The binary production of wealth.
The goods and services exchanged for money on the market are destined to one of two usages. In one case their value is transmitted or enhanced and will return to the market to be exchanged again, in which case they are investments. Alternatively their value is neither transmitted nor enhanced, and they are consumed in one go or piecemeal. During successive stages of the production process value is added to value, the value of machines and buildings, of energy, transport and additional labour, step by step until the final product is consumed. The raw materials (animal, vegetable, and mineral) extracted from nature become investments. They are the means of production used by labour to create value. Some investments transmit their value (e.g. machine-tools) and some will acquire more value (e.g. an iron ingot). And so value accumulates through the various stages of production, and all the added value is contained in the value to be consumed.
The production of goods and services is a progressive adding of value. The value of present labour joins the value of past labour contained in the means of production. The value to be consumed is the sum of past labour and present labour, of investments at their final stage and of the ultimate added value of labour. But, if present investments are a produce of the past, then future investments are a produce of the present. And the present value added for future investments coincides with the past added value of present investments that, along with the added value of present labour, will make up the value to be consumed.
Supposing production is broken down into three stages of equal duration, concerning respectively raw materials, intermediary products and consumer products. If each stage adds a value of 100, the value to be consumed during each time span is 300, and the value added by labour in one time span is also 300, because all three productions are going on at the same time.
The past labour of present investments equals the present labour of future investments, unless there is growth. The past labour of investments contained in the value to be consumed equals the present labour of future investments, unless investments are on the increase. So that growth, considered the be all and end all of political and corporate strategies, of budgets and markets, is in fact a disturbing process.
Growth necessarily begins with investments. The present labour that is producing future investments adds more value than did the past labour of present investments. So that the value added exceeds the value to be consumed.
The value to be consumed is 300, but the fist stage increases the value it adds to 110. Then the second stage increases its added value by 10, and finally the third stage follows suite. It is only then that the value to be consumed increases to 330.
When growth is continuous, the value added by labour is always in excess of the value to be consumed. The investments that are being produced have more value than those of the past whose value is being consumed.
Once the process has been primed, the added value that is in excess of the value to be consumed can be invested to maintain growth. However, if a rate of expansion (+10%) is expected instead of an incremental one (+10), then the excess added value is insufficient and must be supplemented (1). The other inconvenience is that, though labour increases in quantity and intensity, as does the value to be consumed, labour never gets to consume all the value it adds. There is a constant lag between the two. Labour adds more value than there is to consume and is dispossessed of this value, which increases the means of production and fuels growth. The excess added value increases the value of property and lays claim to more of the value to be consumed.
Growth increases the incomes of property and allows them to be saved and invested instead of being spent. This diversion of value supplements the excess added value that is invested, and maintains or increases the growth rate. But it also results in an insufficient demand for the value to be consumed. A problem that is resolved by foreign trade, when consumption is exported and investments are imported. Consumption is exchanged for investments on the world market, thereby perpetuating the production cycle. Value is added to value in an endless process, as the destruction of value by consumption takes place elsewhere. This process allows nations to industrialise and accumulate wealth, but it is devastating for their commercial partners who export investments and import consumption. Instead of adding more value than they consume and investing the difference, they must consume more value than they add and borrow the difference. Fair trade is not just value for value. It is also investment for investment and consumption for consumption. Taking a nation’s minerals in exchange for consumer goods puts that nation out of work, and plunges most of its population into poverty. Any nation that exports investments (outsourcing production is an export of investments) and imports consumption reduces the value added by its national labour. And, though individuals and corporations enrich themselves, the nation as a whole is impoverished.
Growth needs an investment of value over and above the excess added value, both as a primer to get started and as a supplement to sustain the growth rate. Growth also needs a constant increase in the means of payment, so as to exchange all that supplementary value. Monetary creation is a necessary part of economic growth. If it was used to increase investments, it would suffice as a primer and a supplement. In which case all incomes would have to be consumed, and those unable to consume all their income would have to give away the excess in a distributive potlatch. Unfortunately this simple solution leaves unsolved two major problems. Who creates the money and who owns the investments?
