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The Value of Oil
Part 1 Arthur Bough 08/21/04
Part 2 Arthur Bough 08/21/04
Part 3 Arthur Bough 08/21/04
No wonder you lefties get everything wrong... Vangel Vesovski 08/21/04
Non Linearity from a neo classicist. Do me a favour. Arthur Bough 08/21/04
Your ignorance of Austrian economics is showing. And LTV ha... Vangel Vesovski 08/21/04
lon-linear equations and straightforward thinking Kenmeer Livermaile 08/21/04
A - you're a member of the British Communist Party aren't yo... anthonyedwarde 08/21/04
Most Emphatically Not Arthur Bough 08/21/04
My real name is S.J. Perelmann, Jr. Kenmeer Livermaile 08/22/04
More Labour etc. Arthur Bough 08/21/04
I am amazed that people still take the labour theory of valu... Vangel Vesovski 08/21/04
Labor Theory Of Value Finster 08/22/04
Not So Arthur Bough 08/23/04
It is you who have failed to grasp the fallacy of the LTV. ... Vangel Vesovski 08/23/04
You Have Just demonstrated your ignorance perfectly Arthur Bough 08/23/04
The LTV as expounded by Adam Smith, David, Ricardo, Benja... Vangel Vesovski 08/23/04
Saying Something is wrong does not prove it so. Arthur Bough 08/23/04
The Austrian School makes it's case - Part 1 JB 08/23/04
The Austrian School makes it's case - Part 2 JB 08/23/04
The Austrian School makes it's case - Part 3 JB 08/23/04
The Austrian School makes it's case - Part 3a JB 08/23/04
The Austrian School makes it's case - Part 3b JB 08/23/04
footnotes JB 08/23/04
Questions Arthur Bough 08/24/04
Follow the Yellow Brick road? JB 08/24/04
Very Revealing Arthur Bough 08/24/04
As Tommy Lee Jones once said: JB 08/24/04
NOW ADAM SMITH IS A SOCIALIST!!!! Arthur Bough 08/24/04
CASE DISMISSED - Part 1 Arthur Bough 08/25/04
CASE DISMISSED Part 2 Arthur Bough 08/25/04
CASE DISMISSED Part 3 Arthur Bough 08/25/04
CASE DISMISSED Part 4 Arthur Bough 08/25/04
CASE DISMISSED Part 5 Arthur Bough 08/25/04
CASE DISMISSED Part 6 Arthur Bough 08/25/04
My criticism stands and you have done little to refute it. ... Vangel Vesovski 08/24/04
This is correct Dan Browne 08/24/04
Question Arthur Bough 08/24/04
Arthur Bough & selling at a loss The Reaper ! 08/24/04
One of two possibilites Dan Browne 08/24/04
Dan Browne & the THIRD possibility The Reaper ! 08/24/04
Reaper Dan Browne 08/24/04
And Then Arthur Bough 08/24/04
You have it backwards Dan Browne 08/25/04
Haggle at McDonals Then Arthur Bough 08/25/04
Yes I have Dan Browne 08/25/04
Making a Complaint is not haggling Arthur Bough 08/26/04
What does this prove Arthur Dan Browne 08/26/04
Fair Point Arthur Bough 08/26/04
A smart entrepreneur does not sell his products at a loss fo... Vangel Vesovski 08/24/04
You are mainly right Dan Browne 08/25/04
You have conceded the point Arthur Bough 08/25/04
No he has not Dan Browne 08/25/04
Yes He Has Arthur Bough 08/26/04
Not bad Dan Browne 08/26/04
Only in the short run Arthur Bough 08/26/04
The LTV still does not work and nothing that you have said s... Vangel Vesovski 08/27/04
Consumers Don't But Producers Do Arthur Bough 08/28/04
A smart entrepreneur does not sell his products at a loss fo... Vangel Vesovski 08/24/04
Wrong Again Arthur Bough 08/24/04
Value Versus Cost Finster 08/24/04
Thank You For Agreeing with me Arthur Bough 08/25/04
Nuh-uh Dan Browne 08/25/04
Tell me What Costs Are Made Up of Then Arthur Bough 08/26/04
Interesting Dan Browne 08/26/04
You Are Still confusing Value and Price Arthur Bough 08/26/04
