Wealth Redistribution occurs in a free market. When people save and banks loan, or when people invest, they are redistributing wealth. It isn’t a matter of wealth redistribution that is the problem, rather how it’s done.
It was subsidized. Absent the subsidy, it would not have been profitable. The goods created with this subsidy would not have been created if capital was directed solely by the consumers. When I accuse you of neglecting the unseen, I don’t claim that you are not fully aware of it. Simply that you’re not following it through the entire problem, so your conclusion is inaccurate.
It is conceivable that there can be a rise relative to what?
You now contradict yourself. You said before that you are “measuring” the outcome after the confiscation with respect to the unseen (forgotten) outcome absent the confiscation. Can we assume a rise with respect to that? (No according to even you: X-X2)
How do we resolve this contradiction? Only by acknowledging that you are comparing the outcome to the previous state before the confiscation. At that point, you dropped the unseen like all economists do.
Then in that case, nothing the government does destroys capital. It is always capital forgone.
May I remind you that “real capital” is a nonsensical concept and we do not expect to actually see burning factories. “Forgone” is a false characterization of what is taking place. see below.
No and this is the most important point of this argument! The “forgone” ignores the causal element for the loss. Nothing was just forgone, so to speak. Like the concept of opportunity cost, it reveals nothing in this case, for things are being forgone on the free market always and everywhere.
If this loss (or negative productivity) was caused by some act of violence, how can this loss be anything but an act of destruction?
If the economist ignores cause, he is being negligent in his praxeology. This is not just semantics.
Then you must reject economics. Comparing to the hypothetical free market is precisely what you need to do when assessing the outcome of confiscation or any other violent intervention into the market. It is the only mental tool at our disposal. There is no economics without it. This is not only Mises 101, but it’s “Ch1: The Lesson”. Remember that one? There is no way you can make this argument of yours consistently without neglecting Bastiat’s forgotten unseen.
Danny, I’m sorry but this is objective value theory, purely and simply. I don’t want to elaborate on this because I know you’re a subjectivist and it’s for you to reevaluate your premises here and see if they are consistent with most everything else you are correct about.
It was subsidized. Absent the subsidy, it would not have been profitable. The goods created with this subsidy would not have been created if capital was directed solely by the consumers. When I accuse you of neglecting the unseen, I don’t claim that you are not fully aware of it. Simply that you’re not following it through the entire problem, so your conclusion is inaccurate.
Absent the subsidy, it’s not that it would not have been profitable, but that the given entrepreneur did not command sufficient capital to pursue the investment. There is a major difference between the concepts of unprofitability and inability. But, I’m still trying to figure out what ‘unseen’ I neglected, because so far it just seems that your conclusions have echoed those which you attempted to critique.
It is conceivable that there can be a rise relative to what?
For example, had the redistributed capital been directly consumed, as opposed to invested.
You now contradict yourself. You said before that you are “measuring” the outcome after the confiscation with respect to the unseen (forgotten) outcome absent the confiscation. Can we assume a rise with respect to that? (No according to even you: X-X2)
I actually haven’t contradicted myself. You simply haven’t understood the context I was expressing my point in. X-X2, in this case (since we are assuming that the capital was profitably invested), represents a net gain in productivity (as opposed to a loss in productivity, which would have been the case of malinvestment or direct capital consumption). This net gain in productivity, however, is less than it would have otherwise been had the capital been invested by the more efficient entrepreneur. My point has actually remained the same this entire discussion.
How do we resolve this contradiction? Only by acknowledging that you are comparing the outcome to the previous state before the confiscation. At that point, you dropped the unseen like all economists do.
This patently false and a mischaracterization of my position. You are, to put it bluntly, completely missing the point. My point, all along, has been as follows:
There exist Investor A and Investor B. Investor A is a better entrepreneur than Investor B, and commands a greater supply of capital thanks to his entrepreneurial abilities in the past. The government redistributes Z amount of capital from Investor A to Investor B. We assume that had Investor A invested Z amount of capital he would have produced X amount of goods. We assume that if Investor B successfully invests Z amount of capital he produces X2 amount of goods (to clarify it as a single variable, as opposed to the more confusing binominal X-X2). The loss to society — which I clearly referred to in the original post — is represented by X-X2. However, this is not a complete loss, as a complete would be represented by X-X, or capital consumption. Thus:
X > X2 > 0.
