UE is reviewing Steve Keen’s Debunking Economics chapter by chapter. I suggest reading the book; Keen’s arguments are very strong, and actually borrow a lot from established criticisms within the orthodoxy.
That capital goods have their value imputed from consumer goods doesn’t mean that each individual capital good is actually priced at its marginal value. One major detail that sets the Austrian theory of prices apart from its Neoclassical brother is that the former operates heavily in the area of disequilibrium. Ironically, Austrian price theory also has some things in common with post Keynesian price theory. For instance, recently the theory of expectations has begun to play a larger role in price determination; also, Böhm-Bawerk provides a much better cost plus mark-up price theory.
Böhm-Bawerk explains that the price of a factor of production is based on its least valuable output. Why? Because the loss of that factor of production (or group of means of production, which is what Böhm-Bawerk talks about in the second volume of Capital and Interest) manifests itself as one less unit produced of the least valuable output. So, the prices of the means of production will depend heavily on expectations of profits in various alternative investments (it also follows that these prices are also heavily influenced by expectations, or expected future profits).
Neoclassical price theory is an extreme form of marginalism, where in fact (according to Keen) the models aren’t even internally (mathematically) consistent. This is why real world price data doesn’t fit Neoclassical models.
That is why I suggested to read Mengers book because he painstakingly explains the process with examples.
I want to know with which element of my explanation above you do not agree:
Do you agree that a factor of production only can have value if you can use it at least for the production of one consumption good that is valued by people?
Do you agree that the value/price assigned to this factor of production is higher or lower depending on how high the final consumption good is valued by the people?
Do you agree that the final and exact price is only determined by two people negotiating it, and that they have of course a certain price range in which the final price can be and at every price within this range still both are better off than not doing the trade? It is this price range that is partly determined by the final (expected) price of the consumption goods. This also means that if more factors of production are needed that it lies in the sole discretion of all bargaining parties of how the whole (expected) earnings from selling the consumption good are divided onto each factor and that different price patterns are possible.
Do you agree that the more people are involved in trading this factor of production or/and the consumption good the narrower these price ranges become?
What is your goal by the way? Do want to be able to judge if a factor of production was paid its fair price?
If you agree to all those points above then it should be clear that you cannot look at the price of one consumption good and calculate backwards what each factor of production necessary for producing it is “worth” exactly. You would need to at least take into account ALL (actual and expected) prices of ALL consumption goods. And then you are left with price ranges not with an exact price like 19.85687978 USD. And this ignores that you have goods which are both higher order goods and consumption goods. It ignores preferences of what people like to work or not like to work, where to live, with whom to work… It ignores skills people have, it ignores cultural differences etc…
Maybe you should also Read Hayek’s essay about the knowledge Problem
Edit: Additional word in green.
Böhm-Bawerk explains that the price of a factor of production is based on its least valuable output. Why? Because the loss of that factor of production…manifests itself as one less unit produced of the least valuable output.
I’m not exactly sure what you mean. Depending on how you define the production process removing one unit of a particular factor of production could reduce output by more or less or exactly one unit. And so long as the elasticity of subtitution is not zero, you can replace having less of one factor of production by adding more of another so that production doesn’t fall at all.
Maybe you can make what you are saying more concrete by applying it to the UE example that inspired this thread. Say you are looking at the taxi driving industry. The production process is pretty simple: 1 driver + 1 cab = 1 day of taxi driving services. How would you (or Böhm-Bawerk) say that taxi driver compensation is determined in the market? How would your answer differ from a “neoclassical” answer?
Neoclassical price theory is an extreme form of marginalism, where in fact (according to Keen) the models aren’t even internally (mathematically) consistent.
I would have to see this to believe it. I have been reading UE’s review of Keen’s book but so far have not been able to read the book itself (it’s not my uni’s library). I think UE has nailed some good points (usually those already noted by “neoclassical” authors), but he has not convinced me to abandon neoclassical theory as an effective tool for analysis.
This is why real world price data doesn’t fit Neoclassical models.
Says who? That is a pretty broad assertion. And I don’t know if the empirical work citied in Keen’s book is better than what UE references on his blog, but so far the empirical papers UE has posted have not exactly blown me over.
