Q&A with Dejavu : Focus - free enterprise, trade, mutualism, capitalism, etc.

[Dejavu]

I thought Yazman had a good idea about the technocracy movement so I thought I would shift the convo in this topic about market economies.

Since I used to be an anarchocapitalist and I still agree with much of the Austrian school tradition I thought I would have a unique insight on how several brands of market economics work ranging from free enterprise ( without capitalism) , mutualism ( in the tradition of Proudhon, Tucker , Spooner , market socialism ideas, etc.), trade ( free trade , protectionism, gift economy) , and capitalism ( what we all know and 'love' as it exists today , within this would be covered mercantilism, state and capitalism, anarchocapitalism, etc.)

On top of that I have a degree in Economics and can help explain mainstream economic models as pertains to current events.

Let's get this party started.

[GracchusBabeuf]

Some answers would be appreciated for the below:

In your opinion, how important is the marginal theory of value w.r.t. free market anarchist theory?

How do you account for the class structures within capitalist economies with marginalism? Is the presence of social class-relations w.r.t means of production acknowledged and can they be accounted for?

[Dejavu]

In your opinion, how important is the marginal theory of value w.r.t. free market anarchist theory?

Well another way of terming marginal utility is 'subjective theory of value.' That is that value is bestowed upon a thing by the people seeking to have the object. Marginal utility comes in when we ask ' how much is a person willing to spend to have X and how important is X to this person relative to other things they can consume with the same resources?'

This is what sets off the whole production process. Things are not produced willy-nilly but rather to meet the demands of consumers. This is why when you have a scarce amount of resources to throw in production you chose to produce certain things over others. You produce them according to their economic value which is bestowed by society and measured in terms of currency or money.

Its relation to markets is self-explanatory as the market encompasses the rate and quantity of how much these things are traded. Markets are the result of exchanges of value in other words.


How do you account for the class structures within capitalist economies with marginalism?

I don't think marginal utility has much do with the resulting class structures. Though I may have misunderstood your question. Even before marginal theory, classes have always been an element of society. Class structures have more to do with the consolidation of power in particular groups of people. The differences can be outlined with many factors such as 'noble blood,' tradition, caste system, economic disparity, etc.


Is the presence of social class-relations w.r.t means of production acknowledged and can they be accounted for?

Acknowledged by whom? I would say it is acknowledged to an extent by different people. Or else we would not have unions, workers' rights movement, etc. If I am misunderstanding the question perhaps you can phrase it a different way.

[GracchusBabeuf]

The differences can be outlined with many factors such as 'noble blood,' tradition, caste system, economic disparity, etc. No. By class structures, I mean the existing class structure w.r.t. ownership of means of production, i.e., a particular class owning the means of production while "allowing" another class to produce commodities using those means of production.

Marginalism: Noting that these class relations have only existed since the industrial revolution and even today, do not exist or exist in a different form in various feudal agricultural economies, doesn't the marginal utility theory assume a market in an industrial society where such a class structure exists?

General questions:Is such a class structure involving wage labor required in the market system you want to see?

Also do you consider communal ownership of the means of production incompatible with a market?

W.r.t. just the ownership of the means of production, which do you see as better: an economy based on class-based wage labor or classless collective use-based economy?


Acknowledged by whom? By you.

[Dejavu]

No. By class structures, I mean the existing class structure w.r.t. ownership of means of production, i.e., a particular class owning the means of production while "allowing" another class to produce commodities using those means of production.

Throughout history capital has been owned by various people that can be also described as belonging to a particular class. Certainly in America businessmen finance capital growth but in a place like North Korea the political elites of the state control all the capital instead of the business elites.

Of course today the distinctions are more blurred. Corporations are partitioned and owned by various people , including the a lot workers themselves that have stock, particularly retirement. A retirement stock is a long term investment over the revenue said capital is expected to generate. However that does not mean that everyone has equal control over the capital.


Marginalism: Noting that these class relations have only existed since the industrial revolution and even today, do not exist or exist in a different form in various feudal agricultural economies, doesn't the marginal utility theory assume a market in an industrial society where such a class structure exists? I don't really see what marginal utility has to do with class structures. Marginal utility does not directly regard the relationships of production. Marginal utility would be true in any economy since there are always people on the margins when it comes to consumption.


General questions:Is such a class structure involving wage labor required in the market system you want to see?No. Not required.


Also do you consider communal ownership of the means of production incompatible with a market?No, I consider it a perfectly valid option if that's what people in a free society want to do in their community.


W.r.t. just the ownership of the means of production, which do you see as better: an economy based on class-based wage labor or classless collective use-based economy?I don't like existing wage system. I think people ought to be compensated according to the product of their labor and not necessarily the labor itself. I don't see anything wrong morally with a collective use-based economy so long as its voluntary.

[Jack]

Who will build the roads?

More seriously: If someone loses their job and becomes homeless (for any reason), where are they to go with privitized infastructure and no home? They can't exactly sleep on the streets if they have to deposit 50 cents for every street they go to.

The same question (well, the roads part) applies to Mutualism.

2. How will private law be enforced?

[GracchusBabeuf]

Can you respond to these criticisms of marginal utlility (http://www.infoshop.org/faq/secC1.html#secc13)?

Neoclassical theory argues that marginal utility determines demand and price, i.e. the price of a good is dependent on the intensity of demand for the marginal unit consumed. This was in contrast to classic economics, which argued that price (exchange value) was regulated by the cost of production, ultimately the amount of labour used to create it. While realistic, this had the political drawback of implying that profit, rent and interest were the product of unpaid labour and so capitalism was exploitative. This conclusion was quickly seized upon by numerous critics of capitalism, including Proudhon and Marx. The rise of marginal utility theory meant that such critiques could be ignored.