I have consistently argued this throughout the debate, so I am a bit surprised that you accuse me of contradicting myself.
Then in that case, nothing the government does destroys capital. It is always capital forgone.
This is a non-sequitor from the point I made. Not all type of government action entails capital consumption. Most direct government spending is capital consumption. Redistribution of wealth from the producer to the consumer represents capital consumption. Redistribution of wealth from producer to producer, however, is only capital consumption if the capital redistributed is malinvested.
Foregone production and capital consumption are two different concepts. One represents a partial loss of future production, and the other represents a loss both already produced goods and whatever future production was foregone.
May I remind you that “real capital” is a nonsensical concept and we do not expect to actually see burning factories.
I don’t know what this means, or how it is relevant to the discussion (or who, other than you, brought it up).
No and this is the most important point of this argument! The “forgone” ignores the causal element for the loss. Nothing was just forgone, so to speak. Like the concept of opportunity cost, it reveals nothing in this case, for things are being forgone on the free market always and everywhere.
If this loss (or negative productivity) was caused by some act of violence, how can this loss be anything but an act of destruction?
If the economist ignores cause, he is being negligent in his praxeology. This is not just semantics.
I’m not sure I understand your point. Yes, opportunity cost is always present, but nobody claimed otherwise. The difference in cases is that entrepreneurs can make bad investment decisions, and in our case the government is purposefully setting up the less efficient entrepreneur at the cost of the more efficient entrepreneur, and at the cost of whatever sector of society would have benefited from the productive activity of the more efficient entrepreneur. I have always expressed this as the case.
I’m sorry, but I just don’t see how your broader argument is relevant or important, or how it impacts my original post. There is a difference between forced wealth redistribution between investors and poor investment decisions, yes, but nobody claimed they were the same. My original post’s point was that that the effect of wealth redistribution was the loss of the more efficient producer’s foregone production.
Lyle,
When people make exchanges, they are redistributing goods, not wealth. If I manage to sell my wares, my wealth has increased, but the increase has not been dealt out to me from an already existing pile. The additional wealth didn’t exist before. It was newly created by the mutually advantageous exchange.
As Mises wrote
Now in the market economy this alleged dualism of two independent processes, that of production and that of distribution, does not exist. There is only one process going on. Goods are not first produced and then distributed. There is no such thing as an appropriation of portions out of a stock of ownerless goods. The products come into existence as somebody’s property. If one wants to distribute them, one must first confiscate them.
Danny,
So what you are saying is that savings is not an already existing pile of wealth, rather an already existing pile of goods and that savings only becomes wealth once an exchange is made, ie. loans. We can distribute goods, not wealth. Is this correct? If so, then the OP needs to retitle: Utilitarian Blocks against Goods (Re)Distribution.
This is why I sense the disagreement is over something more fundamental then just hair splitting semantics and definitions.
You make it sound is if the government is simply replacing a less able individual, (like a less competent engineer or slower machine) for a definite task that consumers have already demanded. And the less able individual will obviously produce less output. You are forgetting that we are talking about entrepreneurship and capital allocation. Not definite tasks. Diverting capital by force means producing something that would not have come into existence at the expense of something more urgent.
Again, because consumers have previously commanded that capital to where it was more urgently needed! Where it was higher on their value scale. Now it has been diverted for the production of things that consumers had rejected (or is deemed to be rejected if no confiscation takes place) and it matters not if the person in charge is the most able entrepreneur in the world. You really need to get this point.
This argument cannot be reduced to personal ability of individuals per se. This is absurd! Capital is being reallocated not according to the wishes ("votes) of the buying public but according to government whim. This is not about just selecting the most able people to run the shops. This is about what to produce. The transfer from productive to non-productive is by the very nature of the subsidy regardless of personal ability.
Even by this method of calculation and by your definitions, you must admit that the equivalent of capital consumption is taking place, for capital value is equal to its marginal value productivity and the MVP (actually DMVP) is lower ex post confiscation. It’s just that, if I understand you correctly, you refuse to consider capital that has not come into physical existence as destroyed or consumed. Is that right?