Student,
You write,
I’m not exactly sure what you mean. Depending on how you define the production process removing one unit of a particular factor of production could reduce output by more or less or exactly one unit. And so long as the elasticity of subtitution is not zero, you can replace having less of one factor of production by adding more of another so that production doesn’t fall at all.
That’s not the point. The point is deriving the value of the means of production — i.e. of producers’ goods.
Says who?
For starters, Alan Blinder, Asking About Prices.
I would have to see this to believe it.
Then, honestly, you should get off these forums and replace UE’s blog with the academic work. Keen’s book is an introduction, but it has a lot of references. Here is a paper by Keen (and Lee) on the heterodox critique of Neoclassical economics. Other papers,
Thanks for the links to Keen’s work Jonathan I think I’ve been guilty of ignoring this literature for too long.
@ Student, for a concrete example, consider the following (I’ve been watching the American version of The Office a lot recently). Let’s say at our paper company Dunder Mifflin, we have 2 types of paper printing machines (our “fixed” capital) from which we produce respectively two types of standard business forms used by our clients, and since now I’ve run out of imagination lets call these A and B.
Now say that Dunder Mifflin receives special paper it uses to make stacks A and B (therefore making it the variable, convertible capital). With a stack of the special paper and one of the machines it takes a day to make either of these stacks. Now say tomorrow 2 clients will arrive, one willing to pay $100 for a stack of A and the other willing to pay $300 for a stack of B. If either customer sees the product they want is not there, they will simply leave without purchasing.
In your warehouse today you initially have lets say one stack of this special paper (not buyable on the open market and produced by 1 supplier who don’t give their next shipment lets say until a week from now for argument’s sake), a stack of B already ready and of course each of the paper printing machines. But unfortunately let’s say one of your incompetent employees (probably Dwight…) accidentally sets fire to your stack of B, ruining it so it can’t be sold any more.
However immediately after this happens, a salesman appears and offers to sell you a stack of B. If you put yourself in Michael or Andy’s shoes (the boss depending on the season of The Office you might be acquainted with). What’s the maximum you’d be willing to buy this stack from the salesman for, assuming you’d only buy if you could improve the situation of your bottomline from what it currently is? (and knowing you have a day before your customers arrive)
Ignore all other considerations like the value of maintaining long term customer loyalty, the depreciation of the machines, cost of ink, etc. Puzzling through this type of problem I think is a good way to understand what Jonathan’s getting at with his remarks, and how BB’s work helps us realise the extensions of marginal utillity and productivity theory and its wider ramifications to factor and product pricing.
Who is BB?
Sorry, it’s a shorthand I use for Bohm Bawerk. Likewise with Rothbard RB.
Johnathan,
Well, first, you have not attempted to answer the question this thread was created to discuss. You seem to be trying to divert discussion to Keen’s book. I’m not sure why. He was not referenced in the UE post that spawned this thread. And if his book answers the specific question posed in my OP, you have not said so (specific chapter or page reference would be helpful).
Anyways, I don’t want this discussion to devolve into yet another free-ranging attack on neoclassical economics. I had a very specific question and for the most part that is what I am going to stick to. So here are the ONLY comments I am going to post in response to your remarks on Keen’s book and the books/papers you pulled from Keen’s references (though if you could answer my questions below that would be very helpful).
JC: This is why real world price data doesn’t fit Neoclassical models.
ST: Says who?
JC: For starters, Alan Blinder, Asking About Prices.
Throwing up entire books with no specific citations as to what portions you have in mind? This seems more like an attempt to shut down conversation than to answer a legit query. “Here, go read this 380 page monster, THEN get back to me!”. Could you please offer some specific passages where Blinder discusses how “real world price data doesn’t fit Neoclassical models”?
I looked around to see if I could find something on my own but had no luck. I did see the only Amazon review of this book was written by (suprise suprise) Steve Keen. But Keen’s review doesn’t actually mention Blinder trying to use price data to show neoclassical models don’t fit. According to Keen, Blinder surveyed a large number of firms and found that they believe they rarely face upward sloping marginal cost curves and that they experience relatively high fixed costs.
But that really isn’t the same thing as what you said you found in Blinder. First off, that isn’t price data. Second, even if we believe these results, that still doesn’t really imply that neoclassical models don’t fit the data. Sure, if marginal costs are not rising in some industries that might spell bad news for applying the perfect competition model to those industries. But perfect competition is not the only model of market structure in the neoclassical tool kit. Maybe those industries where marginal costs are not rising could better be described by another neoclassical model like a monopoly?