However, this change was not unproblematic. The most obvious problem with it is that it leads to circular reasoning. Prices are supposed to measure the "marginal utility" of the commodity, yet consumers need to know the price first in order to evaluate how best to maximise their satisfaction. Hence it "obviously rest[s] on circular reasoning. Although it tries to explain prices, prices [are] necessary to explain marginal utility." [Paul Mattick, Economics, Politics and the Age of Inflation, p.58] In the end, as Jevons (one of the founders of the new economics) acknowledged, the price of a commodity is the only test we have of the utility of the commodity to the producer. Given that marginality utility was meant to explain those prices, the failure of the theory could not be more striking.

Also, a criticism of Austrian school (http://www.infoshop.org/faq/secC1.html#secc16).

[Havet]

I think your definitions are confusing.

Capitalism being "an economic system in which wealth, and the means of producing wealth, are privately owned, and that land, labor and capital are owned, operated and traded, without force or fraud, by private individuals either singly or jointly", then saying something like free enterprise (without capitalism) is sort of a contradiction.

You should also make a better distinction between capitalism, mixed economies and anarcho-capitalism, for semantics sake:)

[RGacky3]

What is the theory of land ownership, in otherwords, what is the philisophical justification of it?

[Dejavu]

Can you respond to these criticisms of marginal utlility (http://www.infoshop.org/faq/secC1.html#secc13)?

Neoclassical theory argues that marginal utility determines demand and price, i.e. the price of a good is dependent on the intensity of demand for the marginal unit consumed. This was in contrast to classic economics, which argued that price (exchange value) was regulated by the cost of production, ultimately the amount of labour used to create it. While realistic, this had the political drawback of implying that profit, rent and interest were the product of unpaid labour and so capitalism was exploitative. This conclusion was quickly seized upon by numerous critics of capitalism, including Proudhon and Marx. The rise of marginal utility theory meant that such critiques could be ignored.

However, this change was not unproblematic. The most obvious problem with it is that it leads to circular reasoning. Prices are supposed to measure the "marginal utility" of the commodity, yet consumers need to know the price first in order to evaluate how best to maximise their satisfaction. Hence it "obviously rest[s] on circular reasoning. Although it tries to explain prices, prices [are] necessary to explain marginal utility." [Paul Mattick, Economics, Politics and the Age of Inflation, p.58] In the end, as Jevons (one of the founders of the new economics) acknowledged, the price of a commodity is the only test we have of the utility of the commodity to the producer. Given that marginality utility was meant to explain those prices, the failure of the theory could not be more striking.

Also, a criticism of Austrian school (http://www.infoshop.org/faq/secC1.html#secc16).

Yes, I've responded numerous times on this forum about criticisms to marginal utility. I, myself , have a criticism of how marginal utility is referenced in economic models , particularly by those economists of the the neoclassical disciplines.

However, that does not mean that the price of things or their value is determined by the costs of production. The costs of production is only taken into account when calculating profit margin. But say something costs $5 bucks to produce and in order to make a profit I have to charge more than $5. How do I know what price to charge? Could be $5.50 , could be $10 or $100. That's where I have to make an estimation of what consumers are willing to trade for on the margin. Consequently, if I charge too much then people would buy less forcing the price to go down.

Such an economic analysis only focusing on production costs literally takes the consumer out of the loop suggesting all consumers will mechanistically respond to whatever price is determined by a mathematical equation only using production variables. People , however , simply don't operate that way and there is no such thing as clairvoyance.

Ask yourself, why is a coffee at a coffee shop in a booming metropolitan area typically more expensive to buy than a coffee in a less commercial area? Is the value of the coffee and coffee shop determined by its own production or by the sprawling activity of people around it? Why could we not say the marginal value of the coffee is higher in one area as opposed to the other?

socialist, I have a feeling we're going to keep on going back and forth about this because it is not really economics we are discussing. Ideologically one of us is tied to the notion of what economics ought to be rather than what it actually is.

You can still be socialist minded and accept marginal theory within economics, there is no inherent contradiction there since socialism is not specifically an economic theory , not even Marxists ( serious ones) posit socialist-marxist economics as a positive theory of economics ( rather a negative one to discredit capitalism.) This is part of the reason why Marx said himself " I'm not a Marxist" because serious marxists do not make a positive case for socialist economic theory.

On top of that, marginal theory has nothing to do with necessitating class divisions. It merely talks about individual value scales and how this effects economics collectively.

[Dejavu]

I think your definitions are confusing.

Capitalism being "an economic system in which wealth, and the means of producing wealth, are privately owned, and that land, labor and capital are owned, operated and traded, without force or fraud, by private individuals either singly or jointly", then saying something like free enterprise (without capitalism) is sort of a contradiction.

You should also make a better distinction between capitalism, mixed economies and anarcho-capitalism, for semantics sake:)

Yes but 'anarcho-capitalism' is quite vulgar. To some , capitalism might mean individual ownership of capital is allowed , or even encouraged, but on a larger scale capitalism is synonymous with mercantilist practice. You're not going to win the hearts and minds of any potential anarchists by positing capitalism as part of it. Capitalism is functionally a state enforced system and is quite contrary to anarchism. This also makes capitalism incompatible with free enterprise.

There is no reason to romanticize capitalism, especially if you're an anarchist.

[Dejavu]

What is the theory of land ownership, in otherwords, what is the philisophical justification of it?

Which theory of land ownership are you specifically referring to? Even socialists have a theory of land ownership ( all of it *must be* collectively owned)

[Dejavu]

I personally think most land is worthless. I'm talking about bare naked land that has no real development on it. Seriously, who's going to find value in dirt and rock?

Land becomes valuable when it is essentially 'capitalized' meaning the land is used for some enterprise or project including a house. Land could have 'potential value' but has no economic value till it is capitalized. When I buy a house I'm not purchasing the house for the sake of the lot or the dirt contained in the lot, I am buying it for the house that stands on the lot. Unfortunately, houses must use up land in order have a a foundation ( unless you're talking about seasteading or something) and there really is no way around this. It takes up space like you take up space standing where you are standing. If you have a house on a particular lot of land then it could be said that the land is yours even by use-occupancy theory. If you decide to build a garden or farm and it is tied to the value of your home ( i.e. a literal extension of your home) then I say its justified.

