The Economist on Chinese investment

Most economists seem to think China invests too much.  In previous posts I’ve argued that if China wants to consume more, they first need to invest more.  If they want more restaurant meals and vacations, they must first build more restaurants, hotels, airports and train stations.  If they want more health and education, they must build more schools and hospitals.  If they want more housing services, they must build more housing.  Free Exchange just published a piece that offers an odd perspective on this issue:

Others are less convinced about Hayekian risk. Francis Cheung of CLSA, a broker, argues that China suffers from excess capacity in some parts of infrastructure, but not all. Cities like Beijing and Shenzhen are congested, faring worse on IBM’s “commuter pain” index than Delhi or Nairobi (see left-hand chart). That would suggest China has scope to invest in Shenzhen’s metro, one of the projects announced last week. Infrastructure demand will eventually catch up with supply, Mr Cheung concludes, as long as infrastructure spending remains disciplined.

Moreover, investment that adds little to a society’s stock of productive assets is not necessarily malinvestment. Michael Buchanan and Yin Zhang of Goldman Sachs say that some Chinese investment is best seen as “quasi-consumption”. In this category they place things like earthquake-proof schools and more comfortable metro lines. Instead of adding to the economy’s productive capacity, these assets provide a flow of services (such as reassurance to parents and relaxed travel) directly to consumers. In this respect they are more akin to consumer durables, like washing machines or cars, than to iron-ore mines or steel plants.

As a rough gauge of the size of quasi-consumption, the Goldman economists add up China’s investment in house building and “social infrastructure”, such as utilities, transport, water conservation, education and health care. Reclassifying this spending as consumption would increase China’s household consumption to 53% of GDP last year, compared with only 35% in the official statistics (see right-hand chart).

I’m not quite sure how the Goldman economists reached this conclusion.  Perhaps it was as follows:

1.  Everyone knows that China invests too much.

2.  Common sense says that certain Chinese investments are desirable.

3.  Hence those desirable investments must be consumption, not investment.

Investment is the construction of capital goods.  Period, end of story. Capital goods are highly durable assets, such as subways, airports, apartment buildings, hospitals, schools, etc.  Factories are also capital goods, although they tend to be less durable (at least in America) than the other items that I listed.

An economic “miracle economy” is simply an economy that has been horribly mismanaged by the government, before the miracle occurs. This mismanagement causes their GDP to be far below potential.  With somewhat more sensible government policies (but not necessarily sensible in an absolute sense) the country will engage in a period of catch-up growth.  Fast growth tells us almost nothing about the effectiveness of the current government; it tells us that the previous government was incompetent.  When fast catch-up growth occurs, the level of investment will be necessarily high, because one must first build the capital goods required to produce developed country levels of consumption.  This theory has several implications:

1.  During the 2020s it’s quite possible that North Korea will grow at a faster rate than any other country in history (outside of small countries whose data is distorted by huge natural resource discoveries.)  That’s because its GDP per person is probably farther below potential than any other country in history.  If it does set a record, no other country will ever surpass its record.  North Korea is the last of its kind.  Other poor countries are poor for much more complex (and hence hard to overcome) reasons that North Korea is poor.  Vietnam is probably most similar, then Cuba.

2.  During this super growth spurt, North Korea will invest at an extremely high rate, perhaps even higher than in China.  If it is able to maintain a fairly high level of consumption, it will be through imports, not domestic production of consumer goods.  It’s not clear that China has this option.

PS.  For the purposes of this post, I define “potential” as the steady state per capita GDP level (as a fraction of US GDP/person) achievable with a new and moderately competent central government.  I’m claiming that a group of technocrats put in charge of the central government in North Korea could achieve higher growth than the same government in Afghanistan.  I’m not assuming identical economic policies, as it’s more difficult to implement policies in some countries than others.  Governability is endogenous.

PPS.  My North Korea prediction is based on the assumption that economic reform will occur.  If it doesn’t, then obviously growth will be less impressive.


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66 Responses to “The Economist on Chinese investment”

  1. Gravatar of StatsGuy StatsGuy
    24. September 2012 at 05:47

    “Investment is the construction of capital goods. Period, end of story. Capital goods are highly durable assets, such as subways, airports, apartment buildings, hospitals, schools, etc. Factories are also capital goods, although they tend to be less durable (at least in America) than the other items that I listed.”

    I’m confused by this. Why does an automobile, with an expected lifespan of 15 years, count as consumption… While a metro rail system, which provides the same services (commuter transportation) counts as investment?

    I think the point in the article is that the metric in China is not directly comparable to the metric in the US, because things that provide the same end benefit are categorized differently.

  2. Gravatar of Wonks Anonymous Wonks Anonymous
    24. September 2012 at 06:52

    I thought the Vietnam of right now was considerably more capitalist than Cuba.

  3. Gravatar of Saturos Saturos
    24. September 2012 at 07:16

    I’m going to save everyone a lot of controversy, by providing my own definitions:

    Capital Good: A reproducible good which delivers a stream of services over several periods of time.
    Productive Capital: Capital goods used to transform inputs into outputs.
    Consumer Durables: Capital goods whose services are consumed directly.
    Investment: The allocation of production to capital goods, including the accumulation of unsold inventories of output which will deliver future benefits.
    Accounting Investment: Any spending by firms on items not incorporated within sales, plus spending on acquisitions of newly-produced residential properties by households.
    Public Investment: Spending on capital goods by the government.
    Consumption: The acquisition of the ultimate benefits from resources by individuals.
    Consumer Expenditure: All spending by households on newly-produced output, except on acquisitions of residential property.

    So families buying cars is consumer expenditure, not consumption. As is the “C” term in the Keynesian identity.

  4. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 07:26

    ssumner:

    Where is the analysis of the time horizon component to investment? It is as if time does not exist in market monetarism.

    It is one thing to say that if the Chinese want more restaurants and vacations, then they need to build more restaurants, trains, and airports.

    It is quite another to say that more capital intensive and longer time horizon investment, as opposed to less capital intensive and shorter time horizon investment brought about by the political process, is necessarily a good thing for the market process.

    The savings rate in China is quite high, but it is not infinite. There is a maximum amount of nominal dollar investment the capital allocation of which is capable of being sustained in the real sense. This maximum is constrained by real savings (abstentions from consumption). If acts of investment require savings that exceed actual savings, then those investments cannot physically be completed (sustained over their planned time horizons).

    In China, there is a political policy of infrastructure expansion to boost GDP. Thus, if someone makes the comment that there is too much investment in China, then they may be referring to an insufficiency of real savings, or at least an expected insufficiency of real savings.

    The market process tends to prevent investment from systematically exceeding real savings, by way of profit and interest rates. But when those rates are controlled by a non-market political institution, it necessarily introduces non-market relative pricing and demand signals that prevent the market process from preventing systematic discrepancies between investment and savings.

    It is not enough that investors know the average consumer price inflation rate or the NGDP rate. These statistics do not convey the required TIME HORIZON based information (which only unhampered money production can communicate) that coordinates savings and investment over time.

    When the Fed makes a standing policy of price level targeting, or AD targeting, it introduces systematic alterations to the price signals that conveys to investors what time horizons consumers are able and willing to consume. It is not enough that investors know consumers want more restaurants and vacations. They also need to know WHEN they want them, GIVEN the quantity of real savings that their behavior would otherwise clearly communicate through unhampered interest rates.

    See, market monetarists, and all other inflationists, do not respect the fact that interest rates mean something in the market process of production and consumption. They view interest as either a nuisance, or purely monetary in origin. They do not connect interest rates to coordinating production and consumption over time.

    In an unhampered market, high interest rates means consumers want more investment allocated towards short term time horizons and less investment allocated towards long term time horizons. Low interest rates means consumers want less investment allocated towards short term time horizons and more investment allocated towards long term time horizons.

    Market monetarists either do not understand this, or think it is inconsequential. My guess is that they do not think outside the monetarist box. To them, high or low interest rates only communicate “loose” or “tight” monetary policies. There would seem to exist therefore a “proper” set of interest rates that are concomitant with their version of “proper” monetary policy. Or at least interest rates allegedly independent of “bad” monetary policy.

    What they won’t seriously consider are the affects that ALL monetary policy has on interest rates as it pertains specifically to time horizon signals of production and consumption preferences between market actors, and hence on the pricing system’s ability to coordinate market actors over time. In this sense, they are much akin to Keynesians, who also consider investment and consumption as co-existent phenomena where time is not important. It seems only the Austrians truly respect the concept of time in economics, and make it an integral part of their understanding of the market. My guess is that this is due to its Kantian and Misesian foundation, what with Kant’s a priori categories of time and space, and Mises’ concept of praxeology, or human action.

    I think market monetarists should integrate time into their models and arguments, because it is an integral dimension of human life.

    My guess is that if they do, they will find themselves advocating for Selginian “productivity norm” monetary policies, because productivity is tied up with savings, and savings is tied up with time. 5% NGDP doesn’t imply anything with respect to savings or time. It’s just kind of thrown out there on the basis of status quo inflation and real output history averages, which is rigid and not capable of adapting to savings and time horizon changes the way productivity norm monetary policy seems to do.

  5. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 07:37

    Here are my definitions for capital goods and consumer goods.

    Capital good: Good purchased for the purpose of making subsequent sales

    Consumer good: Good purchased not for the purpose of making subsequent sales.

    —————-

    Using these definitions, we do not focus on the physicality of a good, but rather on its HUMAN component, the human intention component. What a good is valued to be, and designed to be used for.

    A house is a capital good if it is purchased for the purpose of making subsequent sales. Home flippers for example are investors, capitalists, because they buy houses for the purposes of making subsequent sales of those houses.

    A house is a consumer good if it is purchased for the purpose of not making subsequent sales. Home residents and retirees for example are consumers, and hence the house is a consumer good.

    The same principle applies to washing machines, dish washers, computers, buildings, EVERYTHING.

    You buy a dishwasher for your restaurant, then it’s a capital good, because you bought it for the purposes of making subsequent sales selling food and you need clean plates. The money you bring in from sales can be used to repair and replace the dishwasher as it wears down.

    You buy a dishwasher for your home, then it’s a consumer good, because you bought it not for the purposes of making subsequent sales, but to consume dinners on clean plates. The dishwasher is slowly being used up and there is nothing coming in that would replace and repair the dishwasher. Fresh new funds would be required to repair and/or replace it.

    A hammer is a capital good if it bought by a construction company. It is a consumer good if you buy it for around the house.

    A pick up truck is a capital good if it bought by a delivery businessman. It is a consumer good if you buy it for leisure or to drive to work to earn a wage.

    A computer in a bank is a capital good. In your home, it is a consumer good.

    Etc…

  6. Gravatar of Dan S Dan S
    24. September 2012 at 08:04

    Speaking of The Economist, I noticed that the latest issue has a want ad for the position of “Governor of the Bank of England” aka Mervyn King’s successor. It says that the successful candidate “will have an advanced understanding of financial markets and good economic knowledge.”

    Interesting how economic knowledge is only secondary, and only has to be “good” at that, not even “excellent” or “first-rate.”

  7. Gravatar of Saturos Saturos
    24. September 2012 at 08:11

    MF, the yeast used by my local bakery is not a capital good. Capital is not immediately consumed in the process of production. And consumer-durables are capital too.

    Also, according to your definition bridges built by the government are not capital, since they are not part of selling anything. And what about the purchase of a forest for logging? That’s land, not capital.

    Capital is all about time. Durable assets deliver future benefits. It’s about making inter-period comparisons.

  8. Gravatar of Saturos Saturos
    24. September 2012 at 08:12

    Dan S, yeah, I saw the Tyler Cowen tweet.

  9. Gravatar of Dan S Dan S
    24. September 2012 at 08:13

    Darn did he beat me to it? I’m not on twitter so I don’t see this stuff.

  10. Gravatar of Saturos Saturos
    24. September 2012 at 08:13

    Oh yeah, MF, I didn’t notice – your definition is terrible!
    So if I notice that the price of apples is higher in this town than the next, and I want to arbitrage them, they become capital?

  11. Gravatar of StatsGuy StatsGuy
    24. September 2012 at 08:16

    @Saturos

    No one is questioning semantics. I’m simply asking why the article’s point is not valid.

    Imagine the US builds a bunch of car factories which then build cars. Over a 50 year period (maybe…), the factories produce cars which count as consumption, in so far as they generate end transportation benefits.

    China builds a rail system. Over a period of 50 years (probably more), the system provides end transportation benefits.

    Both do the same thing, but the US counts as 30% capital investment and 70% consumption, while China counts as 100% capital investment. But both systems do the same thing.

    If this styalized example were true, don’t you think the point in the article has some merit?

  12. Gravatar of Saturos Saturos
    24. September 2012 at 08:18

    Well, you could argue that bridges help other people to sell things. But there are clearly some durable government purchases that don’t help sell anything, such as fighter jets.

  13. Gravatar of Edeast Edeast
    24. September 2012 at 08:21

    Scott, us canadians are, debating allowing big oil deal with Cnooc taking over Nexen. Trepidations about human rights being sidelined by economic considerations. Should we support the continuued economic expansion of china, in that it will lead to democracy, or are we being short sighted.

  14. Gravatar of Edeast Edeast
    24. September 2012 at 08:26

    I should say, that I don’t expect the deal to go through as Cnooc is state owned, profits go to the state rather than citizens. So nevermind.

  15. Gravatar of Saturos Saturos
    24. September 2012 at 08:31

    Well schools and metro-lines do increase productive capacity. And making them more user-friendly is capital improvement, just like a construction company improving its safety gear, or service companies buying more comfortable uniforms. And I disagree with the notion that consumer durables aren’t capital. My refrigerator is capital.

    Your example seems to differ from the article’s approach. Are you saying that the car factory and its cars are both producer capital (I agree they are both capital)? Or are you saying that anything that yields a flow of end benefits is capital? I (nearly) agree, but there is a difference between the benefits going to consumers directly, and getting to them via producers (obviously everything efficient producers do ends up leading to benefits for consumers).

    But there is a difference between investment proper and accounting investment. Consumer durables are counted as consumption expenditure in the national income accounts, though they are really investment (as is a college degree).
    See my definitions. It’s basically the idea that what firms buy is “investment” whilst what households buy is “consumer expenditure”, though of course most of what firms buy is intermediate goods. And buying houses is counted as an obvious addition to the capital stock, so investment.

  16. Gravatar of Doug M Doug M
    24. September 2012 at 08:45

    Stauros,

    “A capital good, or simply capital in economics, is a manufactured means of production.”

    – Paul Samuleson

    Just because it is durable, if it is not facilitating production it is not a capital good.

    Four and yeast are intermediate goods.
    Bridges are public goods.

  17. Gravatar of Greg Ransom Greg Ransom
    24. September 2012 at 08:47

    Ransom’s Law — Jounalist & economists who invoke Hayek don’t know their ass from their elbow when it comes to the economics of Hayek.

  18. Gravatar of Greg Ransom Greg Ransom
    24. September 2012 at 08:49

    Long term “consume durables” & upgraded structures & houses are classic long period Hayekian/Bohm-Bawerkian production goods.

  19. Gravatar of Saturos Saturos
    24. September 2012 at 09:12

    Doug M; don’t worry too much about what the textbooks say – especially Samuelson. If you observe usage throughout all economic literature you’ll find my definition to be more appropriate.

    Bridges are publicly-owned capital.

    Greg, you realize your law applies to yourself, don’t you…

  20. Gravatar of JimP JimP
    24. September 2012 at 09:19

    I would call this an indirect but clear statement by
    Munchau that the function of a modern central bank is in fact nominal GDP targeting.

    http://www.ft.com/intl/cms/s/0/9095a970-03dd-11e2-9322-00144feabdc0.html

  21. Gravatar of Doug M Doug M
    24. September 2012 at 09:57

    House — Luxury or investment?
    Daimond ring?
    Matise over the fireplace?

    Many would say the house is an investment. I would call it a luxury — assuming you bought the house to live in it. A house ththat is rented out, or purchased on a fix and flip is an investment.

    A house does hold its value, but so does the daimond ring. And, for reasons that no one can adequately explain, art seems to appreciate more quickly than tradidional investments. So, peraps the Matise is the true investment of the three.

  22. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 12:57

    Saturos:

    MF, the yeast used by my local bakery is not a capital good. Capital is not immediately consumed in the process of production. And consumer-durables are capital too.

    The yeast productively consumed by your local bakery is a capital good according to my definition, because it was purchased for the purposes of making subsequent sales. Yeast is capitalized as an asset, then expensed as it is used up (or as the bread is sold, whatever the case may be).

    Also, according to your definition bridges built by the government are not capital, since they are not part of selling anything.

    Precisely. Bridges built by the government are indeed consumer goods. They are not made for the purposes of making subsequent sales. They are not self-sustaining. The money spent on the bridge is gone forever, and only a fresh, new round of external funds, can repair/replace it as time goes on. In the government’s case, it is coercive taxation or the printing press.

    And what about the purchase of a forest for logging? That’s land, not capital.

    Land purchased for the purposes of making subsequent sales is capital by my definition. You can’t tell me “it’s land, not capital” when that contradicts my definition. You can’t tell me I am wrong.

    Capital is all about time. Durable assets deliver future benefits. It’s about making inter-period comparisons.

    Yeast on a shelf before it is used up spends time as a capital good. Before it is used up, it is given a book value.

  23. Gravatar of ssumner ssumner
    24. September 2012 at 17:09

    Statsguy, Whether something is a capital good or a consumer good is a matter of degree. The more durable, the more capital-like a good is. Cars and home appliances are an intermediate case, often viewed as consumer goods. One could also define them as capital goods that depreciate fairly rapidly. But things like subways are incredibly durable. They are about as capital-like as a good can be. If subways aren’t capital, then nothing is.

    Saturos, Very good list, but I’d say that some non-consumer durables are also consumed directly. Hotels, for instance.

  24. Gravatar of Ben J Ben J
    24. September 2012 at 18:27

    MF:

    “Land purchased for the purposes of making subsequent sales is capital by my definition. You can’t tell me “it’s land, not capital” when that contradicts my definition. You can’t tell me I am wrong.”

    Let’s go home everybody, Major Freedom has defined himself the winner.

  25. Gravatar of Saturos Saturos
    24. September 2012 at 20:12

    MF, capital goods are final goods which are counted as part of GDP. Intermediate goods are not. So if I set up a cafe on my street corner, then the espresso machine I buy survives every cup of coffee I make (those cups produced being the result of a stream of production services). Otherwise it would not be capital. Suppose every cup of coffee I made destroyed the espresso machine used to make it. Then even if the machines I bought came in 6-packs, so that I had some espresso machine left over after my first two cups, it still would be an intermediate good – the leftover units were the unused units. Similarly in the real world if I make coffee from espresso beans, and I buy a 1kg pack, doesn’t matter if I have half a kg left over at the end of the day – I had merely purchased several units of the imput commodity, and the units that were involved with the actual production, were all used up. Hence they were intermediate products, which cannot be added to GDP or we’d have double counting. Hence they are not capital, and their production is not investment, and freeing up production to allocate to their production is not saving.

    There’s a physical distinction between actually having less left over of an input after use, and simply depreciating an input so that it has less of its usable life left after use, but is physically all still there. For one, the former case requires you to reproduce more of that commodity itself in order to restore capacity, whereas in the latter case capacity can be restored simply by purchasing “repairs”, or perhaps some of the component parts of the input.

    In accounting everything a firm owns is an “asset”, which is expensed as it eventually gradually ceases to exist. In our bakery, the yeast stock would be expensed as it was being used up. By the time part of the yeast stock is replaced (along with other inputs) by some bread inventory, that yeast doesn’t exist anymore. I think the word you are looking for to describe flour, water, sugar, salt, yeast etc. is materials, which are a type of intermediate good. We write Y = f(K,L,M) in our microeconomic production functions for individual firms.

    I see you are absurdly biting the bullet on public bridges. I’ll just say that, “They are not self-sustaining. The money spent on the bridge is gone forever, and only a fresh, new round of external funds, can repair/replace it as time goes on.” also applies to private factories, hence makes no sense. And you seem to be contradicting every economic textbook ever written (including Austrian texts if I’m not mistaken) when you deny that land is a separate factor of production from capital.

    You can’t tell me I am wrong.” – that should be your bumper sticker.

    MF, unfortunately I’m not sure you understood anything I just wrote, because according to your definitions of the words in the English language it may have all been gibberish.

