Sunday, February 12, 2012

Guest Post: Economics

Teaching Economics
Samuel L Skogstad

It is with some trepidation that I dare to enter the sublime ambiance he creates to a technical economic theory level. From the sublime to the ridiculous, perhaps. Anyway, here it is. I have long thought that those of who ostensibly have spent a career ‘teaching’ economics haven't done a very good job. If we had, could the words ‘capital, capitalism and profit’ be so broadly perceived as descriptions of avarice and lack of social conscience?...... Most of your readers have had enough economic study to remember that the goods and services we consume are produced by way of cooperation of the three (sometimes called 4) factors of production—Land, Labor and Capital (sometimes ‘entrepreneurship’). And this is true everywhere and at all times, in communist China, communist Soviet Union, Fascist Italy, democratic USA and left-liberal Scandinavia. So if something (or something additional) is produced, these factors of production in almost every case have all played a role, and in every single case one or more of them has played a role…… And where does ‘capital’ come from?  Broadly, there is only one way to form ‘capital.’ That is, some of what is produced has to be held out of consumption—i.e. has to NOT be used all up in the same period (year, let's say). And that act of NOT CONSUMING is what economists call SAVING…… So that is where capital comes from—saving something out of current income. Well, then where does ‘current income’ come from? It comes from wages and salaries earned by Labor, ‘Rental’ Income earned by the owners of land, and the excess of business revenue over the payments for inputs if any. This excess is named ‘profit.’ And if a productive business is to grow, it has to have profit to pay for more land, labor and capital.……‘Capitalism,’ then is the economic sub-system of a political system that allows people to keep a portion of their earned income, and to divide that between consumption and savings……. How is it that we economists can have failed so dismally that we have a very large proportion of our population (including, possibly, our president) has absolutely no grasp of these simple relations, and instead accepts uncritically, the notion that ‘Profit’ and ‘Capital’ are symbols that mean that labor has somehow been cheated out of their goods and services, which have, unfairly, been given to others???  I wish I knew the answer, but even if I did, I don't have the combination of skill, time and space to present it here.”


  1. My guess is that the President fully understands, but the truth does not fit into his agenda. Free enterprise and capitalism have no place in a socialist/communist system of controls.

  2. A reasonable comment. HOWEVER, if Obama understands the "produce-use up some-save some-build productive capacity-produce more" relationship, it is only because Larry Summers and his other Keynesian economists have taught him the Depression Economics of Keynes; i.e. "produce-use up some-save some-fail to build productive capacity-produce less-experience unemployment-REQUIRE GOVERNMENT DEFICIT SPENDING TO COMPENSATE FOR THE SAVING" relationship. That argument says saving is good in the long run, bad in the short run. (Is this sensible if the "long run" is nothing but a series of short runs?) It also ignores the possibility of taxpayers being rational. That is, it ignores the possibility (near certainty, in my view) that taxpayers at some point become aware that "government debt" is actually taxpayers' debt, and mentally put it down on their balance sheets as a liability, for which they have to save more, pay more taxes or both. A smaller portion of saving, therefore, goes to form productive capacity, and a larger share to service "government" debt. As to whether Obama actually understands any of this, I don't know. Believing that he does flatters his intellect and besmirches his character. Believing that he doesn't understand it besmirches both. Regards, Sam