[Havet]

Yes but 'anarcho-capitalism' is quite vulgar. To some , capitalism might mean individual ownership of capital is allowed , or even encouraged, but on a larger scale capitalism is synonymous with mercantilist practice. You're not going to win the hearts and minds of any potential anarchists by positing capitalism as part of it. Capitalism is functionally a state enforced system and is quite contrary to anarchism. This also makes capitalism incompatible with free enterprise.

There is no reason to romanticize capitalism, especially if you're an anarchist.

ok, so you are defining capitalism as state-capitalism. By that logic, then it is quite contrary to anarchism. I don't get the incompatibility with free enterprise though, unless you mean that under "capitalism", the state would still have monopoly over money currency, law, defense and mail delivery:lol:, therefore not allowing for the actual "free enterprise" in those areas.

[Dejavu]

There is no reason to conflate capitalism with free enterprise. Marx coined the term capitalism and he was certainly speaking of state-enforced private capital.

[RGacky3]

Which theory of land ownership are you specifically referring to? Even socialists have a theory of land ownership

In otherwords how is landownership justified.

[GracchusBabeuf]

That's where I have to make an estimation of what consumers are willing to trade for on the margin. Consequently, if I charge too much then people would buy less forcing the price to go down.But doesn't such an approach assume that all consumers are the same? How do you know that poor people don't come to a coffee shop in a posh area? I think that by assuming that a single individual exists or that all individuals that exist are the same, the individualistic approach suffers from being not modeled on the real world, but on some fantastic and nonsensical Robinson Crusoe paradigm. Society is not just the sum of its individuals.



socialist, I have a feeling we're going to keep on going back and forth about this because it is not really economics we are discussing. Ideologically one of us is tied to the notion of what economics ought to be rather than what it actually is. Thanks for that clarification. I don't really see the LToV as an absolute alternative to marginal utility nor am I asking you to forgo marginalism and take up LToV. I'm not very qualified in economics to judge either of the approaches to a full, not that I can't use common sense :). For now, I'm skeptical of both and I think that economics is a bogus "science".

As to being "ideologically tied" to a particular economic theory, I don't know what you're talking about.


On top of that, marginal theory has nothing to do with necessitating class divisions.I agree. Its just a fantastical theory based on non-real situations.

[GracchusBabeuf]

Also, check this thread out (http://www.revleft.com/vb/non-mathematical-critique-t107965/index.html?t=107965).

[Dejavu]

A better question would be; how is land ownership not justified? I mean, let's suppose its not justified for anyone to own any land, then which people in particular in society can tell a homeowner that the land his house happens to be built on is not also his? In other words, if I have a house , and a front yard, can anyone just come and set up a picnic bbq on the front yard of my house?

[Dejavu]

But doesn't such an approach assume that all consumers are the same?

No, and that's kinda the point. There will almost always be consumers on the margins.


How do you know that poor people don't come to a coffee shop in a posh area?

What is the relevance of this question?



I think that by assuming that a single individual exists or that all individuals that exist are the same,

No, that is not individualism at all. I don't assume this. Individualism promotes the opposite. Each individual is unique to an extent and has her own value scales.



the individualistic approach suffers from being not modeled on the real world, but on some fantastic and nonsensical Robinson Crusoe paradigm. Society is not just the sum of its individuals.

I don't really know what you mean by individualist here. This is a new definition for individualism I've just seen you slap on.


Thanks for that clarification. I don't really see the LToV as an absolute alternative to marginal utility nor am I asking you to forgo marginalism and take up LToV.

Don't worry, I would gladly endorse the LToV if it actually was applicable to reality. I don't care about conclusions, only about sound methodology.


I'm not very qualified in economics to judge either of the approaches to a full, not that I can't use common sense :). For now, I'm skeptical of both and I think that economics is a bogus "science".

Don't worry, I've noticed economics is not your forte but that's ok. Not many people really get excited about economics and I would say that's because of the way it is taught to people today. Most of a person's life is economics but unfortunately again, the way it is taught does not connect with people as it should.

As far as economics being a science, I think there are some scientific applications ( gathering factual data) but the methodology of economics is , in my opinion, a 'social science' ( for lack of a better term and I don't believe 'social science' to be a hard science) I also happen to think economics is related to psychology in major ways.


As to being "ideologically tied" to a particular economic theory, I don't know what you're talking about.

Well, I could be wrong. Its just that before you gave me the impression that you are tied to only one way of thinking. I'll gladly stand corrected though.


I agree. Its just a fantastical theory based on non-real situations.

We disagree. I say methods of methodological holism ( see particular variants of the LToV) fall into this realm of non-reality.

[GracchusBabeuf]

No, that is not individualism at all. I don't assume this. Individualism promotes the opposite. Each individual is unique to an extent and has her own value scales. So, how can you you "know" each individual's value scales, which you admit are different from individual to individual, while calculating marginal utility?

I've noticed economics is not your forte but that's ok.It doesn't need to be. Economics is as valid a field of study as witchcraft IMHO.

Well, I could be wrong. Its just that before you gave me the impression that you are tied to only one way of thinking. I'll gladly stand corrected though. Clearly, as I said before, I reject both LToV and Marginalism.

Though I haven't read it, I think Debunking Economics (http://books.google.com/books?id=KdITT4ukfhoC&dq=debunking+economics&printsec=frontcover&source=bn&hl=en&ei=Y_3_SaK8AaeCtgPfub3yBQ&sa=X&oi=book_result&ct=result&resnum=7#PPR5,M1)by Steve Keen is a good book to read for a thorough debunking of economics, not to mention the anarchist FAQ in my sig below, for a great summary.