    Scott, nice tricky example. I’d go back to what I was telling Statsguy. If I hire a gardener, aren’t I consuming the services of his lawnmower directly? Well if I had bought it then it would be a consumer durable. But if he buys it and uses it to produce a stream of lawnmowing services which are exchanged on the market, then it’s productive capital. Same for hotels. A Hilton hotel is productive capital; it produces a stream of luxury housing services for its owners (though that needs to be combined with other inputs, such as cleaners, waiters, receptionists and financiers to make the output) which they then trade with the public for money. When you say “consumed directly” you are fudging the gap between the generation of the service by the fixed asset, and its trade over to the consumer who finally absorbs the benefits.

    I agree that the referent of “capital” depends on how you define “period”. But usually in economics it means one calendar year, probably a vestige of the agricultural economy. Cars are consumer goods and capital goods. They are overlapping categories. The fact that we count new automobile purchases as “C” doesn’t change this; that’s “consumer expenditure”, a NIA concept.

  26. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 20:12

    Saturos:

    Oh yeah, MF, I didn’t notice – your definition is terrible!

    My definition is awesome! Your definition is terrible!

    So if I notice that the price of apples is higher in this town than the next, and I want to arbitrage them, they become capital?

    YES! You would become an investor in apples!

    Apples are not necessarily consumer goods. If a grocery store buys apples from an orchard at wholesale prices, hoping to resell them with a markup, then the grocery store owner would account for these apples as ASSETS (inventory) on their balance sheet. Would you call these apples capital goods or consumer goods from the owner’s perspective? Obviously they would be capital goods, correct? Well, my handy dandy definition automatically gives that answer!

    The apples would be capital goods, because they were purchased for the purpose of making subsequent sales!

    ssumner:

    Saturos, Very good list, but I’d say that some non-consumer durables are also consumed directly. Hotels, for instance.

    Hotel buildings are capital goods. The hotel building was purchased for the purpose of making subsequent sales.

    The rooms sold for rent are either consumer or capital services.

    If the hotel room stays are purchased not for the purpose of making subsequent sales, for instance by vacationers, or by employees attending a conference, they are consumer services. If the room stays are purchased by a company to lure customers, and are expensed on business income statements, then they are capital services. They are purchased for the purpose of making subsequent sales.

    Ben J:

    MF:

    Let’s go home everybody, Major Freedom has defined himself the winner.

    This isn’t about winning or losing, or being right or wrong. It is about what definition is most useful for understanding economic phenomena. I am not saying anyone is wrong for using a different definition than me. I am merely rejecting any claims that I am wrong for using my definition.

  27. Gravatar of Saturos Saturos
    24. September 2012 at 20:17

    FYI, The opposite of a capital good is not a consumer good, it’s a current good.

  28. Gravatar of Saturos Saturos
    24. September 2012 at 20:25

    MF, if the apple doesn’t change as it’s being resold then it’s a consumer good. What type of good something is doesn’t depend on “perspective”. Resold goods are not newly-produced by the reseller, so what was bought was either an intermediate good, so that the resold good is probably what goes into GDP; or a previous year’s output, so the resold good doesn’t go into GDP at all.

    According to your definition absolutely everything in the stores was purchased by the storekeepers for making subsequent sales, so absolutely everything is capital. I’m afraid your “handy-dandy” definition is crap.

    I become an “investor” in apples when I arbitrage them only in a financial sense. In an economic sense no further investment has occurred.

    For the love of God, MF, would you please read an actual economics textbook someday? I mean something you could actually find at your local public library, or a college bookstore? My local library has Krugman and Mankiw, they’re pretty good. See what you have at yours.

  29. Gravatar of Saturos Saturos
    24. September 2012 at 20:27

    “MF, if the apple doesn’t change as it’s being resold then it’s a consumer good.”

    Actually, not necessarily. It might also be material for making apple pie by a market firm. So what type of good something is depends on how it is used. But it doesn’t change from different agents’ “perspective”, the use stays what it is.

  30. Gravatar of Saturos Saturos
    24. September 2012 at 20:35

    Whoops, sorry, I think I just italicized the rest of the page. Not sure how it happened.

  31. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 21:42

    Saturos:

    FYI, The opposite of a capital good is not a consumer good, it’s a current good.

    I would say the opposite of a current good is a future good. If I own a can of tuna, that I intend startung now to hold for a month, is that can a current good or a future good? If it is a current good, then that would suggest the “currentness” of the good is associated with something in the present that isn’t the case in the future. This something can’t be the can itself, since it doesn’t change. That in turn suggests the currentness has to do with me in some way. If on the other hand the can is a future good, then that suggests the “futureness” of the good is associated with something in the future that isn’t the case in the present. Again, it can’t be the can itself, so again it must be something to do with me.

    In either case, the physicality of the can is not what makes it a present or future good. It has to do with my intentions for thr can. That leads towards my definition and away from your definition.

    MF, if the apple doesn’t change as it’s being resold then it’s a consumer good.

    Then according to your definition, should someone purchase and then resell a machine that helps produce bread, they would be reselling a consumer good because the machine hasn’t changed.

    Your definition is leading to wacky outcomes that I am sure you yourself won’t agree with. You may not like my definition, but at least I don’t have to reverse myself and give no true scotsman caveats as my definition is poked and prodded. I remain consistent.

    What type of good something is doesn’t depend on “perspective”. Resold goods are not newly-produced by the reseller, so what was bought was either an intermediate good, so that the resold good is probably what goes into GDP; or a previous year’s output, so the resold good doesn’t go into GDP at all.

    Of course the type of good something it depends on perspective.

    If I suggest to you a dishwasher, then if perspective didn’t matter, then we would have to decide whehter this good is a consumer good or capital good based on a totally non-human foundation. Yet economics is the study of human action!

    Using my definition, we can decide whether a dishwasher is a consumer or capital good by learning what reason the buyer had in purchasing it. If I buy a dishwasher for use in my home, then what would you call it? A consumer good, right? Now suppose instead that a restaurant owner purchases the same dishwasher, for use in his restaurant, to attract customers via clean as opposed to dirty plates, or to cut costs on labor. Would you call it a comsumer good because we already decided “dishwashers” are consumer goods, or will you take imto account the intentions (perspective) of the buyer of said dishwasher?

    According to your definition absolutely everything in the stores was purchased by the storekeepers for making subsequent sales, so absolutely everything is capital. I’m afraid your “handy-dandy” definition is crap.

    I am afraid that merely restating my own definition back to me does not constitute an actual criticism of it.

    Yes, everything in the store are capital goods according to my definition because they were purchased for the purposes of making subsequent sales. I don’t see a problem with this. I mean, the store accounts for everything on its store shelves as inventory, and inventory is accounted for as assets on the store’s balance sheet. This is what owners of capital goods typically do. They capitalize their assets according to the price they paid for them, then they make expense charges as the assets are used up or depreciated.

    What is wrong with considering inventory as capital? We’ve already seen that any “unchangingthe” characteristic of the good is a bad criteria for calling a good a consumer good, since bythat definition, even productive machinery would be considered consumer goods if they are bought and resold without changes made to them in the interim.

    You can’t just repeat my definition back to me and then comsider yourself to have shown me why it’s crap. You have to show me if I am going to be convinced.

    I become an “investor” in apples when I arbitrage them only in a financial sense. In an economic sense no further investment has occurred.

    For the love of God, MF, would you please read an actual economics textbook someday?

    What kind of empty platitude is this? This is not a credible statement. You might as well have told me “nah nah boo boo.”

    Saturos, I am at a level now where I make my own contributions to economics. I am not a regurgitator that you seem to want me to be. Why in the hell should I adopt someone else’s definition, when all definitions have to be originated by someone, for the purposes of making thngs clear? If I hold that my definition makes things clearer, and I can show it, then that is sufficient for me to retain my definition and reject yours.

    You’re asking me to dumb myself down. Why?

    I mean something you could actually find at your local public library, or a college bookstore? My local library has Krugman and Mankiw, they’re pretty good. See what you have at yours.

    Where did they get their definitions? Then, ask where did THOSE sources get their definitions? Keep asking it until you find the originator. Then yell and scream that they didn’t merely parrot existing definitions and that they didn’t “read an actual economics textbook.”

    “MF, if the apple doesn’t change as it’s being resold then it’s a consumer good.”

    Actually, not necessarily. It might also be material for making apple pie by a market firm. So what type of good something is depends on how it is used. But it doesn’t change from different agents’ “perspective”, the use stays what it is.

    Glad to see you so sure that I am using a bad definition that you feel comfortable enough to be unsure about your own.

    Your statement “So what type a good something is depends on how it is used” IS the very argument I am making. That is what I meant by “perspective.” From the perspective of an apple pie seller, an apple is a capital good. From the perspective of an apple consumer, the same type of apple would be a consumer good.

    I just use the word “perspective” to make sure that I am not talking about the objective physicality of thhe good itself when defining what kind of a good it is.

  32. Gravatar of Saturos Saturos
    24. September 2012 at 22:23

    MF, I posted my definitions at the top of the page. Why don’t you actually read them before you criticize. Then you’ll find that half the criticisms in your last post don’t apply. You’ll find for instance that the attributes in my definitions are unchanging characteristics.

    A can of tuna is still a current and a consumer good, even if I buy it and hold it till next year. What it is does depend on human action – the fact that its provision of benefits to its users causes it to perish within a single period (year) of its provision.

    You want to say that all consumer goods (even those that are current goods like loaves of bread) are capital goods until they are sold to the consumers. Your justification is that they all show up as assets on the stores’ balance sheets. This is a bad justification, as nobody ever said that all assets were capital assets, and it’s not clear what reason you have for believing that.

    You seem to be misinterpreting the Austrian notion of subjective value. Yes, the value of an apple does not derive from its physical appleness, but rather from the fact that it provides the subjective benefits of fullness and taste to humans, who demonstrate that preference through intentional action. But that doesn’t change the fact that when a society uses apples, or some apples, as a consumer good, that status remains the same from the perspective of different handlers. The stores who sell the apples that I bite into are handlers, agents in the production process, but only I am the consumer and user of the good to obtain its subjective value benefits.

    “Using up” an asset is not the same as depreciating it, as I explained earlier. Electricity is used up, but it doesn’t depreciate. Prepaid electricity expenses are an asset on the balance sheet, but the associated expenditures are not depreciation. Perhaps you should read an accounting textbook too. Unless you feel that you are at the level of making original contributions to accounting as well.

    MF, still a chance for you to accept that you were wrong about something. It would be a big step forward for you, even if only on the internet.

  33. Gravatar of Saturos Saturos
    24. September 2012 at 22:25

    We can avoid contradiction of perspective by considering human action in a different way – not what reason someone has for purchasing it, but the reason for producing it, the reason for which it is going to be used. (The reason for which it is generally used, and the way in which it is able to be used.)

  34. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 22:27

    Saturos:

    MF, capital goods are final goods which are counted as part of GDP. Intermediate goods are not. So if I set up a cafe on my street corner, then the espresso machine I buy survives every cup of coffee I make (those cups produced being the result of a stream of production services). Otherwise it would not be capital. Suppose every cup of coffee I made destroyed the espresso machine used to make it. Then even if the machines I bought came in 6-packs, so that I had some espresso machine left over after my first two cups, it still would be an intermediate good – the leftover units were the unused units. Similarly in the real world if I make coffee from espresso beans, and I buy a 1kg pack, doesn’t matter if I have half a kg left over at the end of the day – I had merely purchased several units of the imput commodity, and the units that were involved with the actual production, were all used up. Hence they were intermediate products, which cannot be added to GDP or we’d have double counting. Hence they are not capital, and their production is not investment, and freeing up production to allocate to their production is not saving.

    I don’t think GDP is a proper standard for defining what type of a good something is. In fact, I think it’s completely unrelated. The definition of GDP is subsidiary to the definition of types of goods. It relies on the definitions of goods.

    I define both completed capital goods, and intermediate goods, as capital goods as such, as long as they were purchased for the purpose of making subsequent sales.

    As such, even if your street corner espresso machine was completely used up in the production of a single cup of coffee, as long as you purchased the machine to make subsequent sales, it is a capital good.

    Amgood being completely used up is also not a good criteria for defing a good as a consumer good, because there are many goods that you would almost certainly consider capital goods, that are used up in production. Capital goods, all capital goods, wear down through use. You claimed at your street corner espresso machine can survive every cup of coffee you make. Yet that is quite frankly unrealistic, if not silly, because espresso machines eventually break down and have to be replaced or repaired after repeated use. They don’t last forever.

    Coffee shops for example depreciate their espresso machine assets. They have lifespans. They eventually have to be repaired/replaced.

    There’s a physical distinction between actually having less left over of an input after use, and simply depreciating an input so that it has less of its usable life left after use, but is physically all still there. For one, the former case requires you to reproduce more of that commodity itself in order to restore capacity, whereas in the latter case capacity can be restored simply by purchasing “repairs”, or perhaps some of the component parts of the input.

    The comment “it’s all physically still there” is inaccurate. Realistically, machines wear down. It might take years and years, but a 100 year old espresso machine is not the same thing as a new espresso machine of the same model and make.

    Caveat: Some capital goods increase in value over time. These tend to be “unchanged” capital goods that are valued more the older they get, for example wines, certain cars, antique collector’s items, among other goods. Yet the purchasing for the purpose of making subsequent sales remains, and that is why they are capital goods. So capital goods in general can either decrease or increase in value over time.

    In accounting everything a firm owns is an “asset”, which is expensed as it eventually gradually ceases to exist. In our bakery, the yeast stock would be expensed as it was being used up. By the time part of the yeast stock is replaced (along with other inputs) by some bread inventory, that yeast doesn’t exist anymore. I think the word you are looking for to describe flour, water, sugar, salt, yeast etc. is materials, which are a type of intermediate good. We write Y = f(K,L,M) in our microeconomic production functions for individual firms.

    I am not actually looking for a word in this respect. I would say that capital goods can be broken down into various subgroups, such as “final” and “intermediate” capital goods. But this would be a different discussion, because this discussion is about the separation of goods into capital and consumer goods, not the separation of capital goods into various sub-group capital goods.

    I see you are absurdly biting the bullet on public bridges.

    I see you are absurdly defining government bridges as capital goods. Hey this empty rhetoric is fun.

    I’ll just say that, “They are not self-sustaining. The money spent on the bridge is gone forever, and only a fresh, new round of external funds, can repair/replace it as time goes on.” also applies to private factories, hence makes no sense.

    That’s incorrect. Private factories are designed to bring in subsequent sales revenues, hence they are capital goods. The private factory is used to earn sales revenues, and those revenues can be used to repair and replace and improve the factory. Financing the factory is thus self-sustaining economic activity.

    A government bridge on the other hand is not designed to bring in subsequent sales revenues, hence they are consumer goods. The bridge is not used to earn sales revenues (and if there is a toll charge, it is usually only a small nominal fee the result of which incurs losses on net), and so there are revenues that can recoup the costs, so a fresh new external source of funds is necessary. Financing the bridge is thus non-self-sustaining activity.

    And you seem to be contradicting every economic textbook ever written (including Austrian texts if I’m not mistaken) when you deny that land is a separate factor of production from capital.

    You say “deny” like the manstream definitin is an established truth.

    I do not actually hold that land is necessarily a capital good. I said the particular land in your example is a capital good.

    Using my definition, land is either a capital good or a consumer good. If a piece of land is purchased for the purpose of making subsequent sales, then it is a capital good. An example of this would be a mining company purchasing a piece of land in order to extract and then sell the raw materials contained there.

    If a piece of land is not purchased for the purpose of making subsequent sales, then it is a consumer good. An example of this would be a home builder who buys a piece of land land intends to live in the home once completed.

    “You can’t tell me I am wrong.” – that should be your bumper sticker.

    “I ignore the context of comments made because I am either a sloppy reader, or, more likely, intellectually dishonest, because I intend to make a rhetorical flourish because I can’t compete ideas.” – that should be your bumper sticker.

    The context in which I made that statement was DEFINITIONS. I also quite clearly said that I cannot tell you that you or anyone else is “wrong” about the definitions you or they use. I made a point about the logical status of definitions. You quoted me out of context and made it seem like I said something I didn’t. I request, but do not expect, for you to apologize for that childish behavior.

    MF, unfortunately I’m not sure you understood anything I just wrote, because according to your definitions of the words in the English language it may have all been gibberish.

    I am more intelligent than you. Trust me when I say that I am having no problems with understanding what you wrote.

    Please don’t mistake my refusal to adopt your preferred definition as some flaw on my intelligence.

    Nothing I said would even remotely constitute an attack on the English language. It is very clear you are grasping at straws.

  35. Gravatar of Saturos Saturos
    24. September 2012 at 22:58

    MF, if you want to take widely used words and assign your own meanings to them that’s your own prerogative, just remember that you’ll have to cave in to other people’s meanings when you actually try to communicate with them in the context of actually using those terms in a discussion. Since the rest of the economics community and the history of economics writing isn’t going to modify itself for your benefit.

    If you’re so intelligent then why did you miss my sarcasm (oh you were pretending not to understand sarcasm? Sarcastic about the sarcasm? what a cop-out). I was satirizing your approach to coming up with definitions, and exposing its flaws.

    My preferred definitions aren’t something I came up with arbitrarily, they’re to help everyone else read the body of economic writing that’s out there and engage with it more effectively. It is largely descriptive, but also prescriptive. What I didn’t do is say,

    “Right, according to my definition banana peels and electric leafblowers are capital; everything else is a consumer good.

    What? It’s my definition! You can’t say I’m wrong about my own definition!”

    Like, why should we care about your definition if it’s no good? My definition agrees with how all good economists talk; you have yet to show that your set of distinctions is useful. Suppose everyone used your definitions instead, would it help them even as much as the ones they use now, let alone mine?

    You’re the one who keeps misreading me. I didn’t say the coffee machine would survive every cup of coffee, only the first few. I was fairly clear about that. The same espresso machine is still there after it is used to make the first three cups of coffee, the same espresso beans are not. The former is capital (having a fixed quality); the latter are materials. Materials are intermediate goods, so we don’t include them in GDP. A good that’s completely used up whenever it is used to make something (the amount of it actually used, that is) is material, not capital.

    “The private factory is used to earn sales revenues, and those revenues can be used to repair and replace and improve the factory. Financing the factory is thus self-sustaining economic activity.”

    Dude, money is fungible, it doesn’t matter “which” revenues are used to finance repairs. The revenues from factory sales are the return on the capital investment of building it, used to calculate the present value. You would calculate the present value of the repairs (which are also investments) by taking the revenues earned from them.

    Land is a factor of production. We can set up private parks on it, which would be consumer goods. But land itself is neither a capital nor a consumer good, it’s one of the primary factors. See any economics book outside your imagination.

  36. Gravatar of Saturos Saturos
    24. September 2012 at 23:02

    No Austrian economist would like your definitions, btw.

  37. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 23:04

    Saturos:

    MF, I posted my definitions at the top of the page. Why don’t you actually read them before you criticize. Then you’ll find that half the criticisms in your last post don’t apply. You’ll find for instance that the attributes in my definitions are unchanging characteristics.

    I did read them. Why don’t you cease presuming that disagreement implies ignorance. All of my criticisms apply, because I answered the content of your posts.

    You sound like you’re backtracking.

    A can of tuna is still a current and a consumer good, even if I buy it and hold it till next year. What it is does depend on human action – the fact that its provision of benefits to its users causes it to perish within a single period (year) of its provision.

    According to your definition that focuses on the good itself rather than the human element for its intended use, a can of tuna purchased by a restaurant for use in making tuna fish sandwiches and tuna cassaroles for sale, would also be a consumer good, despite the fact that the restaurant owner accounts for the can of tuna as an asset on its balance sheet, and expenses it as it is used up in the production of sandwiches and cassaroles. I consider your definition not useful because restaurants INVEST in tuna cans, expecting to earn revenues and profits later on. They don’t buy the cans so that the owners consume the tuna themselves.

    This is why I don’t focus on the physicality of the good, but rather on the human purpose for the good. I use the standard of intended use, which goes back to human action. I don’t consider the good in itself, for the reasons given above regarding my analogy of dishwashers.

    You want to say that all consumer goods (even those that are current goods like loaves of bread) are capital goods until they are sold to the consumers. Your justification is that they all show up as assets on the stores’ balance sheets. This is a bad justification, as nobody ever said that all assets were capital assets, and it’s not clear what reason you have for believing that.