Keen certainly never quotes Blinder as saying that his results bring the whole of “neoclassical models” into question. Instead, he only quotes Blinder vaguely talking about how his results raise questions for traditional economic theory. In the most specific quote Keen provides, Blinder only talks about how his results might conflict with certain theoretical conclusions like price equaling marginal cost. But again P=MC is a specific conclusion of the perfect competition model, so that quote can’t really be read as questioning neoclassical models on the whole.
Now obviously I have not read the book, so I might be missing something. It is also possible Keen might not be discussing the specific parts of Blinder’s book you had in mind. So could you please point me to the specific sections you had in mind when you wrote your previous post? I would be curious to look into this later when my reading load clears up.
Then, honestly, you should get off these forums and replace UE’s blog with the academic work. Keen’s book is an introduction, but it has a lot of references.
If my goal was to do rigorous research on heterodox critiques of mainstream economics, then I would probably do just that. But I never set out to do that. Instead, I am just trying to have a mostly-casual discussion about an interesting question I saw raised on a blog a month or two ago.
But then, out of no where, someone jumps into that casual conversation and just asserts that neoclassical models don’t fit the data and are internally inconsistant. And then seems shocked when I say “I would have to see it to believe it”!
Now, I’m glad you gave me a link to Keen’s paper and I will read it if i have time. Bu I am a little suprised you are so huffy over my initial reaction. I’m not sure how else I should have responded. Well, actually, looking back I probably should have just ignored it. At least then I could have avoided having a blogger chastise me for spending too much time reading blogs and not enough time reading his new favorite author.
Student,
Since the topic of the thread has to do with a criticism of Neoclassical price theory, borrowed from Keen’s Debunking Economics, it’s only natural that I direct you to actually read the book. It’s not my favorite book and I’m not chastizing you, but you said "I have to see it to believe it — since your eyes are your own, I suggest to you to actually go see it. Yet, you accuse me of trying to peddle a book on the forums. This being said, the entirety of Blinder’s book should be taken as evidence. Indeed, it’s purpose is to provide evidence of real world prices, and not to attack Neoclassical price theory. Upon reviewing the evidence, Blinder suggests that real world prices don’t fit the Neoclassical models. Finally, I’m not telling you to “get back to me.” My purpose here isn’t to hold a debate; I was trying to direct you to the literature on the topic — literature bound to be much more elucidating than any thing this forum (as wonderful as it may be) can offer.
Some more specific comments. You write,
But Keen’s review doesn’t actually mention Blinder trying to use price data to show neoclassical models don’t fit. According to Keen, Blinder surveyed a large number of firms and found that they believe they rarely face upward sloping marginal cost curves and that they experience relatively high fixed costs.
It wouldn’t be possible that some of the surveyed data revolves around real world prices? Oh, I guess not.
But perfect competition is not the only model of market structure in the neoclassical tool kit. Maybe those industries where marginal costs are not rising could better be described by another neoclassical model like a monopoly?
Possible, but it could also mean that real world prices are somewhere in the middle, and that Neoclassical models don’t give us a good theory of price setting (which is probably why post Keynesians prefer to opt for the less rigorous theory of cost plus mark-up).
In any case, if you’re not interested in reading the literature out there — reading that would go to great lengths to answer this question all other questions — well, that’s too bad for you.
Since the topic of the thread has to do with a criticism of Neoclassical price theory, borrowed from Keen’s Debunking Economics, it’s only natural that I direct you to actually read the book.
Just to make it clear. The topic of this thread was actually stated pretty plainly. I was wanting to talk about a specific question about wage determination that was brought up IN A BLOG POST that DID NOT mention Keen’s book. Specifcally, UE claims that the MVP theory of wages falls apart because in most production processes you cannot determine MVP. And my question was how Austrians would respond to UE’s argument. THAT is in Keen’s book? Very interesting.
I was trying to direct you to the literature on the topic — literature bound to be much more elucidating than any thing this forum (as wonderful as it may be) can offer.