Well I have to say Dan Browne 08/26/04
You Are Still Missing the point Arthur Bough 08/27/04
More On Capital Equipment Arthur Bough 08/27/04
More On Capital Equipment Arthur Bough 08/27/04
What Value ? The Reaper ! 08/26/04
No the $2 Worker Arthur Bough 08/27/04
Arthur Bough & The $2 dollar bill The Reaper ! 08/27/04
Britian is in a worse position than the US Arthur Bough 08/28/04
"The simple answer is to encourage massive immigration of ch... Mark Grant 08/28/04
Duh Arthur Bough 08/28/04
You're missing it Dan Browne 08/24/04
I suggest you read Adam Smith Arthur Bough 08/24/04
"you underestimate my powers, Neoman" Kenmeer Livermaile 08/23/04
Invalid Logic, Arthur Finster 08/24/04
So Your conclusion then is that production is not necessary Arthur Bough 08/25/04
Fine Lines And Scientific Objectivity Finster 08/25/04
No It Shows exactly Why We Have Increased Production Arthur Bough 08/26/04
Labor, Capital, Cost & Value Finster 08/26/04
markets determine price.... cherokee 08/23/04
more or less Kenmeer Livermaile 08/22/04
Really Arthur Bough 08/23/04
Sorry, WRONG Dan Browne 08/24/04
Sorry, Not Wrong Arthur Bough 08/24/04
No sorry Dan Browne 08/24/04
More bull bullshit - Its All Good! Poofter 08/22/04
Breaking for intermission… Kenmeer Livermaile 08/24/04
Vangel's Criticism Finster 08/21/04
Failure to factor in the human value Lucius Foster 08/22/04
You really should read Afdam Smith Arthur Bough 08/23/04
the power is capital was destroyed... cherokee 08/23/04
Capital and Revenue Kirk 08/24/04
Read Adam Smith he deals with the points you make Arthur Bough 08/25/04
Further Clarification Arthur Bough 08/26/04
Hmmm. Dan Browne 08/24/04
Machines As Smith said Are Labour Arthur Bough 08/24/04
Ha Ha Ha Ha Ha Dan Browne 08/24/04
i'M GLAD YOU THINK ITS FUNNY. Arthur Bough 08/24/04
Excuse me? Dan Browne 08/25/04
What kind of argument is ha,ha, ha then? Arthur Bough 08/25/04
It isn't an argument, it's laughing. Dan Browne 08/25/04
Thank you for your clarification Arthur Bough 08/26/04
Now now Dan Browne 08/26/04
Long Dead Authors Arthur Bough 08/26/04
So does that make you a capitalist? Dan Browne 08/26/04
Right Dan Browne 08/24/04
You might as well say slaves were slave owners Arthur Bough 08/24/04
Can you think for yourself? Dan Browne 08/24/04
Irony upon irony Arthur Bough 08/25/04
Nevertheless Dan Browne 08/25/04
I look forward to your U-turn then Arthur Bough 08/26/04
You're getting pretty close yourself Dan Browne 08/26/04
I think that things are not as simple as most economists on ... Vangel Vesovski 08/27/04
Oil Frank Wighard 08/22/04
> inflation remains under control. If you happened to liv... anthonyedwarde 08/23/04
Airlines FAST FRED 08/24/04
I Agree Arthur Bough 08/24/04
"We deregulated many things in Britain" Such as? Name one... Mark Grant 08/24/04
Answer Arthur Bough 08/25/04
My husband works for a company that gives a 1c (one cent) in... b patton 08/25/04
Arguments horia 08/24/04
Oil is NOT a commodity ron resnick 08/25/04
What is a commodity Arthur Bough 08/26/04
any human mental construct is inherently (fatally) flawed Gerd Boettcher 08/26/04
A Simple Explanation Arthur Bough 08/28/04
Arthur Bough & The Fringe ! The Reaper ! 08/28/04
Reaper & Wealth Transfers Finster 08/28/04
Finster & Loan Sharking The Reaper ! 08/28/04
Poor And Ignorant Finster 08/28/04
Not That Simple Arthur Bough 08/30/04
Simple explanation Cont'd Arthur Bough 08/28/04