    It is not necessary that anyone say “all assets are capital assets” before my (very different) argument can be made.

    My justification is NOT that those assets are capital assets because they all show up as assets on balance sheets. My justification is that the assets were purchased for the purposesof making subsequent sales. Whether they do show up as assets on balance sheets is actually a secondary, derivative point that is not necessary to the definition, but helps in understanding it.

    You seem to be misinterpreting the Austrian notion of subjective value. Yes, the value of an apple does not derive from its physical appleness, but rather from the fact that it provides the subjective benefits of fullness and taste to humans, who demonstrate that preference through intentional action. But that doesn’t change the fact that when a society uses apples, or some apples, as a consumer good, that status remains the same from the perspective of different handlers. The stores who sell the apples that I bite into are handlers, agents in the production process, but only I am the consumer and user of the good to obtain its subjective value benefits.

    it is quite clear that it is you who is misrepresenting the Austrian notion of subjective value. Subjective value is not monopolized by consumption value only. Subjective value includes valuing goods as direct, consumer goods, AND indirect, capital goods. the concept of demnstrated preference shows quite clearly that when a person buys an apple for the purposes of making subsequent sales, he is in fact displaying himself to subjectively value the apple as an indirect good, not as a consumer good. He is hoping that someone else will subjectively value it for their own purposes, and it is likely he won’t care if the buyer intends to consume it, or resell it himself, that is, he won’t care if the buyer is going to treat it as a consumer good or a capital good.

    Then there is the very misleading usage of the term “society”. If you actually knew Austrian value theory, you would not have said that “society uses apples” when attempting to give thr Austrian interpretation. You would have said something like “when INDIVIDUALS use apples…”. Thismis important because it will help prevent doing what you just did, which is to converge apple usage down to one main use, which is of course consumption, and in the process, gloss over the fact that individuals can indeed subjectively value apples as indirect, capital goods.

    “Using up” an asset is not the same as depreciating it, as I explained earlier. Electricity is used up, but it doesn’t depreciate.

    Depreciation is also a secondary point that is not necessary to my definition, but was only used to help in understanding it.

    Electricity COULD be depreciated by the way, through the depletion of electricity storage decices, such as batteries. The using up of electricity in a flashlight for use in a mine, say, can be understood as electricity being depreciated, although I would personally say the battery itself is being depreciated.

    Prepaid electricity expenses are an asset on the balance sheet, but the associated expenditures are not depreciation. Perhaps you should read an accounting textbook too. Unless you feel that you are at the level of making original contributions to accounting as well.

    Now that’s funny. In the same post, you introduce the example of electricity, then you make a point about electricity, and then, before I even see your post, you give the impression that I didn’t understand what you said about electricity, and as a recommendation, you say I should read an accounting textbook.

    MF, still a chance for you to accept that you were wrong about something. It would be a big step forward for you, even if only on the internet.

    I admit I am wrong quite often, just not on this blog. Why is me telling you that I am wrong so imortant to you? Why isn’t me actually being wrong more important?

    For the third time, one cannot be “wrong” or “right” when it comes to definitions. Well, to be more accurate one can be right or wrong about one’s claim for what constitutes a commonly accepted definition, but I am not here making the case that my definitions are commonly accepted. I am only claiming they are more useful.

  38. Gravatar of Saturos Saturos
    24. September 2012 at 23:07

    Oh and by the way governments sell their assets sometimes. So how can the bridge we were talking about not be capital, even under your own definition? If apples are capital, then so is the Golden Gate bridge, if a gazillionaire can possibly buy it off the State of California?

  39. Gravatar of Saturos Saturos
    24. September 2012 at 23:33

    As I said, what a good is depends on how it will be used. Tuna is a current good, not a capital good. If it’s used by producers instead of consumers then it will not be a consumer good but rather a producer current good, ie. materials. Restaurants invest in materials in a financial sense only; in an economic sense it’s not investment as no new capital was created. Again, try reading the textbooks.

    Under your view the “capital stock” of an economy, rather than being a collection of fixed structures like everyone else thinks it is, is an ongoing flow of goods which soon become consumer goods. We could not even think about the mathematical relationship between the size of the stock of different kinds of capital in an economy and the flow of consumables it produces each period.

    Electricity usage is materials consumption (producer consumption, as opposed to end-user or “consumer” consumption). Electrical device usage leads to capital consumption or depreciation. And I said “some apples”. And “society” could obviously be referring to the set of all human individuals in the USA, which no smart Austrian would object to here.

    Things cannot go on being resold unless there is going to be someone who eventually uses it himself. If that someone is a producer, and the same asset provides a flow of services over time, then it’s capital. Even before that ultimate producer gets hold of it. If it’s something that disappears with its use into its product, like bread making sandwiches, then it’s material. And it remains material even before the producer gets it. If the thing ends up with an individual who puts it in his house and uses its services for his own enjoyment for years, like a TV, it’s a consumer durable, a form of capital, even before he gets it. If it’s something that ends up with someone who eats it himself, it’s a current consumer good, even before he gets it.

    Kapish?

    Otherwise you couldn’t talk about consumer goods production versus capital goods production, as everything produced by firms would be capital – until the retailers bought it, turning it into consumer goods. A candy bar bought by Wal-Mart is capital under your definition and remains so until I buy it. But you would have to call production of candy bars capital goods production, which is stupid.

    Under your definition, what asset shows up on a firm’s balance sheet, but wasn’t purchased “for the purpose of making subsequent sales”? Firms are always trying to make subsequent sales, so everything they buy is capital according to you. (You could change that interpretation, but it would only make your definition worse.)

    The comment about your needing to read an accounting textbook was based on your implying that loaves of bread “depreciate” when they go into the oven at a bakery. Or what you actually said, that selling inventory is “using it up” or “depreciating it”. It’s neither, it’s disinvestment, which is cancelled by consumer spending on it in the GDP figures.

    It’s more important that a person refuses to accept that they were wrong about something, than that they happened to be mistaken in one of their views. The former suggests an intellectual flaw, the latter just an inevitable error in the learning process.

  40. Gravatar of Saturos Saturos
    24. September 2012 at 23:40

    MF, earlier you said:

    I would say the opposite of a current good is a future good. If I own a can of tuna, that I intend startung now to hold for a month, is that can a current good or a future good? If it is a current good, then that would suggest the “currentness” of the good is associated with something in the present that isn’t the case in the future. This something can’t be the can itself, since it doesn’t change. That in turn suggests the currentness has to do with me in some way. If on the other hand the can is a future good, then that suggests the “futureness” of the good is associated with something in the future that isn’t the case in the present. Again, it can’t be the can itself, so again it must be something to do with me.

    In either case, the physicality of the can is not what makes it a present or future good. It has to do with my intentions for thr can. That leads towards my definition and away from your definition.

    Then according to your definition, should someone purchase and then resell a machine that helps produce bread, they would be reselling a consumer good because the machine hasn’t changed.

    That is what led me to remark that you hadn’t read my definitions. I still think I was justified.

    Inventories are capital in the national income accounts, as they are bought by firms and will be used in the future. But strictly they’re not capital.

  41. Gravatar of Major_Freedom Major_Freedom
    24. September 2012 at 23:56

    Saturos:

    MF, if you want to take widely used words and assign your own meanings to them that’s your own prerogative, just remember that you’ll have to cave in to other people’s meanings when you actually try to communicate with them in the context of actually using those terms in a discussion.

    And the retreat intensifies.

    Since the rest of the economics community and the history of economics writing isn’t going to modify itself for your benefit.

    You just don’t have confidence that you can CHANGE the discourse in economics, and CHANGE the history of economics. That is the only reason you are intrmidating me with this “you must be assimiliated to the Borg” kind of rhetoric.

    For Pete’s sake, are you not paying attention? Austrian economics is now a household school of thought. 10 years ago, hardly anyone even knew what it is about. Same thing with market monetarism. While I consider market monetarism to be built on an intellectual house of cards, I nevertheless respect how only a handful of bloggers were able to successfully make NGDP a growing part of economics discourse. Austrianism and Market Monetarism are beneficiaries of the internet. Random morons like myself and Sumner are influencing others in ways neither expected. While plenty of people consider me batshit insane, I don’t care, because my goal is to get the ideas out there for intelligent people to digest and make contributions. I would consider myself controversial, but at least known around the blogosphere.

    If you’re so intelligent…

    Not so intelligent so as to consider myself intellectually capable of planning an entire nation’s money supply, change in money supply, and hence spending and interest rates.

    YOU believe you are so intelligent because you do consider yourself intellectually capable of knowing such things.

    then why did you miss my sarcasm (oh you were pretending not to understand sarcasm? Sarcastic about the sarcasm? what a cop-out). I was satirizing your approach to coming up with definitions, and exposing its flaws.

    You haven’t shown any flaws. I showed that your definition, when juxtaposed with your other convitions, suffers from internal contradictions.

    My preferred definitions aren’t something I came up with arbitrarily, they’re to help everyone else read the body of economic writing that’s out there and engage with it more effectively.

    You haven’t exactly shown how that is the case.

    Besides, my definitions do that more effectively. I can engage any definition with my own, and so far I have found grave problems with your definitions, as shown above.

    It is largely descriptive, but also prescriptive. What I didn’t do is say,

    “Right, according to my definition banana peels and electric leafblowers are capital; everything else is a consumer good.

    What? It’s my definition! You can’t say I’m wrong about my own definition!”

    Cool story. I didn’t say that stuff about leaf blowers or banana peels either.

    Like, why should we care about your definition if it’s no good?

    What kind of a question is that at this point, after yu just got through explaining your definition, and criticizing mine? This is like watching a UFC battle that lasts 5 rounds, and then one of the fighters says to the other “I mean really, why should I care about your desire to fight me?”

    My definition agrees with how all good economists talk;

    I agree, your definition is based on an appeal to authority. Congratulations.

    you have yet to show that your set of distinctions is useful.

    I showed it above. I showed it is useful in showing problems with your definitions.

    How can you demand that I show you that my definitions are useful, when your own standard is not usefulness at all, but merely ad populum?

    Suppose everyone used your definitions instead, would it help them even as much as the ones they use now, let alone mine?

    Yes.

    You’re the one who keeps misreading me. I didn’t say the coffee machine would survive every cup of coffee, only the first few. I was fairly clear about that.

    Actually, what you said was:

    “So if I set up a cafe on my street corner, then the espresso machine I buy survives every cup of coffee I make (those cups produced being the result of a stream of production services). Otherwise it would not be capital.”

    There is nothing about any “first few.” There is however an “if” statement that suggests an espresso machine that…survives every cup of coffee.

    The same espresso machine is still there after it is used to make the first three cups of coffee, the same espresso beans are not. The former is capital (having a fixed quality); the latter are materials. Materials are intermediate goods, so we don’t include them in GDP. A good that’s completely used up whenever it is used to make something (the amount of it actually used, that is) is material, not capital.

    That is your definition, this time switching from ad populum to GDP, which I already addressed above in that the defintion of GDP derives from defintions of goods, not the other way around.

    My definition would consider both the espresso machine and the intermediate goods such as the coffee beans as capital goods. I do not hold intermediate goods as mutually exclusive to capital goods. I hold intermediate goods as a component of capital goods, provided the intermediate goods were, you guessed it, purchased for the purpose of making subsequent sales.

    “The private factory is used to earn sales revenues, and those revenues can be used to repair and replace and improve the factory. Financing the factory is thus self-sustaining economic activity.”

    Dude, money is fungible, it doesn’t matter “which” revenues are used to finance repairs.

    But of course! I didn’t argue nor imply that the money had to be the same money.

    When I said that. Fresh new set of funds are required in the case of the bridge, it has to do with the subjective valuations on the part of individuals. The government is not receiving payments for the bridge on the basis of the individual users’ subjective values. The government is reciving payments according to the GOVERNMENT’S subjective values, and the taxpayers are legally onligated to pay their money (or their purchasing power in the case of inflation) to the government.

    This contrasts with the private factory, in which case those who are paying money are doing so because it is their subjective valuation of the factory’s output to pay for it. The government is not forcing people to pay the privatenfactory’s owners. ACTUAL individual subjective valuations by the payers are consistent with the payments,

    The government does not abide by the individual’s subjective valuation of the bridge when it takes his money to pay for the bridge. The government demands payment and the individual payer is expected to obey. If they don’t, then they will get thrown into a cage.

    This is why I consider payments to finance government bridges are “external” funds. They are external to the subjective valuations of the individuals who pay for it.

    The revenues from factory sales are the return on the capital investment of building it, used to calculate the present value. You would calculate the present value of the repairs (which are also investments) by taking the revenues earned from them.

    Irrelevant, but I agree.

    Land is a factor of production. We can set up private parks on it, which would be consumer goods. But land itself is neither a capital nor a consumer good, it’s one of the primary factors. See any economics book outside your imagination.

    I write my own textbooks.

    I define land as either a consumer good or a capital good, depending on the purpose of its purchase. As a sub-group, I agree with your definition that it is a primary factor, along with labor and capital that is not land capital.

    You will not get me to change my definitions unless you can show me why yours are more useful. Telling me to obey other people’s definitions, through appeals to authority, or ad populum, are not going to work.

  42. Gravatar of Saturos Saturos
    25. September 2012 at 00:24

    “And the retreat intensifies.”

    What exactly am I supposed to be retreating from? I’m not compromising any of my stated positions here. I just acknowledged you insistence that instead of describing what capital “is”, what you are doing is coming up with you own poor and completely arbitrary definitions, and insisting that they are better, despite having no bearing on the way economics is actually discussed in wider spheres.

    “You just don’t have confidence that you can CHANGE the discourse in economics, and CHANGE the history of economics. That is the only reason you are intrmidating me with this “you must be assimiliated to the Borg” kind of rhetoric.”

    Well, this blog is changing the history of economics right now, albeit not in ways of which you approve, and I’m a big supporter of it, so… I don’t even have to answer that. And no one is asking you to “assimilate”, god no! Just realise that even if you want to change the discourse, you have to talk to other people in a way that effectively captures the current discussion, which you’re not. And if you want to change people, your proposed changes have to be better, which as I’ve shown they’re not.

    MF, don’t compare yourself to Sumner. What is your original contribution to economics? Your definition of capital? Sounds suspiciously like what a lot of undergraduates think capital is, until they learn better. And it will never catch on, for reasons I’ve been explaining to you for the past few hours.

    “Not so intelligent so as to consider myself intellectually capable of planning an entire nation’s money supply, change in money supply, and hence spending and interest rates.”

    Oh, it’s easy. Just cooperate with the market, take its cues. That’s exactly what MM is about. (It’s also how CEO’s manage their companies.) And before you say there’s no such thing as the “market”, only individuals, try to understand what an abstraction is. (A metonym, in this case.)

    You haven’t found a single problem with my definitions, except when you didn’t even understand what they were! Please MF, you can do better than that.

    “your definition is based on an appeal to authority. Congratulations.”

    No, it’s an appeal to the purpose of language. How would switching to your definition improve economics? Adopting mine would help you engage more effectively with economics as it is currently practised. You can’t criticize that claim, because you yourself have said that you don’t care about how it’s currently practised, except as something you can change.

    OK, MF, you caught me making a mistake. I should have been more precise talking about the espresso machine, happy? I should have said, “it survives each coffee made in a single period, but not the combined effect of all the coffee production over multiple periods.” But my definition is still correct.

    About the bridge, I agree, but what you say seems to have nothing to do with whether it’s capital. The initial investment in the fixed asset is a cost which is justified by the revenue benefits it generates. If the revenues come from voluntary choice then the decision reflects real economic wealth creation, otherwise we don’t know. And the same goes for additional investments in repairs. Now what were you saying?

    I may regret this, but… can we see some of these textbooks you claim to have written? About whatever? Just out of morbid curiosity.

  43. Gravatar of Major_Freedom Major_Freedom
    25. September 2012 at 01:03

    Saturos:

    Oh and by the way governments sell their assets sometimes. So how can the bridge we were talking about not be capital, even under your own definition? If apples are capital, then so is the Golden Gate bridge, if a gazillionaire can possibly buy it off the State of California?

    Wasmthe Golden Gate bridge financed and constructed for the purpose of making subsequent sales? If not, it’s a consumer good. If so, it’s a capital good. Since it was not built for the purpose of making subsequent sales, it is a consumer good. Toll charge notwithstanding. If you define it as a capital good, then you would have to define all ill-gotten goods that are later sold as capital goods, and the owners capitalists.

    As I said, what a good is depends on how it will be used. Tuna is a current good, not a capital good. If it’s used by producers instead of consumers then it will not be a consumer good but rather a producer current good, ie. materials.

    This is your definition.

    My definition would treat the tuna can as a capital good, because it was purchased to make subsequent sales, and within that category, I may call it a producer good, or material, or intermediate good.

    Restaurants invest in materials in a financial sense only; in an economic sense it’s not investment as no new capital was created. Again, try reading the textbooks.

    It is not necessary that new capital is created by existing capital before something can be called an investment. This is because then I would have to define a machine the output of which is consumer goods, like say a factory that assembles and sells cars to consumers, a consumer good.

    Restaurants invest in materials in both the financial and economic sense. They invest in materials to earn profits, and they invest in materials to help produce other, more valuable goods.

    Under your view the “capital stock” of an economy, rather than being a collection of fixed structures like everyone else thinks it is, is an ongoing flow of goods which soon become consumer goods.

    No, that is not my view. That is a Platonic-Heraclitean view of entities, where it is not wheat that is used up in the production of flour, which is used up in the production of bread, but rather there is some non-existent “ideal” thing that goes through various forms on “its” way from raw material to finished good. When I buy bread, I am buying neither wheat nor flour. I am buying bread and only bread. That is what I am paying for. That is what I am subjectively valuing.

    We could not even think about the mathematical relationship between the size of the stock of different kinds of capital in an economy and the flow of consumables it produces each period.

    Cool story. I don’t intend to conceive of any such mathematical relationship. It is of no use to myself as a non-central planner.

    Electricity usage is materials consumption (producer consumption, as opposed to end-user or “consumer” consumption). Electrical device usage leads to capital consumption or depreciation..

    This is your definition.

    My definition would define electricity as a capital good if it purchased for making subsequent sales.

    And I said “some apples”. And “society” could obviously be referring to the set of all human individuals in the USA, which no smart Austrian would object to here.

    Of course they would object, because not ALL individuals produce, consume, nor value apples!

    Things cannot go on being resold unless there is going to be someone who eventually uses it himself.

    Of course, but that doesn’t mean producers and resellers depend on consumers as a class. As a class, consumers depend on producers and resellers.

    If that someone is a producer, and the same asset provides a flow of services over time, then it’s capital. Even before that ultimate producer gets hold of it. If it’s something that disappears with its use into its product, like bread making sandwiches, then it’s material. And it remains material even before the producer gets it. If the thing ends up with an individual who puts it in his house and uses its services for his own enjoyment for years, like a TV, it’s a consumer durable, a form of capital, even before he gets it. If it’s something that ends up with someone who eats it himself, it’s a current consumer good, even before he gets it.

    I would define the bread that goes into sandwiches as a capital good, if it was purchased for making subsequent sales. Within that category, I might call it a material.

    I think it is going too far in defining a durable consumer good a form of capital. For then I would have to consider my brand new Count of Monte Cristo gold trimmed hardcover book, my cans of tuna inn my basement, my clothes, my desktop PC, my bed, my carpet, indeed, almost everything in my house I use for consumption purposes, as forms of capital.

    It is problematic to define goods on the basis of their lifespans or durability. All goods last SOME period of time, and it is arbitrary to make the cut off time period X rather than Y years or months or whatever. “Durable” is a fuzzy, indeterminate word. For someone with incredibly high time preference, say someone with terminal cancer, then what used to be viewed as non-durable goods may become viewed as durable.

    Kapish?

    Hahaha. “You got it dude!”

    Otherwise you couldn’t talk about consumer goods production versus capital goods production, as everything produced by firms would be capital – until the retailers bought it, turning it into consumer goods.

    That is not my view. Even when retailers buy the goods, they are capital goods, because the owners of those goods bought them for the purposes of making subsequent sales. It is when the END USERS, the consumers, purchase them, are the goods consumer goods. When the retailers own them, they are not consumed by the retailers. They are held asman investment. Make no mistake, it is not guaranteed that the retailer will successfully sell the good to consumers. They could earn losses. They may fail to bring in sufficient revenues that would enable the retailer to replace the sold inventory with equal amount of new inventory.