First, if your only goal was to direct me to sources that answer my question, then you could have fooled me. You have pointed me to a number of books and articles that cover a variety of topics, not all of which relate to my specific questions. So I ask for page numbers or chapters you think would be helpful. Yet you never respond. So our exchange has not been all that helpful. :-/
Second, why exactly is my very specific question about how Austrians would respond to UE’s argument is not good for an " elucidating" discussion on this forum? I mean, shit, UE’s argument was simple enough for him to express in a short BLOG POST! But you think it is too heavy for open form discussion? Why? Wait. Never mind. Don’t answer that. I think that question is really too deep for you to fully answer in this limited format.
In any case, if you’re not interested in reading the literature out there — reading that would go to great lengths to answer this question all other questions — well, that’s too bad for you.
I never said I was uninterested in heterodox lit. But that isn’t the point of this thread.
@abskebabs,
What’s the maximum you’d be willing to buy this stack from the salesman for, assuming you’d only buy if you could improve the situation of your bottomline from what it currently is?
If I understand you correctly, then I think you are thinking about the problem one of the ways way I am. UE’s main argument seems to be that if you can’t compute MVP, you can’t determine factor demand. I think the way around this problem is to note that there are other ways to think about factor demand.
One way would be the way Milton Friedman described in his Knives/Blades/Handles thought-experiment from his Price Theory textbook. There the derived demand for one input (say handles) was the difference between the “demand” price for the output (knives) and the “supply” price of other inputs (blades) for any quantity. This sounds like what you are saying the sentence above, since it basically translates into the “maximum” the firm would be willing to pay for the input.
And I think that makes sense. But I think if I were UE I would respond that we changed the problem by already assuming the price of the other factors of production are already given. So my second thought was that we could use what are called “conditional factor demands” as the second-half of each factor market. Conditional factor demands are “the cost-miniziming level of an input required to produce a given level of output”. In the taxi example, figuring out the "conditional factor demands is simple. You need 1 driver and 1 car to produce 1 unit of taxi services. IOW: for y taxi services you need y drivers and y cars. Now, if we wanted to know the eq’m price for each factor we would just need to simultaneously solve for the eq’m in the output market and the two factor markets (a computational process the market does on its own).
Of course, that is kind of over kill for this discussion. And I know some forum goers don’t like math, but really I am just saying that there are two ways to think about the firms decision to hire labor (or any input). One way is profit maximization (the way UE is talking about it) and the second way is cost-minimization (the way I’m talking about it above). In the end, they wind up being the same thing.
Either way you slice it, I think UE makes a good point, but I think there are ways around the problem. And there are ways of dealing with that. At the very least it is something neoclassical economists have been thinking about.
I am still not exactly sure how Austrians would respond (though abskebabs has given me a better idea). But it looks conversation is slowing down and school will be starting back up soon so I just wanted to get my thoughts on UE’s criticism.
Hmmm it’s interesting you mention Friedman in this connection, though I think the difference between “demand” price and “supply” price is not the way to answer the question I posed above, but I can understand where you’re coming from with it w.r.t the question you originally posed (from UE), so I’ll try to deal with it first. The procedure sounds very similar to one of the cases Bohm Bawerk covers in his book on Value and Price in the chapter on complementary goods (pp.170-178 in the edition of Positive Theory of Capital on this site - I personally prefer the Hans Senholz translation). Bear in mind he calculates in value terms however.
I don’t see how the solution you propose would allow for a determinate price to be worked out between the amount paid for the taxicab and car drivers’ labour if these were factors specific to the above described production process, and hence could only be used to produce the taxi services worth whatever price they are. If either factor is even remotely converitble to other uses (as is definitely the case with labour overall), then the price offered for it would at least need to match what the marginal producer employing a different production process of a different value (though this could also be a taxi firm) can offer for the factor.
