Conversation? Fwd: Who deserves the interest?

[Mark Barrett]

 http://gco2e.blogspot.com/2010/11/who-gets-interest-2nd-try.html

   I'm trying to use simple logic to find out who, by rights, deserves
interest as the particular income that comes from using capital. My first
try was not too successful.

I believe this question is critical in determining why capital tends to
concentrate into monopoly power. I'm not suggesting that is good or bad.

Before deciding, first ask yourself and be confident about all the following
:

   - What capital actually is
   - Where exactly does the interest comes from
   - Is the interest earned or unearned income

Unless you are willing to think very carefully about these points first
please do not respond.

So, does interest go to :

   1. the owner of the capital
   2. or the employer/user of the capital

And then state why exactly. Try to forget about habit of thought, your
politics, the way its always been etc.

Thanks.
 Posted by Robin Smith at
11:30<http://gco2e.blogspot.com/2010/11/who-gets-interest-2nd-try.html>
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Labels: capital <http://gco2e.blogspot.com/search/label/capital>,
interest<http://gco2e.blogspot.com/search/label/interest>
 11 comments:
 Mark Wadsworth <http://www.blogger.com/profile/07733511175178098449>said...

Capital is just accumulated labour.

Nearly all businesses depend on a mixture of labour + (accumulated labour)
to generate income.

Some of this is paid to the labour as wages, and some of it goes to the
(accumulated labour) as profits (or interest, or rent, or whatever you want
to call it).

There is a Pareto split between the returns to labour and (accumulated
labour) of about 80/20.

If the split moved towards 70/30, then people currently providing labour
would decide that they are better off accumulating labour instead (by
spending less than they earn, or by setting up their own business etc), so
that 30 would be competed away and the split would be nudged back to 80/20.

If the split moved to 90/10, then people would be more willing to
provide/consume labour and would unwind their (accumulated labour) (i.e.
disinvestment, working rather than setting up a business, spending less than
they earn) and so the 90 would be competed away and the split would be
nudged back to 80/20.

There is no overall tendency for (accumulated labour) to be concentrated in
ever fewer hands (if we put aside government sponsored protectionism in its
myriad forms).
6 November 2010 12:07
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

Thanks Mark. I tried hard to ask people to put aside their politics and
habits of thought before replying. That way their mind is free to think
without prejudice.

You have not shown where interest comes from exactly or why it goes to the
owner of capital not the employer of it. So your logic stops right there.
Because what follows MUST be uncertain.

To say that capital does not concentrate "unless" neither shows it is not
happening nor does it say why it happens as an observed fact.

Another try?

Please no hero worship. Just your own logic using your own mind.
6 November 2010 13:44
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Physiocrat <http://www.blogger.com/profile/13682019625346594568> said...

How can I accumulate my labour? I apply my muscle power to a shovel and
consume energy in moving stuff from one place to another. I might, I
suppose, wind up a clock and then my labour is in a sense accumulated in the
energy of the spring. I think this idea of capital as accumulated labour is
a bit abstract, unless you are saying it is potential energy as defined in
physics ie kilowatt hours or an equivalent.
6 November 2010 20:41
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

Maybe he means labour in concrete form or stored up labour or wealth that is
labour applied to land in the course of exchange.

Either way I think you have illustrated very well that we should not invent
new terms when ones already exist that work perfectly and the most people
understand already. Even if those terms are misused a lot at least they are
still less confusing than inventing your own new ones and making matters
worse.

I often find people make up new terms even with all these dangers so as to
support a political doctrine via confusion and avoidance of the facts and
logic.

All the same on the main topic:

1) My view currently is that either interest is owned fully by the labour
that uses it, or at least shared between labour and capital depending on how
it was created (by exchange or from natural forces)
2) HGF believe it is fully owned by the capital owner as does MW here
3) Socialists I believe think it is all state property

I'm completely undecided still which is the point of asking. But I have not
really heard anything useful.

Don't forget we ARE NOT talking about so called interest on money creation.
That is rent and is the return to money ownership and another question.
7 November 2010 16:02
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Paul Lockett <http://www.blogger.com/profile/00201807319614893054> said...

Capital is just a shorthand term for land (in the economic sense) which has
had labour applied to it, with the intention of the product being used in
further production. So, I think it's really a two part question:

1. who, by rights, deserves the particular income that can be attributed to
the land used in the production of the capital.

2. who, by rights, deserves the particular income that can be attributed to
the labour used in the production of the capital.
7 November 2010 20:37
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

More feedback via email:

*wrote:
hi Robin,
Many thanks for this.

Initial thought.
If I defer spending my wages and save them - and these savings are invested
in machinery, tools, robots etc to make workers' efforts more productive and
our economy then surely I deserve some reward for my "sacrifice"?