    I define inventory as a category if capital good.

    A candy bar bought by Wal-Mart is capital under your definition and remains so until I buy it. But you would have to call production of candy bars capital goods production, which is stupid.

    No, I do not need to call the production of candy bars capital goods production necessarily, because I do not consider a candy bar at a wholesaler to be the same good as when it is on a retailer’s store shelf, nor do I consider these the same as when the candy bar is in your hand ready to be eaten. I consider these all to be DIFFERENT goods, despite the fact that they all LOOK like the same candy bar! You may think this just went a step into the absurd, but my position has merit. The justification for my position is that the PRICE is different at each “step.”. A candy bar at a wholesale does not trade at the same price as a candy bar at retail. If the two seemingly equivalent candy bars were truly identical goods, then they would carry the same price.

    In other words, a candy bar on Mount Olympus is not the same good as the same make and model candy bar that is at the corner store. They may look the same, but the foundation for my definition is individual subjective value, i.e. action, and so if the valuations are different, you are actually looking at two different GOODS, despite them mbeing the same physical candy bar in the nominal sense.

    The reason your head is probabky spinning right now is because you seem to be unable to think outside the physicality box. You aren’t tracing the good back to the individual human actor, so you overlook the real meaning of why the same candy bar would be priced differently througout the later productive stages when there is no longer any physical changes being made. You want to call a candy bar at wholesale a consumer good because it looks just like what you eat as a consumer. Whereas I look at the subjective valuations of the owner, whoever it may be in the production chain.

    Under your definition, what asset shows up on a firm’s balance sheet, but wasn’t purchased “for the purpose of making subsequent sales”?

    None. A balance sheet is by is nature a value estimate of a seller’s capital. This is why when capitalists buy companies, they pay prices relating to the assets they hope to be able to sell in the future, and not personally consume. They pay capital prices, not consumer prices. Consumers pay consumer prices.

    Firms are always trying to make subsequent sales, so everything they buy is capital according to you. (You could change that interpretation, but it would only make your definition worse.)

    Seriously, what is with this weak form of criticism where you just (attempt to) repeat my own definitionback to me, and then you consider that to be an actual critism of it?

    I define a capital good as a good that is bought for the purposes of making subsequent sales. This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations.

    It is very,very, very clear to me that I have the superior definition.

    The comment about your needing to read an accounting textbook was based on your implying that loaves of bread “depreciate” when they go into the oven at a bakery.

    I didn’t imply that. If I gave you that impression, it was unintended.

    Or what you actually said, that selling inventory is “using it up” or “depreciating it”.

    Now you’re just misrepresenting me outright. I never said selling inventory is “depreciating it.”

    Your reading comprehension is as bad as your definition choices.

    It’s neither, it’s disinvestment, which is cancelled by consumer spending on it in the GDP figures.

    I don’t use GDP as a standard for defining goods.

    It’s more important that a person refuses to accept that they were wrong about something, than that they happened to be mistaken in one of their views. The former suggests an intellectual flaw, the latter just an inevitable error in the learning process.

    Look in the mirror. You are describing yourself.

    MF, earlier you said:

    “I would say the opposite of a current good is a future good. If I own a can of tuna, that I intend startung now to hold for a month, is that can a current good or a future good? If it is a current good, then that would suggest the “currentness” of the good is associated with something in the present that isn’t the case in the future. This something can’t be the can itself, since it doesn’t change. That in turn suggests the currentness has to do with me in some way. If on the other hand the can is a future good, then that suggests the “futureness” of the good is associated with something in the future that isn’t the case in the present. Again, it can’t be the can itself, so again it must be something to do with me.”

    “In either case, the physicality of the can is not what makes it a present or future good. It has to do with my intentions for thr can. That leads towards my definition and away from your definition.”

    “Then according to your definition, should someone purchase and then resell a machine that helps produce bread, they would be reselling a consumer good because the machine hasn’t changed.”

    That is what led me to remark that you hadn’t read my definitions. I still think I was justified.

    Wait, WHAT is what led you to remark that? You again just repeated my argument and considered that a justification in your part that you showed criticisms of it,

    You specifically said to me that a good is a consumer good because it doesn’t change.

    Inventories are capital in the national income accounts, as they are bought by firms and will be used in the future. But strictly they’re not capital.

    Inventories are capital, but they are not capital?

    Or, the reason why inventories are treated as capital in national income accounts is because inventories are, you know, capital.

    I define inventories as capital, so even in your appeal to authority world, my definition is still superior, since my definition agrees with ad populum and authority.

  44. Gravatar of Saturos Saturos
    25. September 2012 at 02:02

    MF,

    Quick comments, because I actually have work to get on with:

    Why doesn’t the toll charge count?

    “It is not necessary that new capital is created by existing capital before something can be called an investment. This is because then I would have to define a machine the output of which is consumer goods, like say a factory that assembles and sells cars to consumers, a consumer good.”

    I parsed that paragraph, doesn’t seem to make logical sense.

    “No, that is not my view. That is a Platonic-Heraclitean view of entities, where it is not wheat that is used up in the production of flour, which is used up in the production of bread, but rather there is some non-existent “ideal” thing that goes through various forms on “its” way from raw material to finished good. When I buy bread, I am buying neither wheat nor flour. I am buying bread and only bread. That is what I am paying for. That is what I am subjectively valuing.” (Note the last sentence.)

    No, that’s not what I’m saying. I’m not getting into metaphysics here at all, only mathematics. Here, I’ll give you a couple more definitions:

    But it’s ironic you said that, because later on, you say this:

    No, I do not need to call the production of candy bars capital goods production necessarily, because I do not consider a candy bar at a wholesaler to be the same good as when it is on a retailer’s store shelf, nor do I consider these the same as when the candy bar is in your hand ready to be eaten. I consider these all to be DIFFERENT goods, despite the fact that they all LOOK like the same candy bar! You may think this just went a step into the absurd, but my position has merit. The justification for my position is that the PRICE is different at each “step.”. A candy bar at a wholesale does not trade at the same price as a candy bar at retail. If the two seemingly equivalent candy bars were truly identical goods, then they would carry the same price.

    In other words, a candy bar on Mount Olympus is not the same good as the same make and model candy bar that is at the corner store. They may look the same, but the foundation for my definition is individual subjective value, i.e. action, and so if the valuations are different, you are actually looking at two different GOODS, despite them mbeing the same physical candy bar in the nominal sense.

    And, remember, you also said this in a previous comment:
    Caveat: Some capital goods increase in value over time. These tend to be “unchanged” capital goods that are valued more the older they get, for example wines, certain cars, antique collector’s items, among other goods. Yet the purchasing for the purpose of making subsequent sales remains, and that is why they are capital goods. So capital goods in general can either decrease or increase in value over time.

    At this point everyone reading this can see that you’ve just massively contradicted yourslef. And it is also apparent that the foundation for your definitions is in fact bullshit. (I don’t however expect you to realize you’ve contradicted yourself, as you appear to lack basic logical inference capacities. And I’m not going to write out the goddamn Turing machine instructions for you.)

    “Of course they would object, because not ALL individuals produce, consume, nor value apples!”

    But they as a group, defined as a set of individuals, are collectively using them as a consumer goods, though not each member for themselves. Just as it is logically correct to say that my family eats chocolate biscuits, even if I don’t eat them myself, as I am a member of the set “my family” and thus the predicate “eats chocolate biscuits” is true in second-order logic for the set “my family” even if it is false for some members of that set (me). Reverse fallacy of composition, is what you’re suffering from here.

    “Under your definition, what asset shows up on a firm’s balance sheet, but wasn’t purchased “for the purpose of making subsequent sales”?

    You: None.”

    Well now your early argument, “If a grocery store buys apples from an orchard at wholesale prices, hoping to resell them with a markup, then the grocery store owner would account for these apples as ASSETS (inventory) on their balance sheet. Would you call these apples capital goods or consumer goods from the owner’s perspective? Obviously they would be capital goods, correct?” makes no sense to me at all. But whatever, I’ll stop talking about balance sheets.

    “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations. ”

    And that purchase is recorded on the firms books, is it? So a purchase by a sole proprietor for his private use is a purchase by his business?

    “Now you’re just misrepresenting me outright. I never said selling inventory is “depreciating it.””

    Oh am I?

    You, earlier:

    Yes, everything in the store are capital goods according to my definition because they were purchased for the purposes of making subsequent sales. I don’t see a problem with this. I mean, the store accounts for everything on its store shelves as inventory, and inventory is accounted for as assets on the store’s balance sheet. This is what owners of capital goods typically do. They capitalize their assets according to the price they paid for them, then they make expense charges as the assets are used up or depreciated.

    and even earlier:

    Yeast is capitalized as an asset, then expensed as it is used up (or as the bread is sold, whatever the case may be).

    So you were trying to establish the plausibility of your definition of capital, by talking about how all assets are expensed off balance sheets, and equating this with depreciation, which indeed is a term that only applies to capital. I pointed out that you were considering inventories and materials to be capital in that case. You then denied this, and accused me of misrepresentation. And I am now proving that it is in fact you who misrepresented me.

    “You specifically said to me that a good is a consumer good because it doesn’t change.”

    No, I was saying that the particular apples we were talking about then would be consumer goods, unless they changed. What was implied was that if they had changed, then they would have been transformed by the firms handling them, which would make them materials inputs. This was not a statement of my definition; my definitions are at the top of the page, and I suggest you eventually read them. If the apples had changed then we would be talking about two separate goods, the former a producer good, and the latter a consumer good. Producer goods are used by producers and consumer goods are used by consumers. Is it really that hard?

    You can’t appeal to authority for your definitions, after specifically rejecting mainstream opinion throughout this argument, and defending your weird postulations (same thing is first a capital and then a consumer good) by essentially saying that you’re smarter than the rest of the economics profession.

    What else you got? ;)

  45. Gravatar of Saturos Saturos
    25. September 2012 at 02:03

    Whoops, forgot to include my additional definitions.

    Stock: A discrete quantity which is measured at specific points in time, usually a quantity of resources.
    Flow: A continuous quantity which is measured per unit of time, usually a quantity of resources flowing through a specific location point (locus) in the economy within a given time interval.

  46. Gravatar of Major_Freedom Major_Freedom
    25. September 2012 at 02:08

    Saturos:

    “And the retreat intensifies.”

    What exactly am I supposed to be retreating from?

    Your prior position. It has noticably changed.

    I’m not compromising any of my stated positions here.

    I showed that you are.

    I just acknowledged you insistence that instead of describing what capital “is”, what you are doing is coming up with you own poor and completely arbitrary definitions

    Except it is I who has shown your definitions to be poor, and that your justification of appeal to authority is arbitrary. You have not at all shown how my definitions are poor or arbitrary. You have only been desperately grasping at straws.

    and insisting that they are better, despite having no bearing on the way economics is actually discussed in wider spheres.

    Appeal to authority yet again. I have to join the Borg. Where the “sphere” is “wider” whatever the hell that means. Who are you referring to specifically, and why should I adopt their definitions?

    What, aremyou saying that if I lived in the year 1700 AD, and I started talking about women’s suffrage, or saying black people are individuals with the same rights as whites, should I expect some yahoo to spew this vicious nonsense that I am not saying things that are “actually discussed” in “wider political spheres”?

    I am not afraid of going against the tidal wave of status quo momentum. Stop trying to put your low self-esteem and high self-doubt on me. It’s pissing me off.

    Christ, if Sumner thought like you did, do you think NGDP would be discussed like it is now? Do you think if Austrians followed the Borg as you demand, that it would be where it is today?

    If Others actually acted in the way you want them to act, they would be as irrelevant and inconsequential as you have made yourself to be.

    I am losing my patience with you because you are not trying to convince me of any truth, but to join the Borg. I do not have respect for people like that.

    “You just don’t have confidence that you can CHANGE the discourse in economics, and CHANGE the history of economics. That is the only reason you are intrmidating me with this “you must be assimiliated to the Borg” kind of rhetoric.”

    Well, this blog is changing the history of economics right now, albeit not in ways of which you approve, and I’m a big supporter of it, so… I don’t even have to answer that.

    That is a non sequitur. What does that have to do with you? I was talking about you, not Sumner. He’s confident enough to not care if others seek to make him look foolish. What if Sumner just followed the orthodox monetarists, the way you want me to follow you?

    And no one is asking you to “assimilate”, god no! Just realise that even if you want to change the discourse, you have to talk to other people in a way that effectively captures the current discussion, which you’re not.

    In other words, you want me to be assimilated. You want me to change my ideas and my definitions to be in line with others, rather than encouraging me to have others change their ideas and their definitions to be in line with my own.

    I can’t possibly change the discourse through ADOPTING the existing discourse! Are you for real? Your technique recommendation is waaay off.

    And if you want to change people, your proposed changes have to be better, which as I’ve shown they’re not.

    No, you have not shown that at all. It is I who has shown that your definitions are inferior to mine. I have shown many, many problems in your definitions, and your only response has been for me to shut up and join the Borg and adopt their definitions.

    MF, don’t compare yourself to Sumner.

    Oh don’t worry, I know he doesn’t compare to me.

    What is your original contribution to economics?

    I developed a new theory of how to fleece Americans by changing the speed at which the legalized counterfeiting operators are to print money.

    Your definition of capital?

    haha, no.

    Definitions, for the millionth time, are not right or wrong. They are not objective.

    Sounds suspiciously like what a lot of undergraduates think capital is, until they learn better. And it will never catch on, for reasons I’ve been explaining to you for the past few hours.

    haha, “sounds like what a lot of undergraduates think”. As if you are even privy to such information. That’s hilarious, considering how my definition isn’t even being taught to undergraduates.

    If I wanted to sound like your average undergraduate, I would take what you are saying, then double its quality of presentation.

    It’s clear you just wanted to take a thinly vield swipe at my academic credentials. So I responded in kind. It is clear that you feel extremely intimidated, and you’re just setting up a reaction formation to give yourself a psychological hit.

    “Not so intelligent so as to consider myself intellectually capable of planning an entire nation’s money supply, change in money supply, and hence spending and interest rates.”

    Oh, it’s easy. Just cooperate with the market, take its cues. That’s exactly what MM is about.

    That isnquite franky an asinine statement to make, I mean, who in their right mind would consider a state monopoly on money that systematically violates the market process in money, an institution that “cooperates” with the market? The only way to cooperate with thr market is to act in accordance with market principles, which means you don’t threaten people to live under state enforced monopoly over money.

    MM is based on a non-market system in money production, and it utilizes non-market “rules” of money printing. Orthodox monetarists also thought they were just “taking cues from the market” when they targeted price levels. They also thought that if the market produced more goods that would otherwise result in falling prices, the Fed will just “accommodate” the market and print whatever money the market “wanted” that ensured a non-falling price level.

    MM is no different, only instead of price levels being overruled by the Fed, aggregate spending will be overruled by the Fed.

    You say central planning in money production is “easy”, and that smacks of fatal conceit. You don’t know what the “correct” aggregate demand ought to be. You’re deluding yourself.

    (It’s also how CEO’s manage their companies.)

    No it isn’t. CEOs (most of thrm anyway) do not use threats of violence against others and demand protection in a commodity issued by the CEO’s company, such that the CEO creates an artificial universal demand for his commodity in the market.

    You’re equating market process behavior with political process behavior. You are equating a central planner with an individual businessman. You’re totally out to lunch.

    And before you say there’s no such thing as the “market”, only individuals, try to understand what an abstraction is. (A metonym, in this case.)

    You must be having fun talking to your demons.

    You haven’t found a single problem with my definitions, except when you didn’t even understand what they were! Please MF, you can do better than that.

    I have found MANY problems with your definitions, as explained above. I don’t need to do better.

    “your definition is based on an appeal to authority. Congratulations.”

    No, it’s an appeal to the purpose of language.

    No, it was an appeal to authority.

    How would switching to your definition improve economics?

    i have already shown this.

    Adopting mine would help you engage more effectively with economics as it is currently practised.

    More appealsmto authority.

    I intend to improve how it is currently practised. Not merely adopt it.

    You can’t criticize that claim, because you yourself have said that you don’t care about how it’s currently practised, except as something you can change.

    If I intend to change it, then by definition it would be against my interests to adopt what is already accepted by the authorities, or the majority, or whatever.

    OK, MF, you caught me making a mistake. I should have been more precise talking about the espresso machine, happy?

    What does it mean to be “more precise” than being wrong?

    No, I am not happy with you admitting you made a mistake. I am not here to read someone tell me they made a mistake after I pointed it out to them.

    I should have said, “it survives each coffee made in a single period, but not the combined effect of all the coffee production over multiple periods.” But my definition is still correct.

    Again, for the millionth and first time, definitions are neither “correct” nor “incorrect.”

    They are either useful or not useful. Helpful or not helpful. Leading or misleading. Clear or unclear. The “soft” types of argumentative judgments.

    About the bridge, I agree, but what you say seems to have nothing to do with whether it’s capital.

    I said a million times that a good is a capital good if it is purchased for the purpose of making subsequent sales.

    The initial investment in the fixed asset is a cost which is justified by the revenue benefits it generates.

    Government bridges do not generate revenues. They generate political ends. To the extent the government charges a toll, the taxpayers cover the rest of what is needed to repair and replace them. They are not designed to earn profits. I said revenues and sales before, but to be perfectly accurate, I should say profits, which are (hopefully) earned in revenues. The state is a non-profit institution.

    If the revenues come from voluntary choice then the decision reflects real economic wealth creation, otherwise we don’t know. And the same goes for additional investments in repairs. Now what were you saying?

    The part where the money to originally finance the bridge, and the money used to pkeep the bridge, is not from voluntary choice, but involuntary taxation.

    Now, what were you saying?

    I may regret this, but… can we see some of these textbooks you claim to have written? About whatever? Just out of morbid curiosity.

    I prefer to remain anonymous. I would totally defeat the purpose of my anonymous online handle to divulge my true self. Your worries of regret are safe.

  47. Gravatar of Saturos Saturos
    25. September 2012 at 03:20

    “Your prior position. It has noticably changed.”

    Which one?

    “What, aremyou saying that if I lived in the year 1700 AD, and I started talking about women’s suffrage, or saying black people are individuals with the same rights as whites, should I expect some yahoo to spew this vicious nonsense that I am not saying things that are “actually discussed” in “wider political spheres”?”

    Great example MF. In this scenario you most certainly could not start by putting forward your own alternative definitions of “rights” and “individuals”, even if that is where you eventually wished others to end up. If I tried to explain to you how everyone else was using these words then, so that you could persuade them more effectively, would you call this an “appeal to authority”? Because that is exactly what you’ve been doing in our argument. Scott Sumner, for example, has not been using his own arbitrary definitions of “NGDP”, “money”, “prices” or “inflation”, but he has got people to think about the significance of these concepts in a different way. If he “wins” this discourse, then people might take his advice, for example, of refusing to talk about “inflation” at all. Or agreeing that the best way to think about money is by looking at the monetary base. Or agreeing that CPI inflation is meaningless. Or agreeing that income is usually irrelevant compared to consumption.

    Similarly you are not going to win any supporters (how many do you have right now) by demanding that everyone follow your arbitrary and socially-disconnected (not the way economists currently talk) definitions of, say, capital. At least not until you’ve convinced people of your other good points, if you have any.

    Perhaps if we all really did ignore you, you would finally understand this point.

    “If I intend to change it, then by definition it would be against my interests to adopt what is already accepted by the authorities, or the majority, or whatever.”

    Another revealing sentence. You seem to be ignoring the distinction between adopting a use of language and supporting it. Suppose that you were trying to convince racist Whites not to say “nigger”. Unfortunately, these guys had no idea who you were talking about, unless you said “nigger”. So you would have to use the word when talking to them, until you could convince them that “African-American” or “Black person” was better. You would be adopting their language, though not supporting it, and in a sense you would be agreeing that their terminology was “correct”, until you had managed to supplant it with a better one (because in the racist language, “nigger” is the correct name for a black person). This is an extreme example, obviously in reality racists understand what you mean by “African American”, but you see my point.

    “How would switching to your definition improve economics?

    i have already shown this.”

    Where? I can’t see it anywhere. Someone else post if they can.