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Date: August 21, 2004 05:26 AM
Author: Arthur Bough
Subject: Part 1

Given the current increases in oil prices, I thought this was a good opportunity to demonstrate how value theory can be used. The Labour Theory of Value developed by the classical economists says the exchange value of a commodity is determined by the average amount of labour time required for its production. As most people nowadays are unfamiliar with the theory, or have been given a distorted version of it, let me briefly explain it.

For example, if on average it takes 10 hours to catch 100 fish by hand one hour's labour equals ten fish. If it takes 10 hours labour to mine 10 ounces of gold one hours labour also equals one ounce of gold and likewise, therefore, one ounce of gold equals ten fish. Assume now that the fishermen discover the idea of making fishing rods, but each fishing rod is only good for one day. If it takes 2 hours to produce a fishing rod, but the fishing rod now enables 200 fish to be caught then the cost of these fish in labour time is still ten hours 2 to make the rod, 8 to catch the fish, but the increased productivity of labour reduces the value of fish to 20 fish per hour of labour, or one ounce of gold. There is always an incentive to reduce the amount of time required to produce a given commodity. In the above example, the individual has more fish to consume or more leisure time to enjoy. Under capitalism, a firm, able to produce a good with less labour than the average, will be able to enjoy higher profits than others in the same sphere. In value theory, the rod is called constant capital because its value is simply transferred into the finished product (either as in this case 100% or in part, what in accounting would be called depreciation). Constant capital is divided into two parts one fixed capital like the rod, and secondly circulating capital i.e. raw materials used in the process of production. The labour used in production is referred to as variable capital because it is from labour that potential surplus arises. For example, suppose the fisherman needs 100 fish in order to survive, but is unable to physically work more than ten hours. He could never find time to spare to make a rod because he would need to be working all the time fishing to survive. If, however, he only needs 80 fish in order to live he has out of his 10 hour day 2 hours surplus labour. He could idle it away, or he can use that surplus time to invest and make a rod. Therefore, the value of his labour power is 8 hours (i.e. the value of labour power is the same as any other commodity the time required to produce it), but his labour power is capable of creating 10 hours worth of value, or a surplus value equal to 2 hours. With the aid of the rod things improve for him dramatically. Each day he spends 2 hours making his rod, 3.2 hours catching the eighty fish required for his survival, leaving him 4.8 hours of surplus labour time out of his 10 hour day in which to hunt, or develop new labour saving devices. This would be represented as follows.

C = 2 + V=3.2 + S=4.8 = 10 hours = 200 fish.

In the product of the 3.2 hours of necessary labour (V) .8 hours of depreciation of the rod are embodied. In the product of the 4.8 hours surplus labour 1.2 hours of depreciation of the rod are included. The necessary labour therefore embodies 4 hours in total 3.2 hours of living labour, and .8 hours of dead labour. This four hours produces 80 fish at 20 fish per hour. The surplus labour embodies six hours labour 4 .8 hours of living labour and 1.2 hours of dead labour = 6 hours = 120 fish = 20 fish per hour.

He could of course trade the 120 fish made in the 4.8 hours of surplus labour for six ounces of gold, and then trade this gold for other commodities. For example, if as a result of the division of labour a craftsmen arose who through specialisation in rod making could make a rod in 1 hour instead of two, it would be sensible to buy a rod and thereby reduce the amount of labour required to produce fish even further.

Having very roughly explained the basics of the theory let us turn to oil. In order to explain this I am using the most simplistic model to avoid unnecessary complications. Let us assume that the value of labour power is equal to £20 i.e. one hours labour produces £20 of gold. Let us further assume that the oil producer has no constant capital but uses only labour to produce the oil. He employs 10 men working a ten hour day. Each man works five hours to reproduce the value of his labour power and five hours surplus labour, which is appropriated by the capitalist as profit. So:

C0 + V50 +S50 = 100 hours = 1,000 barrels = £2 per barrel. The capitalist has a rate of profit of 100%. If we replace the hours with monetary values we have.

C0 +V1000 +S1000 = £2000

Now assume that all the oil is used by another capitalist making consumer goods. All the consumer goods are consumed by the workers and capitalists from the two spheres of production. There is no investment from profits.

This capitalist does have constant capital in the form only of the oil bought from the oil producer. He also employs 10 men working a ten hour day. Assuming the same rate of exploitation of labour each man works for 5 hours each day to replace the value of his labour, leaving 5 hours surplus labour to be appropriated by the capitalist. So.