[apathy maybe]

Who will build the roads?

More seriously: If someone loses their job and becomes homeless (for any reason), where are they to go with privitized infastructure and no home? They can't exactly sleep on the streets if they have to deposit 50 cents for every street they go to.

The same question (well, the roads part) applies to Mutualism.

2. How will private law be enforced?

I can't answer for Dejavu, however, I can answer for myself.

I don't believe that everything would be privitised, because it simply wouldn't work. (The example you give is good, where will the homeless sleep.)

But, more to the point, privitised roads don't fit in the "usage as ownership" notion. A single person can't monopolise a road all the time, or even a significant majority of the time*. They also can't produce anything with it.

Thus, the community would build the roads (or, arrange for it to be done), as the community as a whole uses the roads.

There isn't anything in individualist anarchist theory that I know of that rejects community ownership of common goods.

*(A race track or similar is an example where one person can use a road to the exclusion of others, however, I assume we are talking public roads. Also, unless one person is driving on that track all the time, there is no reason, in my mind, why others couldn't use it when that one person isn't.)

A potentially useful thread for some people:
http://www.revleft.com/vb/defending-usage-conception-t51371/index.html

[RGacky3]

if I have a house , and a front yard, can anyone just come and set up a picnic bbq on the front yard of my house?

Why do you need ownership for use?

[Dejavu]

So, how can you you "know" each individual's value scales, which you admit are different from individual to individual, while calculating marginal utility?
It doesn't need to be. Economics is as valid a field of study as witchcraft IMHO.
Clearly, as I said before, I reject both LToV and Marginalism.

Though I haven't read it, I think Debunking Economics (http://books.google.com/books?id=KdITT4ukfhoC&dq=debunking+economics&printsec=frontcover&source=bn&hl=en&ei=Y_3_SaK8AaeCtgPfub3yBQ&sa=X&oi=book_result&ct=result&resnum=7#PPR5,M1)by Steve Keen is a good book to read for a thorough debunking of economics, not to mention the anarchist FAQ in my sig below, for a great summary.

The point is that you don't know. You can only make a reasonable guess. You begin to find out through a cost/benefit feedback though. If I want to make X, it requires me to invest certain resources in X , the cost is not being able to make Y instead with the same resources. Then I can determine that I have allocated resources efficiently. Why? Well I know the costs and I can compare X to Y. In a state governed project based on central planning, it is impossible to know the costs and thus there is nothing to compare whether what you are doing yields a net benefit or loss. Similarly, if people don't trade that much for X and the net cost is greater than the benefit, then I have inefficiently allocated resources and will end up losing even more unless I change the uses for those resources.

Actually, and I'm sure you agree with me, that since it is virtually impossible to know the value scales of each individual in society, central planning ( i.e. a few individuals pretending to know what is most highly valued by most) is far more nonsensical.

[Dejavu]

I can't answer for Dejavu, however, I can answer for myself.

I don't believe that everything would be privitised, because it simply wouldn't work. (The example you give is good, where will the homeless sleep.)

I don't think everything would be privatized either. Similarly, I don't think everything would be collectivized. People do not work this way to be on one total extreme or the other.


But, more to the point, privitised roads don't fit in the "usage as ownership" notion. A single person can't monopolise a road all the time, or even a significant majority of the time*. They also can't produce anything with it.Maybe. I don't don't think most roads will be privatized but that is not the same as a private road or personally owned road ( I think the term 'private' is way too loaded). I would be careful suggesting universal restrictions on ownership as rigid as only 'use and occupancy' without it even being clearly defined. If one speaks of an anarchist society then the more universal restrictions you lay down that means ( at least to me) that one can be inferring that such restrictions are both universally and legitimately enforceable. If one wishes to see all people observe a particular restriction in society then I don't see how that would not necessitate a governing body to 'oversee' that the restriction is being followed and hence, incompatible with just about every definition of anarchism I know of.


Thus, the community would build the roads (or, arrange for it to be done), as the community as a whole uses the roads.That is certainly an option and I think would be preferable in terms of thoroughfares connecting various community functions.


There isn't anything in individualist anarchist theory that I know of that rejects community ownership of common goods. Correct. I don't know of any individualist anarchists the explicitly reject common or personal property. Both are feasible.


*(A race track or similar is an example where one person can use a road to the exclusion of others, however, I assume we are talking public roads. Also, unless one person is driving on that track all the time, there is no reason, in my mind, why others couldn't use it when that one person isn't.)

A potentially useful thread for some people:
http://www.revleft.com/vb/defending-usage-conception-t51371/index.htmlAside from that, if a person builds a road for the purpose of public use using his own capital for the construction, I don't see why he would in his right mind exclude others from using it since that goes directly against his intended purpose.

That means he also has to bare the costs of exclusivity. So let say someone builds a long , pimped out road. Part of the costs of exclusivity is enforcing that. So as the ancaps would say, he 'pays an agency' to oversee his road. Well then, the road just becomes a huge , pointless liability. Why would anyone build anything for the express purpose of having that construction drain their own wealth? I just don't see people operating this way and plus, why could not the community or another individual build roads that would benefit society which people would use instead of the guy that wants an exclusive road? Then like an idiot , the guy that built the exclusive road is baring the total costs of a road lol. I wouldn't be angry at the guy , I'd laugh at him. But most people don't operate this way.

Edit: My main point is whether someone is externalizing costs with their ownership over something. If all costs are internalized (i.e. not forcefully externalized) then I see nothing morally wrong with ownership of something like a road or a baseball mitt. If one's ownership over a thing necessitates forced externalization of costs then I don't consider that ownership justified.

[Dejavu]

Why do you need ownership for use?

I don't know what else you would call it TBH? Can a person buy/sell her home including the front yard that is a part of it?