    And your demonstration that my definitions are inadequate? I can’t see them either. Why don’t you repost one of your examples of inadequacy of my definitions, with the relevant definition posted next to it. Then everyone can see whether you’ve shown that my definition is bad.

  48. Gravatar of Major_Freedom Major_Freedom
    25. September 2012 at 03:22

    Saturos:

    Why doesn’t the toll charge count?

    Because the bridge wasn’t intended to be financed and built to collect tolls. It was intended to be built for political ends.

    “It is not necessary that new capital is created by existing capital before something can be called an investment. This is because then I would have to define a machine the output of which is consumer goods, like say a factory that assembles and sells cars to consumers, a consumer good.”

    I parsed that paragraph, doesn’t seem to make logical sense.

    Parse harder.

    “No, that is not my view. That is a Platonic-Heraclitean view of entities, where it is not wheat that is used up in the production of flour, which is used up in the production of bread, but rather there is some non-existent “ideal” thing that goes through various forms on “its” way from raw material to finished good. When I buy bread, I am buying neither wheat nor flour. I am buying bread and only bread. That is what I am paying for. That is what I am subjectively valuing.” (Note the last sentence.)

    No, that’s not what I’m saying. I’m not getting into metaphysics here at all, only mathematics.

    You may have said it unintentionally, but that is what you said.

    Here, I’ll give you a couple more definitions:

    But it’s ironic you said that, because later on, you say this:

    Wait, where are the couple more definitions?

    “No, I do not need to call the production of candy bars capital goods production necessarily, because I do not consider a candy bar at a wholesaler to be the same good as when it is on a retailer’s store shelf, nor do I consider these the same as when the candy bar is in your hand ready to be eaten. I consider these all to be DIFFERENT goods, despite the fact that they all LOOK like the same candy bar! You may think this just went a step into the absurd, but my position has merit. The justification for my position is that the PRICE is different at each “step.”. A candy bar at a wholesale does not trade at the same price as a candy bar at retail. If the two seemingly equivalent candy bars were truly identical goods, then they would carry the same price.”

    “In other words, a candy bar on Mount Olympus is not the same good as the same make and model candy bar that is at the corner store. They may look the same, but the foundation for my definition is individual subjective value, i.e. action, and so if the valuations are different, you are actually looking at two different GOODS, despite them mbeing the same physical candy bar in the nominal sense.”

    And, remember, you also said this in a previous comment:

    “Caveat: Some capital goods increase in value over time. These tend to be “unchanged” capital goods that are valued more the older they get, for example wines, certain cars, antique collector’s items, among other goods. Yet the purchasing for the purpose of making subsequent sales remains, and that is why they are capital goods. So capital goods in general can either decrease or increase in value over time.”

    At this point everyone reading this can see that you’ve just massively contradicted yourslef.

    At a previous point waaaay back, everyone can see that you have a penchant for making bold claims, without even attempting to substantiate them.

    How in the world are the preceding statements contradictory? I deliberately put “unchanged” in scare quotes because I was using your terminology so that you knew what I was referring to, not because I actually believe the good is the same.

    And it is also apparent that the foundation for your definitions is in fact bullshit. (I don’t however expect you to realize you’ve contradicted yourself, as you appear to lack basic logical inference capacities. And I’m not going to write out the goddamn Turing machine instructions for you.)

    Oh I get it. You’re using a few of my ex girlfriend’s tactics. “You did something wrong, and if you don’t know what I mean, then I am not telling you.”

    You haven’t even come close to showing how the foundation of my definitions is “i fact bullshit”, nor have you shown how I contradicted myself, nor have you shown I “lack basic logical inference capacities.”

    ou’re just throwing everything but the kitchen sink aren’t you? You sound mad.

    “Of course they would object, because not ALL individuals produce, consume, nor value apples!”

    But they as a group, defined as a set of individuals, are collectively using them as a consumer goods, though not each member for themselves.

    Speaking of contradictory statements…

    That hasmgotmto be the most desperate contorted attempt at salvaging a false statement I have ever heard. “As a group (which group? Everyone?) defined as a set of individuals (which individuals? Everyone?), are collectively using (how can an apple be “collectively used” by an undefined “set of individuals”?) them as consumer goods, though not each member for themselves (then who? Is each individual in the “set” consuming on other people’s behalf or something?).

    That muddled statement is the product of a mind clouded by trying to reconcile two irreconciliable concepts, that of the individual and that of “society” APART from individuals. Your going off on a Platonic-Plotinean endeavor that leads to dogmatism, reificiation fallacy, and hypostatization.

    Just as it is logically correct to say that my family eats chocolate biscuits, even if I don’t eat them myself, as I am a member of the set “my family” and thus the predicate “eats chocolate biscuits” is true in second-order logic for the set “my family” even if it is false for some members of that set (me). Reverse fallacy of composition, is what you’re suffering from here.

    Hahahahahaha

    Oh man, this is going downhill faster than Romney’s campaign.

    It is not in fact logically correct to say “my family eats chocolate” if you are referring to members of said family who do not eat chocolate. Predicates to subjects that are sets cannot have elements in the subject sets that contradict the predicates. That is, if you are utilizing the first order logic (e.g. Pleano axioms) and not your made up space monkey grunts.

    The set “my family”, if it is going to be identfied as having the predicate “eats chocolate”, is not logically consistent with “a member of my family does not eat chocolate.”

    It would be like saying “America is composed by 50 states” and then saying “One of those states is not a component of America.”

    I highly recommend that you think a little before continuing this tutoring session in the way you have been approaching it thus far. You have already looked rather foolish, maybe you are interested in salvaging your credibility, whatever amount you had that is.

    Under your definition, what asset shows up on a firm’s balance sheet, but wasn’t purchased “for the purpose of making subsequent sales”?

    You: None.”

    Well now your early argument, “If a grocery store buys apples from an orchard at wholesale prices, hoping to resell them with a markup, then the grocery store owner would account for these apples as ASSETS (inventory) on their balance sheet. Would you call these apples capital goods or consumer goods from the owner’s perspective? Obviously they would be capital goods, correct?” makes no sense to me at all. But whatever, I’ll stop talking about balance sheets.

    Why does it not make sense? In the former quote, the assets are capital goods. In the latter quote, the assets are capital goods.

    “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations. ”

    And that purchase is recorded on the firms books, is it? So a purchase by a sole proprietor for his private use is a purchase by his business?

    Typically, consumption of business owners is financed by dividends, interest payments, and draw payments. These are straight up cash transfers from business bank accounts to business owner bank accounts. As such, they would not show up on balance sheets. On income statements, they would. They are not capital goods, they are consumer goods external to the firm.

    “Now you’re just misrepresenting me outright. I never said selling inventory is “depreciating it.””

    Oh am I?

    You, earlier:

    “Yes, everything in the store are capital goods according to my definition because they were purchased for the purposes of making subsequent sales. I don’t see a problem with this. I mean, the store accounts for everything on its store shelves as inventory, and inventory is accounted for as assets on the store’s balance sheet. This is what owners of capital goods typically do. They capitalize their assets according to the price they paid for them, then they make expense charges as the assets are used up or depreciated.”

    Sigh…

    Used up or depreciated DOES NOT EQUAL depreciated.

    The reason why I said used up or depreciated is because not all assets are depreciated, but some assets are depreciated.

    You quoted me as saying depreciated…and that’s it. I said both.

    and even earlier:

    “Yeast is capitalized as an asset, then expensed as it is used up (or as the bread is sold, whatever the case may be).”

    No depreciated here either.

    So you were trying to establish the plausibility of your definition of capital, by talking about how all assets are expensed off balance sheets, and equating this with depreciation, which indeed is a term that only applies to capital.

    Capital IS an asset. Assets that are expensed can be either used up OR depreciated, like I said.

    I didn’t “equate” all expensing of assets as depreciation. Can you not see the word OR right there in front of you?

    I pointed out that you were considering inventories and materials to be capital in that case. You then denied this, and accused me of misrepresentation. And I am now proving that it is in fact you who misrepresented me.

    what the flying frog figs…

    I didn’t deny that materials and inventories are capital, in fact I explicitly stated I hold materials and inventories are capital, provided that what we mean by these terms is consistent with them being purchased for the purpose of making subsequent sales.

    Secondly, where did I misrepresent you? You didn’t prove I did!

    “You specifically said to me that a good is a consumer good because it doesn’t change.”

    No, I was saying that the particular apples we were talking about then would be consumer goods, unless they changed.

    I already showed this to be problematic, because apples can be used in the production of apple pies for sale later on, in which case the apples would be capital goods, not consumer goods, even if the apple does not change from one sale to another.

    What was implied was that if they had changed, then they would have been transformed by the firms handling them, which would make them materials inputs.

    I define material inputs as capital goods.

    This was not a statement of my definition; my definitions are at the top of the page, and I suggest you eventually read them.

    Like I already told you, I already have. You keep trying to the give the impression that I am not an interlocutor who pays attention. I already said that I am responding to the posts you are directing towards me.

    If the apples had changed then we would be talking about two separate goods, the former a producer good, and the latter a consumer good. Producer goods are used by producers and consumer goods are used by consumers. Is it really that hard?

    I am not not/i> getting what you are saying. I just reject it because it is problematic. You have so many conflicting criteria for defining capital goods and consumer goods. You’re again doing what I said you were doing, which you denied doing, and that is to conceive of entities in a Platonic-Heraclitean manner. Just look at what you said just now. You said “If THE apple changes.” But there is no “the” apple that changes from apple apple, to pie apple. An apple is USED UP in the production of an apple pie. Once the apple pie is made, the apple NO LONGER EXISTS. There is no changed apple. There is an apple productively consumed; used up. Cheechie. Gone.

    I am not a “changed collection of atoms”, I am me and only me. An apple pie is not an apple that underwent change. An apple pie is a good in which an apple was used up until it no longer existed.

    You can’t appeal to authority for your definitions, after specifically rejecting mainstream opinion throughout this argument, and defending your weird postulations (same thing is first a capital and then a consumer good) by essentially saying that you’re smarter than the rest of the economics profession.

    I didn’t appeal to any authority.

    What else you got?

    More than what you have got, I can tell you that. Having fun yet? We’re just getting started.

  49. Gravatar of Saturos Saturos
    25. September 2012 at 03:39

    “Because the bridge wasn’t intended to be financed and built to collect tolls. It was intended to be built for political ends.”

    Um, it was built by the government for folks to drive over, from whom they would earn toll revenues, which is a big part of why they chose to built it in the first place.

    ““You did something wrong, and if you don’t know what I mean, then I am not telling you.””

    What the heck do you think I’ve been doing all day? Mate, you’re doing everything wrong.

    “They capitalize their assets according to the price they paid for them, then they make expense charges as the assets are used up or depreciated.”

    Only capital assets are “capitalized”, which is where we get the present value. Then they are depreciated, which as you now say is not the same as “using them up”. So you’re still wrong. (Assuming you’re following the normal rules of prose, and using the word “assets” to refer to the same thing both times.)

    Of course there is a “the apple”, and it doesn’t require me to endorse Plato, Heraclitus, Paramenides, Thales or what have you to say so. If a firm buys an input and transforms it, say it takes apple juice and resells it as “reconstituted” apple juice, then even though we might call them both apple juice they are not the same thing. Don’t have to be a metaphysician to get that.

    “Once the apple pie is made, the apple NO LONGER EXISTS. There is no changed apple. There is an apple productively consumed; used up. Cheechie. Gone.”

    And that is precisely why it’s not capital! No one except you thinks that when an input becomes “Cheechie, Gone” as soon as you use it to make something, you can still call it capital. And nowhere have you explained why anyone else ought to change their mind, apart from asserting that that’s the way you think of it.

    MF, if we’re gonna keep doing this, please use blockquotes, your posts are really hard to read.

  50. Gravatar of Major_Freedom Major_Freedom
    25. September 2012 at 03:42

    Saturos:

    “Your prior position. It has noticably changed.”

    Which one?

    hahahahaha

    Exactly. When someone changes their position, the outcome is a multiple of positions. it’s amusing that you asked me which one of your many positions I was referring to, because I was referring to the fact that that are more than one on account of you changing it.

    “What, aremyou saying that if I lived in the year 1700 AD, and I started talking about women’s suffrage, or saying black people are individuals with the same rights as whites, should I expect some yahoo to spew this vicious nonsense that I am not saying things that are “actually discussed” in “wider political spheres”?”

    Great example MF.

    Thanks. If it burns, then try to use better logic next time.

    In this scenario you most certainly could not start by putting forward your own alternative definitions of “rights” and “individuals”, even if that is where you eventually wished others to end up.

    OF COURSE I COULD!!!!

    If the prevailing belief concerning individual rights was that black people didn’t have them, or at least had different rights than whites, then the very first thing I would do is put forward a “new” alternative definition of rights that doesn’t exclude black people!

    My patience is wearing thin.

    If I tried to explain to you how everyone else was using these words then, so that you could persuade them more effectively, would you call this an “appeal to authority?

    no, I would say that your claim that the “wide sphere” discourse concerning rights is superior to mine, and that I should change my definition to match the prevailing one, solely due to the fact that it is the prevailing one, is what I would call fallacy of authority.

    You are not merely “explaining” to me “how everyone else uses the term”. You are demanding that I CHANGE my defintition to match theirs.

    Because that is exactly what you’ve been doing in our argument.

    Where? Back up your claims please. you haven’t properly backed up any claims you have made against mine! You haven’t shown how my definition is poor.

    Scott Sumner, for example, has not been using his own arbitrary definitions of “NGDP”, “money”, “prices” or “inflation”, but he has got people to think about the significance of these concepts in a different way.

    You are just defining “arbitrary” to mean anything not appeal to authority or ad populum.

    You are merely restating the same thing in different ways. Why can’t you get out of your box?

    If he “wins” this discourse, then people might take his advice, for example, of refusing to talk about “inflation” at all. Or agreeing that the best way to think about money is by looking at the monetary base. Or agreeing that CPI inflation is meaningless. Or agreeing that income is usually irrelevant compared to consumption.

    sumner’s definition of capital good is not where he is getting attention.

    secondly, I do not consider convincing people of a destructive idea that NGDP targeting is sustainable, is something to replicate.

    Similarly you are not going to win any supporters (how many do you have right now) by demanding that everyone follow your arbitrary and socially-disconnected (not the way economists currently talk) definitions of, say, capital. At least not until you’ve convinced people of your other good points, if you have any.

    my definition is not arbitrary.

    Perhaps if we all really did ignore you, you would finally understand this point.

    nope, it wouldmonly embolden me further.

    “If I intend to change it, then by definition it would be against my interests to adopt what is already accepted by the authorities, or the majority, or whatever.”

    Another revealing sentence. You seem to be ignoring the distinction between adopting a use of language and supporting it. Suppose that you were trying to convince racist Whites not to say “nigger”. Unfortunately, these guys had no idea who you were talking about, unless you said “nigger”. So you would have to use the word when talking to them, until you could convince them that “African-American” or “Black person” was better. You would be adopting their language, though not supporting it, and in a sense you would be agreeing that their terminology was “correct”, until you had managed to supplant it with a better one (because in the racist language, “nigger” is the correct name for a black person). This is an extreme example, obviously in reality racists understand what you mean by “African American”, but you see my point.

    You are saying something consistent with my point,

  51. Gravatar of Saturos Saturos
    25. September 2012 at 04:06

    “Capital IS an asset.”

    Are you now suggesting that there are some assets that aren’t capital? Name one, without contradicting your own definitions.

    “Why does it not make sense? In the former quote, the assets are capital goods. In the latter quote, the assets are capital goods.”

    Were you or were you not in the paragraph being referred to there, using the fact that they were assets on the balance sheet to support their status as capital goods?

    “I already showed this to be problematic, because apples can be used in the production of apple pies for sale later on, in which case the apples would be capital goods, not consumer goods, even if the apple does not change from one sale to another.”

    I myself was the one who raised that objection, as inspection of this page reveals. And I also provided the answer, that they may be producer or consumer goods depending on how they are used, but must inherently always be current and not capital goods because apples are not long-lived (if they are used throughout their life).

    “Predicates to subjects that are sets cannot have elements in the subject sets that contradict the predicates. That is, if you are utilizing the first order logic”

    Predicates can’t apply to subjects that are sets in first-order logic. That’s why I said second-order logic.

    Suppose there were people in your family that ate chicken. It would then be true for me to say “MF’s family eats chicken” even if you yourself didn’t eat chicken. And you are a member of the set “your family”. Now that’s a contextual definition of the set, which I have to resort to because I don’t know your actual last name.

    The set “my family”, if it is going to be identfied as having the predicate “eats chocolate”, is not logically consistent with “a member of my family does not eat chocolate.”

    Actually, not true.

    It would be like saying “America is composed by 50 states” and then saying “One of those states is not a component of America.”

    That’s a terrible analogy, as your 1st sentence is a definition. In the case of, “the X family eats apples”, eats apples(x) will be true so long as there is at least one X-family member who eats them.

    But you can see that the argument is going down the toilet, when we have to resort to set theory just to clarify what we’re talking about.

    Here is an example of a sub-argument that I clearly won today:

    “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations. ”

    And that purchase is recorded on the firms books, is it? So a purchase by a sole proprietor for his private use is a purchase by his business?

    Typically, consumption of business owners is financed by dividends, interest payments, and draw payments. These are straight up cash transfers from business bank accounts to business owner bank accounts. As such, they would not show up on balance sheets. On income statements, they would. They are not capital goods, they are consumer goods external to the firm.

    So for your statement in the first paragraph to have made sense, you had to have given a counterexample. So you must have meant that, eg. Mr. Roberts using Roberts Traders money to buy himself a vacation, is not the purchase of a capital good, even though it is something that “Roberts Traders” purchased (or that paragraph doesn’t make sense).

    You then admit that the purchase doesn’t show up on the firm’s balance sheet. It shows up on the income statement as a withdrawal. Of course this entry does not state the purchase itself. You agree, saying that “They are not capital goods, they are consumer goods external to the firm”.

    Haven’t you unambiguously contradicted yourself here? From earlier, you must believe that Roberts taking money from his business is A) not a capital good and B) a purchase by the business. Then later, you reaffirm a) but reject b). So you end up saying: (B AND ‘B). That’s a contradiction buddy.

    As the Americans say, TOUCHDOWN!

  52. Gravatar of Saturos Saturos
    25. September 2012 at 04:10

    Let me rephrase my question:

    ““Your prior position. It has noticably changed.””

    In the above sentence, what does “Your prior position” refer to?

  53. Gravatar of Saturos Saturos
    25. September 2012 at 04:12

    Whoops, should have been, “eats apples (X).”

  54. Gravatar of Saturos Saturos
    25. September 2012 at 04:20

    “Capital IS an asset.”

    Are you now suggesting that there are some assets that aren’t capital? Name one, without contradicting your own definitions.

    Assets on the balance sheet of a firm, I mean. Not a household.

    Were you or were you not in the paragraph being referred to there, using the fact that they were assets on the balance sheet to support their status as capital goods?

    Here is the relevant paragraph, once again:

    If a grocery store buys apples from an orchard at wholesale prices, hoping to resell them with a markup, then the grocery store owner would account for these apples as ASSETS (inventory) on their balance sheet. Would you call these apples capital goods or consumer goods from the owner’s perspective? Obviously they would be capital goods, correct?

  55. Gravatar of Saturos Saturos
    25. September 2012 at 19:26

    Hmmm, guess I won that one.

  56. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:25

    Saturos:

    Are you now suggesting that there are some assets that aren’t capital? Name one, without contradicting your own definitions.

    IP

    Were you or were you not in the paragraph being referred to there, using the fact that they were assets on the balance sheet to support their status as capital goods?

    I have already stated that the sole criteria I use to distinguish capital goods from consumer goods is the purpose of the purchase: for future sales, or not for future sales, and that I only refer to balance sheets and income statements so as to give a better understanding of my definition.

    The financial statement stuff is not necessary to what I am saying. After all, if you buy apples because you notice an arbitrage opportunity, then you become a capitalist, an owner of capital, even if you do not actually account for the apple in any balance sheet or income statements. This is because you purchased the apple in order to make subsequent sales. (You are taking on risk. It is possible you will incur a loss, if in between the time the apple was purchased and sold, the price in the latter location suddenly increased, or maybe all the buyers changed their minds, or maybe your apple will get lost or become rotten, or whatever.)