Particularly as when I come to spend my savings Govt caused inflation will
reduce the spending power of each pound I've saved.*

Hi xxxx

Thx for responding. 2 points

1) Yes your wages saved are really capital. The question is really asking
"why do you deserve an income if you have not done any work for it by
someone else borrowing your capital". Thanks to all the inputs I'm coming
around now to understanding it and think I agree that the capital owner does
deserves the interest. And the employer of capital deserves wages. They may
or may not be the same people. What matters is that the correct distribution
of interest and wages goes to the capitalist and worker respectively. That
is, under free conditions will it be a fair distribution?

2) Risk payments due to corrupt government caused inflation are also a
concern you are correct, but why are they interest? That sounds like
negative interest to me.

Cheers
8 November 2010 10:14
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

PL good idea. I think it might be what you say but the reverse?

Given that capital is unlimited and land is limited, isnt it better to think
of capital as

*Capital is just a shorthand term for labour which has been applied to land,
with the intention of the product being used in further production. So, I
think it's really a two part question:*
8 November 2010 10:18
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

For anyone still following this post I recommend this short article on the

The Law of Interest <http://www.henrygeorge.org/pchp14.htm>

It goes deeper than we have already been. It seems to suggest that the
INCREASE that comes from the use of capital is shared between wages and
interest.

I'm still not certain, neither are some of the best HGF folks that I've
discussed it with, nor are any commentators here though we try.

I think this is really important and we should not leave it alone?
8 November 2010 10:23
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janos <http://www.blogger.com/profile/17451392572914419926> said...

I think this exchange is getting lost in abstract statements.

The classical division of factors (inputs) provides the best framework to
contain a useful discourse:
Land (landowner<--rent);
Labour (operative<--wage);
Capital (entrepreneur<--interest/surplus/profit).
Conflating these into each other makes, imho, clear thinking quite
difficult.

"Capital is just a shorthand term for labour which has been applied to
land"?
"Capital is just accumulated labour."?

True, but how fruitful are these statements in generating insights that lead
to the solution of the "mother of all problems" --- the land"owner" ending
up (in the form of rent) with all surplus wealth created by the
labour/capital partnership?

Can we agree, at the start that the landowner's claim of the share of wealth
created has *no economic basis* --- it is based only on a legal quirk?

The consequence is a natural (and growing) surplus which needs to be
discussed.

This leads to a simpler field on which to consider the right sharing of
wealth between labour and capital.

In the "state of nature" there is no "capitalist" so all the produce goes to
labour.

Later, when it is more efficient for a farmer to buy in tools of production
than making them himself, we end up with a blacksmith who lives by owning
and selling the stock of tools he makes. So the produce of the farmer/worker
has to be shared with the blacksmith giving rise to interest, aka profit.

Today when, we can talk about automated factories with a few workers pushing
buttons and churning out useful things (hopefully) worth billions of pounds,
our analysis needs to be quite sophisticated. I suggest Social Credit and/or
Binary Economics as a guide.
8 November 2010 19:20
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janos <http://www.blogger.com/profile/17451392572914419926> said...

This was the original question:

* What capital actually is
* Where exactly does the interest comes from
* Is the interest earned or unearned income

Can we think about this with the help of a model:

A farmer wants to put up some fencing (assume that he can make the fencing
himself but needs to dig holes for the fence posts).

He can dig the holes with a stick or some self made stone tools. But a spade
would obviously make the job much quicker. So he buys/hires (not rents) a
spade from a blacksmith. How much of the farmer's wealth is the blacksmith
entitled to? That is, what is the just price of the spade?

So,
* the spade is a capital(tool) that makes work more productive
* the "interest" is in view of the work the blacksmith expends on making
each spade, the materials that have to be used up *plus* previous learning
and training that enables him to produce it.
* the interest *is* earned.

To my mind interest/profit/surplus is earned. The only difficulty lies in
determining how much of it is "a fair share"?

When the producers/providers of capital dominate the user/operator of
capital (tools of production) like today, there is an obvious infringement
of the rules determining fairness.

It is worth noting that in successful workers' co-operatives, members are
required to contribute some capital (in the form of money) on joining or,
over time, out of their wages.

PS. If the model is too simple, it needs to be refined; but we need concrete
models as a focus of discussion.
8 November 2010 21:30
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Robin Smith <http://www.blogger.com/profile/04648517992918303543> said...

Thanks Janos. I think we would all agree now.

So are you saying that interest is "wages" for capital. That is a reward for
work done in the past used later? Not bad if so.

And is it fair to say that there are known limits for the return to capital
:

*Under free conditions, the maximum that can be given for the use of capital
is the increase it will bring. Above this, borrowing capital would involve a
loss. The minimum is the replacement of capital, or else capital could not
be maintained. Interest will vary between these two points.*

Is it fairer to say that 'capital domination' is really monopoly power?

So the question must be, (which is the reason for starting this thread) how
does that monopoly power arise exactly?
9 November 2010 08:55
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