[GracchusBabeuf]

Combined with their analysis of the 'laws of supply', economists argue that that is how prices are set and should be set to maximise profit. Capitalists, unfortunately, have more sense than to listen to economists; one study showed that 95% of examined businesses did not set price where marginal cost equals marginal revenue (Eiteman and Guthrie, 1952) - that is the empirical worth of marginalism for you.
http://www.revleft.com/vb/showpost.php?p=1433108&postcount=23

These firms set price, not by passively reacting to the market, but by setting a price prior to sales, based on a markup on costs at a target rate of output. Means described these as ‘administered’ prices, with an essential feature of this system being that prices were set to maintain the long-term viability of the firm. This, and the underlying reality that per-unit costs fell as output levels rose, resulted in far more stable prices than were predicted by traditional economic theory (since if price was set by intersecting supply and demand curves, the ‘jiggling of the market’ as demand and supply curves ‘shifted’ should result in frequent price fluctuations). Means concluded that administered prices “differ so sharply from the behaviour to be expected from [neo]classical theory as to challenge the basic conclusions of that theory” (Means 1972).
http://www.debunkingeconomics.com/Value/Actual/Index.htm

In other words, almost all of the capitalists of today do not follow marginalism. Any analysis should begin with a descriptive of how the current system works. The descriptive part of a market theory (how current markets work) would ideally involve a survey of all business owners and managers to see how their businesses are managed by them. Clearly such surveys indicate that marginal utility is not used in price setting. So, marginal costs are not in fact used anywhere in most (95%) of the businesses. Thus, marginal theory falls flat on its face when it comes to descriptiveness.

As far as a prescriptive analysis (how markets should work) is concerned, if you haven't got the basics right: how the markets work currently, why should anybody listen to your prescription for how things should work?

[trivas7]

What is capital? (For the Marxist capital is the social relation involved in the self-expansion of value: the production, appropriation and accumulation of surplus value.)

Also, the era of the market economy is behind us, followed by that of commercial capital, industrial capital and financial capital. How do you respond to the notion that it is highly unlikely that we will ever see the era of the market economy again?

[RGacky3]

I don't know what else you would call it TBH? Can a person buy/sell her home including the front yard that is a part of it?

Do you need to own your toothbrush? How about your socks?

The only reason homeownership is nessesary in todays world is not because people are gonna break in and live in your house. its because of the Market value behind it and Investment potential, which is clearly a Capitalistic phenomenon.

But I want to know the justification for land ownership. You walk on a land and say from here to here is my land, and no one can do anything on it but me or with my permission. Where does the right to do that come from?

[Lynx]

The need for privacy compels us to make laws regarding the use of dwellings and attached property (land). Survey markers and fences are here to stay. Ownership could be replaced with "occupants' rights".

[Nwoye]

how would you address the general inefficiency of markets and the danger of market failures? particularly under a system lacking a central authority able to enact large scale changes and remedies in times of crisis.

[Havet]

how would you address the general inefficiency of markets and the danger of market failures? particularly under a system lacking a central authority able to enact large scale changes and remedies in times of crisis.

How would you prove that the so-called inneficiencies of the markets and the danger of market failures are a consequence of a completely free market in the first place?

[Nwoye]

How would you prove that the so-called inneficiencies of the markets and the danger of market failures are a consequence of a completely free market in the first place?
well the entire idea of a market equilibrium is inaccurate. it makes the massive assumptions that information is symmetrical in all instances, and that social good = personal good and social cost = personal cost. free market fundamentalists generally ignore both the external effects of market transactions, and the existence of systemic risk in highly developed markets. they also ignore the far from perfectly rational tendencies of human behavior, and how any economic developments can send mixed or unclear messages, making perfectly efficient investing or consumption impossible.

in short: "The reason the invisible hand often seems invisible is that it is not there."

[Havet]

well the entire idea of a market equilibrium is inaccurate. it makes the massive assumptions that information is symmetrical in all instances, and that social good = personal good and social cost = personal cost. free market fundamentalists generally ignore both the external effects of market transactions, and the existence of systemic risk in highly developed markets. they also ignore the far from perfectly rational tendencies of human behavior, and how any economic developments can send mixed or unclear messages, making perfectly efficient investing or consumption impossible.

in short: "The reason the invisible hand often seems invisible is that it is not there."

Information needs not be "symmetrical"-whatever the hell that means. Information is vital because it is where the actions of individuals are based. Maybe you are referring to cases where businesses might cheat to sell their products. But, if after they sell, it is clear that the product is bad or harmful, demand will lower and the company will go bankrupt unless they improve their product.

Rather than imposing on everyone a common goal, the free market allows people to supply for different individual self-interests. The cost is assumed by the investors and it is the consumer who decides if he wants to get the product or not.

You should also stop using "crutch" words such as "external effects" and "systemic risk". Just explain what you mean by those terms so it is easier to understand. By external efects i assume you are mentioning how effects of transactions that affect third parties, such as the negative effects of pollution are a failure of free markets. First define what is an externality. On this case particularly, it can be solved by private or communal ownership of those natural resources, so if a company pollutes and harms someone indirectly by polluting, the matter should be taken to court, or in the case of a completely free market, to private arbitration agencies (but that is another very long story).
Also, just remmembered, Externalities play a far greater role in institutions controlled by voting. If i invest time and energy in finding the right candidate, the benefit of that investment, if any, is spread evenly among 200 million people. That is an externality of 99.999995%. Unless it is obvious how i should vote, it is not worth the time and trouble to vote "intelligently", except on issues where i get a disproportinately large fraction of the benefit. Situations, in other words, where i am part of a special interest.

"they also ignore the far from perfectly rational tendencies of human behavior, and how any economic developments can send mixed or unclear messages, making perfectly efficient investing or consumption impossible."