    I myself was the one who raised that objection, as inspection of this page reveals. And I also provided the answer, that they may be producer or consumer goods depending on how they are used, but must inherently always be current and not capital goods because apples are not long-lived (if they are used throughout their life).

    You didn’t raise that objection, I did. I was the one who raised the objection that I don’t define an apple as necessarily a consumer good. You said it remains a consumer good because it doesn’t change. You said that because it doesn’t change, it isn’t an intermediate good, or material, and because it’s not that, it must be a consumer good.

    I pointed out that according to my definition, the physicality of the apple has nothing to do with determining whether or not it is a capital or consumer good, because what does determine it is the HUMAN element, the human purpose element, what the owner intends to do with the apple. That is what I look at when defining capital goods and consumer goods.

    If we consider the physicality only, then like I showed many times already, we run into problems. Since you don’t seem to understand this crucial point, I shall give more examples:

    A pick-up truck. If it is purchased not for the purpose of making subsequent sales, if it purchased for direct utility, as for example leisure, then it is a consumer good. If on the other hand THAT SAME EXACT TRUCK is instead purchased for the purpose of making subsequent sales, if it is purchased for indirect utility, as for example at a construction company that purchased the truck to deliver equipment to work sites, than it is a capital good.

    A pen. If it purchased not for making future sales, if it purchased for direct utility, like in a house, then it is a consumer good. If it is purchased for making subsequent sales, if it is purchased for indirect utility, like in an office, then it is a capital good.

    A washing machine. Purchased for use in your home, a consumer good. Purchased to make a profit at a dry cleaner, a capital good.

    A baseball. Purchased by the Yankees, a capital good. Purchased by someone for pick up games on weekends, a consumer good.

    Etc.

    Predicates can’t apply to subjects that are sets in first-order logic. That’s why I said second-order logic.

    Predicates can indeed apply to subjects that are sets in first order logic, if the set is itself an individual element. My definition does not extend beyond individual elements. It is a case by case analysis, using proportional logic that extends no further than first order logic. My definition does not use second order logic. It uses first order.

    Suppose there were people in your family that ate chicken. It would then be true for me to say “MF’s family eats chicken” even if you yourself didn’t eat chicken.

    Only if the definition of “MF’s family” doesn’t include me.

    And you are a member of the set “your family”.

    If you want to get to the fundamentals of logic, then you can’t even say “YOUR family” as if it were equivalent to “MF’s family”, without first defining “your” and “MF’s”. Of course, so far we have assumed everyday expressions, and I recommend we keep it that way, because if not, it will take 200 pages just to say 1+1=2.

    Having said that, if I am a member of a set, then I am a member of a set that has a single element, namely, myself. You may view me as being a member of a set, in which I am not the sole element, but bear in mind that to me, you would only be referring to many different sets, each with one element, the individual family member in question.

    This is, I think, the source of the misunderstanding above. When I said set, following you, I had in my own mind what that meant. But you had in your own mind something else that you meant. So when I said predicates can indeed apply to sets, I had in my mind something like “The set Major_Freedom, which contains only the single element Major_Freedom, has the predicate X.”

    I am after all a libertarian. I only view other people as individuals, not as subsidiary to larger sets where each individual has ontological meaning as being a member of the “true” reality that is the entire set of individuals. I am vehemently against collectivism, so I won’t even accept second order logic when thinking of people. Save that for your pen and paper for atoms and molecules.

    So whereas you were thinking second order logic, and that it is not possible for predicates to apply to sets in first order logic, I was thinking yes they can, if the sets contain only single elements, namely, the individual people. So when you said “the set MF’s family”, I had in mind a number of sets, each a single element, each with their own predicates in first order logic.

    I only used the word sets because you did, and I wanted to retain the flow of communication, rather than derail it. But because you wanted to go down the route of establishing first and second order logical rules, I decided to make my position clear and go off on this tangent so that you understand what I mean when I use the terms you use.

    Actually, not true.

    Actually it is, and you’ll see it now that I said the above.

    That’s a terrible analogy, as your 1st sentence is a definition. In the case of, “the X family eats apples”, eats apples(x) will be true so long as there is at least one X-family member who eats them.

    Not when each “member” is its own set, and that I reject the set that contains my family members as being on a higher ontological plane than the set that is a given individual family member.

    But you can see that the argument is going down the toilet, when we have to resort to set theory just to clarify what we’re talking about.

    I know you are not a libertarian, so I knew what you meant by a set as it is used in the field of human action, and the social sciences in general. I do not view humans as numbers in a set, where the set is the true reality and the elements are but subsidiary. You may believe that viewing others as components, parts, pieces to a whole, which is real, is rather innocuous, but to me it is CRUCIAL. It literally establishes yourself as a collectivist or individualist BEFORE you even form your arguments and propositions to me. We are not starting from the same starting line. You are starting from a different line than I am. Please note, I do not say this because I want to convey a sentiment of disappointment. I say this because that is what I think reality IS when it comes to human action. Each individual acts independently of all others.

    Someone tells me “The set ‘the human race’”. They say that with a particular interpretation. But when I hear that, I hear the same thing they are saying, and I may even know what they mean by it, but for me, I look to the reality to which they are referring, and when I do that, I think “The superset ‘the human race’, which is an abstraction of the reality of 7.5 billion or so individual sets each of which is a single element.”

    Here is an example of a sub-argument that I clearly won today:

    “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations.’

    And that purchase is recorded on the firms books, is it? So a purchase by a sole proprietor for his private use is a purchase by his business?

    Typically, consumption of business owners is financed by dividends, interest payments, and draw payments. These are straight up cash transfers from business bank accounts to business owner bank accounts. As such, they would not show up on balance sheets. On income statements, they would. They are not capital goods, they are consumer goods external to the firm.

    So for your statement in the first paragraph to have made sense, you had to have given a counterexample. So you must have meant that, eg. Mr. Roberts using Roberts Traders money to buy himself a vacation, is not the purchase of a capital good, even though it is something that “Roberts Traders” purchased (or that paragraph doesn’t make sense).

    You then admit that the purchase doesn’t show up on the firm’s balance sheet. It shows up on the income statement as a withdrawal. Of course this entry does not state the purchase itself. You agree, saying that “They are not capital goods, they are consumer goods external to the firm”.

    Haven’t you unambiguously contradicted yourself here? From earlier, you must believe that Roberts taking money from his business is A) not a capital good and B) a purchase by the business. Then later, you reaffirm a) but reject b). So you end up saying: (B AND ‘B). That’s a contradiction buddy.

    No, I don’t consider it a purchase “by the business”. That is the source of the confusion. I consider it a purchase “by Mr. Roberts”. The firm made an expense, a dividend or interest payment expense, and that shows up on the income statement, and reduces the shareholder’s equity and assets on the balance sheet.

    No contradiction.

    As the Americans say, TOUCHDOWN!

    Foul has been called. Defense. Number 2, unnecessary roughness. 10 yard penalty, first down.

    —————————

    Let me rephrase my question:

    ““Your prior position. It has noticably changed.””

    In the above sentence, what does “Your prior position” refer to?

    “MF, if the apple doesn’t change as it’s being resold then it’s a consumer good.”

    First you said the physicality of the good is the criterion that you use to determine the type of good. After I showed problems with that criterion, you then totally changed that criterion and said:

    “Yes, the value of an apple does not derive from its physical appleness, but rather from the fact that it provides the subjective benefits of fullness and taste to humans, who demonstrate that preference through intentional action.”

    This is a complete reversal from physicality of the good to human intention of the good.

    In order to reconcile these mutually exclusive approaches, you made a horrible, sloppy, vague defense:

    “But that doesn’t change the fact that when a society uses apples, or some apples, as a consumer good, that status remains the same from the perspective of different handlers. The stores who sell the apples that I bite into are handlers, agents in the production process, but only I am the consumer and user of the good to obtain its subjective value benefits.”

    Then your explanations continued to go downhill.

  57. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:25

    “Hmmm, guess I won that one.”

    Absence of evidence does not equal evidence of absence.

  58. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:26

    Saturos, I’ll resend my prior post using blockquotes through the whole thing, because the italics are messing up.

  59. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:31

    Saturos:

    Are you now suggesting that there are some assets that aren’t capital? Name one, without contradicting your own definitions.

    IP

    Were you or were you not in the paragraph being referred to there, using the fact that they were assets on the balance sheet to support their status as capital goods?

    I have already stated that the sole criteria I use to distinguish capital goods from consumer goods is the purpose of the purchase: for future sales, or not for future sales, and that I only refer to balance sheets and income statements so as to give a better understanding of my definition.

    The financial statement stuff is not necessary to what I am saying. After all, if you buy apples because you notice an arbitrage opportunity, then you become a capitalist, an owner of capital, even if you do not actually account for the apple in any balance sheet or income statements. This is because you purchased the apple in order to make subsequent sales. (You are taking on risk. It is possible you will incur a loss, if in between the time the apple was purchased and sold, the price in the latter location suddenly increased, or maybe all the buyers changed their minds, or maybe your apple will get lost or become rotten, or whatever.)

    I myself was the one who raised that objection, as inspection of this page reveals. And I also provided the answer, that they may be producer or consumer goods depending on how they are used, but must inherently always be current and not capital goods because apples are not long-lived (if they are used throughout their life).

    You didn’t raise that objection, I did. I was the one who raised the objection that I don’t define an apple as necessarily a consumer good. You said it remains a consumer good because it doesn’t change. You said that because it doesn’t change, it isn’t an intermediate good, or material, and because it’s not that, it must be a consumer good.

    I pointed out that according to my definition, the physicality of the apple has nothing to do with determining whether or not it is a capital or consumer good, because what does determine it is the HUMAN element, the human purpose element, what the owner intends to do with the apple. That is what I look at when defining capital goods and consumer goods.

    If we consider the physicality only, then like I showed many times already, we run into problems. Since you don’t seem to understand this crucial point, I shall give more examples:

    A pick-up truck. If it is purchased not for the purpose of making subsequent sales, if it purchased for direct utility, as for example leisure, then it is a consumer good. If on the other hand THAT SAME EXACT TRUCK is instead purchased for the purpose of making subsequent sales, if it is purchased for indirect utility, as for example at a construction company that purchased the truck to deliver equipment to work sites, than it is a capital good.

    A pen. If it purchased not for making future sales, if it purchased for direct utility, like in a house, then it is a consumer good. If it is purchased for making subsequent sales, if it is purchased for indirect utility, like in an office, then it is a capital good.

    A washing machine. Purchased for use in your home, a consumer good. Purchased to make a profit at a dry cleaner, a capital good.

    A baseball. Purchased by the Yankees, a capital good. Purchased by someone for pick up games on weekends, a consumer good.

    Etc.

    Predicates can’t apply to subjects that are sets in first-order logic. That’s why I said second-order logic.

    Predicates can indeed apply to subjects that are sets in first order logic, if the set is itself an individual element. My definition does not extend beyond individual elements. It is a case by case analysis, using proportional logic that extends no further than first order logic. My definition does not use second order logic. It uses first order.

    Suppose there were people in your family that ate chicken. It would then be true for me to say “MF’s family eats chicken” even if you yourself didn’t eat chicken.

    Only if the definition of “MF’s family” doesn’t include me.

    And you are a member of the set “your family”.

    If you want to get to the fundamentals of logic, then you can’t even say “YOUR family” as if it were equivalent to “MF’s family”, without first defining “your” and “MF’s”. Of course, so far we have assumed everyday expressions, and I recommend we keep it that way, because if not, it will take 200 pages just to say 1+1=2.

    Having said that, if I am a member of a set, then I am a member of a set that has a single element, namely, myself. You may view me as being a member of a set, in which I am not the sole element, but bear in mind that to me, you would only be referring to many different sets, each with one element, the individual family member in question.

    This is, I think, the source of the misunderstanding above. When I said set, following you, I had in my own mind what that meant. But you had in your own mind something else that you meant. So when I said predicates can indeed apply to sets, I had in my mind something like “The set Major_Freedom, which contains only the single element Major_Freedom, has the predicate X.”

    I am after all a libertarian. I only view other people as individuals, not as subsidiary to larger sets where each individual has ontological meaning as being a member of the “true” reality that is the entire set of individuals. I am vehemently against collectivism, so I won’t even accept second order logic when thinking of people. Save that for your pen and paper for atoms and molecules.

    So whereas you were thinking second order logic, and that it is not possible for predicates to apply to sets in first order logic, I was thinking yes they can, if the sets contain only single elements, namely, the individual people. So when you said “the set MF’s family”, I had in mind a number of sets, each a single element, each with their own predicates in first order logic.

    I only used the word sets because you did, and I wanted to retain the flow of communication, rather than derail it. But because you wanted to go down the route of establishing first and second order logical rules, I decided to make my position clear and go off on this tangent so that you understand what I mean when I use the terms you use.

    Actually, not true.

    Actually it is, and you’ll see it now that I said the above.

    That’s a terrible analogy, as your 1st sentence is a definition. In the case of, “the X family eats apples”, eats apples(x) will be true so long as there is at least one X-family member who eats them.

    Not when each “member” is its own set, and that I reject the set that contains my family members as being on a higher ontological plane than the set that is a given individual family member.

    But you can see that the argument is going down the toilet, when we have to resort to set theory just to clarify what we’re talking about.

    I know you are not a libertarian, so I knew what you meant by a set as it is used in the field of human action, and the social sciences in general. I do not view humans as numbers in a set, where the set is the true reality and the elements are but subsidiary. You may believe that viewing others as components, parts, pieces to a whole, which is real, is rather innocuous, but to me it is CRUCIAL. It literally establishes yourself as a collectivist or individualist BEFORE you even form your arguments and propositions to me. We are not starting from the same starting line. You are starting from a different line than I am. Please note, I do not say this because I want to convey a sentiment of disappointment. I say this because that is what I think reality IS when it comes to human action. Each individual acts independently of all others.

    Someone tells me “The set ‘the human race’”. They say that with a particular interpretation. But when I hear that, I hear the same thing they are saying, and I may even know what they mean by it, but for me, I look to the reality to which they are referring, and when I do that, I think “The superset ‘the human race’, which is an abstraction of the reality of 7.5 billion or so individual sets each of which is a single element.”

    Here is an example of a sub-argument that I clearly won today:

    “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations.’

    And that purchase is recorded on the firms books, is it? So a purchase by a sole proprietor for his private use is a purchase by his business?

    Typically, consumption of business owners is financed by dividends, interest payments, and draw payments. These are straight up cash transfers from business bank accounts to business owner bank accounts. As such, they would not show up on balance sheets. On income statements, they would. They are not capital goods, they are consumer goods external to the firm.

    So for your statement in the first paragraph to have made sense, you had to have given a counterexample. So you must have meant that, eg. Mr. Roberts using Roberts Traders money to buy himself a vacation, is not the purchase of a capital good, even though it is something that “Roberts Traders” purchased (or that paragraph doesn’t make sense).

    You then admit that the purchase doesn’t show up on the firm’s balance sheet. It shows up on the income statement as a withdrawal. Of course this entry does not state the purchase itself. You agree, saying that “They are not capital goods, they are consumer goods external to the firm”.

    Haven’t you unambiguously contradicted yourself here? From earlier, you must believe that Roberts taking money from his business is A) not a capital good and B) a purchase by the business. Then later, you reaffirm a) but reject b). So you end up saying: (B AND ‘B). That’s a contradiction buddy.

    No, I don’t consider it a purchase “by the business”. That is the source of the confusion. I consider it a purchase “by Mr. Roberts”. The firm made an expense, a dividend or interest payment expense, and that shows up on the income statement, and reduces the shareholder’s equity and assets on the balance sheet.

    No contradiction.

    As the Americans say, TOUCHDOWN!

    Foul has been called. Defense. Number 2, unnecessary roughness. 10 yard penalty, first down.

    —————————

    Let me rephrase my question:

    ““Your prior position. It has noticably changed.””

    In the above sentence, what does “Your prior position” refer to?

    “MF, if the apple doesn’t change as it’s being resold then it’s a consumer good.”

    First you said the physicality of the good is the criterion that you use to determine the type of good. After I showed problems with that criterion, you then totally changed that criterion and said:

    “Yes, the value of an apple does not derive from its physical appleness, but rather from the fact that it provides the subjective benefits of fullness and taste to humans, who demonstrate that preference through intentional action.”

    This is a complete reversal from physicality of the good to human intention of the good.

    In order to reconcile these mutually exclusive approaches, you made a horrible, sloppy, vague defense:

    “But that doesn’t change the fact that when a society uses apples, or some apples, as a consumer good, that status remains the same from the perspective of different handlers. The stores who sell the apples that I bite into are handlers, agents in the production process, but only I am the consumer and user of the good to obtain its subjective value benefits.”

    Then your explanations continued to go downhill.

  60. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:31

    Damn it!

  61. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 05:34

    Starting with my statement:

    “No, I don’t consider it a purchase “by the business”. That is the source of the confusion. I consider it a purchase “by Mr. Roberts”. The firm made an expense, a dividend or interest payment expense, and that shows up on the income statement, and reduces the shareholder’s equity and assets on the balance sheet.”

    Shift to the left.

    ——————

    Why does this italics problem always happen? Is the domain owner not looking into this?

  62. Gravatar of Saturos Saturos
    26. September 2012 at 10:23
    Are you now suggesting that there are some assets that aren’t capital? Name one, without contradicting your own definitions.

    IP

    Hang on, doesn’t a firm hold IP rights in order to make profits from future sales? IP rights allow you to sell a particular commodity that others can’t, that’s an input if there ever was one. How does this not contradict your definition?

    (I didn’t even realize you could nest blockquotes within blockquotes here, thanks for the tip.)

    Predicates can indeed apply to subjects that are sets in first order logic, if the set is itself an individual element.

    Sorry, but that’s just wrong. I don’t know where you learned math, but the whole point of second-order logic is to be able to quantify variables over sets of individuals: but these quantified variables are part of the domain of discourse, and so by definition the set is then also an “individual element” of that domain (just like every subset of A is a member of the set P(A)).
    So: if the set is an element, then we can attach a predicate to it. But if we can attach predicates to it, then we must be using second-order logic (by the definition of second-order logic). Again, see any textbook.

    “So when I said predicates can indeed apply to sets, I had in my mind something like “The set Major_Freedom, which contains only the single element Major_Freedom, has the predicate X.””

    Nope, that still doesn’t excuse your blunder regarding the theory of logic. In FOL, the predicate could only attach to the individual, not the set with the individual as its sole element. Big difference, formally.

    I look forward to your telling me now that you are an innovator in the field of mathematical logic, as well as economics and accounting.

    the physicality of the apple has nothing to do with determining whether or not it is a capital or consumer good, because what does determine it is the HUMAN element, the human purpose element, what the owner intends to do with the apple.

    Your examples coincide with my definitions of consumer versus producer goods, which depend on whether humans are going to use the goods by consuming them for their inherent utility or by producing other things with them.

    But let me pose you another question. Let’s remember that you said that apples become capital whenever someone buys them in order to resell them (eg. to do arbitrage). You then list examples: a pen, a pickup truck, a baseball, a washing machine, each of which could be either a capital good or (exclusive or, logically) a consumer good, depending on “the human purpose element, what the owner intends to do with the [item]“. (The following challenge could be posed with these objects, but I’ll use a more realistic example instead.) Let’s also recall your definitions, as you originally stated them:

    Capital good: Good purchased for the purpose of making subsequent sales

    Consumer good: Good purchased not for the purpose of making subsequent sales.

    Now consider the following scenario:
    Suppose I’m a student at a university. I go into a campus bookstore, and buy my required textbooks for the semester. I fully intend to study from these books all semester in order to pass the exams. (Let’s also say I’m taking the course just for fun, so there’s no “production” element involved here.) But I also fully intend to resell these books later on, even as I buy them. In fact I know a place where I can sell them at a profit.

    Question: are the textbooks consumer goods or capital goods, according to the economics of Major Freedom? Choose wisely.

    Taking it further, suppose in an economy all goods were durable enough that they could be resold to someone else, and all goods were resold continually. Is everything here a capital good, and are there no consumer goods? Why should these people want to follow your definitions? (Now whose definitions are more reflective of “human purpose”?)

    Can you find a problem with any of my definitions, as I actually stated them at the top of the page, which is as serious as the problems with yours?

    This is a complete reversal from physicality of the good to human intention of the good.