The example I gave is one that I think that better illustrates an interesting case where we have to think how MVP applies than the one UE gave. Due to the situation I described, you can think of it in terms of hypothetical scenarios to clearly get the answer:
Scenario 1: The stack of B wasn’t set on fire and no salesman arrived:
Then given the special paper can be employed with either of the machines to produce either a stack of A or a stack of B, but you already have your stack of B, so if we rank ordinally the best decision made:
Stack of B today => Stack of B tomorrow => sells for $300
Stack of Special Paper => Stack of A tomorrow => sells for $100
Total Revenue=$400
Scenario 2: Stack of B was set on fire but no salesman arrived:
The stack of special paper is a convertible factor, and thus diverted to its more important use:
Stack of Special Paper => Stack of B tomorrow => sells for $300
Total Revenue=$300
Scenario 3: We can thus see the marginal change in revenue dependent on ownership of B to Dunder Mifflin is only $100, the value of the lesser valued stack of A, inspite of the fact that B itself sells for a much higher price. Thus it would not make sense to pay more than $100 for stack B, and this extends the application of DMVP/DMU where products are reporducible from a common, convertible factor. in fact, I think the theorem probably extends in applicabillity beyond the limits BB and Reisman apply to it arbitrarily to “immediately reporducible” factors, though the proper exploration of this would open up a whole new can of worms. In any case, if he buys the stack of paper for <$100, e.g. $50, the situation is improved:
Stack of B purchased <= -$50
Stack of B today => Stack of B tomorrow => sells for $300
Stack of special paper today => Stack of A tomorrow => sells for $100
Total revenue= $350
Note also since the maximum price that would have been paid if the salesman offered a stack of special paper would have also been $100. Hence superficially, if one didn’t see or realise the lesser valued stack A, one could easily fall into believing a fallacious cost of production doctrine by observing these types of real life transactions. BB has much to say on this in his discussion of th law of Costs in Positive Theory of Capital and elsewhere.
I don’t see how the solution you propose would allow for a determinate price to be worked out between the amount paid for the taxicab and car drivers’ labour if these were factors specific to the above described production process, and hence could only be used to produce the taxi services worth whatever price they are. If either factor is even remotely converitble to other uses (as is definitely the case with labour overall), then the price offered for it would at least need to match what the marginal producer employing a different production process of a different value (though this could also be a taxi firm) can offer for the factor.
Well, what I was relating from the Friedman text was just how to come up with the derived demand for a production process with fixed proportions ( like 2 blades + 1 handle = 1 knife). In that case the derived demand for knife handles (or the most a knife company would be willing to pay for 1 handle) will be the difference between the price of a finished knife and the price of 2 blades (ignoring other factors of production).
However, you’re right that if we actually wanted to know the equilibrium price of handles we would have to take account of the supply function for handles (which should reflect the price that those handles would fetch if they were not used for making knives).
I will take a look at your new example later today. Gotta jet off to work right now.
I wanted to point out some information that might be useful in looking at this problem.
These comments come from Mises in Human Action Chapter 7 - Section 1 The Law of Marginal Utility
First for marginal utility to be relevant the units of a good must be subjectively homogenous:
So, the point is if they aren’t in fact homogenous you aren’t comparing the units with each other. Secondly, the point is that each unit is value differently. And that if one has ends that require the use of a unit of a good, then the value of that unit can only be derived from the subjective value of the end that it will serve as a means to produce. A second end to which it might be used, is necessarily less valued than the first end (or vice versa, one of the two ends is preferred), and the subjective value of a second unit of the same homogenous good would necessarily be derived from the less valued or second end.
The cab driver example is very obvious. The marginal utility of the second unit to that specific consumer of the service, is 0. Because the means has no lesser preference to which it could be put, this is a function of the effect of the cab service in reality. If it moves me elsewhere in space and time, then there will be no second end to which I could apply the second cab (at the same location). Note that the location in space and time do affect the cab. A cab across town, or a cab here later in the day has a different value to me, than the one in front of me right now.
Note, there may be a case where a single cab is not the unit. What if I’m moving my entire family (5 of us) to a location. Then two (3 passenger cabs) is the marginal unit for the satisfaction of his most preferred end, not one cab.
In the second example, “team production” is what would be referred to as a process. You rightly identify that the labor of a carpener and the labor of a plumber are not homogenous. They are not the same good. To the purchaser of these labor products, he must purchase all of them, or none of them. If he cannot purchase all of them, his goal, a finished house is not an attainable end.
So we see decline in subjective value for homogenous units on the demand side. We can expect that in the market we would see this decline as a finite price paid in the market unit for homogenous units of that good. We would see specific quantities purchased and these would not be homogenous, in that if one purchaser needed 8 hours of plumbing labor and the other needed 16 hours each would not value the “unit” purchased by the other. However, in purchasing the goods, because the market would act (through exchange) to compare the prices in terms of some homogenous unit, in this case a cost per hour.