If you assume that tendencies of human behavior are far from rational, then surely you do not advocate the current system where people VOTE and thus CONTROL what other people can do or not do. I mean, it is surely better for people to take their own money and decide by themselves, and only by themselves, what they want to do with that money, so long as they not prevent anyone from using their money as they wish. LIke I said, the free market allows for everyone "to go to hell in their own way", which means they can do what they want and buy what they want and do what they want so long as they do not go against the lives, liberty or property of others. In essence, if you want something, buy it.

[Nwoye]

Information needs not be "symmetrical"-whatever the hell that means. Information is vital because it is where the actions of individuals are based. Maybe you are referring to cases where businesses might cheat to sell their products. But, if after they sell, it is clear that the product is bad or harmful, demand will lower and the company will go bankrupt unless they improve their product.
information being symmetrical means being perfectly complete for both parties - this is impossible. when making an economic decision, i can never know the exact ramifications of that actions and of the product or service i may be purchasing. government regulation has helped a little bit on the demand side, but it has still not solved the problem entirely. likewise, insurance companies (or the like) can never know all of the information about me, and subsequently offer me the simple market clearing price for service even if i am a shitty driver or a chain smoker. in this case, if i get in multiple car crashes or if i contract lung cancer, the insurance company pays for it; which means every other buyer of that insurance company pays for it. asymmetric information leads to generally inefficient market outcomes.

http://en.wikipedia.org/wiki/Information_asymmetry
http://en.wikipedia.org/wiki/Adverse_selection


Rather than imposing on everyone a common goal, the free market allows people to supply for different individual self-interests. The cost is assumed by the investors and it is the consumer who decides if he wants to get the product or not. my analysis is a purely economic one. i am not addressing ethical or philosophical issues, and i have not proposed any totalitarian alternative to market economics.


You should also stop using "crutch" words such as "external effects" and "systemic risk". Just explain what you mean by those terms so it is easier to understand.systemic risk means "the risk of collapse for an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system."

basically if there is a collapse in one market (or cost push inflation or a monopoly), then it will affect numerous other markets. basically if a single market (the market for carrots for example) drifts away from "market equilibrium" for whatever reason, then that will have a negative effect on other markets and the economy as a whole. so when you make simplistic statements like "when there's too much supply, the demand readjusts" you're ignoring systemic risk.

and if you don't believe in systemic risk, how's the world economy doing right now? oh yeah how did that start?


By external efects i assume you are mentioning how effects of transactions that affect third parties, such as the negative effects of pollution are a failure of free markets.yeah pretty much.


First define what is an externality. On this case particularly, it can be solved by private or communal ownership of those natural resources, so if a company pollutes and harms someone indirectly by polluting, the matter should be taken to court, or in the case of a completely free market, to private arbitration agencies (but that is another very long story).1) it's not always that simple. you can't just "take someone to court" because they made bad business decisions and destroyed a financial market or because they're a smoker and they drive up health insurance. also, externalities can be positive.

2) in your example, now court costs have to be paid, and the victim loses the money for paying the defense agency and he loses the utility (time) from the whole ordeal.


If you assume that tendencies of human behavior are far from rational, then surely you do not advocate the current system where people VOTE and thus CONTROL what other people can do or not do.i don't really. do you deny that people do dumb things in the financial markets? and do you deny that these decisions have ramifications for those who weren't even a part of that decision?


I mean, it is surely better for people to take their own money and decide by themselves, and only by themselves, what they want to do with that money, so long as they not prevent anyone from using their money as they wish. LIke I said, the free market allows for everyone "to go to hell in their own way", which means they can do what they want and buy what they want and do what they want so long as they do not go against the lives, liberty or property of others. In essence, if you want something, buy it.it really isn't that simple. and by the way, i'm not arguing for totalitarianism here, i'm simply arguing that the efficiency of markets is generally overstated. markets free from regulation or safety nets in particular are very dangerous and unstable, and can lead to disastrous outcomes.

btw, so far you're only point has been a misguided argument for libertarian ethics. i'm simply arguing markets' efficiency from an analytical economic standpoint, not a theoretical or philosophical one.

[RGacky3]

The need for privacy compels us to make laws regarding the use of dwellings and attached property (land). Survey markers and fences are here to stay.

Why would privacy be a problem without land ownership rights? What senareo would make land rights neccesary for privacy?

[Havet]

information being symmetrical means being perfectly complete for both parties - this is impossible. when making an economic decision, i can never know the exact ramifications of that actions and of the product or service i may be purchasing. government regulation has helped a little bit on the demand side, but it has still not solved the problem entirely. likewise, insurance companies (or the like) can never know all of the information about me, and subsequently offer me the simple market clearing price for service even if i am a shitty driver or a chain smoker. in this case, if i get in multiple car crashes or if i contract lung cancer, the insurance company pays for it; which means every other buyer of that insurance company pays for it. asymmetric information leads to generally inefficient market outcomes.

http://en.wikipedia.org/wiki/Information_asymmetry
http://en.wikipedia.org/wiki/Adverse_selection

I think you are leaving an important part behind: Market "forces" that compensate for that information assymetry. Rating businesses, magazines, internet forums, websites, etc all can delivery very important information that can re-balance the amount of information a consumer gets before he decides to buy a product. And all of them can make a greater profit the more their information is accurate.


my analysis is a purely economic one. i am not addressing ethical or philosophical issues, and i have not proposed any totalitarian alternative to market economics. If your analysis is purely economic, then i take it you expect the best system to bring more wealth to everyone, raise the standard of living, education, health and freedom. So i think it is best to see how those things have been going over time, at a "largely free" market system.

