Economic Paradox

[Comrade-Z]

This hypothetical scenario has me confused.

10,000 capitalists start out with $400 million in capital altogether, employing 10 million workers as a whole (1,000 workers each), produce 100 million t-shirts in the span of a day. The capitalists all pay their workers the same wage--$60 per day ($7.50 per hour, 8 hours). Altogether, the workers have been paid $600 million dollars after the day is done. How much will the 10,000 capitalists, as a whole, be able to sell their t-shirts for? $600 million, right? If they try selling the t-shirts for $1,200 million, then every two workers will have to pool their funds to buy one t-shirt, and only half of the t-shirts will end up getting sold, still earning $600 million for the capitalists. But this is exactly what they paid out in wages in the first place! They haven't accrued a dime.

But wait! They charge $1,000 million for their t-shirts, but they advance $400 million in credit to their workers (depleting their capital stocks to zero), on top of the $600 million in wages. So now the workers have enough money to buy all of the t-shirts, but they are now $400 million in debt. Meanwhile the capitalists have gotten $1,000 million, $600 million of which covers the wages they paid out, and $400 million in capital to re-invest--but that's just what they had before! The scenario is now exactly the same, except the workers are now $400 million in debt, in an even worse position to buy up the products that the capitalists produce in the future. One could continue this thought experiment along many more iterations, but you can see where this is going. Eventually the workers are going to default, and the capitalists are going to be no better off than before.

My question is, how does the international capitalist class in the real world avoid a scenario like this? How do they make sure that workers somewhere have enough money to buy the stuff that they are selling, so that the capitalists can realize their potential profits?

[MKS]

My question is, how does the international capitalist class in the real world avoid a scenario like this? How do they make sure that workers somewhere have enough money to buy the stuff that they are selling, so that the capitalists can realize their potential profits?

The key is to ensure that there is a market of consumers that are willing and able to buy your product. Sure some workers cannot afford the product, but there should be a pool of better off workers and citizens who are willing and able to buy the product. Also one must take into account the practice of the mark-up, selling a product for more than its actual worth. Obviously a t-shirt is not worth $15, with labour, shipping and tariff, it is probably actually worth $5 sometimes less, and however the manufacturer and retailer mark-up the product in order to garner a greater profit. Marketing also comes into play, while a name brand t-shirt could be sold for almost double the actual worth. Another factor is the movement of the market, something that is almost outside the realm of control by the individual capitalist, and is influenced by various other factors (i.e. resources, political circumstances, worker strikes and labour shortages, trade restrictions etc.)

The scenario you built does not follow real-world models and examples of Market Capitalism. Real world models have proven that the Capitalist utilizes a minimum cost for a maximum profit (basic economics), thus the preponderance of exploitation within the Capitalist system
.

[Comrade-Z]

The key is to ensure that there is a market of consumers that are willing and able to buy your product.

But in order to do that, you need to pay those consumers wages so that they have money with which to do that. But then those consumers simply end up giving the same amount of money back, no?


Also one must take into account the practice of the mark-up, selling a product for more than its actual worth. Obviously a t-shirt is not worth $15, with labour, shipping and tariff, it is probably actually worth $5 sometimes less, and however the manufacturer and retailer mark-up the product in order to garner a greater profit.

But if a capitalist is going to mark things up x3, then the workers must be paid x3 wages in order to afford that marked up merchandise.

You see, I don't think any of these rebuttals address the true dilemma:

Workers only have as much money as are paid to them by capitalists, yes? Therefore, workers only have as much purchasing power as is paid to them by capitalists, yes? Therefore, workers can only give back to the capitalists so much money as is given to them in the first place. So how to capitalists ever accumulate extra money?

[MKS]

But if a capitalist is going to mark things up x3, then the workers must be paid x3 wages in order to afford that marked up merchandise.

You see, I don't think any of these rebuttals address the true dilemma:

Workers only have as much money as are paid to them by capitalists, yes? Therefore, workers only have as much purchasing power as is paid to them by capitalists, yes? Therefore, workers can only give back to the capitalists so much money as is given to them in the first place. So how to capitalists ever accumulate extra money?

You missed my point; The Capitalist do not manufacture for their workers. If a t-shirt is made in Indonesia and the workers there are paid $5/day (probably less) than obviously the manufacturer does not intend his product to be sold in that market, the product will be shipped and sold to another market where the average earnings are enough to garner a profit. The consumer as well as the labour is being exploited, the consumer is "forced" to buy the marked up product, the worker is "forced" to accept the wage offered, which is commensurate to the local economic situation. Some people argue that $5/day is a lot in the 3rd world, the immoral act however is that the Capitalist can pay more but chooses not to, they exploit a corrupt government and lax or non existent labour controls in order to maximize profit.

Sometimes recessions and depressions occur, and the Capitalist fails to make a profit because workers wages or income has devalued due to inflation. However history has shown that such recessions/depressions usually correct themselves and the inflation recedes and currency rebounds and ultimately the Capitalist, if they are able to ride out the recession, begins to see profit.

[Zero]

From a documentery I saw a few months ago the average wage was 90 cents a day, and 'full time' was considered a 36 hour shift.

