiefly associated with the Libertarian political movement, are yet hundreds of times more influential now than at any time during Mises’ life or even as recently as 20 years ago.

    You have selected an excellent quote from Mises. You should study it and come to recognize it as the fundamental recognition (differing from the classical economists) on which your own further idea-structure is founded: that there are but two economic elements: those provided by nature on the one hand and, on the other, those provided by the purposive activities of men striving for the best satisfaction of their wants. Using descriptive names “active” and “passive” makes no difference to that recognition. You could even say, that in at least that respect, Mises was “Georgist” in his thinking, as HG was certainly a temporal predecessor.

    Nor even can it be maintained that Mises stood in objection to taxes levied on “land” except to the extent that such taxes (like all taxes except the unattainable, chimerical notion of a “Neutral Tax”) constituted a form of coercive interference with productive processes. Mises nowhere suggested any “ideal” tax regime. If I were in the position of trying to divine just that regime of which he would have approved, I’d simply have to say that he would have favored that regime that spread the burden as widely and as “fairly” as practical (recognizing inherent expenses in enforcement and collection) and that avoided, to the greatest extent possible, the disarrangement of production relations determined on the market or the drastic curtailment of gross output. Every single-tax scheme is open to criticism on just these bases (and Rothbard has explored specifically the inevitable outcome of a single-tax regime applied to land).

    You’ve lost me with your last sentence. The totality of those things we categorize as potential “factors of production” doesn’t change (a la the natural law of the conservation of the totality of matter and energy) but their forms change and with them, their utility or significance in plans for the satisfaction of wants. If it happens that such changes alter the view of some land–that considered “marginal” or “standing room”–in such manner that some excess of revenue over input may be expected, then the effect is similar to the creation of new land, insofar as the result is concerned.

    What we actually see, especially in the advanced societies of western civilization, is a gradual decline in the relative values of many of the natural factors of production: we get more and more food from less and less acreage utilized; various metals are consumed more sparingly and effectively through engineering and technologic innovations, etc. At the same time, products heretofore either impossible to produce economically or only at extremely high prices come into general use even by the less-affluent segments of society to such an extent that they are regarded, to a great extent, as “necessities.”

    Now it’s my turn to ask you a question. Bearing in mind that “we’re not all single-taxers” (and I’m assuming that, in so insisting, you include yourself in those who are not) and, further, noting that in most places, those factors of production to which the names “land,” “non-human factors,” or, as you seem to prefer, “passive” apply are nearly everywhere not only subject to taxation but are, indeed, taxed, I can only assume that you believe either that the general regimes of taxation are generally effective and just or at least could be with only minor rearrangement. Do I infer correctly? No? Why not?

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