    In order to reconcile these mutually exclusive approaches, you made a horrible, sloppy, vague defense:

    Everything that I have said in my argument with you here is completely consistent with the definitions I originally stated at the top of the page, which I have been defending all this time and which I have never reversed from, as you could see if you actually read them. (Neither have you, from yours – and that’s the problem!)

    Me: Here is an example of a sub-argument that I clearly won today:

    You: No, I don’t consider it a purchase “by the business”.

    You, earlier: “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations.’

    Well if Roberts buys himself a vacation with money drawn from his business, and (as you say) it’s not a purchase by Roberts Traders, then your second sentence does not support the claim in your first (“This does not mean that EVERYTHING a firm buys is necessarily a capital good!”). So, as I said, that paragraph makes no sense. So I win.
    (Also, you still haven’t provided an example of something a firm buys that isn’t capital, as I examined at the start of this comment.)

    “Absence of evidence does not equal evidence of absence.”

    Actually, it kinda does: http://rationalwiki.org/wiki/Absence_of_evidence

    “I reject the set that contains my family members as being on a higher ontological plane than the set that is a given individual family member.”

    We were talking about mathematical ontologies, not physical or even metaphysical ones, and in our discourse we did not define anything as being “higher” than anything else, except perhaps for assumptions regarding the ordinality of the real numbers, etc.

    A lot of the dispute about the use of formal logic here actually turns on how you define the predicates, btw. Just throwing you a bone there.

    “I know you are not a libertarian…”

    Actually, I basically am a libertarian, so long as we are not using definitions that only you agree to.

    “but for me, I look to the reality to which they are referring, and when I do that, I think “The superset ‘the human race’, which is an abstraction of the reality of 7.5 billion or so individual sets each of which is a single element.””

    Using set theory to talk about individual humans as elements of a collective set of humans implies nothing about whether one is ethically/politically a collectivist or an individualist one way or the other. Anyone who thinks otherwise is a lunatic, pure and simple. Or someone who believes that individualism entails believing that there are no such things as collectives, or that you can’t talk about mathematical sets of humans. (To quote: “You may view me as being a member of a set, in which I am not the sole element, but bear in mind that to me, you would only be referring to many different sets, each with one element, the individual family member in question.”)

    Seriously, let’s see if we can get this past a hundred comments. I’m up for it if you are. Future blog visitors will look back on this episode with horror. Scott could link to this page as an example of how not to use this forum.

    “Foul has been called. Defense. Number 2, unnecessary roughness. 10 yard penalty, first down.”

    Do you watch American football, then? I thought you weren’t an American…

  63. Gravatar of Saturos Saturos
    26. September 2012 at 11:06

    Oh, and by the way, definitions can be wrong: http://lesswrong.com/lw/od/37_ways_that_words_can_be_wrong/

  64. Gravatar of Major_Freedom Major_Freedom
    26. September 2012 at 13:20

    Hang on, doesn’t a firm hold IP rights in order to make profits from future sales? IP rights allow you to sell a particular commodity that others can’t, that’s an input if there ever was one. How does this not contradict your definition?

    IP is not a good. The context was goods and how we define them. My definition of capital and consumer goods depend on the thing in question being at least a good.

    (I didn’t even realize you could nest blockquotes within blockquotes here, thanks for the tip.)

    It’s funny that I didn’t even do it on purpose.

    “Predicates can indeed apply to subjects that are sets in first order logic, if the set is itself an individual element.”

    Sorry, but that’s just wrong. I don’t know where you learned math, but the whole point of second-order logic is to be able to quantify variables over sets of individuals: but these quantified variables are part of the domain of discourse, and so by definition the set is then also an “individual element” of that domain (just like every subset of A is a member of the set P(A)).

    No, the point of second-order logic is to introduce a predicate calculus for the properties of individuals in a set, not to quantity variables over sets of individuals. Again, I am not talking about sets of individuals. I am talking about individual humans, that you can view as their own set in order to get an idea of what I am talking about if using mathematical logic.

    You just casually moved to “domain of discourse”, which escapes the constraints around which my initial argument was made. If you move to a “domain of discourse”, then there are literally no bounds other than what we could potentially agree to, rather than what I am interested in, which is that which is right in reality, where the agreement is established on who is right and wrong.

    So: if the set is an element, then we can attach a predicate to it. But if we can attach predicates to it, then we must be using second-order logic (by the definition of second-order logic). Again, see any textbook.

    Not if the predicate is that which established the individual and set being synonymous in the first place, such that no modification of the subject is required. That is as far as I went last time, but if you want to talk about modifying the subject, then yes, second order is necessary, but I am not talking about any modifying of the subject, but rather that which is doing the modifying. This is a different, and I would consider a more advanced, logic that requires a “meta-logic” so that you don’t get sidetracked into abstract logic that denies the reality of that which you seem to be using logic to describe.

    “So when I said predicates can indeed apply to sets, I had in my mind something like “The set Major_Freedom, which contains only the single element Major_Freedom, has the predicate X.””

    Nope, that still doesn’t excuse your blunder regarding the theory of logic. In FOL, the predicate could only attach to the individual, not the set with the individual as its sole element. Big difference, formally.

    Only if we are making a sub-argument in which the context, or “domain of discourse”, contains sets that do indeed contain more than one individual. I deny that context because the context I am using when making my arguments is that there are ONLY individuals, and no sets, so if you want to introduce the concept of sets, then you can view what I am talking about as sets of one. I did it for your benefit, but if you prefer not to do so, then that’s your choice.

    I agree that in FOL, the predicate can only attach to the individual. That is exactly my point. Yet above you said that the use of predicates per se implies second order logic is at work.

    I look forward to your telling me now that you are an innovator in the field of mathematical logic, as well as economics and accounting.

    Why do you look forward to such a thing? I am not yet an “innovator” in logic.

    “the physicality of the apple has nothing to do with determining whether or not it is a capital or consumer good, because what does determine it is the HUMAN element, the human purpose element, what the owner intends to do with the apple.”

    Your examples coincide with my definitions of consumer versus producer goods, which depend on whether humans are going to use the goods by consuming them for their inherent utility or by producing other things with them.

    They do not coincide for capital goods though.

    But let me pose you another question. Let’s remember that you said that apples become capital whenever someone buys them in order to resell them (eg. to do arbitrage). You then list examples: a pen, a pickup truck, a baseball, a washing machine, each of which could be either a capital good or (exclusive or, logically) a consumer good, depending on “the human purpose element, what the owner intends to do with the [item]“. (The following challenge could be posed with these objects, but I’ll use a more realistic example instead.) Let’s also recall your definitions, as you originally stated them:

    Capital good: Good purchased for the purpose of making subsequent sales

    Consumer good: Good purchased not for the purpose of making subsequent sales.

    Now consider the following scenario:

    Suppose I’m a student at a university. I go into a campus bookstore, and buy my required textbooks for the semester. I fully intend to study from these books all semester in order to pass the exams. (Let’s also say I’m taking the course just for fun, so there’s no “production” element involved here.) But I also fully intend to resell these books later on, even as I buy them. In fact I know a place where I can sell them at a profit.

    Question: are the textbooks consumer goods or capital goods, according to the economics of Major Freedom? Choose wisely.

    If you intended to purchase them to make subsequent sales, I define them as capital goods. You are an investor in books. You are like a bookstore owner, in that you buy books from A, and you plan to resell them to B hoping to make a profit.

    Taking it further, suppose in an economy all goods were durable enough that they could be resold to someone else, and all goods were resold continually. Is everything here a capital good, and are there no consumer goods? Why should these people want to follow your definitions? (Now whose definitions are more reflective of “human purpose”?)

    There you go again, claiming that capital goods last forever! Did I not correct you on that claim, and did you not already concede you made a mistake and asked me if I was happy about it?

    Capital goods, even if durable, are not infinitely durable. Books eventually fall apart. It may take a couple of millennia, but they’re not invincible to breaking down.

    Well, OK, fine, since this is a hypothetical world, I’ll oblige your question, but bear in mind that reality reigns supreme, so this is purely for fun.

    To answer your question, you have to be more explicit about the reselling part. You said everything “could” be resold continually. Well, the question I would ask is, are they in fact being resold continuously? Are all goods being resold indefinitely in your hypothetical, even food and beverages? Like, in your hypothetical world, I eat a hamburger, then after I am through with it, I resell…uh…the same hamburger to someone else? How is that even possible? Wouldn’t a totally unchanged food supply eventually kill everyone, since biologically speaking, humans require breaking down of foodstuffs in order to absorb their nutrients and live?

    It’s hard for me to envision the hypothetical world you are proposing because it is so unrealistic. What would a world of unchanged, invincible goods even look like? How can humans even live in such a world?

    Can you find a problem with any of my definitions, as I actually stated them at the top of the page, which is as serious as the problems with yours?

    You haven’t shown my definitions to be problematic. I have shown your definitions to be problematic, as per above, where you changed your position, conceded error in reasoning, and now, because your definitions don’t work very well for the real world, you have to invent imaginary worlds to make your definitions fit!

    This is called self-defeat. You lost. It’s over.

    “This is a complete reversal from physicality of the good to human intention of the good.”

    “In order to reconcile these mutually exclusive approaches, you made a horrible, sloppy, vague defense:”

    Everything that I have said in my argument with you here is completely consistent with the definitions I originally stated at the top of the page, which I have been defending all this time and which I have never reversed from, as you could see if you actually read them. (Neither have you, from yours – and that’s the problem!)

    First, they are not completely consistent at all. Second, it’s not your list that I am concerned about, (since definitions cannot be objectively wrong) it’s your subsequent posts, which are, quite frankly, filled with problems that contradict everyday logic as well as reality.

    But to address your definitions:

    Capital Good: A reproducible good which delivers a stream of services over several periods of time.

    Productive Capital: Capital goods used to transform inputs into outputs.

    Consumer Durables: Capital goods whose services are consumed directly.

    These definitions are rather problematic.

    What is the difference between a good that is consumed and enjoyed over a period of 1 minute, and a good that is consumed and enjoyed over a period of 1 year? What is the time frame that distinguishes a “consumer durable”, from a “capital good”? Your definitions rest on vague and fuzzy time frames.

    Me: Here is an example of a sub-argument that I clearly won today:

    You: No, I don’t consider it a purchase “by the business”.

    You, earlier: “This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves vacations.’

    Well if Roberts buys himself a vacation with money drawn from his business, and (as you say) it’s not a purchase by Roberts Traders, then your second sentence does not support the claim in your first (“This does not mean that EVERYTHING a firm buys is necessarily a capital good!”). So, as I said, that paragraph makes no sense. So I win.

    Sorry, my bad. For some reason I was thinking of a sole proprietorship when I made that comment. It’s not correct for corporations.

    I’ll say it thus:

    This does not mean that EVERYTHING a firm buys is necessarily a capital good! For a firm’s owners can use firm funds to buy themselves (labor, advertising, consulting, copyrights, etc).

    When a firm’s owner buys himself a vacation, I consider that an expense of the firm that reduces its equity and assets. It is certainly not capitalized. Vacations are not goods bought to make subsequent sales.

    (Also, you still haven’t provided an example of something a firm buys that isn’t capital, as I examined at the start of this comment.)

    Answered above. Labor, advertising, consulting, copyrights.

    “Absence of evidence does not equal evidence of absence.”

    Actually, it kinda does: http://rationalwiki.org/wiki/Absence_of_evidence

    rationalwiki.org is wrong.

    http://en.wikipedia.org/wiki/Argument_from_ignorance

    There was no evidence of quarks for tens of thousands of years. That doesn’t mean they didn’t exist during that time.

    It is quite telling that you believe in the absence of evidence is evidence of absence fallacy. That tells me everything I need to know about your state of mind.

    “I reject the set that contains my family members as being on a higher ontological plane than the set that is a given individual family member.”

    We were talking about mathematical ontologies, not physical or even metaphysical ones, and in our discourse we did not define anything as being “higher” than anything else, except perhaps for assumptions regarding the ordinality of the real numbers, etc.

    No, YOU were talking about mathematical “ontologies.” I was talking about HUMAN ontologies.

    A lot of the dispute about the use of formal logic here actually turns on how you define the predicates, btw. Just throwing you a bone there.

    Ok, Wittgenstein.

    “I know you are not a libertarian…”

    Actually, I basically am a libertarian, so long as we are not using definitions that only you agree to.

    Don’t worry, lots of people agree with me when I say that libertarianism is a political theory that consists of a prohibition on the initiation of physical force.

    “but for me, I look to the reality to which they are referring, and when I do that, I think “The superset ‘the human race’, which is an abstraction of the reality of 7.5 billion or so individual sets each of which is a single element.””

    Using set theory to talk about individual humans as elements of a collective set of humans implies nothing about whether one is ethically/politically a collectivist or an individualist one way or the other.

    Strictly speaking, no, but heuristically, the correlation is not insignificant.

    Anyone who thinks otherwise is a lunatic, pure and simple. Or someone who believes that individualism entails believing that there are no such things as collectives, or that you can’t talk about mathematical sets of humans. (To quote: “You may view me as being a member of a set, in which I am not the sole element, but bear in mind that to me, you would only be referring to many different sets, each with one element, the individual family member in question.”)

    The “anyone who thinks that is a lunatic” tactic is devoid of argumentative rigor, pure and simple.

    Seriously, let’s see if we can get this past a hundred comments. I’m up for it if you are. Future blog visitors will look back on this episode with horror. Scott could link to this page as an example of how not to use this forum.

    I’m TOTALLY up for it also! Although the last time I did that with some other poster, Sumner deleted them. Of course, he deleted them in such a way that my interlocutor appeared to have gotten the last word, which was definitely intended, since he did that in another post too, and kept all the disparaging one liner posts from other commenters. It was petty and quite revealing, but whatever.

    “Foul has been called. Defense. Number 2, unnecessary roughness. 10 yard penalty, first down.”

    Do you watch American football, then? I thought you weren’t an American…

    I am not currently ON American soil.

    Oh, and by the way, definitions can be wrong:

    http://lesswrong.com/lw/od/37_ways_that_words_can_be_wrong/

    Actually, they cannot:

    http://samvak.tripod.com/define.html

    “Stipulative or ostensive definitions cannot be wrong (by definition). They may conflict with the lexical (dictionary) definition and diverge from established meanings. This may prove to be both confusing and costly (for instance, in legal matters). But this has nothing to do with their accuracy or truthfulness.”

  65. Gravatar of Saturos Saturos
    27. September 2012 at 10:24

    No, the point of second-order logic is to introduce a predicate calculus for the properties of individuals in a set, not to quantity variables over sets of individuals.

    So is the Stanford Encyclopedia of Philosophy wrong as well then?

    For classical extensional logic (as in this entry), properties can be identified with sets, so that second-order logic provides us with the quantifier “for every set of objects.”

    http://plato.stanford.edu/entries/logic-higher-order/
    So what you said SOL was is the same as what I said it was. So your sentence there was wrong. And in any case your usage of the term has been wrong.

    So: if the set is an element, then we can attach a predicate to it. But if we can attach predicates to it, then we must be using second-order logic (by the definition of second-order logic). Again, see any textbook.

    Not if the predicate is that which established the individual and set being synonymous in the first place, such that no modification of the subject is required. That is as far as I went last time, but if you want to talk about modifying the subject, then yes, second order is necessary, but I am not talking about any modifying of the subject, but rather that which is doing the modifying. This is a different, and I would consider a more advanced, logic that requires a “meta-logic” so that you don’t get sidetracked into abstract logic that denies the reality of that which you seem to be using logic to describe.

    “So when I said predicates can indeed apply to sets, I had in my mind something like “The set Major_Freedom, which contains only the single element Major_Freedom, has the predicate X.””

    Nope, that still doesn’t excuse your blunder regarding the theory of logic. In FOL, the predicate could only attach to the individual, not the set with the individual as its sole element. Big difference, formally.

    Only if we are making a sub-argument in which the context, or “domain of discourse”, contains sets that do indeed contain more than one individual. I deny that context because the context I am using when making my arguments is that there are ONLY individuals, and no sets, so if you want to introduce the concept of sets, then you can view what I am talking about as sets of one. I did it for your benefit, but if you prefer not to do so, then that’s your choice.

    Umm … http://www.youtube.com/watch?v=lITBGjNEp08

    I agree that in FOL, the predicate can only attach to the individual. That is exactly my point. Yet above you said that the use of predicates per se implies second order logic is at work.

    What the????

    To answer your question, you have to be more explicit about the reselling part. You said everything “could” be resold continually. Well, the question I would ask is, are they in fact being resold continuously? Are all goods being resold indefinitely in your hypothetical, even food and beverages? Like, in your hypothetical world, I eat a hamburger, then after I am through with it, I resell…uh…the same hamburger to someone else? How is that even possible? Wouldn’t a totally unchanged food supply eventually kill everyone, since biologically speaking, humans require breaking down of foodstuffs in order to absorb their nutrients and live?

    It’s hard for me to envision the hypothetical world you are proposing because it is so unrealistic. What would a world of unchanged, invincible goods even look like? How can humans even live in such a world?

    Forget food (or imagine that it’s become non-scarce somehow). What about clothing, furniture, vehicles, appliances, accessories, smallgoods, electronics, entertainment goods (books, games, sporting equipment)? My point is this: you hold that everything that gets resold is capital, otherwise it is a consumer good. So in a world where everything people buy, even for their own end-consumer benefits, is intended to be resold eventually, everything would be capital! Now that’s what I call a bad definition! If we’re going with the notion that consumer and capital goods are opposites, and consumer goods are those that consumers consume, and the others are capital – then your definition is bad because goods that consumers consume can also be resold (and bought for the purposes of being used and then resold), putting them under your capital goods definition which according to you takes precedence. Your definition of capital is far too broad, is what I’m saying (and also not broad enough.)

    And your intuition that reselling goods for profit is what capitalists really do is incorrect. In the Kirznerian world, all agents are entrepreneurial, engaging in arbitrage to eliminate disequilibria and earn economic profit. Being a capitalist means doing that intertemporally, across time periods – i.e. allocating capital.

    You haven’t shown my definitions to be problematic. I have shown your definitions to be problematic, as per above, where you changed your position, conceded error in reasoning, and now, because your definitions don’t work very well for the real world, you have to invent imaginary worlds to make your definitions fit!

    Where and Where? and this simple hypothetical is to refute your definition, it’s not about mine!

    But to address your definitions:

    Capital Good: A reproducible good which delivers a stream of services over several periods of time.

    Productive Capital: Capital goods used to transform inputs into outputs.

    Consumer Durables: Capital goods whose services are consumed directly.

    These definitions are rather problematic.

    What is the difference between a good that is consumed and enjoyed over a period of 1 minute, and a good that is consumed and enjoyed over a period of 1 year? What is the time frame that distinguishes a “consumer durable”, from a “capital good”? Your definitions rest on vague and fuzzy time frames.

    That’s a very good question.

    My concepts are basically founded on the notion of “production cycles”. Production takes time. And production occurs in sequences with discrete stages. So first you grow the wheat, then you mill the flour, then you bake the bread, then you make the sandwich, etc. Each stage in each production process has its own completion time. Some are longer than others: the longest common one is the agricultural cycle, where it takes a whole year to grow crops. And the linking together of different threads in the totality of the economy’s production processes constrains the delivery of the whole measured package of final output (GDP) according to your standard Hasse diagram calculations. Now, production cycles are synced with consumption cycles, as workers’ wage payments are related to their contributions to the production process. (Credit smooths this out, but for every borrower there must be a saver, so consumption is still limited by discrete earning periods.) These consumption cycles determine sales cycles and inventory-clearing cycles. (There is a reason why the financial year is the same length as the calendar year.) So the choice of one year as the length of a “period” is not quite arbitrary, although I agree that other intervals can be used. And so there is a sense to how macroeconomic growth models model capital accumulation year by year, as growth in the capital stock (capital producing capital) does not really occur continuously. By the way in your definitions there is no such thing as the capital stock; which is a concept used by every economist except you. I don’t see why you think this is a good idea.

    When a firm’s owner buys himself a vacation, I consider that an expense of the firm that reduces its equity and assets. It is certainly not capitalized. Vacations are not goods bought to make subsequent sales.