Infant mortality USA (http://www.dshs.state.tx.us/CHS/VSTAT/imr/infant.gif)
Life expectancy at birth vs Income per person (http://graphs.gapminder.org/world/index.php#$majorMode=chart$is;shi=t;ly=2003;lb=f;i l=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts ;sp=6;ti=1838$zpv;v=0$inc_x;mmid=XCOORDS;iid=phAwc NAVuyj1jiMAkmq1iMg;by=ind$inc_y;mmid=YCOORDS;iid=p hAwcNAVuyj2tPLxKvvnNPA;by=ind$inc_s;uniValue=8.21; iid=phAwcNAVuyj0XOoBL_n5tAQ;by=ind$inc_c;uniValue= 255;gid=CATID0;by=grp$map_x;scale=log;dataMin=194; dataMax=96846$map_y;scale=lin;dataMin=23;dataMax=8 6$map_s;sma=49;smi=2.65$cd;bd=0$inds=i239_t001838, ,,,) (animated graph, choose date then press play)
Literacy rate per country (http://upload.wikimedia.org/wikipedia/commons/0/07/World_literacy_map_UNHD_2007_2008.png)
Educational attainment in the USA (http://upload.wikimedia.org/wikipedia/en/0/03/Educational_attainment.jpg)

Literacy rates and educational attainment can be argued that are not a result from the free market, which i partly agree, since the funding for public schools, which are mandatory, is through tax.


systemic risk means "the risk of collapse for an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system."

basically if there is a collapse in one market (or cost push inflation or a monopoly), then it will affect numerous other markets. basically if a single market (the market for carrots for example) drifts away from "market equilibrium" for whatever reason, then that will have a negative effect on other markets and the economy as a whole. so when you make simplistic statements like "when there's too much supply, the demand readjusts" you're ignoring systemic risk.

and if you don't believe in systemic risk, how's the world economy doing right now? oh yeah how did that start?I never intended to make simplistic statements as "when there's too much supply, demand readjusts". The truth is, when there is too much supply, prices go down in an attempt to increase demand.

And on the matter of the current crisis, i've adressed the issue here (http://www.revleft.com/vb/whats-current-obsession-t108634/index.html)


FACTS
-2000+: housing prices rose enormously
-Second quarter 2006: steep decline in prices
-Third quarter 2006: mortgage defaults shoot up
-mid 2007: financial system, which had heavily invested in securitized mortgages, began to collapse.
-Foreign economic systems, which had also bought many of these products began to experience unprecedented losses
-government bailouts, nationalizations, etc

can't post links yet, so look up graphs on the price evolution since 1980s to current days to see how it progressed

Mortgage Failures: Occurred in a strong economy and before housing prices have fallen signifficantly

foreclosures occured at same time and at the same pace in both prime and subprime markets.

Anyway, to what really matters:

Market Failure?

4 central causes of financial crisis (which have nothing to do with free market):
-Fiat money
-Low interest rates
-forced loans to high risk borrowers
-government loan guarantees

Fiat money: in 1971 us dollar was taken off the gold standard, which means the dollars isn't backed up by nothing except government saying so. you cannot redeem it by gold or silver like it was once, and is essentially a piece of paper.

Low interest rates:
high housing prices+ artificially low interest rates (by the Fed) = rampant speculation (25% of house purchases were for "flipping")

Forced loans: if you're a banker you are conservative to whom you lend money, because if that person doesn't pay back, your business WILL collapse. So why have these high risk lendings occured?

In 1934, after the great depression, government created the Federal Housing Administration, which guaranteed mortgages and thus eliminated the bank's risk for high risk lendings.

in 1938 Fannie Mae was created to purchase these mortgages

then in the 70s, you have the Community reinvestment act, which "is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining." This means they had to do business without taking into consideration of the geography, whether it was downtown, suburbs, etc

then you have the Home Mortgage Disclosure Act of 1975, where they had to reveal private information to whom they were lending this, and then the government would score that information on CRA compliance.

and in 1991 you have government requiring banks to submit racial statistics and then accusing banks of prejudice in case (and im in no way trying to collectivize people here) they were discriminating against blacks whom they thought might not be able to pay back the lending.

Anyway, how did the government force the banks to go by these new regulations?
"Liability for punitive damages can be as much as $10 000 in individual actions and the lesser of $500 000 or 1% of the creditors network in class actions"

So banks are no longer allowed to use credit history, ratios of income to mortgage payments, and have to accept "credit counseling" as proof of financial ability, as well as unverified income statements. They also have to accept gifts, welfare and unemployment benefits, and other one-time for short term "incomes" as collateral.

Speculation

As prices kept low, defaults stay low, because no one defaults when he can sell the house at a profit.
But as i've already explained, as soon as prices decline, defaults rise, and interest rates begin to increase, as well as variable mortgage payments.

When demand is artificially stimulated, resource allocators get the wrong price signals, and then labor and capital are invested in those sectors of housing and building.

I think this is a more detailed way of explaining how this happened instead of just saying: GREED CAUSED THIS, because if that were the case, wouldn't we be in perpetual crisis?
1) it's not always that simple. you can't just "take someone to court" because they made bad business decisions and destroyed a financial market or because they're a smoker and they drive up health insurance. also, externalities can be positive.

2) in your example, now court costs have to be paid, and the victim loses the money for paying the defense agency and he loses the utility (time) from the whole ordeal. 1)Trying to resolve a dispute peacefully is surely better than to use violence. If bad business decisions affect my life (health), liberty (condition my liberty, eg: enslavement) or property (damage my property) then it's ok? should they not at least pay the amount necessary to put me back in the condition before any harm was done to me?

If passive smoking is indeed harmful, then smokers can no longer smoke in areas where the smoke can harm people unwillingly. However, they could smoke in establishments that allowed smoking (instead of the current method where everywhere is forbidden to smoke).

