What We in the 1 Percent Don’t Want the 99 Percent to Know

We don’t wish to be rude, but if you are not one of us – part of the 1 Percent, that is – you are not meant to be reading this message. With some exceptions, you should go back to whatever it is you have been doing. If you happen to be some kind of troublemaker, inclined, say, to question things or work toward change – a terrorist, to be frank – be assured that we know what you are doing. Thanks to our creeping surveillance apparatus we will soon put an end to your efforts, whether by misrepresenting your position, holding you up to public ridicule, sending you to jail, or making war with you. If you are not a terrorist, then we don’t much care what it is you have been doing. But be comforted in the knowledge that you must be doing it well, because you have not inconvenienced us in the slightest. We thank you for your cooperation. Now kindly go away.

We take it, now, that the 99 Percent have departed and gone back to whatever it is they do, and that it is therefore safe for us – the 1 Percent – to cut the niceties and be forthright. The fact is that, in recent times, various snippets of knowledge normally privy only to ourselves have seeped out to small sections of the 99 Percent. For those unfamiliar with the new terminology, by “99 Percent” we mean what are sometimes called the sheeple or, in less precious times, trash. Some on our more liberal wing preferred “human” trash. Considering their humanity is far from obvious, on balance the pithier version of the old terminology seems more apt. Whatever. We digress.

The key point is that certain elementary truths usually reserved for our good selves have penetrated the dull consciousness of a small minority of the 99 Percent. This process was most recently aided by the platinum coin saga (h/t to Tom Hickey for the link), which, if it had been allowed to proceed unimpeded, would have exposed to more of the 99 Percent the existence of these simple truths, some of which are not even comprehended by the dimmer members of our own, uppermost percentile. Fortunately, our president is on the same side as the Treasury, Fed, and GOP on this issue. Our side. For now, at least, any light that might have been revealed remains concealed. Good o.

The least ignorant of the subhumans – we’re sorry, the 99 Percent – are beginning to cotton on to the fact that for societies in which the government issues its own currency and allows its external value to float, such as the US, the UK, Japan, Canada, and many others (though, happily for us, not the member nations of the European Monetary Union), a number of simple truths apply. For these governments – the currency sovereigns – the following points hold.

1. Money, as most of us know, need not constrain economic activity below potential, since it is created out of thin air. It is resources (including labor resources) that matter and that present the only real constraint on what we do.

As long as the supply of goods and services can be expanded along with any extra monetary demand the government might create, there will be no threat in terms of inflation.

We pretend otherwise, of course, because we don’t want the government to create money for the benefit of the 99 Percent. It should only be done in pursuit of noble causes, such as rescuing banks, redistributing wealth upwards, or engaging in wars with those who threaten our economic interests.

So, for example, when there are unemployed workers, it is obvious to anyone but a blithering idiot that it is possible to produce more goods and services for the 99 Percent. Or, at least, it would be obvious if we had not done such a great job of bamboozling people! The real cost of such employment would simply be the time and effort expended by those willing and able to do the work along with the raw materials they fashioned into goods or services. The money needed to pay them is no object, because it can be created out of thin air.

We can see how dangerous this aspect of reality is. If it were widely understood, everyone who wanted a job would be enabled to find one. The 99 Percent would feel a greater financial security, have less fear, and be more difficult to control. They might start demanding stuff, like higher pay, better working conditions, or more entitlements, rather than being resigned to having less of all these things.

Similarly, since there is currently idle capacity in factories, warehouses, restaurants, motels, theme parks, and the list goes on, there is obviously the capacity to produce more goods and services at current prices. All that is lacking is the ability of consumers to pay for more goods and services, and this ability is easily solved by providing them with more of what can be created out of thin air: money.

Here, too, you can see how undesirable this would be. That’s why we pretend the government can run out of money. It is in the hope that the 99 Percent will be gullible enough to believe us. (So far, so good!) That way, goods and services that could easily be produced are not, and entitlements that could easily be provided are taken away. LOL!

2. The government’s deficit equals, by definition, the surplus of the non-government. By logical extension, the national debt mirrors, by definition, the accumulated net financial wealth of the non-government. This means that an attempt to reduce the government’s deficit is actually an attempt to inhibit the non-government’s attempt to earn more than it spends, and an effort to reduce the national debt is at the same time an attempt to annihilate non-government net financial wealth.

Some of us may wonder, then, why we do this. The truth is, we don’t. We are not really trying to reduce the deficit or the national debt. Rather, we want to use the deficit and national debt as an excuse to cut entitlements, social services, and implement other austerity measures designed to undermine the living standards of the 99 Percent.

The beauty is that, in doing so, there will be negative impact on demand, output, employment, income, and therefore tax revenue, limiting the impact of any cuts in government spending on the size of the deficit and allowing further increases in the national debt.

If, at the same time, the taxes on ourselves are cut further, or government spending or central-bank operations can be used for the purposes of extending more privileges to ourselves, the scenario repeats itself quite exquisitely. A year from now the budget will still be in deficit and the national debt higher than now, justifying further austerity measures.

All this can continue for as long as the gullible 99 Percent buy our story, which, for going on five years, they have. ROTFL!

3. The interest owed on the national debt is at the discretion of the central bank, since it sets the terms on which the government issues its own liabilities.

Unfortunately for those of us in the 1 Percent, there is no hope of bond vigilantes forcing higher interest rates on this debt against the will of the currency issuer (for newcomers, see here and here). It is unfortunate because interest on debt is our main form of corporate welfare. For doing absolutely nothing productive, we stand to receive a large transfer from the currency issuer whenever debt is issued!

