As a sordid, non-intellectual example, anyone can consume, for a few dollars or euros, the temporal, if illicit, pleasures of a common prostitute for a couple of hours in just about any part of the world today. However, because of his higher level of income, the ex-Governor of the Empire State infamously paid a few thousand dollars for the equivalent pleasures provided by a higher quality, and much more productive in terms of man-hours, courtesan. The total difference in physical resources consumed in each case is insignificant and has little relationship to the difference in price, but the wealthy man's sexual preferences can be just as satisfied by his higher quality adventure as the common man's preference for cheaper flesh.
As the income of the rich rise, so can their preference for the time of more productive servants, without consuming any more physical resources. I fear there that there is not a systemic contradiction to exploitation -- it can go on forever.
The total difference in physical resources consumed in each case is insignificant and has little relationship to the difference in price
This is an interesting departure from conventional consumer choice theory. You argue, producers bear no costs; therefore, ceteris paribus, buyer 'wealth' determines amount of premium demanded per unit 'output'? Diversity is the key to economic and political evolution.
Another problem is the difference in buying power between then and now. A loaf of bread was available at about one pence, a standard "fair price" according to a concept left over from the middle ages. With a change in the price of raw materials, the price didn't rise or fall as it would today; the size of the loaf changed.
and a Qualification 2, i.e.
In 1776 only 22% of the American population participated in the monetary economy, but that number had reached 66% by 2000. ... The numbers 22% and 66% refer to the number of people who work for money, not the number, obivously, that participate in the monetary economy.
making the marginal utility of money a somewhat problematic basis of comparing preference. Diversity is the key to economic and political evolution.
You would measure productivity, in terms of service, by the number of people a service worker can serve. But it is entirely possible to measure it in the quality of service provided too. But since quality is a largely subjective concept, how do you really know what part of income increases are due to quality improvements and what part are due to productivity improvements in the non-service part of the economy?
You can probably find a few professions where it is not easy to define the "output," and therefore is not easy to define "productivity." But they are not going to form a major component of any sustainable economic structure.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Shouldn't you discount the time value of money, and perhaps also normalize by the number of people alive today? -- $E(X_t|F_s) = X_s,\quad t > s$
But I think they HAVE become more productive because they earn more real income today than they did before with the same amount of their lives exchanged.
That does not make them more productive. That makes them better paid. Productivity and remuneration are not causally connected outside certain economic fantasy worlds.
How you want to count higher quality products in terms of productivity is less trivial, though.
Surely the only way that the highly paid escort would be more productive, is if she had more customers, charging £10 rather than £5 for the same service has little or nothing to do with productivity as far as I can see. Any idiot can face a crisis - it's day to day living that wears you out.
There is, however, a part of the increased income earned by service workers that is not based on their increase in productivity through quality improvements, but rather through the increased income of workers who make things through their own productivity increases. That is distinct, however, from getting paid for better quality work although it is almost impossible to distinguish the two if trying to observe it.
Value added is different.
Human capital is an unobservable characteristic representing something foregone in the present in expectation of a return later.
Aha. "Something foregone in the present in expectation of a return later": Opportunity cost is an event that has not occurred, ergo unobservable; and the universe of alternative transactions of equivalent value to the transaction which has occurred are innumerable.
Profit is an event that occurs and is measurable; it is the mathematical difference between transaction price and total production cost. Explanations of value-added calculation are legion, like satan, precisely because "profit" is an expression of human preference and ignorance.
"Human capital" is one means, skills and abilities, in particular or combination. One's means are observable in everything one does and in comparison to the performance of another. So, no, human capital is not unobservable. Ubiquitous though the phrase is today, I would argue, the urge to objectify idiosyncratic traits is antisocial behavior, predicated by intense competition among people for a limited number of wage labor opportunities. But the greater difficulty for capitalists is assigning a monetary value to an activity per se --sex, for example-- that is easily replicated and transferable between people.
Value added is merely the present additional production attached to a commodity for the purpose of sale.
No. "Value-added" is an expression of "quality" --which is a characteristic of the perceived value of every good and service available for sale. I thought you had recognized that microeconomic SAW in your comments above.
education, networking, beauty enhancement, physical training, milk baths, whatever
Your hypothetical value chain (in your words, "quality improvements" or CapEx capital improvements "capital investments) of prostitution is an apt expression of cost structure underlying a fee-for-service business model. You just refuse to demonstrate productivity as a function of profitability. To do that, you'd have to postulate cost of a prostitute's capital apart from "physical" characteristics and rudimentary skill.
"Present additional production" is a peculiar turn of phrase. I take it to represent either surplus inventory or excess capacity (unrealized inventory), an estimate of which purportedly discounts "fair market" valuation of quantity available for sale at a given point in time ("attached to a commodity for the purpose of sale"). One cannot deduce from aggregate data nor is such expectation of market behavior given as a rule of theoretical economics.
See, surplus is a macroeconomic bug bear. It's the recurring terror of price equilibrium and "efficiency" that disproves the so-called Law of Supply and Demand, where price (P) ∩ Q = S ∩ D = R = P x Q, the invidious value assumption is P = C, a nonprofit condition that no self-respecting capitalist will either pursue or tolerate.