To assess the specific impact of any event on a given market, it doesn’t make sense to compare the that situation with a completely unhampered market and its complete upheaval of the data. It only makes sense to compare it to the same market, with all its imperfections, minus that one event.
The prime goal of Mengerian subjective value theory, since its initial formulation by Menger himself, as he tried to make sense of what he was seeing in real markets as a financial journalist, was to explain real prices as they actually occur in the real world. To comprehend the formation of the real price of steel, you have to include in your conception the entire demand for steel. This means you have to include in your conception M-16 manufacturers as purchasers of steel, and steel manufacturors producing partially to supply that market. So to understand the demand for steel, you have to understand the demand for M-16s. To understand the demand for M-16s you have to include in your conception governments as final customers on the market for M-16s. To understand prices, you have to trace demand to the consumer, the final customer. Unless the government in turn sells the M-16s to another customer, to understand the price of steel, you have to treat governments as consumers, who play a role as one of the ultimate factors of the real demand for steel. This is subjectivist price theory through and through.
Now I’d like to make a meta-point, because I think it’s important to consider. There seems to be a tendency in the distinctly Rothbardian school of economics to (subconsciously) treat economics, and science in general, as libertarian apologia. Rearing up at a redistribution beneficiary being termed a producer, denying the possibility of even fleeting free market monopoly prices (as in MES) or business cycles (as in AGD), Rothbard’s whole “private product remaining” doctrine (as in his Towards a Reconstruction of Welfare Economics), and (outside of economics), natural law doctrine. It all seems part and parcel of a general tendency to treat what Rothbard called “the science of liberty” as the queen of the sciences, as theology was once treated. If we (even subconsciously) sacrifice truth for liberty, we will discredit the latter in the eyes of most, and ultimately get neither.
This is the deniers of economics number one complaint about economics. It is rather absurd and Mises explodes this fallacious argument over and over again in HA, so after reading it so many times, you finally came to this realization?
You’re misconstruing the entire problem at hand. We’re talking about analyzing the effects of government intervention into the market. Not how prices are formed on a real hampered market, which is an entirely different problem.
There is no way to analyze the effect of a coercive intervention other then by comparing it to when no intervention is present. I cannot even believe that this is under dispute here. Do you also reject other mental tools such as the ERE?
This is totally irrelevant and frankly, very poor level of argumentation by you right now, as you seem to be resorting to such type diversions.
How can a tax consumer be also a tax payer?
Danny, allow me to readdress again in more clarity the following points:
How do you assess the specific impact of the broken window by an act of vandalism? According to you, it doesn’t make sense to compare this outcome with the alternative hypothetical case of no broken window (the unhampered case). Then what should I compare it to?
The conclusion of the broken window fallacy is that there is a net loss to society(although Bastiat originally concluded wrongly that there is just no net gain). Do you reject this conclusion?
Real producers - in the literate sense - are involved in producing war machines during a war, and later rebuilding what has been destroyed. And this production certainly takes a roll in the shaping of the price structure.
But is war productive in the economic sense?
How do you answer the above in the negative without resorting to a fictional mental state of affairs where no war took place, i.e., without resorting to the fictional unhampered market?
“Net tax payer” is not the distinguishing feature of a producer. The “libertarian caste analysis” Rothbard borrowed from John C. Calhoun and tried to insert into economics has nothing to do with the catallactic definition of producer. (btw, I don’t recall a single discussion of it in Mises’ works.)
It is indeed useful to use the imaginary construction of the completely unhampered economy to introduce solitary disturbances, when developing theoretical basics. But Sieben is asking about debating anti-capitalists. Anti-capitalists don’t propose to invade some unhampered economy and make things more “just” by attempting intervention there. They are proposing specific interventions here in the real world. You don’t answer them with, “But in libertopia…” You say, “no, even here in the real-world, hampered market, your proposed intervention will only hamper things more, and harm living standards, because the essential effect of any attempt to confiscate profits is to direct factors of production away from the entrepreneurs who have most successfully adjusted the structure of production to satisfy consumer desires, etc.”