Now, if the 99 Percent ever caught on, they might question why government issues debt at all. There is no real need to do so. The laws that currently require it have been retained to disguise our corporate welfare as a return on supposedly necessary lending. Rather than issuing debt, it would be much simpler if the government permitted itself just to spend money into existence, as appropriate, without borrowing from anybody. Bank reserves could simply be allowed to mount, with no need at all for them to attract positive interest unless the government deemed it appropriate.

Needless to say, any such move must be prevented from happening at all costs! Otherwise, reality would be easily perceived even by many in the 99 Percent, making it more difficult to justify our corporate welfare as legitimate income.

For an awkward moment, during the platinum coin debate, these simple truths threatened to slip out. Thankfully, the danger has now been averted. For the foreseeable future, it promises to be business as usual.

Awesome.

 
Related Posts

Budget Deficits and Net Private Saving

The Government is Not a Household

Infrequently Asked Questions 1
 

90 thoughts on “What We in the 1 Percent Don’t Want the 99 Percent to Know

  1. The whole thing suffers from the ‘snapshot’ problem. It looks at things frozen in time. Processes are not frozen in time. A capitalist purchases inputs at a point in time with the intention of selling more in the *next* point in time.

    A static equation doesn’t capture that, and that is nearly always where neo-classicals fall down. They don’t seem to be able to see that things take time.

  2. Thanks Pete, for the links. I’ll give them both a good look.

    “Acceptance of Walras’ Law amounts to supposing that, in the absence of frictions, there would be full employment. Effective demand, in this view, would not be an issue without these frictions. For example, the liquidity trap involves a supposed non-adjustment to a natural rate of interest.”

    Don’t worry! I am not saying that I agree with those views. And, yes, I understand mainstreamers use Walras/Say to justify unemployment.

    I just want to give the Thoma-DeLong/mainstream view a fair assessment, and to do this I need to follow their own logic.

    So, please bear with me. I take it the mainstream view goes something like this:

    (1) If excess demand for, say, steak is positive (i.e. there is a partial glut of steak) then two things happen: the abattoir workers lose their jobs and somewhere else there must be a negative excess demand, for, say, booze.

    (2) But, as there is negative excess demand for booze, the beer brewer will attempt to expand production. In the Marshallian short run, this can only be done via hiring new labourers (capital is fixed in the short run), so new workers are employed.

    (3) Bottom line: the adjustment will be made largely by adjusting output (if the adjustment were made by adjusting prices, the price of booze will simply go up and not new hires will happen).

    (BTW, if I am mistaken, pretty please, let me know. And I really mean it! :-) )

    That is the mainstream view. From this they conclude that employment/unemployment levels are restored.

    But in reality, it doesn’t follow from this account (unless I badly misinterpreted it) that employment/unemployment levels are restored: it could well happen that the abattoir sacked X workers, but the brewer hired Y.

    Strictly speaking, both increase and decrease in employment levels are compatible with this view. In fact, using their own logic, it would be an extraordinary fluke that both numbers were equal. The same apply to aggregate wages.

    In strictly logical terms, the only thing we can conclude from this reasoning is that employment and unemployment (aggregate wages) should be affected, but we cannot say in what direction.

    I suppose mainstreamers would counter that on average, over the whole economy, in the long run, things even out themselves. Something like the particular outcomes are random with expected value (Y – X, new hires – sacked) of 0.

    Fine. But notice something: the whole idea depends on firms facing negative excess demand having to hire additional workers. The Marshallian short-run is key here: but there is no single short-run for all firms (and this is acknowledged even in micro textbooks).

    Say, the short-run for a hydroelectric or nuclear power plant, or a coal/iron ore mine or for a shipping company can probably be measured in months or even years; for a fast food restaurant it’s probably no longer than a few hours (actually, it probably takes longer to hire a burger flipper than to buy a new deep fried pan and grill: you just need to ring the supplier and await for the delivery van).

    In any case, for some firms the short-run could be short enough that they can expand production by expanding capital.

    More realistically: even if firms chose to use extra labour, they could use the increase in unemployment as leverage and demand extra work from their workers, without extra pay. This is way cheaper than buying new stuff and, at least in the US, is what seems to have happened.

    Bottom line: there is a good chance the brewer can expand production by hiring Y = 0 new workers. If particular outcomes are random, I’d say there is a good chance the expected value (new hires – sacked) is negative: the number of unemployed increases.

    My objections, it seems to me, are cogent, fully convincing and, indeed, brilliant (As usual! It would be a surprise if **my** reasoning were otherwise :-) ), but it is only a matter of probabilities.

    This is where the excess money demand distinction Thoma-DeLong made becomes important (and I think Thoma and DeLong were aiming at addressing this): what if the negative excess demand was for things that cannot be produced at all, whose supply is supposed to be inelastic, at least in the fabled short-run?

    Money supply, in a gold standard world, is supposed to be fixed. In real world Australia, land seems to be one such supply-inelastic good.

    In these cases there is no need to speak of probabilities: there is absolute certainty that Y = 0 and Y – X < 0.

    It's in this light that I need to know that my interpretation of what those guys are saying is correct. So, what say you?

  3. Magpie, this is how I see the argument. In the post you linked to, Thoma presents DeLong’s position in terms of the following:

    (Md – Ms) + (Ad – As) + Σi(Excess Demandi) = 0

    They suppose there is excess supply of goods and services taken as a whole (third term), which implies there is an excess demand for money (first term) and/or high-quality interest-bearing assets (second term).

    They suggest that this excess demand for money and/or financial assets can be eliminated by increasing the supply of one or both, and that this will cause expenditures that eliminate the excess supply of goods and services.

    I haven’t followed the preceding discussion, but the question mark for me is, what do they mean by an increase in money and/or financial assets?

    If they are suggesting a monetary operation that leaves net financial assets (NFA) unaltered (such as quantitative easing), and simply alters the composition of savings and the yield curve, there are no grounds for supposing a transmissions mechanism from money (or finance) to the real economy that will necessarily eliminate the output gap. (Due to the Cambridge Capital Controversy.)

