Monday, May 8, 2017

1. Capital in Binary Economics

Every now and then we consider a question from a new perspective, usually because someone asks us a question that we answer . . . and then stop and wonder why someone asked the question in the first place.
This is not because we object to questions.  As we’ve said many times before, we like getting honest questions — “honest question” being defined as a question someone asks because he or she actually wants an answer, not to deliver a disguised speech in the form of a fifteen minute question or carry out an attack covered up with a disingenuous, “I was only asking. . . .”
No, the reason we wonder why some people ask certain questions is because we’ve covered the material before (adequately, we thought), so how was it we didn’t seem to get the idea across?
There are both human and non-human factors of production.
We could, of course, just call anyone who asks such a question stupid, but that doesn’t really do anything to advance human knowledge.  It also deprives us of a chance to spout off about something. . . .
Recently we had someone ask, not in so many words, “What is capital?”  Our gut reaction was, “Didn’t we make that clear?”
In a manner, yes, but we failed to take into account that we forgot to qualify our answer by pointing out that other people use the word capital in other ways.  All we did was restate the definition in our “Just Third Way Glossary”:
Capital. In binary economics, all non-human factors of production, including land, plant and equipment, advanced technological tools, rentable space, physical infrastructure, and intangibles, such as patents, copyrights and advanced management systems.
Ordinarily, we do mention that, to a number of people, “capital” as a factor of production is limited to technology, that is, human artifacts.  This is only relevant when academic economists sneer and try to create a straw man by asserting that Louis Kelso’s breakthrough is limited to the less-than-astonishing realization that there are two factors of production, the human and the non-human.
"Look, guys, binary economics is simple, not simplistic."
This permits academic economists to snicker and say (quite correctly, if irrelevantly) that this is a difference that makes no difference.  No difference, that is, unless you’re a follower of classical economist David Ricardo, the communist Karl Marx, or the agrarian socialist Henry George, among others, who consider land a “cost free factor of production” or that human labor is the only productive factor — technology being a form of accumulated labor, leaving land out in the cold.
We’re sorry to upset the academic economists (in a pig’s eye we’re sorry), but binary economics is called binary economics not merely because the factors of production are limited to two.  If that were the case, the academic economists would be right, and Kelso relegated to the status of a simpleton who makes the great discovery that the sky is blue and the grass is green.
"Consumption is the sole end and purpose of all production."
The fact of the matter is that binary economics would still be binary economics, and Kelso’s theories would remain the same, if he had claimed there were not two, but two thousand factors of production, a thousand human, and a thousand non-human, or even a trillion or two of each.  It makes absolutely no difference how you break them down for the purpose of analysis, except that limiting the factors of production to two simplifies the job; it’s an abstraction to bring the vast concept of production and its factors down to human scale so it can be studied and discussed.
The term binary economics comes from the fact that Kelso’s binary theory is based in part on Say’s Law of Markets, which is itself is based on the binary observation that constitutes Adam Smith’s first principle of economics stated in his The Wealth of Nations (1776): “Consumption is the sole end and purpose of all production.”
"For every action there is an equal and opposite reaction."
Smith’s principle is sort of the economic equivalent of Isaac Newton’s "binary" third law of motion as stated in his Philosophiæ Naturalis Principia Mathematica (1687): Lex III: Actioni contrariam semper et æqualem esse reactionem: sive corporum duorum actiones in se mutuo semper esse æquales et in partes contrarias dirigi: “Law III: To every action there is always opposed an equal reaction: or the mutual actions of two bodies upon each other are always equal, and directed to contrary parts.”
Or, if you (like us) prefer,
For every action, there is an equal and opposite reaction.
In economic terms, then, and everything else being equal (or, if you groove on Latin, ceteris paribus), for every production there must be a consumption, and for every consumption there must be a production.  This is the binary relationship at the heart of (you guessed it) “binary economics.”
Combining all non-human factors of production together as “capital,” while not essential to maintain the validity of Kelso’s theory, does make analysis neater and simpler.  It also reinforces what is essential: that one of the keys to maintaining a just economy that works for everyone is to have production and consumption in balance, that is, "binary."
The question then becomes how this can be done.

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