Re: OWNERSHIP: Stephen's Article

[Keith Wilde <kwilde@magi.com>]

At 12:31 PM 04/10/2001 -0500,  John Medaille wrote:
>>>>>snip>>>>>>>
>
>You are still in the mode of thinking that independent productiveness means 
>that nails can be made to drive themselves. There are a few cases in which 
>this is true (such as automatic elevators-where the zero on the L scale is 
>in fact reached) but it is irrelevant to the theory, except as ultimate
cases.
>
>For the umpteenth time, the theory is BINARY, that is, having two factors. 
>It does not predicate nails driving themselves. I don't know how many times 
>I need to repeat this. Nails may in certain cases drive themselves, but in 
>every case will be driven with far less labor by the addition of capital. 

KW   I wonder. If you include the labor of making the hammer, maybe the
principal advantage of the better tool is speed and accuracy.

>Further, the capital gains will far greater than the gains from the 
>addition of labor. This, I think, is self evident and confirmed by 
>millennia of empirical observation.

KW  Again, you seem to be focusing on technology rather than capital
accumulation/acquisition. The truthfulness of your statement depends on
where one starts from. I invited binarians (Norman) to start from opening
the doors of Ford's new River Rouge plant and think about what happened to
output as he started adding more persons and/or more person hours. Silence.
Does it hurt to see that a capitalist can be hungry for skilled labor?

>> >The choice of which to use, or the choice to use a combination, is
>> >a micro-economic decision,...
>>
>>2nd Prediction:  On at least one of the figures representing isoquants
>>there is a straight line representing the ratio at which labor and capital
>>can be traded in the market--i.e. their relative prices. That is an element
>>in the micro decision of the best factor mix for least cost output.
>
>Which is what I said. The actual choice of the mix is a market one. Of 
>course, since the market for capital is restricted one, the lines will not, 
>in the current system, reflect a free market.

OK, here is where I slipped up. The price ratio does not reflect a free
market, in the binary view. But help me out a bit more. Does the flaw lie
in the willingness of owners of labor and vendors of capital equipment to
sell their services at prices which a firm finds acceptable, or is it  in
the unwillingness of bankers to lend money to workers for buying shares of
ownership? In other words, is the market distortion caused by the monopoly
power of labor or the monopoly power of capitalists?  Or both?  You seem to
be saying that economic analysis can't be any use until political power is
arranged to  your liking.

>>
>>3rd Prediction:  Stephen's paper will not support the hypothesis of the
>>foregoing paragraph.
>
JM    I wonder what you think the "hypothesis" of the foregoing paragraph is? 

KW  I think it is this:

JM>> >I think you have also identified the real source of opposition to BE, at
>> >least from people who share COGs concerns. "It's easy," you said, "to
react
>> >negatively to Kelso's theory as 'a theory of low wages." This, I
suspect is
>> >what is really driving the opposition.

>The 
>"hypothesis" is simply that the total income is more important then just 
>the wage. This is certainly true for the economy as a whole, and for each 
>individual as well. I fail to see how you could make a controversy out of 
>that statement, or why you would want to. So long as we focus on "wages 
>alone," we have no hope of distributing capital income, save by 
>market-wrecking schemes that merely increase dependence.

KW  It is you who is making this issue, and I am disagreeing that it is the
root of opposition to BE


>>
JM  >Which is what I said: The industry is now software-constrained; there is 
>enormous power available, and no way to use it. 

KW  But that is not what I intended to say.  The constraint is not so much
in the software, imho, as in the shortage of operators with both sufficient
skill and imagination to use the capacity, and that shortage includes
entrepreneurs with a vision of how to use it. Software is implicated, of
course, but I doubt that it is the whole story. The slack will be taken up,
I imagine, but between now and then we will be waiting on contributions
from the human factor. River Rouge plant on opening day. Add men and see
what happens. 

JM  >Before you demanded that nails drive themselves, now you demand that 
>computers program themselves. I think that after all this time, you simply 
>refuse to attempt to understand the theory.

KW  No, I haven't asked that they do; I have simply asserted that they
don't, and that that is why labor has a higher market value relative to
capital than you think it ought. 

>So let me try to state it as clearly as I can.
>
>BE DOES point out the intuitively obvious: that a man with a nail gun does 
>the work of *many* men with hammers. A man with compilers does more than 
>many men working in machine code. I was a programmer back in the days when 
>anything important was done in machine code. In those days, few important 
>things were done. Since then, I have seen the addition of all sorts of 
>expensive tools, tools that  paid for themselves, and that many times over. 
>The productive increases from capital are not "marginal" but *multiple* 
>(thank you, I know a multiple is also a margin--but it is the "marginal" 
>thinking that needs to change.) To put it another way, "capital may replace 
>labor."
>
>And does.

Yes, it is both obvious and true. But where does it get you in terms of
promoting ownership? One source of communications difficulty seems to be
that we are looking at spending decisions from different points on a time
line. When you say the returns from capital are multiple rather than
marginal, you are taking Henry Ford's point of view before constructing his
new mass production plant. Economics texts call it a "lumpy" input. It is
not very "marginal" as a decision. But once the plant is in place, which is
the perspective I have taken a few times, the addition of workers and run
time is a marginal decision. And the value of labor will be a reflection of
the potency of the capital to a heavy degree. Binarians seem to think that
that is cheating. 



>
Keith Wilde
Canada Pension Plan
Ottawa
kwilde@magi.com
613 990-8125 (office)
613 747-6847 (res)