    However, if they are suggesting an injection of NFA through a fiscal action, that would be analogous to the argument made by modern monetary theorists that fiscal expansion can be used to render non-government net saving desires consistent with full employment. That would work.

    At the same time, or alternatively, fiscal actions that redistributed income downwards could be used to stimulate demand for goods and services, on the basis that lower income individuals have a lower propensity to save. The intended effect of this would be to reduce the non-government net saving desire while stimulating demand.

    Having not followed the discussion, I don’t know if the suggestion is monetary (no new NFA injection) or fiscal (new NFA injection). Monetary operations lack a reliable transmissions mechanism. Fiscal operations are direct. If DeLong has countenanced the latter, that would be a step towards MMT and Post Keynesian positions.

  4. Magpie, why in (2) would booze producers respond to a negative excess demand by expanding production? Or is that a typo?

    The unemployed workers will desire booze but have no way of communicating this desire to booze producers (no effective demand). This was the point made by Clower and Leijonhufvud (discussed in Bill Mitchell’s post linked to earlier in the thread).

    Regarding X and Y (workers) possibly representing different numbers, note that Walras’ Law is expressed in terms of the values of demand and supply (not real quantities of workers, product units, etc.) So if the value of X differed from the value of Y, this would still leave some value left over to employ workers elsewhere in the economy.

  5. Peter,

    I can’t see the equation they put forward as having the government sector ‘exogenous’. They always want the government to be ‘one of the lads’. Their entire raison-d’etre is to show that the government isn’t special and is just an actor like any other.

    So there is nothing outside the universe of discourse to do any injection of anything.

  6. Pete,

    I think the clearest way I can formulate my question is this: in the summation (LHS of the equation), there is a subindex i. What kind of things are subindexed there? Final goods? Capital goods? Labour? Financial assets? All of them? Some of them?

    Is the only difference between Say and Walras the type of things they include in the summation?

    From reading Keen’s article I see that Minsky could be including financial assets (but not a word about labour). From reading Mitchell’s article, I guess he is including labour (ditto about financial assets).

    But from reading Thoma, DeLong and Rowe (who were the original discussants) I doubt these guys are including labour. In fact, when they discuss they leave production entirely out: it is like people go to the market Saturday with stuff they produced during the week, just to exchange what they already have with other people, before heading back home. Whatever adjustment happens, happens there.

    If that is so (and I am not sure about it, because nobody really cares about explaining what’s included in the damned equation), then they do not include labour in the equation: people only exchange endowments of final goods, maybe financial assets, but that’s it.

    So, the effect on employment has to be determined via the production function (and because it’s a short run thing, only affects labour, nor capital): less steak, less workers; more booze, more workers. But how many more or less? That’s why neither X needs to be equal to Y nor the loss in aggregate wages needs to match any gain.

    —–

    The discussion started with a presentation by DeLong and has little to do with actual policy prescriptions.

    In the presentation, DeLong lambasted Friedman. Rowe took issue and wrote a post where he actually shows what to me seems some understanding of the basics of the Keynesianism (he goes as far as saying that it is excess demand for money that is behind the recession and I believe he also speaks of underconsumption or general gluts, or something). He does stick to monetarism, though.

    Then, DeLong wrote a conciliatory post, where he suggests that the demand for high quality financial assets, not only for money, could also play a role. The suggestion is that people could be hoarding money instead of spending it in real stuff.

    Thoma summarized DeLong’s argument.

    Check their discussion. Thoma links to DeLong, who links to Rowe, who links to DeLong’s presentation.

    ———-

    “Magpie, why in (2) would booze producers respond to a negative excess demand by expanding production? Or is that a typo?”

    If positive excess demand is greater supply than demand (a partial glut, too much steak); negative excess demand is greater demand than supply (too little beer), isn’t it?

  7. Neil, many in the mainstream still seem to think that an increase in reserves by the monetary authorities will cause economic expansion, outside a liquidity trap, by somehow encouraging private credit growth. But a mere alteration of the composition of savings and relative yields has no systematic effect on the real economy.

    There are obviously class-interested reasons for favoring monetary policy. Most notably, private debt, as opposed to public debt, is a burden on individuals, increasing their dependence on capitalists and capitalist governments for opportunities to sell their labor power. It is a reflection of the comprehensiveness of the brainwashing that many think of the unemployed as uniquely stuck in a culture of dependency when the entire system is one of dependency for all but a few.

    There is also the neoliberal mantra that markets know best and the government should step aside and leave economic decision-making and the allocation of resources to the private sector. It is okay for the central bank to loosen credit conditions, but the way the expansion occurs (on the false presumption that it will) should be left to the private sector.

    There’s a reason Samuelson received a (phony) Nobel Prize shortly after the capital debates, and that the debates were never discussed in polite society (mainstream journals) again. It was so that rot like this could underpin the dark age of neoliberalism.

  8. Magpie, according to Wikipedia :-) the neoclassicals (using the terminology of Wikipedia) take Walras’ Law to show that if all goods markets are in equilibrium, the labor market must also be in equilibrium, thereby contradicting Keynes, whereas the (neoclassical) Keynesians rebut this on the basis that the law ignores financial markets and so the possibility of a liquidity trap.

  9. Let me get this straight: both sides agree that labour is included in Walras’ Law; their only disagreement is on whether financial assets are included?

    This way, Keynesians see Walras’ Law as including labour and financial assets plus all other things. like Thoma said.

    Do PKeynesians have a unified position on this? Say every PKeynesian denies Walras’ Law?

  10. @Tom and Pete

    Well, I’ll be damned then.

    So, whatever goes into Say’s Law, mainstreamers do include labour markets in Walras’ Law.