Minting and printing money is, and always has been, a governmental prerogative. And the proportion of material money, of currency, the stuff people try to counterfeit, is fairly constant in developed nations at less than 10% of the money supply (USA: 5-7%)(2). What has changed over the past fifty years is the usage of banknotes. Plastic cards have largely replaced them as means of payment. It might not be exaggerated to say that they are reduced to the role of banking reserves, and the payments of criminal, covert and moonlight activities, though some nations (e.g. the Germans) still prefer the wad to the glint of platinum and gold. Payments are essentially credit and debit, and credit is granted by banks. So that monetary creation is essentially controlled by the banking system. That is by private, profit making entities subjected to no political control other than a few rules and a ratio agreed on in Basle. Banks have the quasi monopoly of payments and they decide the usage of monetary creation. They decide where this supplement of value is used, as well as what is being paid for. However, banking privileges do not make them omnipotent. They are, after all, just the servants of property. They obey the orders of ownership.
The property of the means of production uses the excess added value to increase its domains and its incomes. Incomes are also used to increase investments, thereby upsetting the balance of consumer supply and demand, and excluding the investment of monetary creation. Being unable to invest their created money, banks are obliged to use it to restore balance on the consumer market. Instead of increasing the money supply by lending to corporations, banks do it by granting mortgages and consumer credit. Property increases its sway by investing the incomes it does not consume, while banks do their best to maintain a balanced market. But the process is doomed to failure.
By definition, invested value returns to the market and gets its value back, plus a share of incomes in the forms of dividends, interest, rent, or copy and patent rights. The returned value of investments allows their regular renewals. Invested goods and services are renewed frequently, infrastructures are more long lasting (unless they are built at the end of a technological cycle), and land just stays (though industrial and environmental desertification can make it valueless). So that, except for catastrophes such as bankruptcies and earthquakes, an investment starts off a process of perpetual renewal. Whereas consumed value is literally used up (consumere in Latin). It is destroyed and must be created again from scratch. Consumption does not return value, so that the value of its renewal is the added value of incomes.
If monetary creations are invested, the increased investment perpetuates itself and the new money stays in circulation. Or rather, banks being what they are, the value is returned with interest and is borrowed again. A growth in investments, once it is primed, maintains itself. Whereas if monetary creations are consumed, the increased consumption cannot maintain itself as its value is used up. No value is returned to be borrowed again, so that borrowing again only returns the value without maintaining the increased consumption.
Borrowing for consumption increases disposable incomes and paying back reduces them, so that renewed borrowing does neither, and incomes are back where they started. However, interest will reduce disposable incomes if it is not paid for with increased borrowing.
Supposing borrowing increases demand for consumption from 100 to 110.
If demand is to go on growing, the next round of borrowing will need 10 (neglecting interest) to pay back the previous debt, 10 to maintain previous growth, and 10 for new growth. Demand grows by 10 at every time span, but debt grows much faster.
Then supposing borrowing increases demand for investments from 100 to 110.
If demand is to go on growing, the next round of borrowing will need 10 to maintain previous growth and 10 for new growth. The previous debt (neglecting interest) is paid back when the invested value returns to the market.
Increasing demand for consumption with monetary creation and debt is a highly expansive process that quickly gets out of hand. And, as public spending both civil and military is essentially consumption, this also applies to budget deficits and government debts. Whereas if monetary creation increases demand for investment, and if banking costs replace interest, the growth curves of demand and debt run parallel. However, an obstacle remains, that of the private property of the means of production, that of excess added value and its supplement as private investments. Handing over property to the banks is not a solution. They are, after all, just providing a service by creating money and organising its circulation. No doubt this needs a highly skilled work force, but then so does the production and distribution of electricity. The state as sole proprietor is a confusion of functions that has always led to absolutism. The state funds its spending by raising taxes, and its incomes do not need to be justified by property. And accepting or refusing taxes has, throughout history, been the best prevention against the abuse of power. Anyway the state influences production sufficiently by legislation and procurement. Therefore, the only remaining candidates for the property of the means of production are those who actually use them. Labour’s ownership of the means of production seems the only alternative to periodic financial and economic chaos, and to social unrest and widespread misery.