2) in the latter example courts are not payed directly by victims, but by the protection agencies whom the people contracted with, which in turn had already contracted with the courts:

people->protection agency->courts

<the victim is only putting time and money into the effort so he/she can resolve the dispute which has either harmed his/her life, liberty or property. The victim pays the protection agency in the first place to protect him/her in situations like these.


i don't really. do you deny that people do dumb things in the financial markets? and do you deny that these decisions have ramifications for those who weren't even a part of that decision? People do dumb things everywhere. Markets prove a better way for not letting other people's stupid deccisions harm other people more, unlike the current voting system. Every decision has ramifications as well, so if a decision ends up affecting someone negatively, that person now has the right to be supplied with what is necessary for he/she to go back to the earlier state where the decision didn' affect her.

[Dejavu]

Why would privacy be a problem without land ownership rights? What senareo would make land rights neccesary for privacy?

Well in the case of a house , the land is 'owned' because of the house. The land is a necessary element to put the house on. Furthermore, nobody would really want the land without the commodity of value built upon it.

I think we can agree that a person should be able to restrict people from camping out on their front lawn. Furthermore, I don't see a problem with the house ( and the land its attached to) being sold or given to someone else by the owners of the home.

You don't have to call it ownership in the strictest or capitalist sense of the word but its really short hand for acknowledging the person that has the house may do what he pleases with it up to and including selling it.

[Nwoye]

I think you are leaving an important part behind: Market "forces" that compensate for that information assymetry. Rating businesses, magazines, internet forums, websites, etc all can delivery very important information that can re-balance the amount of information a consumer gets before he decides to buy a product. And all of them can make a greater profit the more their information is accurate.
but that's not how it works. information can be asymmetric on the supply side as well, for example in insurance companies. sure consumer awareness can increase information on the demand side, but it will never be perfect. because of this, completely efficient (pareto optimal) market transactions are impossible.


If your analysis is purely economic, then i take it you expect the best system to bring more wealth to everyone, raise the standard of living, education, health and freedom. So i think it is best to see how those things have been going over time, at a "largely free" market system.

Infant mortality USA (http://www.dshs.state.tx.us/CHS/VSTAT/imr/infant.gif)
Life expectancy at birth vs Income per person (http://graphs.gapminder.org/world/index.php#$majorMode=chart$is;shi=t;ly=2003;lb=f;i l=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts ;sp=6;ti=1838$zpv;v=0$inc_x;mmid=XCOORDS;iid=phAwc NAVuyj1jiMAkmq1iMg;by=ind$inc_y;mmid=YCOORDS;iid=p hAwcNAVuyj2tPLxKvvnNPA;by=ind$inc_s;uniValue=8.21; iid=phAwcNAVuyj0XOoBL_n5tAQ;by=ind$inc_c;uniValue= 255;gid=CATID0;by=grp$map_x;scale=log;dataMin=194; dataMax=96846$map_y;scale=lin;dataMin=23;dataMax=8 6$map_s;sma=49;smi=2.65$cd;bd=0$inds=i239_t001838, ,,,) (animated graph, choose date then press play)
Literacy rate per country (http://upload.wikimedia.org/wikipedia/commons/0/07/World_literacy_map_UNHD_2007_2008.png)
Educational attainment in the USA (http://upload.wikimedia.org/wikipedia/en/0/03/Educational_attainment.jpg)

Literacy rates and educational attainment can be argued that are not a result from the free market, which i partly agree, since the funding for public schools, which are mandatory, is through tax.
the united states is far from a free market country, and if you're trying to advocate markets, then i don't see why you're bringing up stats about education or healthcare, sectors with massive amounts of government regulation and intervention.

[Havet]

but that's not how it works. information can be asymmetric on the supply side as well, for example in insurance companies. sure consumer awareness can increase information on the demand side, but it will never be perfect. because of this, completely efficient (pareto optimal) market transactions are impossible.

Yes, it will never be completely efficient, but it approaches complete efficiency. And it is by far the best model that almost reaches complete efficiency.



the united states is far from a free market country, and if you're trying to advocate markets, then i don't see why you're bringing up stats about education or healthcare, sectors with massive amounts of government regulation and intervention.

well, i though i'd add them for perspective. good to know you recognize the US as a far from free country and with massive amount of government regulation and intervention in those areas, as well as others. the problem is there isn't a country free enough to get good data and education and healthcare. Perhaps switzerland. anyway, on the other areas, i believe you can agree the conditions have been improving.

[Nwoye]

Yes, it will never be completely efficient, but it approaches complete efficiency. And it is by far the best model that almost reaches complete efficiency.

i wouldn't say it even comes close to complete efficiency.

[Havet]

i wouldn't say it even comes close to complete efficiency.

well, seems to me a matter of semantics. How would you define complete efficiency? Also take into account other systems and their respective externalities.

[Nwoye]

well, seems to me a matter of semantics. How would you define complete efficiency? Also take into account other systems and their respective externalities.
well economists usually use the pareto scale of efficiency.

Given a set of alternative allocations of, say, goods or income for a set of individuals, a change from one allocation to another that can make at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is defined as Pareto efficient or Pareto optimal when no further Pareto improvements can be made. This is often called a strong Pareto optimum (SPO).

[Nwoye]

here's a wiki quote which applies to what we're talking about.

Under certain idealized conditions, it can be shown that a system of free markets will lead to a Pareto efficient outcome. This is called the first welfare theorem. It was first demonstrated mathematically by economists Kenneth Arrow and Gerard Debreu. However, the result does not rigorously establish welfare results for real economies because of the restrictive assumptions necessary for the proof (markets exist for all possible goods, all markets are in full equilibrium, markets are perfectly competitive, transaction costs are negligible, there must be no externalities, and market participants must have perfect information). Moreover, it has since been demonstrated mathematically that, in the absence of perfect competition or complete markets, outcomes will generically be Pareto inefficient (the Greenwald-Stiglitz Theorem).

[RGacky3]

You don't have to call it ownership in the strictest or capitalist sense of the word but its really short hand for acknowledging the person that has the house may do what he pleases with it up to and including selling it.

In a society without formal ownership of Capital and resources, what good would selling it be?