On the supply side for plumbing labor, one assumes, since man does not work at all times and in all places, that there is a disutility to labor. A 24 hour day limits a man to producing 24 units of labor per day. However, man works less than 24 hours per day, there are other activities he prefers to do. Given the option man will provide less. Again in deciding how many units to offer in the market place, he does so at the margin. The man provides units of labor at the market price, until the quantity of money he can get for that next unit of labor is valued less than his ability to engage in other non-productive endeavors, leisure. Or in productive efforts that don’t return money to him.
In both cases, the elusive and hypothetical “equilibrium” price is set at the margin. Not because people buy homogenous units, but because in competing for specific quantities of goods and services in the market, the different subjective use-values are quantified into prices of homogenous units.
This is the logic of human action. This is, as I understand it part of the way in which Austrian economics explains how a market arrives at “market prices.” And why the margin insight by classical economics is correct, it was just formulated without respect to the proper categories present in human action in the real world.
Sorry, I should have been clearer, I completely understand what you’re getting at with the above, which is why I said it’s also one of the examples BB deals with. What i was puzzled by was what you seemed to be referring to regarding a solution to the problem when the prices of the other factors of production (e.g. the 2 blades) were not known and all factors were only specific to this particular production process. You alluded that Varian had a way of mathematically determining them in such a case even where you couldn’t already resort to factor prices (and it would only make sense for the other factors to have definite, non-arbitrary prices if theyw ere bidded for by other producers for different processes in the factor market in any case).
Hey guys, some great discussion here. I’ve been away so only just noticed it in my referrals.
I agree that the plumbing example was bad. If you build a house without plumbing, you’ve got a house without plumbing, rather than no house. Within the confines of that example I’d say a carpenter would work better, but the two men carrying a box is the clearest. Moshe Adler, in his book Economics for the Rest of Us, uses the example of Mcdonalds: you need somebody cooking the burgers, somebody taking the orders, and extra grills and tills to go with these people. If you take a McDonald’s team as a whole, it’s pretty hard to nail down individual productivity of inputs.
it sounded like he was using examples where there is no ability to replace one factor for another. Look at his taxi cab example. There is simply no opportunity to replace taxi cabs with people (I can keep buying cars, but unless they drive themselves, I wont be able to expand the quantity of taxi services i produce).
The point is the ability to replace a factor with another of the same type: a labourer with a labourer; a taxi with a taxi.
I’m surprised to see a level of agreement here as this is basically an argument for a minimum wage, which I’d guess Austrians aren’t all too keen on. Looking through, the only disagreements I’ve seen tend to rest on an implicit ‘the price is right’ premise, but this is pretty difficult to verify without circular reasoning as we generally have only prices to measure what is ‘right.’ And even if the price is justifiable by other means, it simply cannot reflect the marginal productivity of an input if the input has no marginal producivity alone.
And I don't know if the empirical work citied in Keen's book is better than what UE references on his blog, but so far the empirical papers UE has posted have not exactly blown me over.
Have you read [this paper?](http://web.usal.es/~bustillo/Curvadecoste1.pdf) For me it shows pretty convincing evidence that firms vary all inputs at once, which seems to corroborate with the argument I present.
There’s been disagreement with your premise if you read more carefully, but more than that, you are now making completely unwarranted inferences. Even if labour were a specific factor of production in the way you claim it is (and it isn’t), you leap from the alleged difficulty in determing DMVP in some instances to this being an argument for the minimum wage. Based on what? It would merely mean the purchaser of the services would be in a difficult position to accurately price them, not that being unable to do so would incine them to retain services that are now both more expensive and still difficult to evaluate.
It would be a specific factor of production if it were only serviceable to producing one kind of good (the most extreme case.) In that case Mises argues that bargaining is necessary to establish the contribution of the specific factor of production. “Labour” (i.e. the price at which humans sell their services) is the least specific of all the factors of production.
Moreover, the entire bloody point of MVP is to disaggregate and determine the contribution of each individual factor in producing the final good. If the MW goes up, the employer will still simply hire more productive, experienced workers, cut down on production until it becomes profitable again, shift it elsewhere (since the factors can be more fruitfully employed in other sectors of the economy) or simply not produce. Capital and land can both be shifted to other uses. Why would “combined productivity” be the sole consideration in determining whether or not to employ a factor of production in producing a good? I mean who is going to commit their capital or land to production when it can be put to other, more profitable uses?