(1) Growth rate of 10%, to the nearest whole number.
Over time, the supplement stabilises at around 7% of the excess added value.
(2) http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2.svg
The production of goods and services is a progressive adding of value. The value of present labour joins the value of past labour contained in the means of production. The value to be consumed is the sum of past labour and present labour, of investments at their final stage and of the ultimate added value of labour. But, if present investments are a produce of the past, then future investments are a produce of the present. And the present value added for future investments coincides with the past added value of present investments that, along with the added value of present labour, will make up the value to be consumed.
Supposing production is broken down into three stages of equal duration, concerning respectively raw materials, intermediary products and consumer products. If each stage adds a value of 100, the value to be consumed during each time span is 300, and the value added by labour in one time span is also 300, because all three productions are going on at the same time.
The past labour of present investments equals the present labour of future investments, unless there is growth. The past labour of investments contained in the value to be consumed equals the present labour of future investments, unless investments are on the increase. So that growth, considered the be all and end all of political and corporate strategies, of budgets and markets, is in fact a disturbing process.
Growth necessarily begins with investments. The present labour that is producing future investments adds more value than did the past labour of present investments. So that the value added exceeds the value to be consumed.
The value to be consumed is 300, but the fist stage increases the value it adds to 110. Then the second stage increases its added value by 10, and finally the third stage follows suite. It is only then that the value to be consumed increases to 330.
When growth is continuous, the value added by labour is always in excess of the value to be consumed. The investments that are being produced have more value than those of the past whose value is being consumed.
Once the process has been primed, the added value that is in excess of the value to be consumed can be invested to maintain growth. However, if a rate of expansion (+10%) is expected instead of an incremental one (+10), then the excess added value is insufficient and must be supplemented (1). The other inconvenience is that, though labour increases in quantity and intensity, as does the value to be consumed, labour never gets to consume all the value it adds. There is a constant lag between the two. Labour adds more value than there is to consume and is dispossessed of this value, which increases the means of production and fuels growth. The excess added value increases the value of property and lays claim to more of the value to be consumed.Growth increases the incomes of property and allows them to be saved and invested instead of being spent. This diversion of value supplements the excess added value that is invested, and maintains or increases the growth rate. But it also results in an insufficient demand for the value to be consumed. A problem that is resolved by foreign trade, when consumption is exported and investments are imported. Consumption is exchanged for investments on the world market, thereby perpetuating the production cycle. Value is added to value in an endless process, as the destruction of value by consumption takes place elsewhere. This process allows nations to industrialise and accumulate wealth, but it is devastating for their commercial partners who export investments and import consumption. Instead of adding more value than they consume and investing the difference, they must consume more value than they add and borrow the difference. Fair trade is not just value for value. It is also investment for investment and consumption for consumption. Taking a nation’s minerals in exchange for consumer goods puts that nation out of work, and plunges most of its population into poverty. Any nation that exports investments (outsourcing production is an export of investments) and imports consumption reduces the value added by its national labour. And, though individuals and corporations enrich themselves, the nation as a whole is impoverished.
Growth needs an investment of value over and above the excess added value, both as a primer to get started and as a supplement to sustain the growth rate. Growth also needs a constant increase in the means of payment, so as to exchange all that supplementary value. Monetary creation is a necessary part of economic growth. If it was used to increase investments, it would suffice as a primer and a supplement. In which case all incomes would have to be consumed, and those unable to consume all their income would have to give away the excess in a distributive potlatch. Unfortunately this simple solution leaves unsolved two major problems. Who creates the money and who owns the investments?