Profit (p) is of course surplus value component of P at every point on the supply chain (S) that guarantees p > R - C prevails, irrespective of Q. If p = 0, P = C. If p < 0, R < C -- price paid for production inputs is unrecoverable. As many have noticed recently, producers will continue operating anyway.
The epic intellectual failure to reconcile reality and symbol has given rise to exercises such as decomposition, econometric computing, and behavioral economic modeling to construct some multivariate expresion of D or "what the market will bear" in terms of preference, incentive, skill, knowledge, --asymetric and perishable information, etc) to justify stochastic output volume (sometimes price, sometimes unit "level").
Productivity measures profit, or profitability, which is the objective of a capitalist enterprise. Q is not the object of the productivity evaluation, it's one term of the production function which is to generate profit.
Total annual value-added, for example, is another term for GDP,
GDP is price of all transactions --total revenue (R). Profit (synonyms are "mark-up" or "opportunity cost" or "interest" or "premium" or "risk"), and cumulative costs, including but not limited to cumulative cost of money are components of total revenue. Last I heard. C, I, G are fundamentally the same activity, transaction. X-M is a gross approximation of Inflation (money supply in circulation), a rate describing net present value of so-called national current account cash flow. I guess.
while human capital, like all capital,
Human capital engrosses classes of labor attributable to homo sapiens. The other class of labor is mechanical, a/k/a "plant and equipment," or real capital including "energy". At firm level, "value-added" and "quality" are yoked to price and brand differentiation among competitors within an industry sector selling similar commodities, substitutes. See wiki primer.
labor, and land are not part of any income accounting
Absolutely incorrect. Firstly, cost of labor (salary and wages, or "general administration") is a component of OPERATING COST in every P&L statement. In so-called knowledge-intensive sectors, employee compensation approximates employee "capital" expropriated for exclusive employer use and resale. That is mark-up fee-for-service or premium "attached to" stock produced.
Second, P&E (plant and equipment) is a component of ASSETS in every Balance Sheet statement. GAAP requires DEPRECIATION, AMORTIZATION applicable to such assets be reported in the P&L statement. More interesting is GAAP recognition and reporting of GOODWILL, an entirely intangible asset valuation attributed to profit (loss) and premium paid on transaction and, ultimately, to cumulative "human capital" of the ongoing concern. Further, some companies have developed elaborate "intellectual asset management" accounting techniques to quantify, cultivate, and appropriate "know-how" of internal business activities.
because they are not really commodities until they, or part of them, are actually exchanged for something.
You're grasping.
And I gotta go to soccer. Diversity is the key to economic and political evolution.
value added is only equal to human capital if all of the expenditures and efforts by the person to increase personal income-producing productivity is captured within the same time frame, say her life. But if you take any shorter time frame, value added is just that additional amount she gains during that period due to a capital improvement to her productivity. It isn't the same as human capital -- it's much less. That is because an expenditure of lost opportunity in a previous period can continue to provide benefits for many future periods.
But you're getting way off the point. The issue is that it is possible for people to increase their incomes and enjoyments without expending more physical resources and energy, so applying a physical limits framework, as some here are doing, is problematic.
"opportunity cost" isn't even in the index of my last edition of palapu, healy & bernard Business Analysis & Valuation. i checked. what does obtain extensive reference in that text is "cost of capital." i must return to that financial metric momentarily, and very briefly, to note this: i found definitions in an ancient economic and cost accounting textbooks. * the lost benefit that the best alternative course of action would provide. * the amount of other products which must be foregone or sacrificed to produce a unit of a product. these two distinct definitions are similar in that they specify a transaction that has not occurred. "opportunity cost" is any hypothetical statement, a rhetorical device, employed for the purpose of comparing two or more values such as "lost benefit" and "a unit" quantity. as we see, these values need not even be temporally related to a transaction event in order to posit what is essentially an ethical question. for example, a reduction in funding a federal project is frequently described as "savings" over a period projected 5, 10, 40 years in the future in order to justify the "lost benefit" of the expenditure itself, i.e. cost avoidance. as you know, in practice, the peculiar meaning of "opportunity cost" to the financial industry and institutional bank economy is expressed as the "cost of capital" specifically the value of currency and the premium paid to acquire a unit or increase the value of a unit. the premium paid, commonly understood as "interest," is a component metric of transaction costs as well as expected profit to lend (or to rent) money for a specified period for a specific project (opportunity) relative to other projects.
* the lost benefit that the best alternative course of action would provide. * the amount of other products which must be foregone or sacrificed to produce a unit of a product.
these two distinct definitions are similar in that they specify a transaction that has not occurred. "opportunity cost" is any hypothetical statement, a rhetorical device, employed for the purpose of comparing two or more values such as "lost benefit" and "a unit" quantity. as we see, these values need not even be temporally related to a transaction event in order to posit what is essentially an ethical question. for example, a reduction in funding a federal project is frequently described as "savings" over a period projected 5, 10, 40 years in the future in order to justify the "lost benefit" of the expenditure itself, i.e. cost avoidance.
as you know, in practice, the peculiar meaning of "opportunity cost" to the financial industry and institutional bank economy is expressed as the "cost of capital" specifically the value of currency and the premium paid to acquire a unit or increase the value of a unit. the premium paid, commonly understood as "interest," is a component metric of transaction costs as well as expected profit to lend (or to rent) money for a specified period for a specific project (opportunity) relative to other projects.