    And now, if DeLong’s position is any indication, they include financial assets, too. So, they include **both** labour markets **and** financial markets.

    So, let me ask this: is there any real practical difference between DeLong’s position and that of Post-Keynesians who deny Walras’ Law?

  11. The difference is the impact of reality on convenient mathematics.

    There is no way that the unemployed workers can signal that they would buy more goods and services if they were employed.

  12. @ magpie

    Depends on whether one “believes in” the “law” of supply and demand, that is, that the “invisible hand” of a free market adjusts price and quantity so that free markets always clear. Some say, “always,” other say, “mostly,” i.e., that is a strong tendency to equilibrium of price and quantity but also “stickiness” due to frictions, and yet others say that the so-called law is a fiction, i.e., an assumption in a simplistic model that is not representational of the way things actually are. Neoclassicals mostly fall in the first category, Keynesian-neoclassical synthesis folks in the second and Old Keynesians and Post Keynesians in the latter. If one believes in the law of supply and demand (first and second categories) then one thinks that there ought to be “microfoundations” for macro. If one doesn’t act that so-called law, the one sees the push for microfoundations as a distraction from what is actually significant economically. from what I can see, the chief difference in the debates now is over microfoundations. Those who say yes are considered “orthodox” by the “orthodox” and everyone else is heterodox.

    For differences in Austrian price theory see “Varieties of Austrian Price Theory: Rothbard Reviews Kirzner” by Joseph T. Salerno
    http://archive.mises.org/18553/salerno-varieties-of-austrian-price-theory-rothbard-reviews-kirzner/

  13. Magpie, you could express it in those general terms. Usually, the theory is expressed in terms of linear algebra. The amount of value produced, λ, is λ = c + v + s = c + l, where c, v, s, and l are constant capital, variable capital, surplus value, and living labor, respectively.

    There are various interpretations of this, two of which are : simultaneous dual-system (standard) and temporal single-system (TSSI).

    Under the standard interpretation:

    (1) λ = λA + λbl + (l – λbl) = λA + l

    Here, A is a square input-output matrix of technical coefficients and b is a column vector of real-wage components, representing the real-wage basket received by workers. The standard interpretation considers the vectors c, v, and s to be c = λA, v = λbl, and s = l – λbl.

    In words, constant capital is interpreted as the value of the technical inputs, variable capital is interpreted as the value of the components of the real wage, and surplus value is the difference between living labor expended and the value going to workers as the real wage.

    In (1), the output values on the left-hand side are the same as the input values on the right (simultaneous determination). Values are determined independently of prices, which do not enter (1). Prices are considered to be determined in a separate price system (dual-system interpretation). Normal prices depend on the prices of inputs, the real wage and a uniform rate of profit, under competitive conditions.

    Under the TSSI, c, v, and s are interpreted as c = pt A, v = pt bl, and s = l – pt bl. The vector pt is the set of market prices that prevail when the means of production and labor power enter production. These market prices may or may not equal prices of production, and so may or may not coincide with a uniform rate of profit or a long-run situation in which market prices have gravitated to their normal levels.

    In words, constant capital is interpreted as the price of the technical inputs, variable capital as the price of real-wage components, and surplus value as the difference between living labor and the price of real-wage components.

    Output values are:

    (2) λt+1 = pt A + pt bl + (l – pt bl) = pt A + l

    Output prices are:

    (3) pt+1 = pt A + l + g

    In (2), output values in period t + 1 are determined by the market prices of technical inputs at the moment they entered production in the previous period t, and living labor. Constant capital, in this view, is the amount of value that must be invested to obtain the means of production.

    In (3), vector g specifies the gains or losses in value applying to different industries with different compositions of capital. Marx argued that gx = 0, where x is a vector of gross outputs.

    So input prices of one period serve as data in the determination of output values in the next period (temporal determination of value in a single system).

    It follows from gx = 0 that total value equals total price, total profit equals total surplus value, the average rate of surplus value equals the average rate of profit, and that surplus labor is the sole source of surplus value. This can be seen by post-multiplying each term in (3) by x:

    pt+1 x = pt Ax + lx + gx = pt Ax + lx

    Rearranging:

    pt+1 x – pt Ax = lx

    This says that the total value added through production in price terms (left-hand side) — or GDP — is determined solely by the amount of living labor performed.

    (The above closely follows the presentation in Kliman, A. J. and T. McGlone (1999), ‘A temporal single-system interpretation of Marx’s value theory’, Review of Political Economy, 11(1), pp.36-38. I couldn’t find a free link.)

  14. Prof. Pete :-)

    As a part of my self-studies (Nick Rowe’s Big Challenge) I’ve just finished multiple variable calculus.

    I was wondering if one could express Marx’s ideas in mathematical terms. So, I have a question for you.

    Let’s imagine we had to represent symbolically unit prices in $ as functions of labour (L), capital (K) and land rent (R).

    Would it be legitimate to represent these prices, in a Marxist sense, as:

    p = f(L, K, R) = g(L)?

    I mean, capital, for instance is only labour “congealed”. So, it is a function of L. Likewise, R is also a function of L

    By contrast, would it be accurate to represent the “trinity formula” as

    p = L1 + K1 + R1

    Where L1 is the labour contribution (measured in $) to unit price, K1 the capital contribution to unit price and so on? It’s understood that L1, K1 and R1 are independent variables.

    Isn’t the trinity formula also derived through the microeconomic profit maximization in a perfectly competitive market?

  15. I should have been clearer with λ, c, v, s, l. The first time I referred to them, I was just treating them as aggregates, so perhaps I could have capitalized them. When I discussed the two interpretations, the terms are disaggregated. For example, it would look something like this written out in full:

    λ1 = c1 + v1 + s1
    λ2 = c2 + v2 + s2
    .
    λm = cm + vm + sm

    The subscripts refer to 1, 2, …, m industries, and v1 + v2 + … + vm = v, etc.