Minting and printing money is, and always has been, a governmental prerogative. And the proportion of material money, of currency, the stuff people try to counterfeit, is fairly constant in developed nations at less than 10% of the money supply (USA: 5-7%)(2). What has changed over the past fifty years is the usage of banknotes. Plastic cards have largely replaced them as means of payment. It might not be exaggerated to say that they are reduced to the role of banking reserves, and the payments of criminal, covert and moonlight activities, though some nations (e.g. the Germans) still prefer the wad to the glint of platinum and gold. Payments are essentially credit and debit, and credit is granted by banks. So that monetary creation is essentially controlled by the banking system. That is by private, profit making entities subjected to no political control other than a few rules and a ratio agreed on in Basle. Banks have the quasi monopoly of payments and they decide the usage of monetary creation. They decide where this supplement of value is used, as well as what is being paid for. However, banking privileges do not make them omnipotent. They are, after all, just the servants of property. They obey the orders of ownership.
The property of the means of production uses the excess added value to increase its domains and its incomes. Incomes are also used to increase investments, thereby upsetting the balance of consumer supply and demand, and excluding the investment of monetary creation. Being unable to invest their created money, banks are obliged to use it to restore balance on the consumer market. Instead of increasing the money supply by lending to corporations, banks do it by granting mortgages and consumer credit. Property increases its sway by investing the incomes it does not consume, while banks do their best to maintain a balanced market. But the process is doomed to failure.
By definition, invested value returns to the market and gets its value back, plus a share of incomes in the forms of dividends, interest, rent, or copy and patent rights. The returned value of investments allows their regular renewals. Invested goods and services are renewed frequently, infrastructures are more long lasting (unless they are built at the end of a technological cycle), and land just stays (though industrial and environmental desertification can make it valueless). So that, except for catastrophes such as bankruptcies and earthquakes, an investment starts off a process of perpetual renewal. Whereas consumed value is literally used up (consumere in Latin). It is destroyed and must be created again from scratch. Consumption does not return value, so that the value of its renewal is the added value of incomes.
If monetary creations are invested, the increased investment perpetuates itself and the new money stays in circulation. Or rather, banks being what they are, the value is returned with interest and is borrowed again. A growth in investments, once it is primed, maintains itself. Whereas if monetary creations are consumed, the increased consumption cannot maintain itself as its value is used up. No value is returned to be borrowed again, so that borrowing again only returns the value without maintaining the increased consumption.
Borrowing for consumption increases disposable incomes and paying back reduces them, so that renewed borrowing does neither, and incomes are back where they started. However, interest will reduce disposable incomes if it is not paid for with increased borrowing.
Supposing borrowing increases demand for consumption from 100 to 110.
If demand is to go on growing, the next round of borrowing will need 10 (neglecting interest) to pay back the previous debt, 10 to maintain previous growth, and 10 for new growth. Demand grows by 10 at every time span, but debt grows much faster.
Then supposing borrowing increases demand for investments from 100 to 110.If demand is to go on growing, the next round of borrowing will need 10 to maintain previous growth and 10 for new growth. The previous debt (neglecting interest) is paid back when the invested value returns to the market.
Increasing demand for consumption with monetary creation and debt is a highly expansive process that quickly gets out of hand. And, as public spending both civil and military is essentially consumption, this also applies to budget deficits and government debts. Whereas if monetary creation increases demand for investment, and if banking costs replace interest, the growth curves of demand and debt run parallel. However, an obstacle remains, that of the private property of the means of production, that of excess added value and its supplement as private investments. Handing over property to the banks is not a solution. They are, after all, just providing a service by creating money and organising its circulation. No doubt this needs a highly skilled work force, but then so does the production and distribution of electricity. The state as sole proprietor is a confusion of functions that has always led to absolutism. The state funds its spending by raising taxes, and its incomes do not need to be justified by property. And accepting or refusing taxes has, throughout history, been the best prevention against the abuse of power. Anyway the state influences production sufficiently by legislation and procurement. Therefore, the only remaining candidates for the property of the means of production are those who actually use them. Labour’s ownership of the means of production seems the only alternative to periodic financial and economic chaos, and to social unrest and widespread misery.
(1) Growth rate of 10%, to the nearest whole number.
Over time, the supplement stabilises at around 7% of the excess added value.
(2) http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2.svg
posted by le Lézard at 1:07 AM
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