    Oh God. Do you know nothing about accounting? Expenses are completely different from drawings! How can a withdrawal be a purchase by a firm, what is it supposed to have “purchased”? The firm is diminished by the drawing, value has been extracted by the owners, the “firm” accounting entity gets nothing in return! The transaction, “money: business ~~> business owner” is separate from the subsequent transaction “money: business owner ~~> vacation-seller”. Purchasing only occurs in the latter; the firm purchases nothing. So:

    you still haven’t provided an example of something a firm buys that isn’t capital…

    Answered above. Labor, advertising, consulting, copyrights.

    I can see how you might excuse labor and consulting, by calling them services instead of goods, so that although they are purchased in order to make future sales they are not capital. But why should advertising and copyrights not be capital? Why is IP not a good? Don’t tell me you believe goods have to be tangible! So a piece of music is not a good? Or a TV advertisement?

    There was no evidence of quarks for tens of thousands of years. That doesn’t mean they didn’t exist during that time.

    Actually, everything we had observed for tens of thousands of years was evidence in support of the “quark” concept. But we never considered the “quark” concept, as we had no data that was better explained by “quarks” than our other ideas. We still don’t observe quarks directly, or even electrons for that matter, but with the data we have today quarks and electrons win out over other explanations for what we see.

    It is quite telling that you believe in the absence of evidence is evidence of absence fallacy. That tells me everything I need to know about your state of mind.

    It is only a fallacy in classical, non-Bayesian reasoning (binary truth-values). In Bayesian reasoning (continuous truth-values, or probable truth) evidence can only confirm a hypothesis to the extent that its absence would disconfirm it.

    “I know you are not a libertarian…”

    Actually, I basically am a libertarian, so long as we are not using definitions that only you agree to.

    Don’t worry, lots of people agree with me when I say that libertarianism is a political theory that consists of a prohibition on the initiation of physical force.

    Actually, the vast majority of the libertarian community agree that it can be divided into those who think that the existence of the state, and its powers to collect taxes, are consistent with libertarianism, and those who don’t. So if your definition was categorical, as I suspect it was, then few people would agree with it, as there are plenty of libertarians that are excluded by it. Most people (and most libertarians, and most anarcho-capitalist libertarians) think that minarchists are also libertarians, whereas I suspect that you don’t. (Hence your diatribes against an economist who proposes turning over control of a coercion-backed monopoly money supply to an institution bound to follow a rule based on market approval.)

    By the way, why are you a libertarian?

  66. Gravatar of Major_Freedom Major_Freedom
    27. September 2012 at 12:51

    Saturos:

    So is the Stanford Encyclopedia of Philosophy wrong as well then?

    The Standford Encyclopedia of Philosophy is consistent with what I am saying. So it is also with most papers in most philosophy journals. But this is neither here nor there. I am not wrong or right based on appeals to authority.

    For classical extensional logic (as in this entry), properties can be identified with sets, so that second-order logic provides us with the quantifier “for every set of objects.”

    Again, I am not talking about “every set of objects”. I am talking about individual elements, and, if you will, each as own set that is independent from every other individual (and set).

    Nothing of what I am saying requires “for every set of objects”. What I am saying is “for this individual”, and first order logic allows me to use predicates.

    So what you said SOL was is the same as what I said it was. So your sentence there was wrong. And in any case your usage of the term has been wrong.

    No, it is not the same thing as what you said. You keep saying multiple sets of individuals in each set, whereas I am saying individual sets with no sets other than the individuals themselves.

    Only if we are making a sub-argument in which the context, or “domain of discourse”, contains sets that do indeed contain more than one individual. I deny that context because the context I am using when making my arguments is that there are ONLY individuals, and no sets, so if you want to introduce the concept of sets, then you can view what I am talking about as sets of one. I did it for your benefit, but if you prefer not to do so, then that’s your choice.

    Umm … http://www.youtube.com/watch?v=lITBGjNEp08

    Can you give me a transcript?

    I agree that in FOL, the predicate can only attach to the individual. That is exactly my point. Yet above you said that the use of predicates per se implies second order logic is at work.

    What the????

    That’s a strange question to ask on a blog where you read comments, not hear them.

    To answer your question, you have to be more explicit about the reselling part. You said everything “could” be resold continually. Well, the question I would ask is, are they in fact being resold continuously? Are all goods being resold indefinitely in your hypothetical, even food and beverages? Like, in your hypothetical world, I eat a hamburger, then after I am through with it, I resell…uh…the same hamburger to someone else? How is that even possible? Wouldn’t a totally unchanged food supply eventually kill everyone, since biologically speaking, humans require breaking down of foodstuffs in order to absorb their nutrients and live?

    It’s hard for me to envision the hypothetical world you are proposing because it is so unrealistic. What would a world of unchanged, invincible goods even look like? How can humans even live in such a world?

    Forget food (or imagine that it’s become non-scarce somehow). What about clothing, furniture, vehicles, appliances, accessories, smallgoods, electronics, entertainment goods (books, games, sporting equipment)? My point is this: you hold that everything that gets resold is capital, otherwise it is a consumer good. So in a world where everything people buy, even for their own end-consumer benefits, is intended to be resold eventually, everything would be capital! Now that’s what I call a bad definition!

    Why? Are you saying that my definition is bad because it cannot apply to a hypothetical world where food does not exist, where all goods are literally incapable of deteriorating, and there is no such thing as any direct consumption until nothing is left?

    The fact that you are even in a position of feeling compelled to introducing a crazy unrealistic world, as a foundation for your criticism, is strong evidence, if not proof, that it is you who uses the bad definitions! When I criticize your definitions, I refer to real world situations. When you criticize my definitions, you tell me to ignore food, and imagine all goods to be invincible, and then ask me how my definitions will apply, and then say my definitions stink because I would have to consider all goods as capital goods.

    Well, when you set up a hypothetical world in which BY DEFINITION my definitions do not apply, then of course my definitions will not apply!

    I can do the same thing to you. I could ask you about a hypothetical world where all goods are directly consumed and do not last beyond their first physical use. There are no goods that last and provide services over time. All goods are immediately used up upon initial physical use.

    Using YOUR definitions, there would be no capital goods! Everything would be consumables! Now that’s what I call a bad definition!

    Can you not see, prima facie, how that criticism is terrible, and, by extension, why your criticism against mine is also terrible?

    MY DEFINITIONS DERIVE FROM THE REAL WORLD.

    As soon as you tell me to ignore the real world, and consider a hypothetical world, of no food, and invincible goods (supernatural world), I know I won. You just proved to me that my definitions are superior. So superior, that the only standard by which you can critique my definitions, is literally to deny reality and to imagine a supernatural world.

    I do not define terms and then force feed them onto reality and make them stick, and then make all sorts of errors like the ones you made, and when considering other people’s definitions, make up crazy unrealistic worlds to see how the definitions hold up.

    I ask you, do NOT ignore food, and to accept that goods are not invincible. THEN you will find that my definitions are extremely useful, consistent with my other convictions, and they are superior to your definitions.

    I still have not seen you show why my definitions are bad. You are developing a habit of merely repeating my definitions back to me, as if that constitutes an explanation of how they are bad.

    If you propose a world in which consumer goods do not even exist by my definition, then of course there will be no consumer goods according to my definition! But that isn’t a weakness of my definitions, it’s a weakness of your hypothetical that violates scientific laws.

    I cannot believe I have to spell this out for you. It’s so obvious. I cannot believe that you can’t even see how you are undercutting your own position when you invoke unrealistic, indeed scientifically inaccurate, hypothetical worlds…with no food for goodness sake!

    If we’re going with the notion that consumer and capital goods are opposites, and consumer goods are those that consumers consume, and the others are capital – then your definition is bad because goods that consumers consume can also be resold (and bought for the purposes of being used and then resold), putting them under your capital goods definition which according to you takes precedence.

    I do not consider consumer goods as “opposite” to capital goods. I consider consumer goods and capital goods to be goods used for different purposes, one for direct utility, the other for indirect utility, one not for the purposes of making subsequent sales, the other for the purposes of making subsequent sales.

    Your definition of capital is far too broad, is what I’m saying (and also not broad enough.)

    Actually my definition is in some respects too narrow. I only made explicit the concept of the purpose of purchasing a good to show their distinguishing characteristic in the strongest possible way. Technically however, capital goods and consumer goods are not necessarily always purchased with money, and, in some cases, the criteria of making subsequent sales is not even the decisive differentiating feature. In some cases, rental revenues and interest revenues are earned on productive expenditures.

    And your intuition that reselling goods for profit is what capitalists really do is incorrect. In the Kirznerian world, all agents are entrepreneurial, engaging in arbitrage to eliminate disequilibria and earn economic profit. Being a capitalist means doing that intertemporally, across time periods – i.e. allocating capital.

    Kirzer is talking about entrepreneurs as distinguished from capitalists. In his work, he considers entrepreneurs as those who engage in things like mismatch discovery, market research, noticing trends before others, and so on, while capitalists on the other hand provide the funds with which entrepreneurs can make their investments. Note that these roles are not mutually exclusive, as they can apply to the same person, but rather, that they are different roles.

    In the Kirznerian world, capitalist action is a fronting of money and intention of earning profits.

    Having said all that, and again for the millionth time, you cannot possibly tell me that my definitions are “wrong”. You certainly cannot tell me that my definitions are right or wrong on the basis that they may or may not gel with Kirzner’s.

    Since when was Krizner’s definitions “the” definitions under which all others are to be judged? Do you not even know what definitions mean? Suppose you were debating Kirzner. Suppose he told you his definitions. Would you say “Sorry Kirzner, your definitions are incorrect, because in Major_Freedom world, capitalists and entrepreneurs are defined as doing X and Y, not what you say they do.”

    If you won’t say that to him, then you can’t say that to me. If you say you can say that to me, but not him, then congrats, you again just admitted the appeal to authority fallacy that undergirds your position.

    “You haven’t shown my definitions to be problematic. I have shown your definitions to be problematic, as per above, where you changed your position, conceded error in reasoning, and now, because your definitions don’t work very well for the real world, you have to invent imaginary worlds to make your definitions fit!”

    Where and Where? and this simple hypothetical is to refute your definition, it’s not about mine!

    You can’t refute definitions with hypotheticals!!! Indeed, you cannot refute them with ANYTHING. They are not claims to objective reality. They are by definition not refutable. If you define “snarglepuss” as that which is found in between your toes after not showering for a month, then you can’t say the definition is “wrong.”

    Moreover, to answer your question “where and where”, it is clear at this point that you will continue to ignore my showing you where, and you will keep feigning ignorance. So I will just answer your question with “There! Look above! Where I used the word “problem”, or “flawed”. Go for it. CTRL+F the words, and click through the comments, until you see where I said it the first time.

    What is the difference between a good that is consumed and enjoyed over a period of 1 minute, and a good that is consumed and enjoyed over a period of 1 year? What is the time frame that distinguishes a “consumer durable”, from a “capital good”? Your definitions rest on vague and fuzzy time frames.

    That’s a very good question.

    My concepts are basically founded on the notion of “production cycles”. Production takes time. And production occurs in sequences with discrete stages. So first you grow the wheat, then you mill the flour, then you bake the bread, then you make the sandwich, etc. Each stage in each production process has its own completion time. Some are longer than others: the longest common one is the agricultural cycle, where it takes a whole year to grow crops.

    OK, what about making a ham sandwich at home? This action “takes time.” The production “occurs in sequences with discrete stages”. First I walk to the fridge, then I open the fridge, then I grab the ham, mayo, lettuce, and tomato, then I go the breadbin and grab a couple slices of bread. Then I go to the counter with all the ingredients, and on a placemat I construct the sandwich. First I spread the mayo on the bread slices. Then I lay down the ham, lettuce, and sliced tomato. Then I put the other slice of bread on top, and then, I cut the sandwich in half, then I go the table, sit down, and take my hand and grab the sandwich, and…you get the picture.

    Each stage in this process has its own completion time. Some are longer than others. The longest one is typically the spreading of the mayo step, where it takes a whole 5 seconds to spread it.

    Now, since I clearly engaged in a process not unlike the FORM of the process you describe above, about time, production cycles, stages, and so on, my question to you is this: What are these goods that I dealt with? What is what? Is the ham and lettuce and tomato capital goods or consumer goods? Am I acting like Henry Ford, in setting up a production cycle of ham sandwiches that require stages of production that need to be planned and require time to complete?

    Think carefully!

    And the linking together of different threads in the totality of the economy’s production processes constrains the delivery of the whole measured package of final output (GDP) according to your standard Hasse diagram calculations. Now, production cycles are synced with consumption cycles, as workers’ wage payments are related to their contributions to the production process. (Credit smooths this out, but for every borrower there must be a saver, so consumption is still limited by discrete earning periods.) These consumption cycles determine sales cycles and inventory-clearing cycles. (There is a reason why the financial year is the same length as the calendar year.) So the choice of one year as the length of a “period” is not quite arbitrary, although I agree that other intervals can be used. And so there is a sense to how macroeconomic growth models model capital accumulation year by year, as growth in the capital stock (capital producing capital) does not really occur continuously. By the way in your definitions there is no such thing as the capital stock; which is a concept used by every economist except you. I don’t see why you think this is a good idea.

    I WANT to say “cool story”, but that would be rude, yet I really don’t know what to say to this, other than “My definitions do enable an understanding of capital stock”. The capital stock is the totality of accumulated wealth that is being reproductively employed. In the overwhelming number of cases, the wealth was purchased for the purpose of making subsequent sales.

    So, in my ham sandwich construction example, whereas you might get sidetracked and start calling the things in my fridge capital goods, and I an owner of capital goods, who uses up capital goods to produce consumer goods, I on the other hand will call all the things in my fridge consumer goods, because I bought them not for the purpose of making subsequent sales, but to consume directly.

    Notice how my definition is still better?

    When a firm’s owner buys himself a vacation, I consider that an expense of the firm that reduces its equity and assets. It is certainly not capitalized. Vacations are not goods bought to make subsequent sales.

    Oh God. Do you know nothing about accounting? Expenses are completely different from drawings!

    That’s wrong. Dividends and interest payments are expenses, and they are drawn from the firm’s assets. Dividends, interest payments, and draw payments are all expensed. They are money out of the firm.

    Uh, “Do you know nothing of accounting?” Snark.

    How can a withdrawal be a purchase by a firm, what is it supposed to have “purchased”?

    It isn’t a purchase by the firm, that’s my point. It is an expense of dividends or interest payments, or draw payments by partnerships and sole proprietors, and that act shows up as an expense of the firm. The purchase of the vacation is not related to the firm, but the firm’s owners/creditors. The owners and creditors purchase the vacations.

    The firm is diminished by the drawing, value has been extracted by the owners, the “firm” accounting entity gets nothing in return!

    Right. Your confusion is assuming that cash outflows can only be expenses when the firm gets something back. That isn’t true. On income statements, there are lines for dividend and interest expenses, even though those are paid with nothing in return (actually, to be perfectly accurate, the firm is getting something in return, but this is separate from accounting per se: The firm is getting back increased likelihood of future investment and loan opportunities. When firms pay investors dividends and interest, it increases the likelihood they will continue to invest in the future, and that is “money in” to the business. This however is more market process analysis, than accounting).

    The transaction, “money: business ~~> business owner” is separate from the subsequent transaction “money: business owner ~~> vacation-seller”. Purchasing only occurs in the latter; the firm purchases nothing.

    Of course.

    Answered above. Labor, advertising, consulting, copyrights.

    I can see how you might excuse labor and consulting, by calling them services instead of goods, so that although they are purchased in order to make future sales they are not capital. But why should advertising and copyrights not be capital? Why is IP not a good? Don’t tell me you believe goods have to be tangible! So a piece of music is not a good? Or a TV advertisement?

    So we have to now make clear what we mean by the definition of a “good.” My definition of a “good” more or less follows that of Menger. In “Principles of Economics”, he lists four conditions that must exist in order for an element of the external world to have “goods-character”:

    1. A human need.
    2. Such properties as render the thing capable of being brought into causal connection with the satisfaction of this need.
    3. Human knowledge of this causal connection.
    4. Command of the thing sufficient to direct it to the satisfaction of the need.

    My definition is this: goods are things which are identified as being capable of satisfying one’s desires, which require the use of labor or effort in order to created or
    enjoyed, over which one has sufficient control to gainfully direct them to the satisfaction of one’s desires.

    Yes, I do define goods as being tangible. Music requires the good “CD player”, or “iPod”, and “speakers”, etc. Advertisement requires the good “paper”, or “billboards”, or “television”, etc. The sounds from the music, and the visual or audio images of advertising, I would only call goods to the extent that we are referring to the tangible things of which the terms “music” and “advertising” imply.

    There was no evidence of quarks for tens of thousands of years. That doesn’t mean they didn’t exist during that time.

    Actually, everything we had observed for tens of thousands of years was evidence in support of the “quark” concept.

    That is not what constitutes evidence. By your treatment, one could say we have evidence for curing all forms of cancer, because everything we see is in support of the “cure for cancer” concept.

    In reality of course, evidence is related to not just of reality itself, but knowledge of reality. Ten thousand years ago, there was no evidence that suggests the existence of quarks, in that nobody had knowledge of them.

    The absence of evidence of quarks, did not constitute evidence of absence of quarks.

    But we never considered the “quark” concept, as we had no data that was better explained by “quarks” than our other ideas. We still don’t observe quarks directly, or even electrons for that matter, but with the data we have today quarks and electrons win out over other explanations for what we see.

    Actually, the concept of quark was considered by the ancient Greeks, called the Atomists, although it was a very rudimentary conception of the idea of breaking down matter into enough pieces such that we get to the smallest pieces possible that cannot be broken down further. But they had no evidence for quarks per se. That came centuries later.

    It is quite telling that you believe in the absence of evidence is evidence of absence fallacy. That tells me everything I need to know about your state of mind.

    It is only a fallacy in classical, non-Bayesian reasoning (binary truth-values). In Bayesian reasoning (continuous truth-values, or probable truth) evidence can only confirm a hypothesis to the extent that its absence would disconfirm it.

    This is subjective “truth”, not truth. If you want to use Bayesian theory, then everything you have said above cannot be considered true and your claims that my definitions are problematic cannot be considered true either. You would be undercutting your own position.

    I assumed the context was binary logic, since that is what you have used the entire time.

    Don’t worry, lots of people agree with me when I say that libertarianism is a political theory that consists of a prohibition on the initiation of physical force.

    Actually, the vast majority of the libertarian community agree that it can be divided into those who think that the existence of the state, and its powers to collect taxes, are consistent with libertarianism, and those who don’t.

    The vast majority of libertarians are against the initiation of force. What you are talking about are more than likely socialist conservatives who call themselves libertarians since libertarianism became popular, and bandwagon jumpers adopted the term, the same way left wing socialists co-opted the term “liberal” from the declining laissez-faire contemporaries during the late 19th and early 20th centuries.

    Minarchist libertarians are just not consistent libertarians. They say initiating is force is bad…except when those in the state do it. That stealing is wrong…except when those in the state do it.

    So if your definition was categorical, as I suspect it was, then few people would agree with it, as there are plenty of libertarians that are excluded by it. Most people (and most libertarians, and most anarcho-capitalist libertarians) think that minarchists are also libertarians, whereas I suspect that you don’t. (Hence your diatribes against an economist who proposes turning over control of a coercion-backed monopoly money supply to an institution bound to follow a rule based on market approval.)

    That “hence” is not my actual “hence”. I don’t do it because of self-professed names, and insisting that different names be used. I do it because I am against initiation of force, period. No exceptions. I also do it because it just so happens that every INTELLECTUAL justification for PHYSICAL force, run into unavoidable contradictions, since violence has no intellectual justification, since it is by its nature a suppression of intellectually guided behavior of others, and if justifications are to be given, you must appeal to the other person’s mind, which is not physically coercive. Thus, I see incredible hypocrisy from not only minarchists, but market monetarists, who actually believe there is an intellectual justification for what is in reality naked violence that has no intellectual justification, because it is anti-intellectual by its very nature. All the intellectual sewage from central planners is based on false premises, which are unavoidable and so must be covered with enough fluff and rhetoric so as to convince the victims that this is best for them, and sadly, many believe it, because they themselves lack the intellectual ability to counter the intellectual sewage. What really burns me are the good natured, but intellectually naive people who are harmed by the policies that Sumner advocates, because they can’t stand up for themselves due to the fact that they can’t convince enough statist intellectuals to protect them. And why would they? The court intellectuals are too busy trying to seek approval from their peers, from the state, from those with the guns, to worry about the victims who are exploited.

    By the way, why are you a libertarian?

    I am more than any name.

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