    Then the expressions for c, v, and s can be substituted. For example, in the TSSI:

    λt+1 = pt A + l

    Substituting:

    λ1, t+1 = (p1, t a11 + p2, t a12 + … + pn, t a1n) + l1
    λ2, t+1 = (p1, t a21 + p2, t a22 + … + pn, t a2n) + l2
    .
    λm, t+1 = (p1, t am1 + p2, t am2 + … + pn, t amn) + lm

    It is not a profit-maximizing scenario. The systems of equations can be solved. For example, in the standard (dual-system, simulteneist) interpretation, the approach can be used to find the set of prices consistent with a uniform rate of profit, r:

    p1 = (p1 a11 + p2 a12 + pn a1n) (1 + r) + w l1
    p2 = (p1 a21 + p2 a22 + pn a2n) (1 + r) + w l2
    .
    pm = (p1 am1 + p2 am2 + pn amn) (1 + r) + w lm

    One price can be treated as numeraire (set to 1), leaving n – 1 prices, r, and w as unknowns. Either r or w, the real wage, are taken as given, leaving n unknowns and n equations.

    Here the prices on the left-hand side are the same as those on the right-hand side. The technical coefficient a12, for example, is the amount of commodity 2 used per unit of output in industry 1, and the term p2 a12 is the per-unit normal price of commodity 2 multiplied by the amount used by industry 1; in other words, it is the amount of commodity 2 per unit of output produced in industry 1, measured in normal prices.

  16. Thanks Pete!

    “Magpie, you could express it in those general terms.”

    For the time being, this will have to do for me (actually, the more general the better, at this stage), as I haven’t done linear algebra or gone through the whole optimization shebang yet. Remember I am trying to follow more or less a standard first year economics syllabus.

    But let me ask you a few questions (please, bear with me, as they are probably beyond silly):

    “The amount of value produced, λ, is λ = c + v + s = c + l, where c, v, s, and l are constant capital, variable capital, surplus value, and living labor, respectively.”

    In the paragraph above all variables (i.e. λ, c, v, s and l ; l is lower case “L”) are non-negative real scalars, right?

    But, aren’t the variables in (1) vectors and matrices? What is I? I am guessing it’s not living labour. In any case, is it lower case “L” or upper case “i” (i.e. the identity matrix)?

    ———-

    And what about the trinity formula? Can it really be derived from a firm’s profit maximization problem, constrained to input availability?

    For example, in the problem below (sorry that it looks tiny; I am yet to master the equation rendering program :-) )

    http://i47.tinypic.com/2qiww21.jpg

    (x, w, b are all vectors of suitable sizes: input quantity, input unit costs, input inventory; p is a non-negative real: the product’s unit price; f is the production function; g are the functions that relate production and consumption of inputs).

    A solution is x* = x*(p, w) ; the unit profit is the quotient under the problem; similarly, one could express all unit input costs. And the sum of all unit costs plus the profit gives the division of revenue between the factors of production: the trinity formula.

    ———-

    Did you see the video in my blog with the chimp making a tool and using it to fish for termites?

  17. Magpie: Love the video! I notice the chimps are more advanced than us. Their means of production are owned in common! Raw materials are obtained from a common stock (nature) and fashioned into machinery by each chimp to aid in their production process.

  18. @Pete

    “Love the video! I notice the chimps are more advanced than us. Their means of production are owned in common! Raw materials are obtained from a common stock (nature) and fashioned into machinery by each chimp to aid in their production process.”

    Very good! In two words: primitive communism.

    But, indeed, there is more to it. This is possibly the simplest recognizable instance of a circular flow of the economy: we start with the owner of the only “factor of production”, the chimp. It is not a monetary economy, but barter is not involved, there is no government or foreign sector.

    The chimp puts labour to fashion a tool with raw materials naturally available; with the tool (hard to distinguish whether a final or intermediate good, but definitely an “investment”) the chimp further produces its food: final consumption goods flow back to the owners of the “factors”. The circular flow is complete!

    Now, let’s speculate. Imagine the chimp has had its fill of termites. What do you think it wlll do with the “brush” and why?

  19. Without wishing to be impolite – I really wonder about these things: why can’t it just be a hungry chimp picking up a stick and fishing for termites? Why create a whole story on top of it? Or transpose our story onto the poor chimp?

    The chimp wants to be content, so satisfying its hunger is a physical aspect of that.

    Our basis is the same. In human terms it extends to egoistic pursuits and to the world we have created for ourselves today – we have made our story incredibly complicated, and it keeps on getting more and more complicated. Our simple basis however, has always been the same. The chimp doesn’t create a story so it doesn’t get lost in it. The only difference between us and the chimp is the ego. And the fact that we are incredibly lost in our story! We are so caught up in our story, we have forgotten from the day we are born, it’s all about contentment. And because we are caught up in the story we have forgotten what it means to be human. When somebody comes along and says: ‘contentment is already within you’ we think that is very strange – I mean we have just spent the last 200,000 years looking for it in our story.

    And the strangest thing to me is: if we were content (satisfying the natural evolutionary requirement for fulfillment) then hopefully, being full, with the heart overflowing with contentment – we would happily share; and practice the noble social pact of harmlessness – then what kind of story would we write? How would we apply our maths then? I wonder what the psychologists would do …

    Whatever you see in front of your eyes, question it? Dig down to its essence ….!!!!!

    Sorry to be so contrary about the story!

    (If the chimp were on his way to becoming ‘man’ he would probably grind down the stick and turn it into a spear) …

  20. @jrbach

    “Without wishing to be impolite – I really wonder about these things: why can’t it just be a hungry chimp picking up a stick and fishing for termites? Why create a whole story on top of it? Or transpose our story onto the poor chimp?”