It depends on what situation the broken window occurs in. With thought experiments, just as with observational experiments, you change as few variables at a time as possible. If you’re assessing the impact of a broken window in an otherwise unhampered economy, then you compare it to an unhampered economy. If you’re assessing the impact of a broken window in a more hampered economy, then you compare it to the same hampered economy minus the broken window.
The industry you are producing in does not have to be net productive for society (or even for the individual firm) for you to be termed a producer. You just have to produce something for sale.
How about this arguement from Hayek. The Rich in a free society are experimenters in living. They have the money to try new untested things. They can take a gamble on the Betamax or VHS, can commission that new style home with weird new architecture & can try somthing like an electric car despite its problems.
These experiments in living help develop & refine goods that then filter down into the mass market. In effect the rich support entrepreneurs on the cutting edge, and are themselves entrepreneurs in life practices.
Wealth redistribution from rich to poor retards this process of discovery eventually reducing options available to the common man.
See chapter 3 of the Constituiton of Liberty - The Common Sense of Progress
So in the context of the broken window, you would say that the glacier is a producer (which makes sense.
But DD5 would say that this still represents a net loss to society (which also makes sense).
I don’t really see the difference in opinion? What am I missing?
If you shift capital from a better to a worse entrepreneur, does this represent capital consumption or just less capital accumulation? I think it depends on ‘when’ you start looking at it. It obviously represents not as much capital as could have been produced in society. Also: at any given time capital has to be maintained and produced and redistributing to a less efficient producer therefore means that there is less capital production that otherwise would have been, which could be considered a net-disinvestment.
But one could also look at it from the perspective that the capital is not completely gone - it’s still being invested - so it’s ‘just’ less capital than otherwise could have been. I don’t really see any contradiction between these 2 statements, though?
But maybe I’m missing something. I probably am
Why is one good, while the other bad? If involuntary sex is bad, what makes it any different when it’s done voluntarily? It was still sex.
Why is one good, while the other bad? If involuntary sex is bad, what makes it any different when it’s done voluntarily? It was still sex.
Well, that’s kind of my point isn’t it. There is no objective way to define rape as bad. It’s a moral judgement. And it can still produce children, which gives it at least a modicum of productivity.
Remember, Seiben was asking about utilitarian arguments, not moral ones.
You make it sound is if the government is simply replacing a less able individual, (like a less competent engineer or slower machine) for a definite task that consumers have already demanded. And the less able individual will obviously produce less output. You are forgetting that we are talking about entrepreneurship and capital allocation. Not definite tasks. Diverting capital by force means producing something that would not have come into existence at the expense of something more urgent.
I never made the assumption of omniscience. I made the assumption that the less efficient entrepreneur is able to use the capital that was redistributed to him to meet consumer preferences with an investment (or in the future). If we were talking about omniscience then we wouldn’t have to talk about efficiency, because consumer preference would have already been known.
The urgency of a consumer good is decided by the consumer. In the specific case we’re discussing both entrepreneurs are forecasting consumer preference, and we assume that both consumers will meet it to some degree. We can’t a priori decide what good will satisfy the consumer the most; we have only made the assumption that investor B is less efficient (or a less able) entrepreneur than investor A. However that translates to when he produces the final product is how we decide the full effect of the redistribution. Investor B could have very well committed a malinvestment, or he could have invested capital along lines of production that produce less physical goods (even if these goods command high utility), or a good that commands lesser utility.
None of this changes, however, the accuracy of my first point, which is the loss that is suffered is represented b X-X2. I’m not trying to make it as if the loss can be measured; it’s just a mathematical model to show the general idea of the loss.
Again, because consumers have previously commanded that capital to where it was more urgently needed! Where it was higher on their value scale. Now it has been diverted for the production of things that consumers had rejected (or is deemed to be rejected if no confiscation takes place) and it matters not if the person in charge is the most able entrepreneur in the world. You really need to get this point.
The entrepreneur isn’t forecasting past demand, he is forecasting future demand, so how the entrepreneur earned his profit is a sign of his general efficacy as an entrepreneur, but doesn’t mean that if he continues producing the way he did in the past he will make the same profit. Mises makes this exact point in Human Action, where he writes that previously successful entrepreneurs tend to lobby governments to maintain profits, because they no longer want to put in the effort to forecast future demand.