C2000 + V1000 + S1000 = £4,000 = 1000 units = £4 per unit.

In hours this is C100 + V50 +S50 = 200.

This capitalist's rate of profit is , therefore, only 33.33%. But if this were the case then capital would automatically move to where it could make a higher rate of profit in this case the oil industry. This is the role of competition under capitalism – to equalise the rate of profit. Looked at from the point of view of the system as a whole each capitalist is only one part of a huge profit making machine, and receives a share of the total profit according to the amount of capital they put in. The way this is achieved is through the movement of relative prices. So to reduce oil profits and increase consumer goods profits till they are equal oil prices must fall, and consumer goods prices rise.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178387)


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Date: August 21, 2004 05:28 AM
Author: Arthur Bough
Subject: Part 2

But as consumer goods prices rise this means that workers can buy fewer goods, and if they were already receiving the minimum then in order to continue to do so wages must rise. Consequently, rates of profit are affected again. The whole process is one of continual adjustment. To arrive at an equilibrium position we have to perorm an iterative calculation. The end result is:

(All figures are rounded)

Oil Industry C0 + V1078.8354 + S605.8230 = 1684.658 Rate of profit 56.1553%

Consumer Goods C1684.658 + V1078.8354 + S1551.8477 = 4315.342 Rate of profit 56.1553%

The price of oil falls to £1.685 per barrel whereas the price of consumer goods rises to £4.315 per unit. Both sets of workers are able to consume 250 units as previously consuming all their wages, and similarly the profits of the capitalists are also fully consumed on the remaining consumer goods, but the consumer goods capitalist, having set a greater amount of capital in motion receives more profit and is able to enjoy more consumer goods from this profit.

Assume that wages are being paid at their value, and therefore, cannot fall (because to do so would mean labour was not reproduced). The workers in both spheres purchase 250 units in total or 25 units each.

Now suppose that oil requires double the labour for its production because of poorer quality fields having to be tapped. I am assuming that labour exists to meet this requirement. If it did not then less oil would be produced, less would be available for use in the consumer goods sector so less consumer goods would be produced and overall wealth would fall (NB. Wealth is not the amount of exchange value produced, but the amount of use values produced. We may think we are wealthier if our house price is £400,000 where it was once £200,000 but in fact we are poorer because with £400,000 we could previously have bought two of these houses). So in the oil sector we have,

C0 + V2000 +S2000 = £4000 = 1000 barrels = £4 per barrel.

If all else remains the same then in the consumer goods sector we have

C4000 + V1000 + S1000 = £6000 hours = 1000 units = £6 per unit.

But if wages are already at subsistence, then instead of the 25 units per worker needed, at this new price they will be insufficient. Consequently, wages must rise to compensate, or put another way a greater part of the total labour time must go towards meeting the needs of workers and a smaller proportion go to profits. Already, for the capitalist producing consumer goods the rate of profit has fallen to 1000/5000 = 20%, even before his profit is reduced by an increase in wages for his workers. There is, therefore, an incentive for capital to move from one sphere to the other until such time as the rate of profit is equalised once more. At the point where the rate of profit is equalised the same number of barrels of oil, and of consumer goods are produced as formerly.

This scenario demonstrates the importance of the different rates of productivity in different spheres of production. For example, if the labour required to produce the basic minimum wage (value of labour power) had doubled rather than oil then it would be impossible to produce profits because all the produce of the worker during the working day would only be sufficient to cover his wages. It was this that led the Physiocrats to wrongly come to the conclusion that all surplus value was created by agricultural labour because it was only the surplus created in agriculture which led workers to be freed to work in manufacture. As the fall in productivity is in oil and forms only a part of the cost of wage goods profits are still made but at a reduced rate.

The adjustment results in the following.

Oil Sector:

C0 + V3138.5934 + S584.2198 = £3722.813

Consumer Goods

C3722.8132 +V1569.2967 +S985.9768 = £6277.187

Rate of profit now falls to just 18.614%. The position of capitalists has worsened considerably because there are fewer consumer goods available for them to spend now not just as a result of the increase in their price leading to a necessary increase in wages and reduction in profits, but also because there are twice as many workers working in the oil industry also earning wages and buying consumer goods. The reduction in consumer goods available for the capitalists to buy is matched by the reduction in their profits available to buy them.