    I don’t think you are being impolite at all and your questions are perfectly legitimate, if imprecise.

    Could you state precisely what your objections are?

  21. @Pete

    Getting there! :-)

    “I should have been clearer with λ, c, v, s, l.. The first time I referred to them, I was just treating them as aggregates, so perhaps I could have capitalized them.”

    So, yes, they are non-negative real numbers.

    “When I discussed the two interpretations, the terms are disaggregated. For example, it would look something like this written out in full :

    “λ1 = c1 + v1 + s1
    “λ2 = c2 + v2 + s2
    “.
    “λm = cm + vm + sm

    “The subscripts refer to 1, 2, …, m industries, and v1 + v2 + … + vm = v, etc.”

    And, yes, after that first paragraph we are speaking of vectors and matrices. :-)

    ———–

    This is my doubt. Take the first equation and the paragraph immediately underneath it:

    “Under the standard interpretation:
    “(1) λ = λA + λbl + (l – λbl) = λA + l
    “Here, A is a square input-output matrix of technical coefficients and b is a column vector of real-wage components, representing the real-wage basket received by workers. The standard interpretation considers the vectors c, v, and s to be c = λA, v = λbl, and s = l – λbl.”

    So, the first term in the RHS of equation (1) is c = λA. As A is a square matrix and λ is also a column vector, the dimensions match in this term. A is mxm and λ is mx1, so the product is also mx1, that is, it is also a column vector, like λ, the LHS of equation (1). Notice that in this case it was easy for me to understand the meaning of the operation.

    But in the second (v = λbl) and third (s = l – λbl) terms in equation (1) we are multiplying three vectors (λbl), each of which is mx1. If we do (λ.b).l (that is, we multiply first λb and then we multiply the result by l), we get a result. On the other hand, if we do λ.(b.l) we get a different result.

    That is, (λ.b).l and λ.(b.l) are not equal. And, unlike the first term, it’s not easy for me to see what is intended.

    I am sure there must be some well-known convention establishing what of these procedures apply; but, well, I don’t know it.

    Kind of embarrassing and beyond silly, I know. But there you have it. :-)

    PS,
    The books I’ve seen solve this problem by establishing a kind of data type structure (which is another convention!): the product of two column (row) vectors y and z is not defined.

    If y is a nx1 column vector and z is a 1xn row vector, then y.z is a nxn square matrix; z.y is a scalar. And they use a transposition operator (denoted by a superscripted T) to convert between row and column (or between column and row).

  22. Hi Magpie – I don’t have any objections. Sorry about the imprecision.

    I actually find it difficult to use words to paint a picture that will somehow convey what I have in mind: in this case that back and behind of the apparent complexity of human existence, there is an incredibly simple base energy that we give the label ‘contentment’. It is apparent (to me) in the chimp and in very tiny human babies – but as we grow up we lose touch with it. And our ‘story’ as I expressed it, is simply all about finding it again (although most think it is about something else).

    So, you and peter watch the chimp and see primitive communism: I see the need to be content! Both views are correct from our various standing points. I speculate about a world where people understand contentment and $$ are just a distribution checklist (which I think is our more common ground) and you guys speculate about Marxism.

    Contentment for me is do-able. Am not sure about theories I have read here, or that there will be any resolution soon to the mess that the world is in, but hey! – I wish you all very well! There are no predators on this site – just people willing to devote precious time to pathways to a more humane world – so that is excellence in my book! We will always need some sort of system to tell our story. And plenty of ‘elbow room’ for us all to be ourselves!

    PS. I have magpies nest around our place each year – I swear they get me to baby-sit their chicks now and again; I also feed them a bit to help with hungry babies!! One time the mother sat on my foot whilst I fed her bits of cheese. So, even nesting magpies are not territorial if they feel comfortable (content)!

  23. Magpie: Sorry, I shouldn’t cut corners with the presentation. It would have avoided the confusion.

    λ, c, v, s, l are all 1xn row vectors, b is an nx1 column vector. A is an nxn square matrix (m = n, since square).

    In λbl, the product λb is 1xn multiplied by nx1, giving a 1×1 (scalar) product. Then multiplying the 1×1 product by the 1xn vector l gives a 1xn vector λbl.

    The fact that λb is a scalar indicates that the value of the real wage paid to workers per unit of living labor is the same in each industry. If more complex labor is allowed for in the model, it can be handled by keeping the same scalar λb and multiplying the amount of living labor by some factor that reflects the difference between simple and complex labor.

    (NB. You can do it the other way, first taking the product bl, then premultiplying this product by λ, but it will be more cumbersome in this particular context. It will work because bl is the product of nx1 and 1xn vectors, giving an nxn result. Premultiplying this by the 1xn vector λ gives a 1xn vector λbl. This accords with the associative property of matrix multiplication, in which A(BC) = (AB)C. It’s easier to work with a scalar, though, if possible, which you can with this example by doing it the first way.)

  24. Oh Magpie, afterthought this morning: we put our ‘story’ down on top of our existence just like you guys have done with the chimp – doesn’t mean the Universe may not have different plans. I think that is what gets me about human stories – our little friend TINA whom everybody abhors, and nobody will entertain in their own living room!

    I know what goes on in the world; but in the end I don’t see 1%’ers or 99%’ers – I just see human beings caught up in a story – when the reality of our existence is far more fascinating!

    And a hope that if people understood that reality, the story might reflect some of its beauty.

    That’s ‘precision’ in my simple view!

  25. @jrbach

    Thanks for replying.

    After reading your second comment, I think I know why we seem to be speaking past each other.

    We must differentiate two ways of seeing the world. One way is to consider and prescribe **how things should be**; it’s an understanding based on ethics and the idea is to guide people on how to lead a good life.

