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April 1 - July 4, 2023
If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth.
In this way, by extension, Petty came to see any branch of the economy that did not produce those necessities as unproductive, adding nothing to national income.
In King’s view, the unproductive masses, representing slightly more than half the total population, were leeches on the public wealth because they consumed more than they produced.
In other words, if value extraction by the unproductive members exceeds value creation by the productive members, growth stops.
he argued that mechanization was reducing demand for skilled labour and would depress wages.
Other of Smith’s ideas, such as free trade and the unproductive nature of government, have also left an enduring legacy.
after which he promptly and wisely retired to the country, well away from London.
Indeed, he is so disgusted by usury that he puts usurers just below the circle of hell housing the sodomites.
The scarcer they are–the higher their marginal utility–the more consumers will be willing to pay for them. These changes in the marginal utility of a product came to be known as consumer ‘preference’.
such as an interfering government, monopolies, other rents arising from scarcity and so on, must be obliterated.
Public Choice theory, advocated by Nobel Prize winner James Buchanan (1919–2013), later argued that as government failures are even worse than market failures (due to corruption and capture), so the correction of market failures by bureaucrats might make things even worse.
The accountants determine what falls into this category. But what criteria do they use? The answer is a hodge-podge which combines marginal utility with statistical feasibility and some sort of common sense that invites lobbying rather than reasoning about value.
Yet the belief that economic progress requires a growing financial sector, with
banks at the heart of it, is counter-intuitive on a number of counts.
The increasingly hazardous nature of lending to subprime and already indebted households further boosted this measured contribution, since it resulted in a higher premium of borrowers’ rates over the reference rate with inadequate adjustment for the increased risks.
In other words, value is extracted from labour’s share of earnings in order to restore corporate profits.
Such assurances only led them to behave even more recklessly.
if bosses allowed profit to be eroded by paying better wages to employees, meeting higher environmental or health and safety standards and investing more in new products.
The first, earnings, is an output from the profit and loss account of a company. It is notoriously vulnerable to manipulation.
The first strategy–‘Retain and Invest’–uses finance only to set up a company and start production. Once profits are being made loans are likely to be at least partly repaid because retained earnings are a cheap way of financing the next production cycle and investments to expand market share.
Proposals such as taxing away very high incomes and accumulations of wealth may treat some of the symptoms of excessive finance. They do not, however, treat the causes, which lie deep in a system of value extraction which has grown up over the last forty years or so.
Yet the returns have come from investing in companies whose value was often created by decades of prior government investment.
The way the modern-day patenting system is structured (e.g. allowing upstream patenting, and strategic patenting), I would contend, is analogous to what Marx called ‘unproductive labour’, because it extracts rather than creates value.
A true sharing economy must by definition respect the hard-won gains of all workers, irrespective of race, gender or ability.
Previous chapters revealed how actors in both the financial sector and Silicon Valley have been particularly vociferous in their self-aggrandized claims about wealth creation, using these claims to lobby for favourable treatment that has in turn enabled them to reap rewards disproportionate to the value they actually created.
Keynes argued that this increased debt should not overly worry the government. Once the recovery was under way, the need for big deficits would pass and the debt could be paid off.
The crucial point here is that zero government return on investment is a political choice, not a scientific inevitability.
Public Choice theory argues that government failure is caused by private interests ‘capturing’ policymakers through nepotism, cronyism, corruption or rent-seeking,39 misallocation of resources such as investing public money in unsuccessful new technologies (picking losers),40 or undue competition with private initiatives (‘crowding out’ what might otherwise be successful private investment).41
The logic of Public Choice theory resulted inexorably in government shedding responsibilities, reducing its investment in its own capacity-building, and eventually to privatization.
So exclusive PFI contracts in effect create monopoly licences. The end result can be one where the costs to government are often more than if it had provided the service/s itself.
Over its almost seventy years of existence, the NHS has become one of the most efficient and equitable healthcare systems in the world, as recognized by the World Health Organization46 and also more recently by the Commonwealth Foundation.47
The fines, however, are minuscule in proportion to the profits made by both Serco and G4S–and such companies, rather than being penalized for carelessness and reckless cost-cutting, are being rewarded with more contracts.
When government stops investing in its own capacity, it becomes more unsure of itself, less able, and the probability of failure increases.
Regulators end up being lobbied by businesses and induced to endorse policies which make incumbents even richer–increasing profits but with little effect on investment.
In general, government support should be made conditional on an increase in committed investment by business–reducing the trends of hoarding and financialization.