Suppose now that there has been no change in the amount of labour required for the production of a barrel of oil, but the price rises anyway as a result of speculation or short term fluctuations in supply and demand.

In the case of the oil capitalists their costs remain at 50 hours @ £20 equals £1000. If the oil price stands at £4 his revenue is equal to £4,000 on the 1000 barrels and gives a profit of £3,000 with a rate of profit of 300%. At the same time the cost of oil to the consumer goods capitalist rises to £4,000. If his wages as they must remain at £1,000 and his revenue at £6,000 then his profit will fall to £1,000 and a rate of profit of just 20%. There will be a clear incentive for capital to flow from this sphere into oil production. The consequent increase in oil supply will reduce its price back towards its exchange value, whilst reduced supply of consumer goods will increase their price causing a consequent short term rise in wages, and fall in profits. This process will continue until such time as profit rates are once more equalised.

That is a temporary imbalance of price from exchange value results in a divergence of profit rates which through competition is equalised as a result of changes in supply and relative prices, whereas an increase in price resulting from changes in the required amounts of labour, especially where this involves primary products which impact the costs (required labour time) of other products impacts relative prices and rates of profits themselves. In the latter case, without an increase in the rate of exploitation of labour itself prices must rise, and, therefore, wages must also rise whilst profits must fall. Hence the reason for wanting to maintain cheap oil, or the opposition amongst industrialists in the 19th century to the Corn Laws. In the former case relative prices change until readjustment occurs. There is no long term effect on either wages or profits.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178388)


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Date: August 21, 2004 05:29 AM
Author: Arthur Bough
Subject: Part 3

The assumption that the oil passes wholly into consumption is not unrealistic. Even if there were another sphere of production involved in capital goods manufacture which consumed some of the oil the output of this sector i.e. machines would be used in the other sectors. The labour time contained in the oil used by this sector would become part of the constant capital of this sector, and would pass through into the value of its output, and from there into the output of the other two sectors. The assumption that the oil producer uses no constant capital is not realistic, but its inclusion would not invalidate the thesis only make calculation and illustration more complex.

The long term effect of the current rise in the price of oil will, therefore, depend upon whether this is due to a real and significant increase in the amount of labour required to produce a barrel of oil, or whether it is just a short term imbalance of supply and demand, or speculation

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178389)


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Date: August 21, 2004 11:13 AM
Author: Vangel Vesovski
Subject: No wonder you lefties get everything wrong...

We live in a non-linear world. Using linear equations to explain how it works does not work very well. Please try again.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178479)


























































































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Date: August 21, 2004 05:17 PM
Author: Finster
Subject: Vangel's Criticism

Another way to express the objection Vangel raises (Vangel, please set me straight if I misinterpret), is that these equations fail to take into account human nature. They do not address motivation. The question of why the investment necessary to produce the oil gets made.

Moreover, they also fail to take into account the big picture issue of the fact that we simply do not want to labor all of our lives. When we are very young and very old, we can only consume. To do be able to retire, for example, the laborer accumulates capital. One of the fundamental misapprehensions of the Marxists is that labor and capital are two separate classes of people, but the capitalist system solves the problem elegantly, by making them the same.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178638)



























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Date: August 22, 2004 12:31 PM
Author: Frank Wighard
Subject: Oil

One thing looks certain - Oil producers will keep adjusting price to keep world markets from switching to alturnitive fuels until the cheap to recover oil is all gone. Some time next year the world will produce less oil than what is needed as supplies dwindel. That starts a new pricing process called "shortage" and supplies will then go to the highest bidders. Wake up and smell the coffee - It's time to dump all the beliefs of past relationships and formulas. Desparation will set in and the poor will simply go without. Dont forget, There is a way to change Coal into gas and oil - We will build a lot more nuke plants, solar, wind and water power generation to fill the gaps - Nat Gas and Hydrogen fuel cells are a coming fast, but the transition will not be smooth. $150.00 a barrel oil will start it rolling fast. Electric powered cars will come on line but there is still all that gasoliene that is good for nothing else but burning. If cars did not burn it the oil companies would have to just to get rid of it. The US is the Saudi Aribia of COAL. There are many long term thinkers who believe the US. should use up all the cheap oil in the world first. After all it does help their economies by giving them reserves in US Dollars to expand their own economies.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=178892)








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Date: August 24, 2004 08:54 PM
Author: horia
Subject: Arguments

The trouble about arguments is they ain't nothing but theories, after all, and theories don't prove nothing, they only give you a place to rest on a spell when you are tuckered out butting around and around trying to find out something there ain't no way to find out.