    Another way is based on seeing things as they are. It’s an understanding based on observation. Its aim is much more modest: to understand **how things are**.

    One is not necessarily better than the other; but they are certainly very different and lead to focus on different things.

    The video is an example and illustrates the difference.

    Judging by what you wrote, when you saw the video, you saw a “hungry chimp picking up a stick and fishing for termites”; somewhere else suggested it’s searching for contentment.

    And it may well be true. Maybe the chimp was hungry and was looking for contentment. But this is not what I saw.

    I did not see the chimp picking up the stick: it wasn’t a part of the video. It’s obvious that the chimp somehow got a stick and a very likely possibility is that it picked the stick up from somewhere. But I didn’t see it, therefore, it’s not a part of my narrative.

    Likewise, from the video, I cannot say what motivates the chimp to act.

    Hunger, as you say, is certainly a possibility; but I doubt it’s the only possibility: it could be gluttony; it could be the knowledge that it needs to eat what it finds when it finds it, because it may not be there later; it could be the need to show dominance over the smaller chimp who swiftly moved away.

    You infer the motivations, but I only see the actions. Motivations are internal states, but what the video shows are behaviours, actions. Actions are consequences of motivations. Actions can be seen, motivations can only be inferred.

    Judging by your description, you didn’t see the chimp fashioning a tool. But I did. The chimp’s actions, documented by the video, match a dictionary definition of fashioning; this I know.

    The point is not that one perspective is better than the other; the point is that both perspectives, focusing on different things, lead to different conclusions.

    I am speaking for myself, and I won’t pretend to speak for Peter or for anybody else, for that matter; but, without denying validity to the way you saw the video, and with all due respect, I think my perspective is valid.

  26. Pete

    As I am afraid my previous comment may have been more confusing than clarifying, maybe these two screen captures explain what I meant:

    http://i48.tinypic.com/15j1vl.jpg

    Above I defined 3 column vectors. The computer algebra system (CAS) recognizes dot multiplication without any restriction.

    The first equation shows the result of λ.b.l, using the vectors defined above, without any brackets; the second equation shows the result of (λ.b).l; the third shows the result of λ.(b.l).

    All 3 results are column vectors, but λ.(b.l) is not equal to (λ.b).l. For the computer algebra system, λ.b.l equals (λ.b).l.

    Is (λ.b).l what is meant by λ.b.l?

    ——–

    The second screen capture, below, shows step-by-step the use of the transposition operator (which the CAS also recognizes):

    http://i47.tinypic.com/a2t1jq.jpg

    We reach the same result, which I guess answers my question. :-)

  27. Magpie, I am not familiar with CAS, but the results shown in the screenshot are incorrect. Since l is a row vector, it should be transposed in the same way as λ is transposed in the second screenshot. If this is done, you should get the correct result both ways.

    I will demonstrate and provide a numerical example with row vector A, column vector B, and row vector C. Row vector A has elements a1, a2, a3. Column vector B has elements b1, b2, b3. Row vector C has elements c1, c2, c3.

    Here, A represents row vector λ, B represents column vector b, and C represents row vector l. I am using this notation to avoid hassles with greek letters and subscripts.

    ABC = [a1 a2 a3][b1][c1 c2 c3]
                    |b2|
                    [b3]
    

    As noted, we can work this out either as (AB)C or A(BC). I’ll do each in turn.

    Taking the product AB results in a scalar (single number) since A is 1×3 and B is 3×1. We then multiply the scalar (1×1) by each term in C (1×3) to obtain (AB)C, which will be 1×3. In the final 1×3 vector, each term is in brackets for clarity. (Sorry for the crappy bracketing and matrix frame for B.)

    (AB)C = { [a1 a2 a3][b1] } [c1 c2 c3]
            {           |b2| }
            {           [b3] }
      = (a1b1 + a2b2 + a3b3)[c1 c2 c3]
      = [c1(a1b1+a2b2+a3b3) c2(a1b1+a2b2+a3b3) c3(a1b1+a2b2+a3b3)]
    

    Taking the product BC first results in a 3×3 square matrix since B is 3×1 and C is 1×3. We then multiply A (1×3) by BC (3×3), which will be 1×3.

    A(BC) = [a1 a2 a3] { [b1][c1 c2 c3] }
                       { |b2|           }
                       { [b3]           }
      = [a1 a2 a3] [b1c1 b1c2 b1c3]
                   |b2c1 b2c2 b2c3|
                   [b3c1 b3c2 b3c3]
      = [c1(a1b1+a2b2+a3b3) c2(a1b1+a2b2+a3b3) c3(a1b1+a2b2+a3b3)]
      = (AB)C
    

    A simple numerical example may show more clearly what is going on.

    (AB)C = { [1 2 3][4] } [7 8 9]
            {        |5| }
            {        [6] }
          = (4 + 10 + 18)[7 8 9]
          = 32[7 8 9]
          = [224 256 288]
    
    A(BC) = [1 2 3] { [4][7 8 9] }
                    { |5|        }
                    { [6]        }
          = [1 2 3] [28 32 36]
                    |35 40 45|
                    [42 48 54]
          = [(28 + 70 + 126) (32 + 80 + 144) (36 + 90 + 162)]
          = [224 256 288]
          = (AB)C
    
  28. jrbarch: You are not intruding at all. I read your contributions with much interest, even though I do not always know how to respond. Anyway, the blog is allowed to be a little “out there”. Who’s to stop us? :-)

    As an example, in my downtime, I am currently “investigating” the teachings of one Jesus and Mary Magdalene, reincarnated in the 21st century as Alan John Miller (“AJ”) and Mary Suzanne Luck. I simply had to look into it after finding a link to a hatchet job by some current affairs program on one or other of the major networks. My disdain for current affairs television compelled me to test the waters.