[Comrade-Z]

If a t-shirt is made in Indonesia and the workers there are paid $5/day (probably less) than obviously the manufacturer does not intend his product to be sold in that market, the product will be shipped and sold to another market where the average earnings are enough to garner a profit.

But it shouldn't matter that groups of capitalists sell to each other's workers. This other market has its own capitalists which need their products to sell. These capitalists pay their workers $5 billion dollars in wages, and expect, I presume, the indonesian workers to spend $5 billion and then some buying those products. But it can't be done with the wages that the Indonesian workers are getting! You simply have:

Indonesian capitalists----------American capitalists
---------------------------\-----/
----------------------------\---/
------------------------------\
-----------------------------/_\|
----------------------------/----American workers
--------------------------|/_
----Indonesian workers


American workers have plenty of wages to buy the Indonesian-produced products.

--But Indonesian workers have nowhere near enough wages to purchase the expensively-produced American products and thus realize the profits for the American capitalists. The American capitalists are screwed!

And remember: the American capitalists can't sell to their own workers in sufficient amounts because that wasn't working before anyways--the capitalists were just getting back the wages they paid their workers. Not to mention the American workers have already spent a portion of their wages on Indonesian products.

I don't care if you want to add all the other third parties to this equation that you want (Chinese capitalists and workers, British capitalists and workers, etc.), the same principles hold.

So, how does the global economy function???

[theraven]

Originally posted by [email protected] 4 2006, 06:29 AM
From a documentery I saw a few months ago the average wage was 90 cents a day, and 'full time' was considered a 36 hour shift.
you mean work week correct?

[Zero]

No, I mean that was a regular 2 day shift.

[Whitten]

They are forced to create more "capital", this is why its impossible to remove inflation completly.

[Publius]

My question is, how does the international capitalist class in the real world avoid a scenario like this? How do they make sure that workers somewhere have enough money to buy the stuff that they are selling, so that the capitalists can realize their potential profits?

Simply, because markets aren't closed.

In a closed market, you're absolutely correct; one man's loss is another's gain and you can't take in more than you pay out.

But it in a larger, more complicated economy, with millions of transactions, value is being created all the time via trading.

See, in a transaction, value is created on both sides (your money is worth more to me than my labor-time), so every transaction adds value to the total (excepting externalities like pollution or what-have-you). Money's value then changes in proportion to the stock of goods in the economy (either through inflation or deflation.)

Let me take issues with some of your ground rules:



10,000 capitalists start out with $400 million in capital altogether, employing 10 million workers as a whole (1,000 workers each), produce 100 million t-shirts in the span of a day. The capitalists all pay their workers the same wage--$60 per day ($7.50 per hour, 8 hours).

If all this is the case, there can be no competition; how then can you call this a 'market'?

Two (or infinitely many) people offering the same goods at the same rate are not participating in a 'market'.


Altogether, the workers have been paid $600 million dollars after the day is done. How much will the 10,000 capitalists, as a whole, be able to sell their t-shirts for? $600 million, right? If they try selling the t-shirts for $1,200 million, then every two workers will have to pool their funds to buy one t-shirt, and only half of the t-shirts will end up getting sold, still earning $600 million for the capitalists. But this is exactly what they paid out in wages in the first place! They haven't accrued a dime.

When the only 2 commodities in your mock economy are 't shirts' and a limited amount of money, how can you expect anyone to accrue anything?

[Publius]

But in order to do that, you need to pay those consumers wages so that they have money with which to do that. But then those consumers simply end up giving the same amount of money back, no?


The same amount of money, perhaps, but not the same value.

You're leaving out the dyanmics and making the economy stagnant.



But if a capitalist is going to mark things up x3, then the workers must be paid x3 wages in order to afford that marked up merchandise.

There's obviously a limit to how high things could be marked up.

In the economy you mentioned, it couldn't be marked up at all; nobody would purchase anything.




Workers only have as much money as are paid to them by capitalists, yes?

No.

If all trades were 1 for 1, nobody would expend the energy to trade; both sides gain value by trading.

So yes, in your limited economy they have the same amount of dollars as before, but value has been added to the overall economy.



Therefore, workers only have as much purchasing power as is paid to them by capitalists, yes?

No. If that were true we'd all still have as much 'purchasing power' as we've always had; value is constantly created, and it really has nothing to do with 'money'.



Therefore, workers can only give back to the capitalists so much money as is given to them in the first place. So how do capitalists ever accumulate extra money?

By producing goods that people buy.

Not necessarily goods their own workers will buy. Value is added to the economy every time something moves from a position of lower value to a position of higher value; say I trade a hammer to you for your drill. That creates wealth, albeit on a small scale; it also ignores the role money plays, but that's a lot more complicated.

There's really no mystery, just an insane amount of complexity.

[theraven]

Originally posted by [email protected] 4 2006, 12:43 PM
No, I mean that was a regular 2 day shift.
so 36 hours in 2 days ie 13 hours a day.

[RevMARKSman]

Originally posted by theraven+Aug 4 2006, 11:01 AM--> (theraven @ Aug 4 2006, 11:01 AM)
[email protected] 4 2006, 12:43 PM
No, I mean that was a regular 2 day shift.
so 36 hours in 2 days ie 13 hours a day. [/b]
i.e. 18 hours a day.

36/2 = 18

[colonelguppy]

who says the workers even want to buy the shirts?