Mark Twain

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179704)


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Date: August 25, 2004 03:01 PM
Author: ron resnick
Subject: Oil is NOT a commodity

From Jay Hanson [www.dieoff.org]

Neoclassical economic theory teaches that we will never "run out" of a commodity. This is because as prices increase, we will use less-and-less of it, but there will always be some available at some finite price. Practically every economics textbook teaches this, but every economics textbook is wrong because "energy" is fundamentally different from every other commodity.

There is no substitute for energy. Energy is the prerequisite for all other commodities, so if we "run out" of energy, we will "run out" of everything else too.

By definition, energy "sources" must produce more energy than they consume, otherwise they are called "sinks". By definition, energy sources have "run out" when they consume more energy than they produce. This universal energy law holds no matter how high the money price of energy goes.

Economists are blind to the unique properties of energy because economic methodology is inherently defective. Economists first abstract all commodities to money -- which of course, obliterates all qualitative differences between the commodities themselves -- and leaves economists uniquely unqualified to know the relationships between the commodities they purport to study.

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=179925)



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Date: August 26, 2004 09:42 PM
Author: Gerd Boettcher
Subject: any human mental construct is inherently (fatally) flawed

on top of that, nobody, and I mean -nobody- understands or lives by the artificial rules created by other human beings

we have Capitalism, supposedly, and we DON'T have capitalism, all at the same time. And in the same place, the good old USA.

We have nothing we agree upon, and then the government lies about the details

I call all of this: "on - the - way - down - ivy - league thinking",

OTWDILT for short

BIASYDEGAHWIT but I am sure you don't even give a hoooot what I think

JHF just having fun

(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=180374)


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Date: August 28, 2004 10:33 AM
Author: Arthur Bough
Subject: A Simple Explanation

Imagine the most basic economy. There is a capitalist and a worker. The worker produces a commodity that provides everything he needs to sustain him lets call it L for life. The worker requires 100 of these units in a week in order to stay alive. The capitalist advances £100 to the worker to produce L. In a week the worker produces 100 units of L.

At the end of the week the capitalist brings the 100 units of L to market wanting to sell them all for as much profit as he can.

The worker comes forward with his £100 to buy the 100 units of L he needs for his survival. At first the capitalist wants to charge more than £100 for these 100 units because only in that way can he make a profit. But being a wise capitalist he knows he must pay the worker enough to buy the 100 units of L the worker needs to survive or else the worker will die and will not be able to do any work for the capitalist in future.

Consequently, the capitalist sell the 100 units of L to the worker for £100. The capitalist can make no profit no matter how he tries to make one appear magically from this exchange of money (wages) for labour, and commodity for money.

However, consider that instead of requiring 100 units of L to survive the worker only needs 50. Now the situation is different. The capitalist still has 100 units to sell, and the worker still has £100 of wages to spend, but now knowing the worker only needs 50 units in order to live and be able to work for him the following week the capitalist sell these 50 necessary units to the worker for the £100 he previously advanced him in wages.

It appears that this exchange has created a profit for the capitalist because he has sold 50 units for £100, and still has 50 units left which he can consume himself. But this is only apparently what has happened because the reality is that the worker has produced goods valued at £200 (£100 worth he has bought leaving another £100 worth in the hands of the capitalist) but has only been paid half the value he has created in wages.

Such is the simple explanation for the source of profit as being created in production rather than in exchange which can only every redistribute the profit created in production.

This simple truth that profit is created by workers being paid less than the value of the goods they produce recognised by all the classical economists is denied by neo classical economists, but leaves them unable to explain where profit comes from. The reason they deny it has nothing to do with economics and everything to do with politics.

Adam Smith and David Ricardo had no problem advocating this demonstrable proof because they had no concern about defending the right of the capitalist to make a profit by exploiting the labour of workers. The neo classical economists, however, didn't want to recognise the existence of exploitation of labour because to do so might invite workers to try to end that exploitation.