    It turns out that, unlike current affairs television, AJ and Mary are intelligent and interesting. Irrespective of their true identities or the veracity of their message, they have me intrigued. I have considered posting about it.

  29. Hi Magpie – I do understand the pathways of your logic and completely agree that your perspective is valid. There is a discussion with HH over at Are they getting away with it around perspective (which HH found increasingly meaningless) – valid from the standing point HH is comfortable with. I do hope HH has more to say about heteconomist topics.

    Under a science based method of observation you did see the video in much more detail – and I have been thinking about your belief that ”motivations can only be inferred”.

    I don’t wish to be arrogant here, just honest: the science method I think of as akin to somebody with a very feeble flash-light in a very dark space. ‘What is this; what is this; how do they relate. I am lost’. Is this not man in our Universe? It is definitely not fashionable to say ‘I am lost’. And yet science to me is infinitely more preferable to religion or politics. Perspectives I think of as the ‘zoom factor’. You see your car in an entirely different way when you are down in a motor-pit, looking up at a hot greasy dripping engine with wires and tubes going everywhere – compared to the perspective from a mile up in the air, watching your car speeding happily down the highway at 110km/hr heading straight into a four hour traffic jam. There is also the notion that if you want to see something “as it is’ you need to get close to it.

    I always think that the Universe of H.P. Blavatsky (Secret Doctrine) and Dwhal Kuhl (A.A.Bailey – Treatise on Cosmic Fire) is just as valid a theory about the nature of reality as any modern science based theory. I don’t see them as opposing theories. And what is really interesting is their perspective – the place where they are coming from.

    As for contentment, I have come to the conclusion through experiment that only the heart can understand contentment. I don’t see motivations as thoughts so much, but rather as energies that arise in living beings (that perhaps translate as force in the outside world). From out of the human being arises the desire to be content. Re the quest to be content: my take is people should walk their own path but share. We came into this world alone; we walk alone (even though there are 7 billion of us on the outside – on the inside we are alone). The pillar that supports us is within – all else will topple. Help has always been available. The world is a necessary distraction. We need not leave alone. The heart carries people to where they need to be. So, I think I should quit talking about contentment. I think I am intruding too much on economic matters and my experiment is null and dull!

    In summary: for me I guess it’s a bit like studying astutely all of the phenomena that occurs on the planet earth; then one day you glance up and happen to see the Sun. Now quite suddenly, everything no longer requires an explanation although you can ask if you want to – you always knew it was there and you roll on the floor laughing (limited analogy)! A drop flows back to the ocean, a stone falls back to the earth; the flame leaps up to rejoin the sacred Sun. That to me is human science! Very logical!

    Cheers Magpie!!

  30. By the way, Pete

    Going back to the chimp. Imagine, then, the chimp tires of fishing termites. Maybe it got its belly full or something. What do you think it will do with the brush and why?

  31. Magpie: With humans, I’d expect them to be turned into spears. But for chimps I have higher hopes. Maybe for backscratching or kinky sex at the very least!

    What are your thoughts on the matter?

  32. @jrbach,

    Sorry for not replying before to your last comment. I’ve been reading heaps.

    But I’ll reply now (it’s 2:01 am, so I’ll be real brief).

    Like Pete, I also sometimes do not know how to respond. That doesn’t mean your comments are not appreciated!

    ————–

    @Pete

    “Magpie: With humans, I’d expect them to be turned into spears. But for chimps I have higher hopes. Maybe for backscratching or kinky sex at the very least!
    “What are your thoughts on the matter?”

    In reality, my thoughts on that matter don’t matter much.

    To be frank, on this subject anybody’s opinion is much more important than mine. And it’s not a matter of being humble.

    By they way, don’t place too high expectations on chimps…

  33. To the one percent who might actually read this. I’m not worried about any of your psychopathic antics. When all of the walls tumble-down and the world begins to produce more and more chaos there is nothing that can protect you, no layers of security, no amount of money will protect you from your death. Even if you have away to prolong your life you will eventually die. I am part of the 99% happily but I do not sur come to your slavery. What makes me sick is the fact that you sir have no idea how much better this world could be if people like you did not exist. Death will be my salvation and your destruction. I’m not saying I think I’m going to heaven (a concept to ensure slavery). I accept the idea of death and see it as a final vacation. If you weren’t a coward I would go (old style) on your ass and challenge you to a duel LOL. One day somebody with psychopathic attributes like yourself is going to see you as a threat and take you out. There are a few of the 99% that know the truth about everything, that aren’t in the dark, that are highly intelligent and will formulate a plan to eliminate your kind from existence. One day in this life or the next you will surely die by my justified hands around your arrogant kneck. I can’t wait for your demise ROTFL! The 1% is a small amount of people, I can research every 1 percenters typing style and match you to whomever you are and bring true justice your way. You want to call me trash well you should have been careful about what you threw in the bin.

  34. RE: Trixie’s comments, Krugman, yachts, income inequality and rich-led consumption (above)

    Matías Vernengo refers to “The mysterious death of Duesenberry”:

    “While Keynes’ theory of consumption was based on what he referred to as a psychological law, that people consume only a fraction of their income, Duesenberry suggested a sociological explanation. Duesenberry argued that the poor tend to consume a higher proportion of their income than the wealthy, and that, as income increased, the relatively poorer members of society continued to consume a higher share of their income, since their patterns of consumption changed to emulate their well to do peers. A notion that has elements in common with Veblen’s notion of conspicuous consumption. Note that this suggests that re-distribution towards the less privileged would boost the economy, since they have a higher propensity to spend”.

    http://nakedkeynesianism.blogspot.com.au/2013/04/the-mysterious-death-of-duesenberry.html

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>