You cannot say a priori that consumers will continue to want the same product that Investor A produced (you can’t even say a priori that Investor A was a better investor, we’re just making the assumption for the sake of argument). We assume that Investor A is a better entrepreneur because he can forecast consumer preference better than Investor B.
This argument cannot be reduced to personal ability of individuals per se. This is absurd! Capital is being reallocated not according to the wishes ("votes) of the buying public but according to government whim. This is not about just selecting the most able people to run the shops. This is about what to produce. The transfer from productive to non-productive is by the very nature of the subsidy regardless of personal ability.
But nobody said otherwise, and this has been my claim all along. From the very beginning the case has been that society has lost because their preferences are not satiated to the degree they would have been had the wealth redistribution never been made. You’re trying to turn it into something it’s not; everything else has already been said, and you are not adding anything new to the discussion.
By the way, the argument has everything to do with ‘personal ability’, because we’re talking about the ability of the entrepreneur to meet future consumer desires.
Even by this method of calculation and by your definitions, you must admit that the equivalent of capital consumption is taking place, for capital value is equal to its marginal value productivity and the MVP (actually DMVP) is lower ex post confiscation. It’s just that, if I understand you correctly, you refuse to consider capital that has not come into physical existence as destroyed or consumed. Is that right?
Please see a post of mine a few posts before your reply, where I say that the quantity X-X2 does represent a loss. The only point I made all along is that it does not represent (or doesn’t have to represent) a complete loss of the actual capital that was redistributed. You have been consistently misinterpreting my argument.
So in the context of the broken window, you would say that the glacier is a producer (which makes sense.
But DD5 would say that this still represents a net loss to society (which also makes sense).
If the window is destroyed then yes this represents a net loss even if there is production ‘on the side’. What this represents is WA (window A) being destroyed, and WB being produced to replace it. Where as prior to the destruction we would have had WA plus product X (which would have been produced using WB's factors of production), we now only have WB.
But, this isn’t the only form of use of redistributed capital. Not all wealth redistribution is directly consumed. It depends on the type of wealth redistribution being done. To categorize all types of government wealth redistribution as the same, and as having the same effect, is ridiculous.
Let’s change WA to factor of production A, or FA. This is redistributed from Investor A to Investor B. Investor A would have produced X with FA. Investor B instead produces X2, which we assume satiates consumer desires less than X. FA was not consumed in the sense that it was consumed for present satisfaction. It was simply used to produce something that is less valuable to the consumer, and so the loss to the consumer is represented by X-X2, however the consumer decides to quantify that (and you can’t quantify it, since value is ordinal, but it still exists).
But one could also look at it from the perspective that the capital is not completely gone - it’s still being invested - so it’s ‘just’ less capital than otherwise could have been. I don’t really see any contradiction between these 2 statements, though?
Me neither. This debate has been blown up to a degree it never had to go, because everything useful was already said.
Please see a post of mine a few posts before your reply, where I say that the quantity X-X2 does represent a loss. The only point I made all along is that it does not represent (or doesn’t have to represent) a complete loss of the actual capital that was redistributed. You have been consistently misinterpreting my argument.
And he’s on your side. You should try being me for a day on this site
Apparently, you have completely misunderstood the broken window fallacy. The repair of the broken window is also meeting consumer preference after it has been broken. The rebuilding of a post war city is also meeting consumer demand.
According to you, it is impossible to a priori decide what activity will satisfy the consumer the most. We can’'t a prior conclude that the broken window will always lead to a less efficient outcome, regardless of the entrepreneur entrusted with the task!
The position you are taking now is unbelievable and rather absurd. I would spoon feed you through your reasoning errors but you seem to be determined to hold your ground.
Yes, I know. Your conclusion is based on a logical contradiction, and this contradiction is the result of a logically incoherent treatment of the concept of outcome.
A “net loss” and “little gain” are logically contradictory outcome states.
An outcome cannot be both A and not A unless the terms and concepts are used inconsistently. This is precisely what you are doing: claiming that the outcome can be both a “net loss” and a “gain” at the same time.