For Smith and Ricardo it was quite reasonable for a capitalist who advances his capital to expect to make a profit on it. And were I a capitalist I would agree with them. Why should I put forward my capital unless I'm going to get something for it. But this justification for profit has been turned on its head by the neo classical economists. Instead of as Smith did explaining where profit comes from and then justifying it the neo classical economists take the justification and turn the justification into an explanation of its source which it can never be - it has to be created before it can be justified.

In the course of this justification the neo classical economists came up with all kinds of spurious and unneccessary arguments. For example, some argued that it was the return to a special kind of labour (entrepeneurship) by the capitalist but that would be paid as higher wages not profit, some argued that it was a reward for saving rather than consuming (but if I save by putting my money in awhole in the ground it creates no profit), others argued it was a reward for risk, but all of us take risks of one kind or another every day (indeed the biggest risk in an enterprise is that of the worker who risks losing his job with no capitakl to fall back on)none of those risks create profit.

The simple justification for profit is that the capitalist owns capital and he has no reason to use it unless it returns a profit to him/her. But of course this begs another question. What enables the capitalist to enforce this situation, what gave them this fortunate position in the first instance.

In many ways its similar to past societies. The slave owner had the ability to make a "profit" from the labour of the slave for the very obvious reason he had turned the slave into a slave i.e. brute force. The landlords had the good fortune to be able to either find a piece of land that no one else appeared to have staked a claim on and prevent others from using it by use of force to maintain their monopoly on that land, or more often by using force to steal land from others again by use of force.

Before long the majority of land was held in a very small number of hands i.e. a monopoly usually of the King, and a number of his thieving, murderous relations and hangers on. It was these same thieving, murderous villains that one of the Libertarians heroes Tocqueville defended. The monopolisation of land ownership allowed landolords to extract payment from the rest of society both in terms of rent for use of land which actually had no cost, and the use of which should have been free anyway, and in taxes etc. because of a load of religious myths and claptrap that told people they should contribute to the extravagant lifestyles of their betters and religious scoundrels.

A similar thing happened with the accumulation of capital. Capital began to be accumulated first in the hands of merchants during the Middle Ages. The accumulation took place in a similar manner to the way the landlords accumulated land i.e. piracy, brigandage, and later a very lucrative source for merchants to accumulate capital was through the slave trade. By the time capitalism proper comes into existence ownership of capital is once again in the hands of a very few people who are able to use their monopoly position to demand payment for use of this capital from those who have been deprived of their means of subsistence as a result of having their land confiscated (in the case of large sections of the peasantry), and of common land being stolen in the case of landless labourers.

In other words the ability to demand profit, like the ability to demand rent, or the ability to extract labour froma slave derives solely from the fact that a very few people have a monopolistic control over it.

As with all monopolies that doesn't mean that others can't get their snouts in the trough. I did for one. I was in the fortunate position of having had a decent education (eventually) and had a good enough income to save a small amount was able to start my own business. But their is a very great difference between people like me who survive on the fringes of capitalism, and the real owners of capitalist wealth. The number of people who go from having nothing to becoming extremely wealthy are insignificant in statistical terms. Indeed the numbers of the most rich and therefore, most powerful capitalists are getting smaller, their position more monopolistic not less. In Britain you are not considered rich unless you have at least £10 million, which shows how ridiculous the governments recent suggestion of taxing through Inheritance Tax people with an estate of more than £800,000 are.

Recently, I was in Monte Carlo. The day before I'd been in St. Tropez admiring some of the yachts there and was talking to one of their owners. The yachts in St. Tropez I thought were very lavish until I got to Monte Carlo where the boats made those in St. Tropez look like cabin cruisers. One boat

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Date: August 28, 2004 10:42 AM
Author: Arthur Bough
Subject: Simple explanation Cont'd

Recently, I was in Monte Carlo. The day before I'd been in St. Tropez admiring some of the yachts there and was talking to one of their owners. The yachts in St. Tropez I thought were very lavish until I got to Monte Carlo where the boats made those in St. Tropez look like cabin cruisers. One boat "The Lady Maura" had a helicopeter pad on top of it. It costs £200 million, and had a crew of over 60. I reflected that a lottery winner at the height of its popularity in Britain would have won what was considered the ludicrous sum of £20 million. Enough to buy a tenth of the boat.

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